Four Credits That Can Pay You at Tax Time

Four Credits That Can Pay You at Tax Time

by | Mar 7, 2011 | Archives

You might be eligible for a valuable tax credit. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are even refundable, which means you might receive a refund rather than owe any taxes at all. Here are four popular tax credits you should consider before filing your 2010 Federal Income Tax Return:

  1. The Earned Income Tax Credit is a refundable credit for certain people who work and have earned income from wages, self-employment or farming. Income, age and the number of qualifying children determine the amount of the credit. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.
  2. The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
  3. The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.
  4. The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs).

There are other credits available to eligible taxpayers. Since many qualifications and limitations apply to the various tax credits, taxpayers should contact my office for more information or assistance – 800-560-4NFS.

House Repeals 1099 Reporting Requirements

House Repeals 1099 Reporting Requirements

by | Mar 4, 2011 | Archives

Washington, D.C. – The House approved a repeal of the expanded 1099 information reporting requirements by a vote of 314-112 on Thursday.

The bill, H.R. 4, “”The Small Business Paperwork Mandate Elimination Act of 2011,” introduced by Rep. Dan Lungren, R-Calif., would repeal the provisions in last year’s Affordable Care Act and Small Business Jobs Act requiring businesses, including rental property owners, to file a Form 1099-MISC with the Internal Revenue Service reporting any purchases of $600 or more from another business during the calendar year.

Every Republican in the House voted to approve the bill, but 76 Democrats were opposed, according to The Hill’s Floor Action Blog. Democrats objected to an offset in the bill that would pay for the cost of the repeal by requiring people who had received tax credits to pay for health insurance under the health care reform bill to repay the subsidies if they end up earning too much during the year to qualify. They argued that the offset amounted to a tax increase.

“This bill would saddle hundreds of thousands of middle-income taxpayers with a hefty tax increase,” said Rep. Sander Levin, D-Mich., the ranking member on the House Ways and Means Committee. “We all favor repealing 1099, but to do so on the backs of the middle class is irresponsible. With this legislation, Republicans continue their reckless overreach, this time by gouging middle-income taxpayers.”

However, Rep. Dave Camp, R-Mich., who chairs the Ways and Means Committee, said he did not view the provision as a tax increase. “Voluntarily choosing to not enroll in government health care and thus forgoing the associated tax subsidies that one may not be eligible for might result in more government revenue according to the Joint Tax Committee, but it is not a tax increase,” he said.

He hailed the passage of the bill. “Clearly there is strong, bipartisan support to repeal the 1099 provisions so that small businesses can focus on what they do best – creating jobs,” Camp said in a statement. “With more than 70 percent of the House, including 76 Democrats, voting for repeal of the 1099 provisions, I urge the Senate to move quickly to take up and pass this legislation so we can send a bipartisan bill to the President.”

The Obama administration has said it would prefer that a different way be used to pay for the repeal, however. Last month, the Senate passed its own repeal of the health care reform bill’s expanded 1099 information reporting requirements within a larger reauthorization bill for the Federal Aviation Administration that would offset the cost of the repeal with unspecified spending cuts, authorizing the Office of Management and Budget to use unobligated funds. However, that bill does not include provisions repealing the rental property owner 1099 requirements in the Small Business Jobs Act.

The Obama administration opposes the offsets used in both the House and Senate bills, but has not specified how the cost of the repeal should be paid. It said in a statement Tuesday evening that the House bill “would result in tax increases on certain middle-class families that incure unexpected tax liabilities,” while the Senate bill “could cause seious disruption in a wide range of services.”

By Michael Cohn

Did you Take an Early Distribution from Your Retirement Plan?

Did you Take an Early Distribution from Your Retirement Plan?

by | Mar 2, 2011 | Archives

Some taxpayers may have needed to take an early distribution from their retirement plan last year. The IRS wants individuals who took an early distribution to know that there can be a tax impact to tapping your retirement fund. Here are ten facts about early distributions.

  1. Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.
  2. Early distributions are usually subject to an additional 10 percent tax.
  3. Early distributions must also be reported to the IRS.
  4. Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.
  5. The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.
  6. If you made nondeductible contributions to an IRA and later take early distributions from your IRA, the portion of the distribution attributable to those nondeductible contributions is not taxed.
  7. If you received an early distribution from a Roth IRA, the distribution attributable to your prior contributions is not taxed.
  8. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.
  9. There are several exceptions to the additional 10 percent early distribution tax, such as when the distributions are used for the purchase of a first home, for certain medical or educational expenses, or if you are disabled.
  10. For more information about early distributions from retirement plans, the additional 10 percent tax and all the exceptions see IRS Publication 575, Pension and Annuity Income and Publication 590, Individual Retirement Arrangements (IRAs). Both publications are available at IRS.gov or by calling my office for help – 800-560-4NFS.