Tuesday, December 27, 2011

Payroll Tax Cut Extension Includes Recapture Provision

The article below is almost verbatim of an IRS press release. In plain English, the 2% reduction is good for one-sixth of the 2012 FICA wage base (i.e., one-sixth of $110,100 or $18,350). Employers will withhold at the 4.2% rate through February on all wages paid to an employee, even if they are in excess of $18,350. The employee will “recapture” the excess tax break on his or her personal 2012 Form 1040 tax return filed in early 2013 (assuming that the 2% reduction is not extended past the first two months of 2012).

The Internal Revenue Service plans to issue additional guidance on the temporary two-month extension of the payroll tax cut, including how a new “recapture” provision for high-income employees will be implemented.

The tax cut extension was passed by Congress on Friday and signed into law by President Obama later that day, with plans to return in January to find a way to agree on how to pay for extending the tax cut through the rest of the year (see Congress Passes 2-Month Payroll Tax Cut Extension). The IRS said Friday that nearly 160 million would benefit from the extension of the reduced payroll tax rate that has been in effect for 2011.

The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits, the IRS noted. The tax cut extension is paid for with an increase on the guarantee fee paid by lenders on all new mortgage loans whose principal and interest are backed by Fannie Mae and Freddie Mac.

Employers should implement the new payroll tax rate as soon as possible in 2012, but not later than Jan. 31, 2012, the IRS advised. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.

Employers and payroll companies will handle the withholding changes, so workers should not need to take any additional action.

Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).

This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions. The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS said it would closely monitor the situation in case future legislation changes the recapture provision.

The IRS said it would also issue additional guidance as needed to implement the provisions of this new two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to the new “recapture” provision. For most employers, the quarterly employment tax return for the quarter ending March 31, 2012 is due April 30, 2012.

The legislation passed by Congress on Friday includes some technical corrections to address the concerns of payroll processors and small businesses about how the two-month extension would work (see House Republicans to Offer 2-Month Payroll tax Cut Bill). It corrects a flaw in the Senate provision by allowing employers to withhold employee payroll taxes at the reduced rate (4.2 percent) on all wages paid during the two-month period, subject only to the full 2012 wage base ($110,100) and without regard to the new $18,350 cap on wages earned through the end of February.

If an employee’s wages during the first two months of 2012 exceed $18,350 (two-twelfths of the wage base of $110,100), an amount equal to 2 percent of those excess wages would ultimately be recaptured on the worker’s individual tax return for 2012. However, this rule would only apply if the payroll tax reduction is not extended for the remainder of 2012, and a conference committee is expected to convene soon in order to negotiate a full-year extension.

Friday, December 23, 2011

House, Senate Clear Payroll-Tax Accord


WASHINGTON—The House and Senate on Friday approved a two-month extension of the payroll-tax cut, averting an increase that would have left workers with less take-home pay next year.

Passage came after a nearly weeklong impasse that ended when House Speaker John Boehner (R, Ohio) bowed to increasing pressure from within his own party and agreed to the short-term extension.

The $33 billion package also provides extended federal unemployment benefits for two months, avoids a cut in payments to doctors who treat Medicare patients and compels the Obama administration to act within 60 days on a permit for TransCanada Corp.'s proposed Keystone XL pipeline expansion.

The deal, which forestalls a Jan. 1 tax increase on 160 million workers, represents a retreat for the House GOP, which had been at odds with Senate Republicans and party elders who feared a backlash in the 2012 elections if the tax break was allowed to expire.

The agreement is essentially the same package negotiated by the Democratic-controlled Senate that Mr. Boehner's House rejected earlier this week.

One difference in the new agreement is the elimination of a Senate-crafted provision businesses believed would be burdensome. That provision would have changed the way payroll taxes would have been deducted for higher-paid workers, a move that would have meant changing payroll systems.

Mr. Boehner changed course a few hours after Senate Minority Leader Mitch McConnell (R., Ky.) stepped into the debate and urged House Republicans to pass the two-month extension approved by the Senate last Saturday in an 89-10 vote. As part of the new deal, all sides committed to negotiating early next year on a full-year extension of the tax break.

The impasse was a rare split between the two Republican leaders, who for most of this year have worked hand in glove to battle President Barack Obama. The split reflects, in part, the pressure Mr. Boehner faces from the GOP's tea-party faction, compared with Mr. McConnell, who is more willing to accept tactical victories.

Mr. Boehner's leadership within his own caucus may suffer new strains from the retreat, the latest in a string of tussles he has had with rank-and-file members this year on issues ranging from government funding to the debt ceiling. When he announced his decision to compromise in a 10-minute conference call with Republicans around the country Thursday evening, Mr. Boehner took no questions.

The House GOP, in appearing to risk allowing the tax break to lapse Jan. 1, did some damage to the party's reputation of holding the line on tax increases. The standoff also threatened what had been a major victory for Republicans: including a provision in the original tax agreement to force Mr. Obama to make a quicker decision on building the Keystone XL pipeline, which the president had previously punted until after the 2012 elections. That provision remains in the new agreement.

So topsy-turvy were the politics Thursday that it brought the spectacle of Mr. Obama endorsing the words of Mr. McConnell, the man who began 2011 pledging to do all he could to prevent the president's re-election.

"Democrats agree with the Republican leader of the Senate," said Mr. Obama. "This is an issue where an overwhelming number of people in both parties agree. Has this place gotten so dysfunctional that even when people agree to things, we can't do it?"

Announcing the pact on his Twitter feed, Mr. Boehner said the agreement was designed to "ensure taxes do not increase for working families on January 1 while ensuring that a complex new reporting burden is not unintentionally imposed on small business job creators."

At issue is extending the current 4.2% payroll tax levied to fund Social Security, rather than allowing it to return to 6.2% on Jan. 1, its rate before this year. House Republicans, in pushing for a full-year extension of the tax break, have cast their position as one of principle over politics. They conceded Thursday that they were losing the public-relations battle by their fighting.

"We're not doing this for the politics," Rep. Greg Walden (R., Ore.) told reporters. "You all have pointed this out pretty clearly."

Speaking to reporters Thursday evening, Mr. Boehner acknowledged that his party might suffer from picking this fight. "It might not have been politically the smartest thing in the world," he said. "Sometimes it's hard to do the right thing and sometimes it's politically difficult to do the right thing."

A growing number of Republicans urged the House this week to cut their political losses and pass the short-term extension. Those making that push, including GOP presidential candidate Newt Gingrich and former GOP presidential nominee John McCain, made their case even louder on Thursday.

"At this point, the House should pass the Senate's short-term extension to ensure 160 million hard-working Americans won't lose important tax relief at the end of this year,'' said Sen. Olympia Snowe (R., Maine).

No voice was more important than that of Mr. McConnell, who had been silent as the storm brewed. He had considered the Senate deal a big Republican victory because it included language on the Keystone pipeline.

Instead of seen as backtracking on the oil pipeline and his demand for a one-year extension, President Obama this week became the defender of a two-month tax cut. The White House mounted a daily public-relations effort to advocate extending the tax cut, but in the end, White House officials believed Mr. McConnell's statement Thursday was key to expediting the drama's conclusion.

Before agreeing to the new deal, Republicans insisted on language to address a problem businesses face in the two-month extension, aides said. The Senate bill imposed a cap on how much salary would be subject to the lower tax rate. That was dropped in an effort to be sure businesses can process payroll taxes under the accounting structure now in place, a House GOP aide said.

The bill's $33 billion cost is expected to be covered by an increase in fees charged to mortgage lenders by government housing agencies Fannie Mae and Freddie Mac. That has been criticized by the firms' regulator and industry analysts, who say it will complicate the task of revamping the mortgage giants.

The fee increase, expected to raise about $35.7 billion in revenue over 10 years, likely would be passed on to new-home buyers, raising their monthly mortgage payments by as much as $15 on mortgages of $210,000.

—Janet Hook, Laura Meckler and Kristina Peterson contributed to this article.

Tuesday, December 20, 2011

10 Things Medicare Won't Tell You


Here are the 10 items. Click on the link above to read the entire article.
  1. We fork over millions for unproven procedures.
  2. Think Social Security is broke? Just look at Medicare.
  3. We pay for dead people.
  4. Don't expect a five-star plan.
  5. We're not popular with many doctors.
  6. We get ripped off a lot.
  7. We don't cover a lot of the care seniors need most.
  8. Paws off that cash, grandpa: Your settlement is ours.
  9. Complain all you want ...
  10. Want Your Way? Just ask.

Monday, November 7, 2011

IRS Opens Phone Line for FBAR and Title 31 Help

The Internal Revenue Service has opened a new telephone help line for questions about foreign bank account reports.

The IRS FBAR and Title 31 Helpline will connect practitioners and filers, both in the U.S. and abroad, with a team of specially trained technicians, examiners and specialists to answer technical questions about Title 31, also known as the Bank Secrecy Act. They can help taxpayers and tax practitioners with questions related to filing reports on foreign bank accounts. The IRS has been encouraging taxpayers to come forward and report their foreign bank account holdings to avoid stiff penalties.

