Tag Archives: Personal taxes

US

Mega Millions jackpot is $785 million. Here’s the tax bill

Leave a comment

Anadolu Agency | Anadolu Agency | Getty Images

Of course, the advertised amount is only what you’d get if you were to choose to take your winnings as an annuity spread over three decades. The lump-sum cash option — which most winners choose — for this jackpot is $403.8 million, as of midday Tuesday.

Regardless of how you’d decide to receive your windfall, taxes would take a bite out of it.

$96.9 million in taxes would be shaved off cash option

Assuming you’re like most winners and were to choose the cash option, a mandatory 24% federal tax withholding would reduce the $403.8 million by $96.9 million. That would cut your take to $306.9 million.

However, you could expect to owe more to the IRS at tax time. The top federal income tax rate is 37% and applies to income above $578,125 for individual tax filers and $693,750 for married couples who file a joint tax return.

This means that unless you were able to reduce your taxable income by, say, making large tax-deductible charitable contributions, you would owe another 13% — or about $52.5 million — at tax time. That would bring your winnings down to $254.4 million. 

There also could be state or local taxes depending on where the ticket was purchased and where you live. Those levies range from zero to more than 10%.

Most Mega Millions players, though, won’t have to worry about paying millions of dollars to the IRS or state coffers: The odds of a single ticket matching all six numbers to land the jackpot is about 1 in 302.6 million.

Meanwhile, the Powerball jackpot is $291 million (with a cash option of $147.9 million) for Wednesday night’s drawing. The chance of hitting the motherlode in that game is slightly better: 1 in 292 million.

Read original article here

Business

What to know as record 8.7% Social Security COLA goes into effect

Leave a comment

Kathrin Ziegler | Digitalvision | Getty Images

As inflation has kept prices high in 2022, Social Security beneficiaries may look forward to a record high cost-of-living adjustment in 2023.

“Your Social Security benefits will increase by 8.7% in 2023 because of a rise in cost of living,” the Social Security Administration states in the annual statements it is currently sending to beneficiaries.

The 8.7% increase will be the highest in 40 years. It is also a significant bump from the 5.9% cost-of-living increase beneficiaries saw in 2022.

The increase is “kind of a double-edged sword,” according to Jim Blair, a former Social Security administrator and co-founder and lead consultant at Premier Social Security Consulting, which educates consumer and financial advisors on the program’s benefits.

More from Personal Finance:
Why more workers need access to retirement savings
If you’re unretiring, avoid this Social Security surprise
Why long Covid may be ‘the next public health disaster’

“It’s good for people on Social Security,” Blair said. “It’s not so good for the economy with inflation.”

Social Security benefit checks will reflect the increase starting in January.

The average retiree benefit will go up by $146 per month, to $1,827 in 2023 from $1,681 in 2022, according to the Social Security Administration The average disability benefit will increase by $119 per month, to $1,483 in 2023 from $1,364 in 2022.

What’s more, standard Medicare Part B premiums will go down by about 3% next year to $164.90, a $5.20 decrease from 2022. Medicare Part B covers outpatient medical care including doctors’ visits.

Monthly Part B premium payments are often deducted directly from Social Security checks. Due to the lower 2023 premiums, beneficiaries are poised to see more of the 8.7% increase in their monthly Social Security checks.

“The good news about these letters is people are realizing 100% of the 8.7% lift,” said David Freitag, a financial planning consultant and Social Security expert at MassMutual.

“Of course, the economy is inflated at a frightful rate, but this represents the value of cost-of-living adjusted benefits from Social Security,” Freitag said.

Few other income streams in retirement offer cost-of-living adjustments, he noted.

What to look for in your Social Security statement

Justin Paget | Digitalvision | Getty Images

If you’re wondering how much more you stand to see in your checks, the personalized letter from the Social Security Administration will give you a breakdown of what to expect.

That includes your new 2023 monthly benefit amount before deductions.

It will also tell you your 2023 monthly deduction for premiums for Medicare Part B, as well as Medicare Part D, which covers prescription drugs.

