Income Tax News

Educate your clients on tax-friendly states for retirees.

Navigating state taxes on retirement income is a critical aspect of financial planning for retirees. While federal tax rules apply uniformly across the country, state tax rules can vary widely.

As an accountant, understanding state tax considerations for various sources of retirement income — including pensions, Social Security benefits, 401(k) and IRA distributions, Thrift Savings Plans (TSPs), and military retirement income — is crucial in helping your clients minimize their tax liability and make the most of their golden years.

In this post, we’ll explore some hot topics on state-specific retirement income taxes, including 401(k) withdrawals, states that do not tax retirement income, states that exempt military retirement income, and the best tax-friendly states for retirees.

Jump to:

State tax on retirement income 

State taxes on retirement income vary widely across the U.S. While some states fully exempt retirement income from taxation, others impose different degrees of taxation on distributions from pensions, IRAs, 401(k) plans, military retirement income, and Social Security benefits.

In addition to state income taxes, retirees should consider other state-level taxes, such as property taxes, sales taxes, and estate taxes, which can further impact their overall tax liability. These taxes can affect retirees’ overall financial well-being, particularly if they rely heavily on retirement savings for income.

Perhaps most importantly, choosing a tax-friendly state for retirement can provide significant financial benefits, allowing retirees to maximize their income and enjoy a more comfortable lifestyle. However, it’s essential to carefully evaluate the tax implications of retirement income in each state and consider other factors like cost of living, climate, healthcare, and quality of life when deciding where to retire.

State tax on 401(K) withdrawal

State tax on 401(k) withdrawals refers to the income tax imposed by states on distributions taken from a 401(k) retirement account. Individuals withdrawing funds from their 401(k) plans may be subject to state income taxes depending on where they reside.

Some states do not have income tax, while others make exemptions for retirement income. Most states do not tax Social Security benefits; a few tax 401(k) plans and IRA distributions but not pensions. With so many nuances, it’s important for retirees and individuals planning for retirement to understand how their state handles taxes on 401(k) withdrawals, as this can significantly impact their overall tax liability in retirement.

Which states do not tax retirement income?

Let’s take a detailed look at state tax considerations for various sources of retirement income, including pensions, Social Security benefits, 401(k) and IRA distributions, Thrift Savings Plans, and military retirement income.

• States with no income tax. Eight states do not impose a personal income tax, meaning retirement income from any source remains untaxed. These states include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. Additionally, New Hampshire only imposes income tax on interest and dividend income exceeding $2,400, with plans to phase out this tax by 2025.
• States with no tax on Social Security. In addition to the eight states above, plus New Hampshire, 39 states do not levy income tax on Social Security benefits. These states include Alabama, Arizona, Arkansas, California, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, and Wisconsin.
• States with no tax on pensions. While most states tax at least a portion of pension income, 17 states — including those without an income tax — do not impose taxes on pensions. These states are Alabama, Alaska, Florida, Hawaii, Illinois, Iowa, Mississippi, Nevada, New Hampshire, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Vermont, Washington, and Wyoming.
• States with no tax on TSPs. Retirement distributions from Thrift Savings Plans are not taxed in 12 states – which include those without an income tax (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming) plus Illinois, Mississippi, New Hampshire, and Pennsylvania.
• States with no tax on estate or inheritance. Lastly, 38 states do not impose estate or inheritance taxes, including Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.

States that don’t tax military retirement income

Military retirement income is not subject to taxation in 33 states, including Alabama, Alaska, Arkansas, Connecticut, Florida, Hawaii, Illinois, Iowa, Kansas, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Hampshire, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Vermont, Washington, West Virginia, and Wisconsin.

Best tax states for retirees

Choosing the right state for retirement can substantially impact your tax burden and overall financial situation. Here are the top five tax-friendly states for retirees, along with a brief overview of the tax pros and cons of each:

1. Florida. Florida is renowned for its lack of state income tax, making it an attractive destination for retirees. However, property taxes can be high in some areas.
2. Nevada. Like Florida, Nevada does not impose state income taxes, offering retirees significant tax savings. The state also boasts a vibrant entertainment scene and a relatively low cost of living. However, sales taxes here can be higher than in other states.
3. Texas. Texas is another state with no state income tax, making it appealing for retirees seeking tax-friendly destinations. Additionally, it has a strong economy and a variety of cultural and recreational opportunities. Property taxes, however, can be relatively high in some areas.
4. Wyoming. Wyoming’s lack of state income tax and low overall tax burden make it an attractive option for retirees. The state also offers abundant natural beauty and outdoor recreational opportunities. However, its rural nature may not appeal to retirees seeking urban amenities.
5. South Dakota. South Dakota is known for its favorable tax climate, including no state income tax and low overall taxes. The state also boasts a low cost of living and a high quality of life. However, the climate may not suit retirees looking for warmer weather.