To reach the FBAR and Title 31 Helpline, dial (866) 270-0733 for toll-free calls within the U.S., or (313) 234-6146 for callers outside the U.S. The latter is not a toll-free phone number.

Hours of operation for the FBAR and Title 31 Helpline are Monday - Friday, 8 a.m. to 4:30 p.m., Eastern time. An IRS employee will respond to messages left after-hours.

The FBAR and Title 31 Helpline team answers questions related to reports required by the Bank Secrecy Act of 1970, such as the Report of Foreign Bank and Financial Accounts, commonly known as the FBAR, and reports filed by money services businesses. The Helpline team can also assist with other Title 31 technical issues and BSA correspondence.

Taxpayers and practitioners can also find answers on the IRS's FBAR frequently asked questions page or by sending an inquiry to FBARquestions@irs.gov. Here is another helpful IRS web site, http://www.irs.gov/businesses/small/article/0,,id=159757,00.html

Monday, October 31, 2011

The debt fallout: How Social Security went ‘cash negative’ earlier than expected

By Lori Montgomery, Published: October 29

Last year, as a debate over the runaway national debt gathered steam in Washington, Social Security passed a treacherous milestone. It went “cash negative.”

For most of its 75-year history, the program had paid its own way through a dedicated stream of payroll taxes, even generating huge surpluses for the past two decades. But in 2010, under the strain of a recession that caused tax revenue to plummet, the cost of benefits outstripped tax collections for the first time since the early 1980s.

Now, Social Security is sucking money out of the Treasury. This year, it will add a projected $46 billion to the nation’s budget problems, according to projections by system trustees. Replacing cash lost to a one-year payroll tax holiday will require an additional $105 billion. If the payroll tax break is expanded next year, as President Obama has proposed, Social Security will need an extra $267 billion to pay promised benefits.

But while talk about fixing the nation’s finances has grown more urgent, fixing Social Security has largely vanished from the conversation.

Lawmakers in both parties are ducking the issue, wary of agitating older voters and their advocates in Washington, who have long targeted politicians who try to tamper with federal retirement benefits. Democrats lost control of the House last year in part because seniors abandoned them in protest over Medicare cuts in Obama’s much-contested health-care act, and no one in Washington has forgotten that lesson.

In his February budget request, Obama ignored the Social Security blueprint put forth by his own bipartisan panel on debt reduction. During this summer’s debt-limit showdown, he endorsed the panel’s proposal to tie future benefits to a less-generous inflation index. But Obama took that idea off the table in September when he submitted recommendations to a special debt-reduction “supercommittee” now at work on Capitol Hill. Until recently, members of the supercommittee said, Social Security had rarely come up in their closed deliberations.

Social Security is hardly the biggest drain on the budget. But unless Congress acts, its finances will continue to deteriorate as the rising tide of baby boomers begins claiming benefits. The $2.6 trillion Social Security trust fund will provide little relief. The government has borrowed every cent and now must raise taxes, cut spending or borrow more heavily from outside investors to keep benefit checks flowing.http://www.blogger.com/img/blank.gif

Many Democrats have largely chosen to ignore the shortfall, insisting the program is flush, citing the existence of the trust fund. They argue that fixing Social Security can wait, perhaps for years.

Senate Majority Leader Harry M. Reid (D-Nev.), who is fighting to maintain control of the Senate, has been particularly outspoken. In March, as a bipartisan group of six senators was gaining attention for a push to draft a debt-reduction plan that included a Social Security fix, Reid summoned hundreds of activists to a rally on Capitol Hill. Fresh off a tough reelection campaign that turned in his favor after he accused his tea party opponent of wanting to “wipe out” Social Security, Reid exhorted policymakers to “leave Social Security alone.”

For a discussion on this article, see http://www.theatlanticwire.com/politics/2011/10/social-security-story-s-driving-liberals-crazy/44324/

Wednesday, October 19, 2011

Social Security Announces 3.6 Percent Benefit Increase for 2012

Cost-of-Living Adjustment is First Since 2009

Monthly Social Security and Supplemental Security Income (SSI) benefits for more than 60 million Americans will increase 3.6 percent in 2012, the Social Security Administration announced today.

The 3.6 percent cost-of-living adjustment (COLA) will begin with benefits that nearly 55 million Social Security beneficiaries receive in January 2012. Increased payments to more than 8 million SSI beneficiaries will begin on December 30, 2011.

Some other changes that take effect in January of each year are based on the http://www.blogger.com/img/blank.gifincrease in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $110,100 from $106,800. Of the estimated 161 million workers who will pay Social Security taxes in 2012, about 10 million will pay higher taxes as a result of the increase in the taxable maximum.

Information about Medicare changes for 2012, when announced, will be available at www.Medicare.gov. For some beneficiaries, their Social Security increase may be partially or completely offset by increases in Medicare premiums.

The Social Security Act provides for how the COLA is calculated. To read more, please visit www.socialsecurity.gov/cola.

Click here for fact sheet showing the effect of the various automatic adjustments.

Tuesday, October 18, 2011

Social Security to hand out first raises since '09

WASHINGTON (AP) — Social Security recipients will get a raise in January — their first increase in benefits since 2009. It's expected to be about 3.5 percent.

Some 55 million beneficiaries will find out for sure Wednesday when a government inflation measure that determines the annual cost-of-living adjustment is released.

Congress adopted the measure in the 1970s, and since then it has resulted in annual benefit increases averaging 4.2 percent. But there was no COLA in 2010 or 2011 because inflation was too low. That was small comfort to the millions of retirees and disabled people who have seen retirement accounts dwindle and home values drop during the period of economic weakness, said David Certner, legislative policy director for the AARP.

"People certainly feel like they are falling behind, and these are modest income folks to begin with, so every dollar counts," Certner said. "I think sometimes people forget what seniors' incomes are."

Some of the increase in January will be lost to higher Medicare premiums, which are deducted from Social Security payments. Medicare Part B premiums for 2012 are expected to be announced next week, and the trustees who oversee the program are projecting an increase.

Monthly Social Security payments average $1,082, or about $13,000 a year. A 3.5 percent increase would amount to an additional $38 a month, or about $455 a year.

Most retirees rely on Social Security for a majority of their income, according to the Social Security Administration. Many rely on it for more than 90 percent of their income.

Federal law requires the program to base annual payment increases on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Officials compare inflation in the third quarter of each year — the months of July, August and September — with the same months in the previous year.

If consumer prices increases from year to year, Social Security recipients automatically get higher payments, starting the next January. If price changes are negative, the payments stay unchanged.

Only twice since 1975 — the past two years — has there been no COLA.

Wednesday's COLA announcement will come as a special joint committee of Congress weighs options to reduce the federal government's $1.3 trillion budget deficit. In talks this summer, President Barack Obama floated the idea of adopting a new measure of inflation to calculate the COLA, one that would reduce the annual increases.

Advocates for seniors mounted an aggressive campaign against the proposal, and it was scrapped. But it could resurface in the ongoing talks.

"We're very concerned about that," said Web Phillips of the National Committee to Preserve Social Security and Medicare. "I think that what this illustrates is the dangers of trying to make Social Security policy in the context of deficit reduction."

Social Security payments increased by 5.8 percent in 2009, the largest increase in 27 years, after energy prices spiked in 2008. But energy prices quickly dropped and home prices became soft in markets across the country, contributing to lower inflation the past two years.

For example, average gasoline prices topped $4 a gallon in the summer of 2008. But by January 2009, they had fallen below $2. Today, the national average is about $3.46 a gallon.

"A lot of that increase had to do with energy," Polina Vlasenko, an economist at the American Institute for Economic Research, based in Great Barrington, Mass., said of the 2009 change.

As a result, Social Security recipients got an increase that was far larger than actual overall inflation. However, they weren't to get anhttp://www.blogger.com/img/blank.gifother increase until consumer prices exceeded the levels measured in 2008.

So far this year, prices have been higher than that, Vlasenko said. Based on consumer prices in July and August, the COLA for 2012 would be about 3.5 percent. Vlasenko estimates the COLA will be from 3.5 percent to 3.7 percent.

Advocates for seniors say it's about time.

"If you've been at the grocery store lately and remember what you used to pay for things, see what you're paying for things today," Phillips said. "The cost-of-living adjustment makes sure that the Social Security benefit that you qualify for when you retire or you become disabled continues to stay current with prices so that the buying power of your benefit does not decline over time."

For more reading, go to http://www.marketwatch.com/story/social-security-benefits-to-increase-in-2012-2011-10-18

Wednesday, September 21, 2011

Canada tells IRS to back off

I am happy Canada speaks up. This one size fits all approach making criminals out of the anyone with assets overseas is ridiculous. FATCA is adding another unnecessary layer of paperwork, i.e. Form 8938, for those who live and work overseas. See http://www.irs.gov/businesses/corporations/article/0,,id=236664,00.html
December 7, 2011 addendum: The IRS backed off after Canada complained, see http://www.accountingtoday.com/news/IRS-Ease-FBAR-Penalties-Americans-Canada-60977-1.html

Here is an article, entitled, "Is FATCA anti-American?"

