taxgirl

Ask the taxgirl: Making Work Pay Credit (once more with feeling)

Kelly — Tue, 16 Mar 2010 02:10:33 +0000

Taxpayer asks:

Hello,

I appreciate reading your comments about this topic and hope that you can tolerate one more.

First, do I understand it correctly that married couple filing jointly can claim $800, even if only one of them earned an income?

Second, I’ve never heard about this credit so I went to the IRS site which says

http://www.irs.gov/newsroom/article/0,,id=205922,00.html

“For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes to be made in early spring 2009. ”

So, yes, one of us was a salaried employee for part of the year and withholding were reduced. Can we still claim the full credit, or do we need to reduce it by the decrease in withholding?

Thank you,

Taxgirl says:

Yes, a married couple is entitled to the entire credit even if only one taxpayer worked. The credit is based on filing status. It may be reduced if one or more of you received the Economic Recovery Payment during the year. See the instructions on Schedule M for more information (will download as a pdf).

The adjusted withholding doesn’t affect the amount of your credit – it was just an attempt to get more money in your pocket during the year. You can read more about withholding and the Making Work Pay Credit here.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Have a question? Ask the taxgirl! – Now on Facebook at http://www.facebook.com/taxgirlSimilar Posts:

Tax Software Scavenger Hunt

Kelly — Mon, 15 Mar 2010 03:55:26 +0000

Looking for some free tax software? Taxgirl has you covered.

To win, play along in our Tax Software Scavenger Hunt! It’s easy.

The good folks at TurboTax have donated a few more versions of TurboTax Premier (online version) as a giveaway. Beginning tomorrow, I’ll post a question on Twitter about a piece that I’ve recently posted on taxgirl.com. The first person to post the URL that answers the question @ me on Twitter wins free tax software.

Here’s a quick example:

On Twitter, I might ask: What other blog covered the Soda Tax recently? #taxscavenger
You’d tweet (via Twitter): @taxgirl http://www.taxgirl.com/the-onion-coverage-of-the-soda-tax/

Easy, right? You just have to be the first to answer correctly to win – and you MUST @taxgirl so that I’ll be sure to see it. If you need help using Twitter, send me a quick note or leave a comment below and we’ll see if we can get you fixed up. You can find me on Twitter at http://www.twitter.com/taxgirl.

If you know how to use hashtags, look for #taxscavenger. If you don’t know how to use hashtags, don’t worry, it’s not necessary. You can still play along.

Oh, one more thing: US residents only, please.

Got it? Good! Let’s play!Similar Posts:

Who Should Pay Taxes?

Kelly — Mon, 15 Mar 2010 02:53:52 +0000

On Friday, I posted that the Tax Foundation reported that, in 2008, nearly one in three taxpayers paid no taxes or received every dollar back which was withheld. It’s the highest percentage of nonpayers ever. Think about that for a second. It’s pretty scary.

For 2008, those numbers mean that there were about 51.6 million filers who had no income tax obligation at all. For the sake of comparison, that same year, the Census estimated that there were 112,362,848 households in the US.

There are a mish-mosh of reasons that have gotten us to this point but chief among them: Congress and the President use the Tax Code as the architect for most of their social welfare programs. Politicians have long figured out that voters don’t like paying taxes. But in recent years, they’ve also figured out that they can manipulate the Tax Code to dole out tax breaks to drive policy. Want people to buy new cars? Give them an extra tax deduction. Want people to buy new houses? Give them an extra tax credit. Want people to buy environmentally friendly products? Give them an extra tax credit.

All of these extras add up. And they’ve been adding up quickly over the past ten years. Since 2000, the number of non-payers has increased by 59% (check out this cool graphic) even though the number of filers has only increased by 10%.

When you see the numbers, you may think that all of these non-payers are lower class filers, grabbing up EITC and other traditional “welfare” breaks. But not so. The EITC cost taxpayers $42.9 billion in 2008. A pretty nice chunk of change. But not so much as to completely outshine other tax breaks targeted to middle and upper class taxpayers. The new housing tax credit? It costs taxpayers one billion dollars per month. And the mortgage interest deduction and real estate tax deductions? Those home-buyer incentives “save” taxpayers an astonishing $130 billion per year.

In other words, in today’s economy, tax breaks aren’t just for lower income filers. Middle class (and in some cases, upper class taxpayers) benefit, too. In fact, in 2008, a “normal” married couple with two children could earn up to $56,715 and pay no taxes.

But at what cost?

Government spending is going up, not down. The deficit is increasing. The need for tax revenue is not going away: it’s merely shifting. Fewer than two-thirds of filers pay taxes. That can only last so long. No wonder that taxpayers are calling for a “revolution” along the lines of a Tea Party – or a Coffee Party.

Taxpayers are angry. I’m just not sure that most taxpayers know what it is that they really want (myself included). Clearly, taxpayers want to pay fewer taxes. But realistically, in today’s economy, that can’t happen: we’re paying for a war, we’re talking about funding universal health care and we’re in the midst of a recession with a record number of unemployed. If a shrinking percentage of taxpayers pays fewer taxes, how do the bills get paid? And if we put the kibosh on existing tax breaks, those taxpayers who are paying now will pay even more.