The statement will also show your deduction for voluntary tax withholding.

The good news about these letters is people are realizing 100% of the 8.7% lift.

David Freitag

financial planning consultant and Social Security expert at MassMutual

After those deductions, the statement shows how much will be deposited into your bank account in January.

Of note, you do not necessarily have to be receiving Social Security checks now to benefit from the record 2023 increase, Blair noted.

“The good news is you don’t have to apply for benefits to receive the cost-of-living adjustment,” Blair said. “You just have to be age 62 or older.”

When you may pay Medicare premium surcharges

If your income is above a certain amount, you may pay a surcharge called an income related monthly adjustment amount, or IRMAA, on Medicare Parts B and D.

This year, that will be determined by your 2021 tax returns, including your adjusted gross income and tax-exempt interest income. Those two amounts are added together to get your modified adjusted gross income, or MAGI.

In 2023, those IRMAA premium rates kick in if your modified adjusted gross income is $97,000.01 or higher and you filed your tax return as single, head of household, qualifying widow or widower or married filing separately; or $194,000.01 or higher if you are married and filed jointly.

Notably, just one dollar over could put you in a higher bracket.

“It’s important for everyone to make sure that the amount of adjusted gross income that they’re using for the IRMAA surcharges agrees with what they filed on their tax return two years ago,” Freitag said.

If the information does not match, you “absolutely need to file an appeal,” he said.

Because the IRMAA surcharges can be extremely significant, that is an area to watch for errors, Freitag said.

When to appeal your Medicare surcharges

If your income has gone down since your 2021 tax return, you can appeal your IRMAA.

That goes if you have been affected by a life changing event and your modified adjusted gross income has moved down a bracket or below the lowest amounts in the table.

Qualifying life changing events, according to the Social Security Administration, include marriage; divorce or annulment; death of a spouse; you or your spouse reduced your work hours or stopped working altogether; you or your spouse lost income on from property due to a disaster; you or your spouse experienced cessation, termination or reorganization of an employer’s pension plan; or you or your spouse received a settlement from an employer or former employer due to bankruptcy, closure or reorganization.

To report that change, beneficiaries need to fill out Form SSA-44 with appropriate documentation.

How higher benefits could cost you

Andrew Bret Wallis | The Image Bank | Getty Images

As your Social Security income goes up with the 8.7% COLA, that may also push your into a different IRMAA or tax bracket, Freitag noted.

That calls for careful monitoring of your income, he said.

Keep in mind that two years in the future you may get exposed to IRMAA issues if you’re not careful.

In addition, more of your Social Security benefits may be subject to income taxes. Up to 85% of Social Security income may be taxed based on a unique formula that also factors in other income.

It is a good idea to have taxes withheld from Social Security benefits in order to avoid a tax liability when you file your income tax returns, according to Marc Kiner, a CPA and co-founder of Premier Social Security Consulting.

“Do it as soon as you can,” Kiner said of filling out the voluntary withholding request form.

To better gauge how IRMAA or taxes on benefits may affect you going forward, it may help to consult a tax advisor or CPA who can help identify tax-efficient strategies, Freitag said.

Read original article here

US

Supreme Court OKs handover of Trump tax returns to Congress

Leave a comment

WASHINGTON (AP) — The Supreme Court on Tuesday cleared the way for the imminent handover of former President Donald Trump’s tax returns to a congressional committee after a three-year legal fight.

The court, with no noted dissents, rejected Trump’s plea for an order that would have prevented the Treasury Department from giving six years of tax returns for Trump and some of his businesses to the Democratic-controlled House Ways and Means Committee.

Alone among recent presidents, Trump refused to release his tax returns either during his successful 2016 campaign or his four years in the White House, citing what he said was an ongoing audit by the IRS. Last week, Trump announced he would run again in 2024.

It was the former president’s second loss at the Supreme Court in as many months, and third this year. In October, the court refused to step into the legal fight surrounding the FBI search of Trump’s Florida estate that turned up classified documents.