Original article:
By Bill Mann, MarketWatch.com

Tax crackdown could ensnare tens of thousands of innocent US citizens, and our neighbor to the north is having none of it.

Does anyone really need to state the painfully obvious -- that "Canada is not a tax haven"? Apparently so, and to his credit, Canadian Finance Minister Jim Flaherty did just that the other day. And I'm glad he did.

"Back off our taxpapers, Flaherty tells U.S.," read the recent headline in Canada's Financial Post after Flaherty fired off an angry letter to the Washington Post, The New York Times, and The Wall Street Journal blasting a new Internal Revenue Service tax crackdown that could ensnare tens of thousands of innocent Americans living in Canada. Stop targeting "innocent and law-abiding people" who owe no U.S. taxes, added the angry Conservative Cabinet minister.
'Stress and fear'

The simmering cross-border battle over new rules applying to dual-citizen Canadian residents is spreading "unnecessary stress and fear," wrote Flaherty, referring to a little-known IRS proviso that requires all U.S. citizens to file annual returns with the IRS, regardless of where they live and work. Many transplanted Yanks had no idea of this requirement. The Toronto Globe and Mail reports there are roughly a million Canadian-American citizens living in Canada. (That figure seems a bit high to me, coming from a country of 34 million, but it's possible.)

"Most of these Canadian citizens, many of which have only distant links to the United States, have a very limited knowledge of their reporting obligations to the U.S.," Flaherty added.

Flaherty also addressed pending U.S. legislation that would compel Canadian banks to turn over their information on American clients to the IRS, a giant headache Canadian banks have resisted. Because of their objections in July, the IRS agreed to delay enforcement of that new rule until 2014. It was originally scheduled to kick in a year earlier. Canada banking authorities say this battle is not over.

Flaherty noted that many of the transplanted Yanks are not the real targets of a crackdown on tax evasion -- "high rollers with offshore bank accounts."

Maybe not, but they're still feeling the revenue heat from a country desperate to vacuum up money wherever it can -- anything to avoid raising taxes on the wealthy and upset the dismal House Speaker John Boehner bunch.

"These are people who have made innocent errors of omission," said Flaherty of the dual citizens affected.
Bridges, roads still being maintained

If most of the people the IRS is targeting wanted to dodge taxes, this one-time Canada resident can testify, they certainly wouldn't have come to Canada, which has a tax rate -- federal and provincial -- considerably higher than does the U.S. Then again, Canadian residents expect to have to pay for things like schoolteachers, firefighters, and keeping parks open and roads and bridges maintained, and so they pay higher taxes than Americans.

The concept of "there is no free lunch" hasn't really sunk in down here in the U.S. yet.

What's especially ludicrous and galling about this new IRS directive, say Canadian tax experts, is its "one-size-fits-all" provisions that lump Canada with countries like Panama and the Bahamas.

Canada not only -- let's say it once more -- is NOT a tax haven , it's also not a banana-belt country, climatologically or politically. Just the opposite. And, it has a stronger banking system than the U.S. does.

Flaherty added that "to impose FACTA (the Foreign Account Tax Compliance Act) on our citizens and financial institutions would not accomplish anything but to waste resources on both sides." That pretty much sums it up. Flaherty also points out that there's already a bilateral tax treaty to deal with tax evasion.

The deadline passed two weeks ago for Americans who hadn't filed income-tax forms in the past to throw themselves on the mercy of the court -- i.e., the IRS. I can't find any reports -- yet -- about the IRS prosecuting any malefactors in Canada, but I'll be watching this carefully.

The last word on this ridiculous policy today goes to Jamie Golombek, the director of tax and estate planning for CIBC Private Wealth Management.

After noting in the Financial Post that Canadians affected by the tax crackdown would take comfort in the Canadian government finally stepping up with objections to the misguided tax-enforcement cross-border battle, he added that this all comes down to the fact that the U.S. -- having come close to defaulting on its debt this summer -- "is in dire need of revenue."

The IRS needs to send its enforcement bloodhounds in directions other than north.

Tuesday, September 20, 2011

Obama's stimulus plan: a flop for many small businesses

By Catherine Clifford

NEW YORK (CNNMoney) -- The $447 billion stimulus plan that President Obama unveiled earlier this month won't change hiring plans for many small businesses, according to a survey released Tuesday.

Almost 70% of small businesses polled said that the plan, should it pass, would not spur them to add jobs, said Manta, a small business website.

Of the 1,648 businesses polled, only 11% of those businesses said they would hire if the jobs package becomes law. Another 13% said it depends on what version of the proposal is passed. Another 7% said they just weren't sure.

The American Jobs Act promises to cut the payroll tax businesses pay in half -- to 3.1% -- on the first $5 million in wages. Also, if a business hires a new worker or gives an existing worker a raise, all payroll taxes will be waived. The act would also extend a tax benefit allowing businesses to write off their expenses more quickly.

The president said it would also reduce regulatory burdens for small businesses looking to obtain capital. But it gave few details.

Dear Mr. President...

'Crisis of Confidence': "I have a crisis of confidence problem," said Chris Shirer, the CEO of Madison & Fifth, a 10-year-old digital marketing firm in Columbus, Ohio.

Shirer is giving raises and bonuses with any extra money she makes to her staff of four people. She would be eligible for some tax relief for the raises. "That is great, "she said. "But I was going to give those raises anyway."

The most pressing issue is access to capital. "I am not somebody who makes widgets," said Shirer. Manufacturing businesses have machines and equipment that they use to back loans. Shirer doesn't have heavy machinery or equipment for collateral. Still, she needs capital for hiring and marketing.

But her experience getting it from a bank has not been good. During the recession, her bank slashed her credit line and raised her interest rate. She attempted to apply for a loan through the Small Business Administration, but filling out the paperwork was so complicated that she gave up in frustration.

Two-thirds of small businesses "highly unsatisfied" with the government: "There is this weird dance going on between the government and the banks that is hogtying businesspeople," said Shirer.

She doesn't have much more confidence in the nation's political leaders. She gives the president's stimulus plan a 50% chance of being passed. "They are in a seemingly intractable battle with each other," said Shirer about the president and Congress. "I don't think these folks can talk to each other."

Shirer is not alone in her frustration with the government. Two-thirds (67%) of the 2,324 businesses that Manta polled at the end of August said they are "highly unsatisfied" with the government's effectiveness. By contrast, only 2% of the respondents were "highly satisfied."

Hiring: Yes. No. Maybe so.

When asked which political party best supports small business, more than one-third of respondents (35%) answered "none."

A boon for some: Despite widespread dissatisfaction with the proposed legislation, the tax credit would encourage some small businesses to hire.

"We would add probably one to two extra employees with the tax incentives," said Jim Janosik, the owner of GoGreenPrinting.Biz, an environmentally friendly printing company, in Columbus, Ohio.

He has been thinking off adding to his staff of three. If the jobs bill were passed, "it would drive us to do it sooner, rather than later," he said.

Janosik was mostly pleased with the president's proposal and expects it to pass. "There is more good than bad in this proposal," he said. "I do have faith that it will pass, but it won't be his exact plan."

Watch this CBS interview with Dave Ramsey on Obama's job act and small businesses, http://www.cbsnews.com/video/watch/?id=7381703n

Are rich taxed less than secretaries?

By STEPHEN OHLEMACHER - Associated Press

WASHINGTON (AP) — President Barack Obama makes it sound as if there are millionaires all over America paying taxes at lower rates than their secretaries.

"Middle-class families shouldn't pay higher taxes than millionaires and billionaires," Obama said Monday. "That's pretty straightforward. It's hard to argue against that."

The data tell a different story. On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government.

There may be individual millionaires who pay taxes at rates lower than middle-income workers. In 2009, 1,470 households filed tax returns with incomes above $1 million yet paid no federal income tax, according to the Internal Revenue Service. That, however, was less than 1 percent of the nearly 237,000 returns with incomes above $1 million.

In his White House address Monday, Obama called on Congress to increase taxes by $1.5 trillion as part of a 10-year deficit reduction package totaling more than $3 trillion. He proposed that Congress overhaul the tax code and impose what he called the "Buffett rule," named for billionaire investor Warren Buffett.

The rule says, "People making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay."

"Warren Buffett's secretary shouldn't pay a higher tax rate than Warren Buffett. There is no justification for it," Obama said. "It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million."

Buffett wrote in a recent piece for The New York Times that the tax rate he paid last year was lower than that paid by any of the other 20 people in his office.

This year, households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes, including income taxes and payroll taxes, according to the Tax Policy Center, a Washington think tank.

Households making between $50,000 and $75,000 will pay 15 percent of their income in federal taxes.