Let’s face it: we like our tax breaks. And Congress and the President have figured out that we’ll vote for whoever promises us the most breaks (even in cases, like the federal estate tax, when they might not even affect us directly). Around this time each year, we all say we want to pay less – but a striking number of taxpayers already do. So I guess the question is: who should pay taxes?Similar Posts:

“The Onion” Coverage of the Soda Tax

Kelly — Sun, 14 Mar 2010 21:30:08 +0000

It turns out that more states and localities are considering a soda tax to ~~raise money~~ fight obesity. For a laugh, check out The Onion’s coverage. Similar Posts:

2008 is a Record-Breaking Tax Year

Kelly — Fri, 12 Mar 2010 17:00:30 +0000

But not necessarily in a good way. The Tax Foundation is reporting that two records were set in 2008: the highest numbers of non-payers and the highest earning non-payers. According to data recently released from IRS, nearly one in three taxpayers paid no taxes or received every dollar back which was withheld. And before you start screaming about the poor not paying their fair share, note that the income level at which a typical family of four will owe no income taxes now exceeds $51,000.

Let that sink in for a minute. I’ll post some thoughts later this afternoon about how I think that will affect the nation’s tax picture going forward.Similar Posts:

Congress Considers Jobs & Tax Bill (Again)

Kelly — Fri, 12 Mar 2010 13:17:20 +0000

Watching Congress do anything this year is kind of like being forced to sit through “Waterworld”… You thought you knew what you were in for but at some point it’s just tiresome and long and halfway through, you have no idea what’s really going on. Although, for the sake of clarification, I am in no way comparing Sen. Harry Reid (D-NV) to Kevin Costner (you figure out who benefits in that one).

And here’s what I mean. The Senate was back to consider tax breaks and unemployment benefits – again. You may recall that hasn’t gone very well to date: unemployment benefits were noticeably absent in the efforts to pass a jobs bill. The specific bill under consideration was actually HR 4213, which had been introduced by Rep. Charles Rangel (D-NY) in the House last year; that version passed the next day, on December 10, 2009. The bill then went to the Senate Committee on Finance where it finally went to the Senate for a vote. And then the amendments began. I actually started to count them but got a headache and stopped (I know, sounds weak, but I have a terrible cold – that’s my excuse and I’m sticking to it). You can see a list of what happened to the bill here.

Finally, on Wednesday, the Senate approved a kitchen sink’s worth of measures, while leaving out any real mention of job creation (one of the most controversial features of the bill). Here’s what the Senate version of the bill, as passed, would do:

The bill would extend through the end of the year provisions that were expiring that would offer as many as 99 weeks of unemployment checks. State benefits last for 26 weeks – after that, those who are unemployed can apply for benefits from the feds for up to 73 weeks.
The bill also extended the 65% federal subsidy for COBRA health insurance through the end of the year.
The measure would also extend a number of expiring tax provisions. Those include education expenses for teachers; energy efficient tax credits; sales tax deductions; and research and development credit for businesses (Microsoft was pushing for this one).

The cost of the bill? About $140-150 billion – the price tag doesn’t include any version of the House’s $154 billion job creation bill. Between the expenses and the bickering, don’t expect it to pass “as is” in the House.Similar Posts:

Ask the taxgirl: Energy Efficient Appliances

Kelly — Wed, 10 Mar 2010 20:59:01 +0000

Taxpayer asks:

Can you get money back for purchasing a washer and dryer in 2009 that has the energy star on it. Thanks for the info!!!!

Taxgirl says:

Unfortunately, no. What you’re probably thinking about are Home Energy Efficiency Improvement Tax Credits. Those credits were for the installation of specific products like energy-efficient windows, insulation, doors, roofs, and heating and cooling equipment for an existing residence (new homes don’t qualify). “Regular” appliances, even if they’re energy-efficient don’t apply. Trust me, I wish they did as those in my kitchen apparently had a recent suicide pact. You can find out more about how those HEEIT credits work at this prior post.

That said, in 2010, you might qualify for an energy efficient appliance rebate – these vary from state to state. My state of Pennsylvania wouldn’t cover a new refrigerator but Montana will; check out this map to see what your state covers.

Have a question? Ask the taxgirl! – Now on Facebook at http://www.facebook.com/taxgirlSimilar Posts:

Ask the taxgirl: Are Economic Recovery Payments Taxable?

Kelly — Wed, 10 Mar 2010 19:53:46 +0000

Taxpayer asks:

Hi Tax Girl.

I on social security and am using Turbotax to file my taxes. I have not as yet found out where to put the $500 received by my wife and myself from the federal government in June of 2009. Is this taxed?

Taxgirl says:

It sounds like you’re talking about the Economic Recovery Payment(ERP). You and your wife apparently each received a one time $250 payment from SSA as part of the stimulus package.

That $250 is not taxable and need not be reported unless (and this is a big unless) you are also working and wish to claim the Making Work Pay Credit. In that case, you’d have to reduce the Making Work Pay Credit by any ERP amounts received – you’d do that on a Schedule M.