In January, the court refused to stop the National Archives from turning over documents to the House committee investigating the Jan. 6 insurrection at the Capitol. Justice Clarence Thomas was the only vote in Trump’s favor.

In the dispute over his tax returns, the Treasury Department had refused to provide the records during Trump’s presidency. But the Biden administration said federal law is clear that the committee has the right to examine any taxpayer’s return, including the president’s.

Lower courts agreed that the committee has broad authority to obtain tax returns and rejected Trump’s claims that it was overstepping and only wanted the documents so they could be made public.

Chief Justice John Roberts imposed a temporary freeze on Nov. 1 to allow the court to weigh the legal issues raised by Trump’s lawyers and the counter arguments of the administration and the House of Representatives.

Just over three weeks later, the court lifted Roberts’ order without comment.

Rep. Richard Neal, D-Mass., the committee chairman until the next Congress begins in January, said in a statement that his committee “will now conduct the oversight that we’ve sought for the last three and a half years.”

In a message on his social media network, Trump said the Supreme Court’s action created “terrible precedent for future Presidents.” He accused the court of becoming “nothing more than a political body, with our country paying the price.”

He also said: “Why would anybody be surprised that the Supreme Court has ruled against me, they always do!”

The House contended an order preventing the IRS from providing the tax returns would leave lawmakers “little or no time to complete their legislative work during this Congress, which is quickly approaching its end.”

Had Trump persuaded the nation’s highest court to intervene, he could have run out the clock on the committee, with Republicans ready to take control of the House in January. They almost certainly would have dropped the records request if the issue had not been resolved by then.

The House Ways and Means panel first requested Trump’s tax returns in 2019 as part of an investigation into the Internal Revenue Service’s audit program and tax law compliance by the former president. A federal law says the Internal Revenue Service “shall furnish” the returns of any taxpayer to a handful of top lawmakers.

The Justice Department under the Trump administration had defended a decision by then-Treasury Secretary Steven Mnuchin to withhold the tax returns from Congress. Mnuchin argued that he could withhold the documents because he concluded they were being sought by Democrats for partisan reasons. A lawsuit ensued.

After President Joe Biden took office, the committee renewed the request, seeking Trump’s tax returns and additional information from 2015-2020. The White House took the position that the request was a valid one and that the Treasury Department had no choice but to comply. Trump then attempted to halt the handover in court.

Then-Manhattan District Attorney Cyrus Vance Jr. obtained copies of Trump’s personal and business tax records as part of a criminal investigation. That case, too, went to the Supreme Court, which rejected Trump’s argument that he had broad immunity as president.

Read original article here

US

Expanded IRS free-file system one step closer in Dems’ bill

Leave a comment

WASHINGTON (AP) — The flagship climate change and health care bill passed by Democrats and soon to be signed by President Joe Biden will bring U.S. taxpayers one step closer to a government-operated electronic free-file tax return system.

It’s something lawmakers and advocates have been seeking for years. For many Americans, it’s frustrating that beyond having to pay sometimes hefty tax bills, they also have to shell out additional money for tax preparation programs or preparers because of an increasingly complex U.S. tax system.

“It’s definitely something we should do, and when the IRS is adequately resourced, it’s something that will happen,” said Treasury Secretary Janet Yellen at a June Senate Finance Committee hearing.

And now that the IRS is set to receive nearly $80 billion through the so-called “Inflation Reduction Act,” the agency has the means to develop new systems to help Americans pay their taxes. The legislation passed Congress on Friday.

Several hurdles stand in the way. Even in a best-case scenario, it will likely take years to get a new, free system up and running. There’s also pushback from commercial tax preparation companies, which question whether Americans want the IRS to prepare their taxes.

Perhaps this biggest hurdle is an agreement between the IRS and some commercial tax preparation companies, known as the Free File Alliance, which prevents the federal agency from creating its own free tax return filing system. In short, the IRS agreed not create its own filing system if companies would instead provide free services to taxpayers making $73,000 or less.