Lower-income households will pay less. For example, households making between $40,000 and $50,000 will pay an average of 12.5 percent of their income in federal taxes. Households making between $20,000 and $30,000 will pay 5.7 percent.

The latest IRS figures are a few years older — and limited to federal income taxes — but show much the same thing. In 2009, taxpayers who made $1 million or more paid on average 24.4 percent of their income in federal income taxes, according to the IRS.

Those making $100,000 to $125,000 paid on average 9.9 percent in federal income taxes. Those making $50,000 to $60,000 paid an average of 6.3 percent.

Obama's claim hinges on the fact that, for high-income families and individuals, investment income is often taxed at a lower rate than wages. The top tax rate for dividends and capital gains is 15 percent. The top marginal tax rate for wages is 35 percent, though that is reserved for taxable income above $379,150.

With tax rates that high, why do so many people pay at lower rates? Because the tax code is riddled with more than $1 trillion in deductions, exemptions and credits, and they benefit people at every income level, according to data from the nonpartisan Joint Committee on Taxation, Congress' official scorekeeper on revenue issues.

The Tax Policy Center estimates that 46 percent of households, mostly low- and medium-income households, will pay no federal income taxes this year. Most, however, will pay other taxes, including Social Security payroll taxes.

"People who are doing quite well and worry about low-income people not paying any taxes bemoan the fact that they get so many tax breaks that they are zeroed out," said Roberton Williams, a senior fellow at the Tax Policy Center. "People at the bottom of the distribution say, but all of those rich guys are getting bigger tax breaks than we're getting, which is also the case."

Treasury Secretary Timothy Geithner was pressed at a White House briefing on the number of millionaires who pay taxes at a lower rate than middle-income families. He demurred, saying that people who make most of their money in wages pay taxes at a higher rate, while those who get most of their income from investments pay at lower rates.

"So it really depends on what is your profession, where's the source of your income, what's the specific circumstances you face, and the averages won't really capture that," Geithner said.

Friday, September 16, 2011

IRS Receives 30,000 Disclosures of Offshore Bank Accounts

By Michael Cohn, Accounting Today

The Internal Revenue Service has gotten 12,000 new applications under its 2011 voluntary disclosure program of offshore bank accounts, pushing the total number of disclosures to 30,000 since 2009, when the IRS began offering a way for U.S. taxpayers to voluntarily disclose their foreign bank accounts.

The IRS said it has collected $2.2 billion to date from taxpayers who participated in the original 2009 voluntary disclosure program from the 80 percent of those cases that have been closed so far. The IRS held open the program an extra long time because more and more taxpayers came forward, and it introduced a newer program this year with the stricter penalties for those taxpayers who did not come forward under the original program.

The IRS said it has also collected an additional $500 million in taxes and interest as down payments for the 2011 offshore disclosure program, a figure that will increase because it doesn’t yet include penalties.

The IRS has been ramping up its efforts to prod taxpayers into disclosing their secret bank accounts, in some cases teaming up with the Justice Department to pursue banks like UBS and Credit Suisse to encourage them to reveal information on their U.S. customers.

“By any measure, we are in the middle of an unprecedented period for our global international tax enforcement efforts,” said IRS Commissioner Doug Shulman in a statement. “We have pierced international bank secrecy laws, and we are making a serious dent in offshore tax evasion.”

Global tax enforcement has turned into a top priority at the IRS. Shulman claimed progress on multiple fronts, including ground-breaking international tax agreements and increased cooperation with other governments. In addition, the IRS and the Justice Department have increased their efforts at criminal investigation of international tax evasion.

The combination of efforts helped support the 2011 Offshore Voluntary Disclosure Initiative, which ended on Sept. 9. The 2011 effort followed the strong response to the 2009 Offshore Voluntary Disclosure Program that ended on Oct. 15, 2009. The programs gave U.S. taxpayers with undisclosed assets or income offshore a second chance to get compliant with the U.S. tax system, pay their fair share and avoid potential criminal charges.

The 2009 program led to approximately 15,000 voluntary disclosures and an additional 3,000 applicants who came in after the deadline, but were allowed to participate in the 2011 initiative. Beyond that, the 2011 program has generated an additional 12,000 voluntary disclosures, with some extra applications still being counted. From these efforts, taxpayers came forward and made a total of 30,000 voluntary disclosures.

“My goal all along was to get people back into the U.S. tax system,” Shulman said. “Not only are we bringing people back into the U.S. tax system, we are bringing revenue into the U.S. Treasury and turning the tide against offshore tax evasion.”

In new figures announced Thursday from the 2009 offshore program, the IRS has $2.2 billion in hand from taxes, interest and penalties representing about 80 percent of the 2009 cases that have closed. These cases come from bank accounts in 140 countries.

The IRS said it is beginning to work through the 2011 applications. The $500 million in payments so far from the 2011 program brings the total collected through the offshore programs to $2.7 billion.

“This dollar figure will grow in the months ahead,” Shulman said. “But just as importantly, we have changed the risk calculus. Americans now understand that if they try to hide assets overseas, the chances of being caught continue to increase.”

People hiding assets offshore have received jail sentences running for months or years, and have been ordered to pay hundreds of thousands and even millions of dollars, the IRS noted. UBS AG, Switzerland’s largest bank, agreed in 2009 to pay $780 million in fines, penalties, interest and restitution as part of a deferred prosecution agreement with the U.S. government.

The two disclosure programs provided the IRS with a wealth of information on various banks and advisors assisting people with offshore tax evasion. The IRS said it would use this information to continue its international enforcement efforts.

Monday, September 12, 2011

Tax the rich: How Obama will pay for his stimulus package

By Jeanne Sahadi @CNNMoney

NEW YORK (CNNMoney) -- President Obama proposed Monday to pay for his $447 billion stimulus package largely by taxing the rich more.

Obama's largest proposed pay-for -- which the White House estimates would raise roughly $400 billion over 10 years -- would limit itemized deductions and certain other exemptions for individuals with adjusted gross incomes of $200,000 or more ($250,000 and up for married couples).

The tax measure would go into effect on Jan. 1, 2013, when the White House assumes the top two income tax rates would revert to 36% and 39.6%, up from the current 33% and 35% as a result of the Bush-era tax cuts.

Obama's proposal would cap itemized deductions at 28%. That would mean for every $100 in deductions the rich claim in 2013, they would be able to reduce their tax bill by only $28. That would be less than the $36 or $39.60 they would get if they are in the top two tax brackets.

Relative to other federal tax filers, high-income households benefit disproportionately from itemized deductions -- including those for mortgage interest and charitable contributions.

What's in Obama's stimulus package

Obama's plan is similar to one he offered in each of his three budgets. But the proposal has gone nowhere in Congress.

The president put forth other repeat proposals on Monday to pay for the stimulus package.

So-called carried interest -- a portion of the money paid to managers of hedge funds and other investments partnerships -- would be taxed as ordinary income under Obama. Translation: It would be subject to rates as high as 39.6%, up from the current preferential rate of 15%. The White House estimates this change could raise $18 billion over 10 years.

Obama also wants to repeal various oil subsidies for an estimated savings of $40 billion. And he would impose a less-generous depreciation rule for the purchase of corporate jets. That measure would raise an estimated $3 billion.

All told, the pay-for proposals would raise roughly $467 billion, White House budget director Jacob Lew told reporters.

Lew noted that the White House measures "intentionally overachieve" on savings to compensate for likely differences in estimates that will be made by the Congressional Budget Office, which is the official cost-and-savings arbiter for Congress.

"We've built in a cushion for the differences that happen," Lew said.

The president's pay-for proposals will likely meet with stiff opposition from Republicans. Many GOP lawmakers don't want to raise taxes on anyone and aren't keen on the president's jobs plan to begin with, even though it contains more than $200 billion in tax cuts.

And at a time when Congress' debt super committee is working to cut deficits by at least $1.2 trillion over 10 years, Obama's pay-for plan would reduce the committee's revenue-raising options.

On the other hand, many career deficit hawks support measures to spur the economy now, so long as they are paid for eventually and paired with a long-term debt reduction plan.

For more, read this AP story at http://news.yahoo.com/obama-hike-taxes-pay-jobs-bill-200510620.html

Friday, September 9, 2011

Financial numbers you should know

MSNBC Money by the Numbers: Vera Gibbons illustrates limits on borrowing and savings toward retirement, aired on September 8, 2011:
  • 0% of take home pay on credit card debts, definitely no more than 5%
  • 15% or more of gross set aside for retirement savings
  • 25% of take home pay is maximum for housing costs, including mortgage payment, property tax and insurance, or 30% for rent.

Thursday, August 25, 2011

Brown to propose new corporate tax package


Gov. Jerry Brown will ask lawmakers Thursday to tighten a corporate tax formula in exchange for giving manufacturers a sales tax exemption and offering enhanced jobs tax credits, according to legislative sources.

To enact the plan, the Democratic governor must win votes from at least two Republicans in each house, which Brown failed to do in his state budget fight earlier this year. Brown will portray his plan, which would start in 2012, as a job creation package as California grapples with a 12 percent unemployment rate.