But if you’re not attempting to claim the Making Work Pay Credit, then you don’t need to claim the payment on your return.

In either event, it’s not taxable.

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Pennsylvania Plans Tax Amnesty Program

Kelly — Wed, 10 Mar 2010 03:22:07 +0000

Hot on the heels of the success of New Jersey’s tax amnesty program, Pennsylvania has decided to give it a whirl.

The amnesty program will kick off April 26 and run 54 days, ending on June 10, 2010. During that time, taxpayers have the opportunity to come clean and pay up. In return, all penalties and half the interest will be waived for businesses and people who pay up. This is a little bit different from Pennsylvania’s last stab at amnesty, fourteen years ago, when penalties were waived but interest was payable in full.

The program is bigger than individual income tax. It also includes: Agriculture Cooperative Tax; Bank and Trust Company Shares Tax; Capital Stock or Foreign Franchise Tax; Cigarette Tax; Corporate Net Income Tax; Electric Cooperative Tax; Employer Withholding Tax; Fuel Use Tax, except taxes, interest and penalties collected under the International Fuel Tax Agreement owed to other states or provinces are not eligible for the Amnesty Program; Gross Premiums Tax; Hotel Occupancy Tax, including Local Hotel Occupancy Tax for Philadelphia and Allegheny County; International Fuel Tax Agreement (IFTA); Inheritance and Estate Tax; Interstate Bus Compact Tax; Liquid Fuels Tax; Loans Tax; Marine Underwriting Profits Tax; Malt Beverage Tax; Motor Carriers Road Tax; Motor Vehicle Carriers Gross Receipts Tax; Mutual Thrift Institutions Tax; Oil Company Franchise Tax; Parimutuel Wagering and Admissions Tax; Personal Income Tax; Public Utility Realty Tax; Realty Transfer Tax; Sales and Use Tax, including Local Sales and Use Tax for Philadelphia and Allegheny County; Surplus Lines Tax; Unauthorized Insurance Tax; and Gross Receipts Tax.

Are you thinking what I’m thinking?? We have a boatload of taxes in Pennsylvania.

To ~~force~~ encourage compliance in the program, a 5% non-participation penalty will be imposed on all un-paid tax, penalty and interest not paid in full during the amnesty period. Those folks who are in appeals or under payment plans will be exempt from the “extra” penalty.

And getting your affairs sorted out isn’t a done deal after this year: taxpayers who become delinquent again within a couple of years will likely have to repay the previously forgiven penalty and interest. It’s the Commonwealth’s way of reminding you to stay compliant.

For what I’m sure are obvious reasons, you can’t participate if you’ve been charged with a tax crime or named as a defendant in a criminal tax investigation. And if you opt in this time, you’re barred from future amnesty plans.

(If you’re dying to read all of the additional details, you can read the text of the statute here.)

Although there was initial opposition to the program when it was first contemplated, a huge hole in the budget helped smooth things over. The program is expected to raise an additional $190 million. A nice chunk of change, though nowhere near the $745 million that NJ raked in.

As you may know from the blog, I’m a big fan of regulated and thoughtful amnesty programs. In some cases, penalties may sometimes be more than the actual tax due in the first place – not even counting interest. Many taxpayers get overwhelmed and even though they may want to set things right, they just don’t know where to start. Amnesty programs can be an easy, non-threatening way to start fresh. A limited, monitored and infrequent amnesty program means that taxpayers pay what they owe (remember, taxpayers still have to pay their taxes) and the taxman gets his money so that we don’t have to raise taxes to make up shortfalls in the budget. It’s a win-win.

I understand the argument against it, though I don’t buy it. I don’t think it actually encourages people to cheat. Trust me, I’ve met a lot of unabashed tax cheats in my line of work – and the people who want to game the system are going to, one way or the other. But the vast majority of people who get into tax trouble and walk through my door don’t want to cheat. They want to make it right and move on. That’s where amnesty works.

Why make it hard to do the right thing? I think Pennsylvania made a smart move here – and I hope it pays off.Similar Posts:

Ask the taxgirl: Making Work Pay Credit for Married Couple

Kelly — Tue, 09 Mar 2010 03:28:03 +0000

Taxpayer asks:

If you are married and did not work, but your spouse earned $156,00, are you entitled to $800 credit or $400 for the working spouse?

Taxgirl says:

Your comma threw me – so I’ll answer it both ways.

If your spouse earned $15,600 and you file married jointly, you would be entitled to the $800 credit assuming that you otherwise qualify.

If, however, your spouse earned $156,000 and you file married jointly, you would not be entitled to the full credit. You’d be phased out to the tune of 2%. The phase-out works this way for married couples: subtract your qualifying income from $150,000 and multiply by 2%; subtract that amount from the full credit. If your income were $156,000, you’d have a credit of $680. Here’s the math:

$156,000 – $150,000 = $6,000

$6,000 x 2% = $120

$800 – $120 = $680

The result is that you’re totally phased out at $190,000 for married taxpayers filing jointly.

The key to remember is that the total credit for married credits is $800 irrespective of individual income. One quick caveat: if either spouse received an Economic Recovery Payment, you’ll deduct that amount from the full credit.

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