This program, though, has been marred with controversy, with commercial firms misrepresenting their services and low taxpayer participation rates.

The Government Accountability Office in April reported that while 70% of taxpayers were eligible for services through the Free File Alliance, only 3% of taxpayers actually use the service. The watchdog recommended the IRS find new free filing options before the Alliance expires in October 2023.

With the funding in the bill, the IRS has an opportunity to create a new system.

Included is a provision that allots $15 million to the IRS to make plans for a free direct e-file tax return system. Those plans would have to be developed within nine months and would include cost estimates for creating and administering a system. They would also require public input.

There are also legislative attempts to move this effort along.

Sen. Elizabeth Warren, D-Mass., in July resubmitted a bill called the Tax Filing Simplification Act that would require the IRS to create its own free online tax filing service and move away from its partnership with private online tax preparation companies.

“I’ve been pushing for a free tax filing system for years, and now the IRS is on the verge of having significant funding to modernize its IT systems, which means it’s time to develop simplified filing tools laid out in my Tax Filing Simplification Act,” Warren told The Associated Press.

“Americans spend too much time and money to file their taxes, and the IRS should adopt these proposals to help millions of Americans file taxes and claim refunds.”

At her Finance Committee appearance, Yellen called for a new system.

“There’s no reason in the world that a modern economy shouldn’t have a system that makes it easy for such a large group of taxpayers to file their returns,” she said.

Vanessa Williamson, a senior fellow at the Urban-Brookings Tax Policy Center, said “if the IRS moves forward with a free product, it could save lower-income families the money they used to give to H&R Block or TurboTax.”

“Tax prep companies are notorious for tricking tax filers into paying for services they should be getting for free,” Williamson said, “so an IRS free file service would be a very welcome step that would save Americans money.”

In 2019, ProPublica wrote about Intuit’s TurboTax and H&R Block Inc.’s efforts to mislead taxpayers away from the federally supported free services for which they qualified. And in May, New York Attorney General Letitia James secured a $141 million settlement with Mountain View, California-based Intuit Inc., which had to pay restitution to some taxpayers.

Intuit withdrew from the Alliance in July 2021, stating in a blog post that the company could provide its benefits without the Free File Alliance’s limitations. H&R Block withdrew from the partnership in 2020.

“Most Americans don’t want the tax collector to also serve as the tax preparer,” said Derrick L. Plummer, a spokesman for Intuit.

“The IRS already has a core mission that it needs to focus on, and creating a new system would cost billions of taxpayer dollars and jeopardize the financial freedom of millions more,” he said. A spokesperson for H&R Block did not respond to an Associated Press request for comment.

Ideas for what a government run free-file program might look like are already being studied.

Bruce Sacerdote, a Dartmouth economist, has examined systems in other countries in which taxpayers don’t have to enter much data on their electronic forms because the government has already done so.

“The IRS has tremendous amounts of information on wages and dividends,” he said, adding that a government-supported tax filing system “could be a wonderful thing.”

Such systems are used in Germany, Japan and other Organization for Economic Cooperation and Development countries that collaborate to develop policies that promote economic growth.

“As a taxpayer, there could be a great benefit to pre-population,” he said. “Filing taxes is enormously time-consuming. Given all the information the IRS has on taxpayers, they could simply send you a completed return.”

Read original article here

Business

IRS boosts mileage rate deductions as gas prices soar to $5 a gallon

Leave a comment

Guy Benhamou sends a picture of gas prices to friends while pumping gas at an Exxon Mobil gas station on June 9, 2022 in Houston.

Brandon Bell | Getty Images

If you’re self-employed or own a small business, you may soon be eligible for a little relief from soaring gas prices.

Starting on July 1, the standard mileage rate — used to deduct eligible business trips in a vehicle on tax returns — increases by 4 cents to 62.5 cents per mile, according to the IRS. The new rate applies to trips during the second half of 2022.