The linchpin is a requirement that multi-state companies calculate their corporate tax liability only on the proportion of sales they have in California relative to elsewhere in the nation, a method called "single sales factor."

Under a 2009 budget deal, firms won the ability to pick the more generous of two tax formulas starting this tax year, making California one of only two states to give companies that choice on an annual basis.

Brown wanted a mandatory single sales factor in January to raise nearly $1 billion for the state budget, but Republicans and business groups blocked that plan. Proponents say that making that formula mandatory would benefit companies that build facilities and create jobs in California. But it would force some major firms to pay more taxes and has divided the membership of leading business groups.

Rather than use the money to attack the deficit, the governor now wants to direct it toward a nearly 4 percent state sales tax exemption for manufacturing start-up companies and a 3 percent state sales tax exemption for existing firms, legislative sources said. The exemption would also apply to the biotechnology, software and clean energy industries.

Brown also wants to enhance employer tax credits by expanding the amount from $3,000 to $4,000 per worker and providing it to businesses with up to 50 employees, rather than 20.

The latest Brown proposal builds on Senate Bill 116 by Sen. Kevin de León, D-Los Angeles. SB 116 is on the Senate floor and has yet to be heard in the Assembly. The California Chamber of Commerce, California Taxpayers Association and California Manufacturers and Technology Association oppose the bill, according to a Senate analysis.

Brown called a Capitol press conference for Thursday morning, his first in nearly two months since reaching a tentative budget deal with Democrats. The governor has faced mounting criticism for ignoring job creation while other state leaders, most notably Lt. Gov. Gavin Newsom, have announced their own ideas.

"Promoting job creation in California should be a top priority for all legislators," said Brown spokesman Gil Duran in an e-mail. "We are hopeful that there will be bipartisan support for job creation in California."

Parcel number required for property tax deductions

From Spidell Publishing Inc.®

The California Franchise Tax Board is planning to add a line to Schedule CA of Form 540 asking taxpayers who deducted property tax to list the address and parcel number of the property. There will apparently be language cautioning taxpayers that certain payments, such as Mello Roos, are not deductible property tax payments.

Interestingly, Schedule CA is used to adjust federal income for California nonconformity items and California conforms to federal law as it pertains to individuals who claim deductions for property tax.

More IRS Cops, More Audits, Says Treasury Report


Sunday, August 21, 2011

Social Security disability on verge of insolvency

By STEPHEN OHLEMACHER - Associated Press

WASHINGTON (AP) — Laid-off workers and aging baby boomers are flooding Social Security's disability program with benefit claims, pushing the financially strapped system toward the brink of insolvency.

Applications are up nearly 50 percent over a decade ago as people with disabilities lose their jobs and can't find new ones in an economy that has shed nearly 7 million jobs.

The stampede for benefits is adding to a growing backlog of applicants — many wait two years or more before their cases are resolved — and worsening the financial problems of a program that's been running in the red for years.

New congressional estimates say the trust fund that supports Social Security disability will run out of money by 2017, leaving the program unable to pay full benefits, unless Congress acts. About two decades later, Social Security's much larger retirement fund is projected to run dry as well.

Much of the focus in Washington has been on fixing Social Security's retirement system. Proposals range from raising the retirement age to means-testing benefits for wealthy retirees. But the disability system is in much worse shape and its problems defy easy solutions.

The trustees who oversee Social Security are urging Congress to shore up the disability system by reallocating money from the retirement program, just as lawmakers did in 1994. That would provide only short-term relief at the expense of weakening the retirement program.

Claims for disability benefits typically increase in a bad economy because many disabled people get laid off and can't find a new job. This year, about 3.3 million people are expected to apply for federal disability benefits. That's 700,000 more than in 2008 and 1 million more than a decade ago.

"It's primarily economic desperation," Social Security Commissioner Michael Astrue said in an interview. "People on the margins who get bad news in terms of a layoff and have no other place to go and they take a shot at disability,"

The disability program is also being hit by an aging population — disability rates rise as people get older — as well as a system that encourages people to apply for more generous disability benefits rather than waiting until they qualify for retirement.

Retirees can get full Social Security benefits at age 66, a threshold gradually rising to 67. Early retirees can get reduced benefits at 62. However, if you qualify for disability, you can get full benefits, based on your work history, even before 62.

Also, people who qualify for Social Security disability automatically get Medicare after two years, even if they are younger than 65, the age when other retirees qualify for the government-run health insurance program.

Congress tried to rein in the disability program in the late 1970s by making it tougher to qualify. The number of people receiving benefits declined for a few years, even during a recession in the early 1980s. Congress, however, reversed course and loosened the criteria, and the rolls were growing again by 1984.

The disability program "got into trouble first because of liberalization of eligibility standards in the 1980s," said Charles Blahous, one of the public trustees who oversee Social Security. "Then it got another shove into bigger trouble during the recent recession."

Today, about 13.6 million people receive disability benefits through Social Security or Supplemental Security Income. Social Security is for people with substantial work histories, and monthly disability payments average $927. Supplemental Security Income does not require a work history but it has strict limits on income and assets. Monthly SSI payments average $500.

As policymakers work to improve the disability system, they are faced with two major issues: Legitimate applicants often have to wait years to get benefits while many others get payments they don't deserve.

Last year, Social Security detected $1.4 billion in overpayments to disability beneficiaries, mostly to people who got jobs and no longer qualified, according to a recent report by the Government Accountability Office, the investigative arm of Congress.

Congress is targeting overpayments.

The deficit reduction package enacted this month would allow Congress to boost Social Security's budget by about $4 billion over the next decade to invest in programs that identify people who no longer qualify for disability benefits. The Congressional Budget Office estimates that increased enforcement would save nearly $12 billion over the next decade.

At the same time, the application process can be a nightmare for legitimate applicants. About two-thirds of initial applications are rejected. Most of these people drop their claims, but for those willing go through an appeals process that can take two years or more, chances are good they eventually will get benefits.

Astrue has pledged to reduce processing times for applicants' appeals, and he has had some success, even as the number of claims skyrockets. The number of people waiting for decisions has increased, but their wait times are going down.

"It's ludicrous to say that the backlog problem is getting worse," Astrue said. "The backlog problem has gotten dramatically better."

Patricia L. Foster said she was working as a nurse in a hospital in Columbia, S.C., in 2005 when she was attacked by a patient who was suffering from a mental illness. Foster, 64, said she injured her neck so bad she had a plate inserted. She said she also suffers from post-traumatic stress disorder.

Foster was turned down twice for Social Security disability benefits before finally getting them in 2009, after hiring an Illinois-based company, Allsup, to represent her. She said she was awarded retroactive benefits, though the process was demeaning.

"I have to tell you, when you're told you cannot return to nursing because of your disability, you don't know how long I cried about that," Foster said. "And then Social Security says, 'Oh no, you don't qualify.' You don't know what that does to you emotionally. You have no idea."

Friday, August 19, 2011

IRS Lowers Interest Rates in Fourth Quarter

Washington, D.C. (August 18, 2011)
By Michael Cohn, Accounting Today

The Internal Revenue Service said Thursday that interest rates will decrease in the fourth quarter for tax underpayments and overpayments by a full percentage point.

For the calendar quarter beginning Oct. 1, 2011, the IRS is lowering the interest rate to 3 percent for overpayments, or 2 percent in the case of a corporation. That’s a percentage point lower than the rates in the third quarter for corporations and other taxpayers.

For underpayments, the interest rate will be 3 percent in the fourth quarter, down from 4 percent in the third quarter.

For large corporate underpayments, the interest rate will be 5 percent in the fourth quarter, down from 6 percent in the third quarter.

For the portion of a corporate overpayment exceeding $10,000, the interest rate in the fourth quarter will be 0.5 percent, down from 1.5 percent in the third quarter.
Under the Tax Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate, plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points.

The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus half a percentage point. The interest rates are computed from the federal short-term rate during July 2011 to take effect Aug. 1, 2011, based on daily compounding.

The IRS describes the interest rates in more detail in Revenue Ruling 2011-18.

Wednesday, August 17, 2011

Social Security Mistakenly Reports Thousands of Deaths

by Blake Ellis

More Americans are being erroneously killed off by the Social Security Administration every day.

Of the approximately 2.8 million death reports the Social Security Administration receives per year, about 14,000 -- or one in every 200 deaths -- are incorrectly entered into its Death Master File, which contains the Social Security numbers, names, birth dates, death dates, zip codes and last-known residences of more than 87 million deceased Americans. That averages out to 38 life-altering mistakes a day.

While these errors occur online, in the depths of the administration's database, they have a very real impact on the people who have effectively been declared dead.

"Erroneous death entries can lead to benefit termination, cause severe financial hardship and distress to affected individuals, and result in the publication of living individuals' [personal identifying information] in the [Death Master File]," the Inspector General said in its most recent evaluation of the database.

Laura Brooks, of Spotsylvania, Va., discovered she had been declared dead when she stopped receiving her disability checks, and her rent and student loan payments unexpectedly bounced.

She went to her bank and a representative said her account had been closed because she was dead. Brooks, a 52-year old mother of two, was already on permanent disability because of a severe depressive disorder, so hearing this turned her already difficult world completely upside down.

"It was one of those surreal things, like seeing a UFO," said Brooks. "When you are a person who already thought that maybe you should be dead because life was so bad to you, I thought this could be a premonition."

The bank representative told Brooks she couldn't reopen her account until she could prove she was alive. When she went to the Social Security office in January 2001, she found out she was declared dead on Dec. 6, 2000. To correct this, she had to submit the pay stubs she was receiving from a program that helps people on disability get back to work.

It took two months for the Social Security Administration to finally "revive" her. The administration later explained that a funeral director had mistyped a Social Security number when submitting a death notice to the agency.

Because of that misstep, Brooks said she accumulated between $300 and $400 in fees for bounced checks, and she hadn't received the more than $1,000 in disability payments she was owed. Once she was declared alive again, the Social Security Administration only resumed her payments -- it wouldn't reimburse her for missed payments, she said.

"Those disability checks were everything I had, and the $300 to $400 I had to pay in fees was more than half of that weekly income," she said. "But more than the financial impact of all of this was the psychological shock -- it spiraled me into further depression and really started me on the road to questioning authority."

Making matters worse, Brooks said the Social Security Administration had somehow lost the file containing all of her information, including her disability benefit records and medical history. It took her two years to rebuild it.

Eleven years after being declared dead by the Social Security Administration, Brooks claims the agency has yet to apologize to her for the debacle.

The Social Security Administration said it cannot comment on specific cases but said it works as quickly as it can to fix these types of mistakes and that two months is too long for an error like this to be resolved.

36,657 Erroneous Deaths in Three Years

Of course, Brooks isn't the only living person to have been put in the Social Security graveyard. In a recent investigation, the Social Security Office of the Inspector General, which oversees the Social Security Administration, discovered that the Death Master File contained 36,657 death entries between May 2007 and April 2010 for people who were very much alive.

In fact, the Social Security Administration admits that erroneous entries slip through the cracks.

"It is unfortunate, but some of the death data that we post to our records ... proves to be wrong and we correct it as soon as possible," said administration spokesman Mark Hinkle. "Usually the error was inadvertently caused because of a human typing error when death information was entered into a computer system."

This inaccurate information is then sold to the public, as well as to banks and credit bureaus.

Those who are declared dead not only lose their ability to apply for credit or receive benefits, but they are also at a high risk for identity theft now that all of their personally-identifying information has been made public.

In one review, the Inspector General found that months after the Social Security Administration deleted incorrect information from the database, the personally identifiable information of 28% of the individuals was still publicly available on at least one other web site.

What to Do If You've Been Declared Dead

To avoid the financial hardship or risk of identity theft as a result of being named to the Social Security's death list, the Identity Theft Resource Center recommends that you do the following:

First, find out who reported you as dead.

Then, get a copy of your death certificate from the county clerk's or recorder's office where the death was reported, and fill out a form to amend the certificate. The death certificate will include the name of whoever reported your death. This person is typically contacted to sign the amendment as well.

To remove your name from the database, you need to make an appointment at your local Social Security office. Bring a photo ID and the certified copy of the amended death certificate, the ITRC said.
Once you correct the information with Social Security, you may need to contact your bank, credit bureaus and any other entities that are under the impression that you're deceased to let them know you've been born again.

Social Security's Hinkle said it's typically easier to fix than this.

"It normally involves seeing the person face-to-face and verifying some form of current ID," he said, adding that the administration occasionally writes letters that people can present to other entities to prove they are alive.

"We take these situations seriously and wish they didn't happen at all, but when we find out it has occurred, we help the person fix it," said Hinkle.

Direct CNN link: http://money.cnn.com/2011/08/17/pf/social_security_deaths_mistakes/index.htm

Tuesday, July 26, 2011

California approves use tax table for 2011

The California State Board of Equalization voted today to approve the use tax table to be used for 2011 tax returns. Senate Bill 86 (Ch. 11-14) allows taxpayers to report use tax for single nonbusiness purchases of $1,000 or less each on their FTB return using either:
  • The actual amount of tax due; or
  • The amount shown on a lookup table, which would indicate an estimated amount of use tax due based on the person’s AGI.
The table approved today provides as follows:

Adjusted Gross Income Range - Use Tax Liability

Less than $20,000 - $7

$20,000 - $39,999 - $21

$40,000 - $59,999 - $35

$60,000 - $79,999 - $49

$80,000 - $99,999 - $63

$100,000 - $149,999 - $88

$150,000 - $199,999 - $123

More than $199,999 - Multiply AGI by 0.07% (0.0007)

Sunday, July 17, 2011

The 8 Most Annoying Fees

I am surprised bank charges don't make the list. Bank of America started charging a $3 per month fee for sending check images with the bank statement. Mind you, it's not the actual cancelled checks, just the front side of the check image. I would not have minded if BofA lists the details of the checks such as payee names with each cleared check on the statement. That would have satisfied IRS. But when BofA only lists the check numbers, taxpayers need something more to substantiate a tax deduction.

by Len Penzo

Fees for this, fees for that -- even a fee for paying a fee. Where does it end? I'm afraid I know the answer ...

In this tough economy, businesses of all types are trying to nickel and dime us with add-on charges. They want you to believe these fees are necessary to cover the cost of doing business, but more often than not, they simply mislead the consumer by adding a hidden mark-up to the advertised price.

Sometimes the fees are small, but other times they can be severe. The mortgage loan industry has been doing this forever, but now the practice has spread like the plague to many other services. I can't be the only person who is outraged by this continuing practice. Or am I?

Here are eight classic fees that really gnaw at me. Some of them I do a pretty good job of avoiding. Others, not so much ...

1. Unlisted Phone Number Fees
This is arguably the granddaddy of them all. I currently get charged $1.75 per month for my unlisted telephone number -- $21 per year. Why does it cost the phone company more to keep my number out of the phone book than in it? That's a rhetorical question, but I'll answer it anyway: It doesn't.

2. Convenience Fees
I recently bought four tickets online from Ticketmaster so I could take the wife and kids to see the Harlem Globetrotters. Cost: $300 for the set. But on top of that was a "convenience charge" of $5 per ticket that added $20 to my bill. Usually, buying online saves a company money that they'd otherwise spend on a telephone operator or a store clerk. So why am I being charged to make Ticketmaster's existence more convenient?

3. Fees for Printing Tickets
I'm not done with Ticketmaster. After gagging on the $20 "convenience" charge for my Globetrotter tickets, Ticketmaster wanted to charge me $2.50 so that I could print the tickets from my home printer. Keep in mind that I also had the option to get the tickets via the postal service -- for no charge. Where's the logic in that? How much do you think it costs Ticketmaster to print the tickets on heavier stock paper, using their ticket machines, and then pay their staff to place the tickets in envelopes with the proper postage and mail it to my house? I don't know either, but I made sure that's exactly what Ticketmaster did.

4. Hotel Safe Fees
There are more than a few hotels out there that charge you just for the privilege of using their in-room safes -- whether you use it or not. Here's one hotel that charges $1.69 per night. What a joke. Whenever I see this fee, I ask to have it waived.

5. Tax e-Filing Fees

Among the most egregious fees out there are the ones that charge money for essentially doing nothing more than making a mouse click or pushing a couple of keys on a computer keyboard. How much money does it cost to send some bits of information through the Internet? Well, if you ask TurboTax, it's $36.95. That's what they charge to e-file a state tax return. So rather than printing out the return and sending it through the mail, I clenched my teeth and reluctantly paid it. Hey, if you paid attention you'll find a lesson on opportunity cost buried in there.

6. Tax Refund Fees
After spending four hours doing my taxes with the online edition of TurboTax, I was due a refund. "Perfect!" I thought, "I'll have TurboTax simply deduct what I owe them directly from my refund." Unfortunately, it turns out TurboTax charges an additional $29.95 if you choose to go that route. My only other option was to pay by credit card -- at no charge. How does that make any sense? So I paid with plastic. I hope TurboTax had to pay the credit card company an interchange fee for me using it too. Dummies.

7. Mortgage Junk Fees
There are dozens of mortgage junk fees out there, some more dubious than others, that make you scratch your head and ask what the heck is that for? Re-conveyance verification fees, commitment fees, and the infamous "warehouse fee" are just three classic examples. (I know, I already mentioned them above -- but I wanted to make it official.)

8. And Then There's This ...
It's bad enough that airlines almost universally charge fees to people who have the audacity to travel with luggage. But a while back, United, US Airways, and Delta took things a step further by charging their "valued" customers who chose to pay for their bags at the airport, rather than online, an additional fee of between $2 and $3 per bag.

That's right, folks. A fee for paying a fee.