The rate for medical trips or active-duty military moving will also increase by 4 cents, allowing eligible filers to claim 22 cents per mile. But the rate for charitable organizations remains unchanged at 14 cents.

More from Personal Finance:
401(k) savers will get a ‘wake-up call’ in their next statement
Last chance for some tax filers to avoid late penalties is June 15
The pandemic stimulus checks were a big experiment. Did it work?

“The IRS is adjusting the standard mileage rates to better reflect the recent increase in fuel prices,” IRS Commissioner Chuck Rettig said in a statement.

The change comes as gas prices continue to hit records, swelling to more than $5 per gallon nationally, sparked by an increased demand and shortages partially caused by the war in Ukraine.

Annual inflation grew by 8.6% in May, the highest increase since December 1981, according to the U.S. Bureau of Labor Statistics, with surging fuel costs significantly contributing to the gain. 

Midyear mileage changes are ‘unusual’

“It is unusual for the IRS to have a midyear change in the standard mileage rate,” said certified financial planner Tricia Rosen, principal at Access Financial Planning in Andover, Massachusetts.

There’s only been a half-yearly shift three times since 2008, she explained, with the most recent one in 2011. Each one happened after a spike in gas prices, she said.

It is unusual for the IRS to have a midyear change in the standard mileage rate.

Tricia Rosen

Principal at Access Financial Planning

To claim the deduction, keep good driving records

While it’s always important to track mileage, including travel dates, it will be even more critical in 2022 to make sure the correct rates apply to each trip, Rosen said. 

The standard mileage rate isn’t mandatory, according to the IRS. Taxpayers also have the option to calculate actual costs, which involves deducting a percentage of the vehicles’ total expenses. But either way, you’ll need detailed record-keeping.

“The IRS wants to see a logbook of business, medical and personal miles in order to prove that you are entitled to the deduction,” said Laurette Dearden, a CFP and CPA at the firm in her name in Laurel, Maryland. 

You’ll need to show the beginning and ending mileage, the business or medical purpose for the trip and the date in your logbook. But realistically, very few people keep these kinds of records, she said.

However, you can use mobile apps to automatically track mileage, which may make it easier at tax time, she suggests.

Read original article here

Business

Social Security retirement age reaches 67. Some say it may go higher

Leave a comment

Many Americans eagerly look forward to a time when they can stop working and officially set their status to “retired.”

But when asked what age they anticipate that could be, there isn’t a consensus.

The average age when people say they hope to retire is 62, according to one survey.

That is also the age at which people can first claim Social Security retirement benefits, so long as they are eligible based on their work records.

However, people receive reduced benefits for claiming early. If they wait until full retirement age to claim — generally 66 or 67, depending on when they were born — they receive the full benefits which they have earned. If they wait until age 70, they stand to get an 8% per year benefit increase over their full retirement age.

More from Life Changes:

Here’s a look at other stories offering a financial angle on important lifetime milestones.

Meanwhile, the House of Representatives last week approved a retirement bill that would push out the age for required minimum distributions on certain savings accounts to 75, up from the current age of 72. That change, if it passes the Senate, would be gradually phased in by 2032.

The proposal reflects a reality that many people today are generally healthier than generations past and therefore are living and working longer, said Mark J. Warshawsky, a senior fellow at the American Enterprise Institute and former deputy commissioner for retirement and disability policy at the Social Security Administration.

“It should cascade to other official ages throughout the tax code and the government’s programs, Social Security included,” Warshawsky said.

To be sure, no imminent changes to the Social Security program are in the works.

“It has and will continue to be the third rail of politics because of the public sensitivity around the issue,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center.

That does not mean there is no urgency around the issue, however.

The trust funds that the Social Security Administration relies on to pay benefits are projected to become depleted in 2034. At that time, 78% of promised benefits will be payable, the government agency said last year.

To shore up the program, lawmakers have a choice of increasing taxes on benefits, raising payroll taxes or increasing the retirement age. Any enacted changes could include a combination of all three.