Friday, July 8, 2011

IRS Says Summer Day Camps May Qualify for Tax Credit


The Internal Revenue Service said Wednesday that parents may be able to qualify for a tax credit to help defray the added expenses of summer day camp for their children.

Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation, the IRS noted.

The Child and Dependent Care Credit is available for expenses incurred during the summer and throughout the rest of the year. However, the IRS noted that the cost of day camp may count as an expense towards the child and dependent care credit. Expenses for overnight camps do not qualify. Whether the child care provider is a sitter at the family’s home or a daycare facility outside the home, parents will get some tax benefit if they qualify for the credit.

The credit can be for up to 35 percent of the qualifying expenses, depending on the parents’ income. Parents may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

For more information check out IRS Publication 503, Child and Dependent Care Expenses. This publication is available at www.irs.gov or by calling (800) TAX-FORM.

The IRS also posted a link to a YouTube video from last year explaining the use of the tax credits for summer day care expenses. The tax deduction is not new, but the announcement issued Wednesday is part of a series of summertime tax tips that the IRS is emailing to subscribers this season.

NOTE: The best way to pay for child care is to use an employer's "Dependent Care Plan" or a cafeteria plan, using pre-taxed money. Make sure you do not over-estimate the cost as any unspent money is lost.

Friday, July 1, 2011

'Temporary' FUTA Surtax Expires after 35 Years

WASHINGTON, D.C. (JUNE 30, 2011)

The Federal Unemployment Tax Act surtax is set to expire Thursday after House Republicans refused to extend the 35-year-old “temporary” unemployment surtax.

The surtax has been extended eight times since it was originally enacted in 1976. House Ways and Means Committee Chairman Dave Camp, R-Mich., refused to extend the tax beyond its current June 30, 2011 expiration date.

“The death of any tax on jobs—no matter how big or small—is a historic moment and one to be celebrated,” Camp said in a statement. “The fact that it has taken 35 years for this ‘temporary’ tax to expire clearly illustrates the dangers of higher taxes—once in place, they are unlikely to ever go away. We need employers paying more salaries, not paying higher taxes. And when the surtax expires, job creators will get a little and long overdue relief.”

The original purpose of the “temporary” 0.2 percent surtax was to repay federal general revenues used to provide federal unemployment benefits paid in the wake of the 1973-75 recession. While the tax raised $27 billion (adjusted for inflation) and the general revenues were fully repaid by 1987, the 0.2 percent surtax remains on the books today. Since 1987, the tax has raised an additional $46 billion (adjusted for inflation) above and beyond what was needed at the inception of the tax in 1976.

The expiration of the surtax will reduce federal unemployment taxes by $1.4 billion per year, or about $14 per employee per year. That relief slightly offsets the effect of much larger state unemployment tax hikes imposed in recent years to pay for record unemployment benefit spending. Since unemployment benefits are not directly linked to the “temporary” federal tax, its expiration will not affect current or future unemployment benefit receipts.

Without the 0.2 percent surtax, the 6.2 percent FUTA tax rate will fall to 6.0 percent, according to CCH. It was last extended in 2009 as part of the Worker, Homeownership and Business Assistance Act.

Camp's office provided a timeline of the successive extensions of the surtax.

For more, read http://thehill.com/blogs/on-the-money/domestic-taxes/169335-temporary-unemployment-tax-to-expire--after-35-years

Tuesday, June 28, 2011

IRS Issues Warning on FBAR Filing Deadline

WASHINGTON, D.C. (JUNE 28, 2011)

The Internal Revenue Service is reminding anyone who has a bank account or other financial account in a foreign country, or who has signature authority over such an account, that they may be required to report the account to the U.S. Department of the Treasury by June 30 each year.

The IRS has recently been extending the filing deadline for the Report of Foreign Bank and Financial Accounts, also known as an FBAR, under certain circumstances (see IRS Offers Another FBAR Filing Extension and IRS Extends FBAR Filing Deadline for Some Finance Pros). However, the FBAR filing deadline in most instances is June 30 each year.

Many people in the U.S. have foreign financial accounts, the IRS noted in its announcement last Friday. While there is nothing improper about setting up or maintaining such accounts, many people may mistakenly believe their accounts are not large enough on a combined basis to trigger reporting obligations. Foreign account owners may have to report their accounts to the government, even if the accounts do not generate any taxable income.

U.S. persons are required to file a Report of Foreign Bank and Financial Accounts , or Treasury Department Form TD F 90-22.1, each year if they have a financial interest in or signature authority over financial accounts, including bank, securities or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year.

For 2010, the due date for filing the FBAR is Thursday, June 30, 2011, though some financial professionals will have until June 30, 2012 to file. Unlike with federal income tax returns, requests for an extension of time to file an FBAR cannot be granted.

The FBAR is not an income tax return and should not be mailed with any income tax returns, the IRS noted. It is due by June 30 of the year following the calendar year in which the aggregate value of the foreign accounts, on any one day, exceeds $10,000. But for 20009 and earlier years, the due date is generally Nov. 1, 2011 for individuals whose filing deadline was properly deferred under Notice 2009-62 or Notice 2010-23, and have no financial interest in a foreign financial account but with signature or other authority over that account.

FBARs are filed with the U.S. Department of the Treasury, P.O. Box 32621, Detroit, Mich. 48232-0621. Civil and criminal penalties for non-compliance with the FBAR filing requirements are significant. Civil penalties for a non-willful violation can range up to $10,000 per violation. Civil penalties for a willful violation can range up to the greater of $100,000 or 50 percent of the amount in the account at the time of the violation. Criminal penalties for violating the FBAR requirements while also violating certain other laws can range up to a $500,000 fine or 10 years imprisonment or both. Civil and criminal penalties may be imposed together.

If you learn that you or your clients were required to file FBARs for earlier years, you should file the delinquent FBAR reports and attach a statement explaining why the reports are filed late. No penalty will be asserted if the IRS determines that the late filings were due to reasonable cause. Keep copies, for your records, of what you send. If, however, you or your clients have any unreported taxable income related to the foreign accounts, you should instead follow the procedures for making a voluntary disclosure to the IRS under the 2011 Offshore Voluntary Disclosure Initiative.

The address for delivery of an FBAR by a method other than U.S. mail is: U.S. Department of the Treasury, Currency Transaction Reporting, 985 Michigan Avenue, Detroit, Mich., 48226.

The FBAR form is not available for electronic filing, but many income tax software packages can prepare a printed copy. FBAR forms and instructions are also available on IRS.gov or the Financial Crimes Enforcement Network website, FinCEN.gov, and by calling 1-(800) 829-3676.

Taxpayers who need assistance completing Form TD F 90-22.1 can contact the IRS by telephone at 1-(800) 800-2877, option 2, or via email at FBARquestions@irs.gov.

Monday, June 27, 2011

10 Tax-Unfriendly States for Retirees 2011

by Mary Beth Franklin, Kiplinger

Some states offer attractive tax benefits for retirees. Then there are these ten tax hells, which have earned a place on our "do not live here for your second act" list either because of higher-than-average taxes across the board or because of policies that don't exempt much retirement income from state taxation.

For retirees living on a fixed income, high income taxes, burdensome real estate taxes and hefty sales taxes on daily purchases can really eat into a nest egg. Choosing to relocate to — or stay put in — a state with a low overall tax burden can help stretch your retirement income.


State Income Tax: 3.55%-8.95%
State Sales Tax: 6% (localities can add another 1%)
Estate Tax/Inheritance Tax: Yes/No

There are no exemptions for retirement income in the Green Mountain State, except for Railroad Retirement benefits (which are exempt in every state). Out-of-state pensions are fully taxed. Vermont exempts medical devices and prescription and nonprescription drugs from its 6% sales tax. But it imposes a 9% tax on prepared foods, restaurant meals and lodging, and a levies a 10% sales tax on alcoholic beverages served in restaurants. Real estate taxes have two components: school property tax and municipal property tax collected by towns and cities where the property is located. The Tax Foundation, a nonprofit tax-research group in Washington, D.C., lists Vermont's property tax among the ten highest in the nation.


State Income Tax: 5.35%-7.85%
State Sales Tax: 6.875% (cities and counties can add another 2.65%)
Estate Tax/Inheritance Tax: No/No

Minnesota offers retirees cold comfort on the tax front. Social Security income is taxed to the same extent it is taxed on your federal return. Pensions are taxable regardless of where your pension was earned. Income-tax rates are high, and sales taxes can reach 9.53% in some cities. Food, clothing, and prescription and nonprescription drugs are exempt from sales taxes. The North Star State does offer some residents 65 and older who have income of $60,000 or less the option of deferring a portion of their property tax. But this is a low-interest loan, not a tax-forgiveness program.


State Income Tax: 2.56%-6.84%
State Sales Tax: 5.5% (localities can add another 1.5%)
Estate Tax/Inheritance Tax: No/Yes

There are no tax breaks for Social Security benefits and military pensions in the Cornhusker State. Real estate is assessed at 100% of fair market value. Residents 65 and older qualify for a homestead exemption on property taxes. Food and prescription drugs are exempt from state sales taxes. But Nebraska imposes an inheritance tax on all transfers of property and annuities.

State Income Tax: 5%-11%
State Sales Tax: None
Estate Tax/Inheritance Tax: No/Yes

First, the upside: There's no state sales tax in the Beaver State. But it shares the distinction with Hawaii of imposing the highest tax rate on personal income in the nation on taxable income of $250,000 or more. Although Oregon does not tax Social Security benefits, that's the extent of its income-tax breaks for retirees. And Oregon has an inheritance tax that applies even to intangible personal property, such as investments and bank accounts, no matter where it is located.

State Income Tax: 1.25%-9.55%
State Sales Tax: 7.25% (effective July 1, 2011)
Estate Tax/Inheritance Tax: No/No

The Golden State has lost its luster for many retirees. Although Social Security benefits are exempt from state income taxes, all other forms of retirement income are fully taxed. Californians pay some of the highest income taxes in the U.S., with the top rate of 9.55% kicking in at $46,767 of taxable income. State and local sales taxes can reach 9.25% in some cities, although food and prescription drugs are exempt. Real estate is assessed at 100% of cash value, but taxes are capped at 1% of value.


State Income Tax: 2%-8.5%
State Sales Tax: 5% (counties can add another 0.5%)
Estate Tax/Inheritance Tax: Yes/No

Like the majority of states, Maine exempts Social Security benefits from state income taxes. And residents can deduct up to $6,000 per person of eligible pension income. But remaining income in excess of $20,150 per year is taxed at a steep 8.5% rate. Residents of the Pine Tree State pay a 5% sales tax statewide on everything except food and prescription drugs. All real estate and personal property is subject to local property taxes (and, in some cases, state property taxes, too), but permanent residents can receive an exemption of $10,000 on the assessed value of their home. Maine is also one of only three states that do not allow cities and towns to impose their own local sales taxes.

State Income Tax: 0.36%-8.98%
State Sales Tax: 6% (localities can add another 1%)
Estate Tax/Inheritance Tax: No/Yes

The Hawkeye State offers no feathered nest for retirees. Although it allows single retirees to exclude up to $6,000 of retirement-plan distributions from state income taxes, and married couples can exclude up to $12,000, the rest is taxed at rates as high as 8.98%. Iowa taxes a portion of residents' Social Security benefits, too, although it is in the process of phasing out the Social Security tax, which is scheduled to disappear in 2014. Food and prescription drugs are exempt from the statewide 6% sales tax. Real estate is assessed at 100% of market value, and most property is taxed by more than one taxing authority, such as cities, counties and school districts. There is a small homestead tax credit for residents who live in-state at least six months of the year.


State Income Tax: 4.6%-7.75%
State Sales Tax: 5% (counties can add another 0.5%)
Estate Tax/Inheritance Tax: No/No

The Dairy State exempts Social Security benefits and military-related pensions from its state income taxes, but it taxes most other pension and annuity income the same way the federal government does. Retirees 65 and older can subtract $5,000 of qualified retirement income, including IRA distributions, from their Wisconsin taxable income, subject to income restrictions. Some Wisconsin state- and local-government retirees qualify for a tax exemption. But out-of-state government pensions are fully taxed. Food and prescription drugs are exempt from state sales taxes. Some homeowners may qualify for a school property-tax credit against their state income tax.

State Income Tax: 1.4%-8.97%
State Sales Tax: 7%
Estate Tax/Inheritance Tax: Yes/Yes

Its nickname may be the Garden State, but New Jersey is no Eden for retirees. The Tax Foundation says New Jersey's combined state and local tax burden is the highest in the nation, thanks in part to sky-high property taxes. But there are a few bright spots: New Jersey does not tax Social Security benefits and military pensions. It also allows residents 62 or older with incomes of $100,000 or less to exclude up to $15,000 ($20,000 for married couples filing jointly) of retirement income, including pensions, annuities and IRA withdrawals. Groceries, medicine and clothing are exempt from the 7% statewide sales tax. The state imposes an inheritance tax on the transfer of real and personal property worth $500 or more, but bequests to family members are exempt. Even with the bright spots, it's an expensive place to live for retirees.


State Income Tax: 3%-6.7%
State Sales Tax: 6.35%-7%
Estate Tax/Inheritance Tax: Yes/No

Connecticut can be inhospitable to retirees, depending on their income and where they earned their retirement benefits. Although some residents of the Constitution State can exclude their Social Security benefits from state income taxes, the exclusion applies only if their adjusted gross income is $50,000 or less ($60,000 or less for married couples). All out-of-state government and civil-service retirement pensions are fully taxed. Effective July 1, 2011, the sales tax rate statewide is 6.35%, with luxury items taxed at 7%. Connecticut residents pay some of the highest property taxes in the U.S., according to the Tax Foundation, but residents 65 and older qualify for an annual property tax credit or rent rebate.

Click here for the 10 Most Tax-Friendly States for Retirees.

Copyrighted, Kiplinger Washington Editors, Inc.

Tuesday, June 21, 2011

Medicaid for the middle class?

This is what happens when the law was written after lawmakers had passed it and the President has signed it.


WASHINGTON – President Barack Obama's health care law would let several million middle-class people get nearly free insurance meant for the poor, a twist government number crunchers say they discovered only after the complex bill was signed.

The change would affect early retirees: A married couple could have an annual income of about $64,000 and still get Medicaid, said officials who make long-range cost estimates for the Health and Human Services department.

After initially downplaying any concern, the Obama administration said late Tuesday it would look for a fix.

Up to 3 million more people could qualify for Medicaid in 2014 as a result of the anomaly. That's because, in a major change from today, most of their Social Security benefits would no longer be counted as income for determining eligibility. It might be compared to allowing middle-class people to qualify for food stamps.

Medicare chief actuary Richard Foster says the situation keeps him up at night.

"I don't generally comment on the pros or cons of policy, but that just doesn't make sense," Foster said during a question-and-answer session at a recent professional society meeting.

"This is a situation that got no attention at all," added Foster. "And even now, as I raise the issue with various policymakers, people are not rushing to say ... we need to do something about this."

Administration officials said Tuesday they now see the problem. "We are concerned that, as a matter of law, some middle-income Americans may be receiving coverage through Medicaid, which is meant to serve only the neediest Americans," said Health and Human Services spokesman Richard Sorian. "We are exploring options to address this issue."

Administration officials and senior Democratic lawmakers initially defended the change, saying it wasn't a loophole but the result of a well-meaning effort to simplify the rules for deciding who would get help under the new health care law. Instead of a hodgepodge, there would be one national policy.

But Sen. Orrin Hatch of Utah, the ranking Republican on the Senate Finance Committee, called the situation "unacceptable" and said he intended to look into it.

Governors have been clamoring for relief from Medicaid costs, complaining that federal rules drive up spending and limit state options. The program is now one of the top issues in budget negotiations between the White House and Congress. Republicans want to roll back federal requirements that block states from limiting eligibility.

Medicaid is a safety net program that serves more than 50 million vulnerable Americans, from low-income children and pregnant women to Alzheimer's patients in nursing homes. It's designed as a federal-state partnership, with Washington paying close to 60 percent of the total cost.

Early retirees would be a new group for Medicaid. While retirees can now start collecting Social Security at age 62, they must wait another three years to get Medicare, unless they're disabled.

Some early retirees who worked all their lives may not want to join a program for the poor, but others might see it as a relatively painless way to satisfy the new law's requirement that most Americans carry health insurance starting in 2014. It would help tide them over until they qualify for Medicare.

The actuary's office said the early retirees eligible for Medicaid would be on top of an estimated 16 million to 20 million new people that Obama's law already brings into the program, by opening it to childless adults with incomes near the poverty level.

It's unclear how much it would cost to cover the retirees. Federal taxpayers will cover the entire initial cost of the expansion.

Republicans already see a problem.

Former Utah governor Mike Leavitt said bringing early retirees in will "just add fuel to the fire," bolstering the argument from Republican governors that some of Washington's rules don't make sense.

"The fact that this is being discovered now tells you, what else is baked into this law?" said Leavitt, who served as Health and Human Services secretary under President George H.W. Bush. "It clearly begins to reveal that the nature of the law was to put more and more people under eligibility for government insurance."

The Medicare actuary's office roughed out some examples to illustrate how the provision would work. A married couple retiring at 62 in 2014 and receiving the maximum Social Security benefit of $23,500 apiece could get $17,000 from other sources and still qualify for Medicaid with a total income of $64,000.

That $64,000 would put them at about four times the federal poverty level, which for a two-person household is $14,710 this year. The Medicaid expansion in the health care law was supposed to benefit childless adults with incomes up to 133 percent of the poverty level. A fudge factor built into the law bumps that up to 138 percent.

The actuary's office acknowledged its $64,000 example would represent an unusual case, but nonetheless the hypothetical couple would still qualify for Medicaid.