Of note, Social Security advocates are staunchly against tweaking the Social Security retirement ages.

“An increase in the full retirement age is just a benefit cut,” said Joe Elsasser, founder and president of Covisum, a provider of Social Security claiming software.

How the retirement age could change

President Ronald Reagan signs the Social Security Act Amendment into law on April 20, 1983.

Corbis | Getty Images

Retirement ages were last altered in 1983 under then-President Ronald Reagan.

Those changes, which raised the full retirement age to 67 from 65, are still being phased in today.

Even just the bump up to age 66 from 65 represented a 5% benefit cut, Elsasser noted.

Many experts expect that any future changes could push up the Social Security retirement age. Notably, the Social Security 2100 Act: A Sacred Trust, introduced by Rep. John Larson, D-Conn., last year, would leave those thresholds unchanged and, in some respects, make benefits more generous. But the legislation has a five-year timeframe.

Separately, the Social Security Administration has scored the financial effects other proposals to change the age thresholds could have on the program.

Just in 20 years, we’ve seen a substantial increase in the retirement age.

Mark J. Warshawsky

senior fellow at the American Enterprise Institute

“I expect that at some point in the not too distant future, Congress will agree on a Social Security package that includes some type of adjustment to the retirement age,” Akabas said. “Whether that’s in two years or 10 years, it’s very difficult to predict.”

Experts say it’s possible the full retirement age could get pushed up by a year or two, which could be gradually phased in.

Additionally, lawmakers could also raise the initial age for eligibility for retirement benefits from 62, as well as the highest age for delaying benefits and earning benefit increases from 70.

Adjustments could make it so the most vulnerable — those who are forced to retire at the earliest possible age — don’t see the same type of benefit reduction, Akabas noted.

How to plan for future benefits

Geber86 | Vetta | Getty Images

In 2000, the average age at which people retired was roughly 61 or 62. Two decades later, it’s around 66, according to government data, Warshawsky said.

“Just in 20 years, we’ve seen a substantial increase in the retirement age,” Warshawsky said. “People really, really are working longer.”

Anecdotally, Elsasser said he sees more people retiring earlier than they had anticipated as their work prospects change.

That highlights the importance of planning ahead, so you anticipate whatever your retirement years bring. Admittedly, that can be tricky, given that Social Security could be susceptible to change.

If you’re 60 and up, there is less reason to worry any prospective changes would affect your benefits, Elsasser said.

But if you’re 45 to 60 years old, it’s reasonable to plan for benefit reductions of about 5%, he said. For those who are even younger, a 10% to 15% cut is possible.

Moreover, people of all ages should also plan for worst-case scenarios in which the program does reach a point where it can only pay a portion of benefits, which may prompt as much as a 24% benefit cut for retirees.

“The real importance of planning is just making sure you have all your bases covered,” Elsasser said.

Read original article here

US

Biden’s budget proposes tax hike on married filers over $450,000

Leave a comment

President Joe Biden introduces his budget request for fiscal year 2023 on March 28, 2022 in Washington.

Anna Moneymaker | Getty Images

President Joe Biden released his 2023 federal budget request on Monday, calling to hike the top marginal income tax rate to 39.6% from 37%, a proposal floated by the administration last year.

The higher rates apply to married couples filing together with taxable income over $450,000, heads of household above $425,000, single filers making more than $400,000 and $225,000 for married taxpayers filing separately, according to the Treasury Department.

If enacted, the change may hit higher earners beginning after Dec. 31, 2022, and income thresholds may adjust for inflation after 2023.

More from Personal Finance:
Most medical debt is coming off credit reports. What to do if yours doesn’t
How to avoid a tax filing rejection if last year’s return is still pending
There’s a tricky cryptocurrency question on your tax return

However, increases to income tax rates may be difficult to pass, with previous pushbacks from Sen. Kyrsten Sinema, D-Ariz.

Moreover, Democrats have a short window to reach an agreement before midterm election campaigns begin ramping up.

“There weren’t enough lawmakers in favor of raising the rate to 39.6% last year for it to make the cut in the House-passed reconciliation bill,” said Erica York, senior economist and research manager at the Tax Foundation. “And I don’t see anything that has changed to make it easier in an election year.”

It’s been years since the presidential budget actually went anywhere, and this seems like another one that’s kind of dead on arrival.

Howard Gleckman

Senior fellow at the Urban-Brookings Tax Policy Center

Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center agrees the individual tax proposals, including an increase on the highest marginal income tax bracket, may not be politically viable.

“It’s been years since the presidential budget actually went anywhere,” he said. “And this seems like another one that’s kind of dead on arrival.”

With the Congressional Budget Office scoring already complete for many of Biden’s past proposals, there’s the potential for Democrats to move quickly on an agreement.

However, a lot depends on Sen. Joe Manchin, D-W.Va., who blocked the House version of Biden’s Build Back Better, and his willingness to restart negotiations, Gleckman said.

Former President Donald Trump’s signature 2017 tax overhaul temporarily reduced the top marginal rate to 37% through Dec. 31, 2025. However, it will automatically revert to 39.6% when the provision sunsets in January 2026 unless extended by Congress.

Biden’s 2023 federal budget also asks for a “billionaire minimum tax,” a 20% income tax rate for the top 0.01% of earners and families with wealth exceeding $100 million, among other revenue raisers, which policy experts say may be a tough sell.

Read original article here

US

New Jersey governor floats property tax relief for homeowners, renters

Leave a comment

New Jersey Gov. Phil Murphy delivers a victory speech on Nov. 3, 2021, in Asbury Park, New Jersey.

Eduardo Munoz Alvarez | Getty Images

Property tax relief may soon be coming to New Jersey.

Gov. Phil Murphy has proposed the ANCHOR property tax relief program, extending savings to nearly 1.8 million households, as part of the state’s 2023 fiscal year budget.

Homeowners earning up to $250,000 per year may be eligible for rebates averaging $700, lowering the effective property tax rate to 2016 levels for many households, according to the plan.

More from Personal Finance:
IRS rule offers higher penalty-free withdrawals for early retirees
These 3 last-minute moves can still slash your 2021 tax bill
Sold your home? Here’s how to avoid a tax bomb this filing season

Renters making up to $100,000 may also qualify for a rebate up to $250, to help offset higher housing costs.

“This program will provide direct property tax relief to households regardless of whether they own or rent,” Gov. Murphy said. “While the state does not set property taxes, we believe that we must take action to offset costs and make life in New Jersey more affordable.”

The $10,000 cap on the federal deduction for state and local taxes for filers who itemize, known as SALT, has been a pain point as New Jersey faces the nation’s highest property taxes.

While some New Jersey and New York lawmakers have fought to include SALT reform in the Democrats’ spending package, the status of the plan is unclear.

Meanwhile, if New Jersey’s tax relief passes in the Democrat-controlled state legislature, it may distribute $900 million in property tax relief for fiscal year 2023.

The program aims to boost relief over a three-year period, increasing rebates to an average of $1,150 by 2025 for eligible families.

The proposal comes as many states are eying tax cuts, including income, sales, corporate, property and more, amid budget surpluses resulting from federal Covid-19 relief.

Read original article here

Business

Here are must-know changes for the 2021 tax season

Leave a comment

Another year of grappling with coronavirus has led to significant tax law changes for the 2021 season.

While year-end tax planning is always important, recent adjustments — and the possibility of more on the horizon — may offer unique benefits along with potential pitfalls.

Here are some of the biggest changes for individual taxpayers and how to prepare, according to financial experts.

Expanded child tax credit

The American Rescue Plan boosted the child tax credit to $3,000 for families with kids 17 and under for 2021, with an extra $600 for children under age 6.

While millions of Americans have received advanced credits, filers who earned more than expected may need to pay some of it back, experts say.

To qualify for the full credit, single filers need a modified adjusted gross income of less than $75,000 and married couples filing together must earn under $150,000.

Filers should get organized by reconciling their payments, said certified financial planner Larry Harris, director of tax services at Parsec Financial in Asheville, North Carolina.

More from Advisor Insight:

Here’s a look at other stories impacting the financial advisor business.

Recipients may tally advanced credits by comparing bank statements to IRS records in the Child Tax Credit Update Portal. And they may receive a letter in January summarizing payments.

After that, filers can try to estimate 2021 adjusted gross income to see if they still qualify for the payments they received.

However, if there are missing credits, Harris suggests starting the filing process early as many taxpayers had 2020 refund delays related to stimulus payments.

“Get your return filed as quickly as possible,” he said. “That will at least get the wheels turning on what could possibly be another slow year for IRS processing.”

Charitable deductions

Taxpayers eyeing a year-end charitable donation may take advantage of a special write-off for cash gifts in 2021, even if they don’t itemize deductions on their federal tax return. 

For 2021, single filers may claim a tax break for cash donations up to $300 and married couples may get up to $600, according to the IRS, an extended coronavirus relief measure from 2020.

Since most Americans don’t have enough itemized write-offs to exceed the standard deduction, it’s been difficult to claim the charitable deduction, Harris explained, but the 2021 extension may offer a “nice tax break” for non-itemizers.

Health insurance premiums

Congress also increased health insurance premium subsidies in March, making coverage more affordable for millions of Americans.

While the exchange has temporarily capped premiums at 8.5% of household income, filers may have to repay some of the benefits if earnings exceed the thresholds for 2021. 

“It can really be a very unpleasant and stressful situation for those folks that have to pay money back,” said Harris.

Similar to the child tax credit, filers may project 2021 income now to try and estimate liability and set aside money for a future bill, he suggested.

Required minimum distributions

Another change for 2021 is the return of required minimum distributions — amounts that must be withdrawn from most retirement accounts by a certain age — after being waived in 2020.

“You need to get it out before Dec. 31 and if you don’t, the penalties are pretty severe,” Harris said, with someone owing levies of 50% of the amount they needed to take.

For example, if someone needed to take out $50,000 and skipped the distribution, they would owe a penalty of $25,000, he said.

The IRS covers the rules, including ages, deadlines and requirements by plan here.

Read original article here

US

Build Back Better would cut taxes for nearly all households next year

Leave a comment

Nearly all income groups would see their tax bill drop in 2022, on average, if President Joe Biden signs the House Democrats’ latest version of the Build Back Better plan into law, a new analysis finds.

The report, from the Urban-Brookings Tax Policy Center (TPC), finds that when taking individual income tax and payroll tax changes into account, the bottom 80% of households would save between $700 to $830 on their tax bills next year, on average.

Meanwhile, those earning around $885,000 or more, the top 1% of households, would pay around $55,000 more in taxes in 2022. And those in the top 0.1% — those making $4 million or more — would pay an additional $585,000, per the report.

That said, when all major tax provisions are taken into account, it estimates around 20% to 30% of middle-income households would pay $100 or less, on average, in taxes in 2022.

There are other caveats to TPC’s analysis. The authors note that the effective dates of the tax provisions “vary widely” in the legislation.

“While TPC usually tries to show the effects of tax bills for a year when all tax changes are fully effective, there is no year when all of the BBB provisions would apply,” the report reads.

And things get complicated after 2022. For example, the expansion of the Child Tax Credit (CTC) is included only for next year in the current bill. That means the overall tax cuts for low-income households would shrink in 2023 relative to 2022, and moderate-income households would pay “slightly” higher taxes, according to the report.

The bill also increases the state and local tax deduction cap from $10,000 to $80,000, which benefits high-income households the most.

Overall, though, TPC finds that the current BBB framework “would raise taxes on high income households and corporations while reducing, or at least not raising, taxes for the vast majority of low- and moderate-income households.”    

Sign up now: Get smarter about your money and career with our weekly newsletter

Don’t miss:

Read original article here