Understanding state taxes on retirement income is essential for retirees looking to maximize their financial resources and enjoy their golden years. By choosing a tax-friendly state and strategically planning withdrawals from retirement accounts, accountants can help those clients reaching retirement age to minimize their tax burden and prepare for a comfortable retirement lifestyle.

Blog For accountants, it is important to remind clients that early distributions from qualified retirement plans or other tax-favored accounts may incur penalties and trigger the need to file Form 5329.

How to stay up to date on state taxes on retirement income

For accountants, keeping abreast of state taxes on retirement income is crucial as you guide your clients into retirement. With Checkpoint Edge, our innovative tax research tool, you’ll get all the latest tax updates, commentary, and insights to help you stay one step ahead for state-by-state tax considerations.

Alongside UltraTax CS, our professional tax preparation software with a full line of federal, state, and local tax programs, you’ll save time and boost productivity.

Originally Appeared Here

The revised deadline is the last day Montanans can apply for property tax relief programs available to lower-income residents.

By Eric Dietrich MONTANA FREE PRESS

Low-income Montanans seeking help paying their property tax bills now have until June 1 to apply for aid through two state relief programs administered by the Montana Department of Revenue — including the flagship Property Tax Assistance Program intended to keep property tax bills from forcing low-income homeowners out of their homes.

This year’s application deadline, previously set for April 15, was extended in an effort to give Montanans facing substantial tax hardship more time to apply, Gov. Greg Gianforte and the Montana Department of Revenue announced this week. 

The Property Tax Assistance Program offers aid to resident homeowners who meet income requirements and, as of this year, offers a tax break on the first $350,000 of value for a primary residence.

Additionally, the Montana Disabled Veteran Assistance Program offers relief to disabled veterans and their surviving spouses.

The state Legislature amended both programs last year to adjust the income requirements for inflation. The Property Tax Assistance Program’s value cap was also increased from $200,000 to the new $350,000 threshold to account for the dramatic growth in home values that Montana has experienced in recent years. 

Under the new income thresholds, Montana resident homeowners with incomes of up to $27,621 if they’re single and $37,019 if they’re part of a family can qualify for a 30% reduction on their property taxes on the first $350,000 of their home’s assessed value. Homeowners who meet lower income thresholds can qualify for higher reductions, with their property taxes reduced by as much as 80%.

Disabled veterans and their surviving spouses can qualify for that assistance program at higher income thresholds. Single disabled veterans with incomes up to $45,803 can qualify to have property taxes on their primary residence reduced to zero.

In 2022, about 21,500 taxpayers participated in the low-income property tax assistance program, saving $843 on average, according to the department’s 2022 biennial report. Combined, participants saved about $18 million on their property tax bills. According to the department, about $15 million of that amount was in effect shifted to other taxpayers.

Also in 2022, about 3,000 taxpayers participated in the disabled veterans’ program, saving $1,963 on average.

The state also offers an Elderly Homeowner/Renter income tax credit, generally available to Montana residents 62 years and older with annual household incomes below $45,000. That credit, as much as $1,150, offsets property tax payments through a formula based on a taxpayer’s income, rent payments and property tax bills. It can be obtained through annual income tax filings, which are also due April 15.

According to the revenue department, about 13,000 taxpayers obtained the elderly homeowner/renter tax credit in 2021, costing the state about $7 million.

All three assistance programs are distinct from the two-time $675 property tax rebates that the Legislature has made available to homeowners of all income levels this year and last. The application window for the first round of rebates closed last year and the revenue department says it plans to accept applications for the second round of rebates, which will apply to 2023 tax bills, starting in mid-August.

More information about the programs, including application forms for the property tax aid programs, is available on the Montana Department of Revenue website.

Originally Appeared Here

Taxes can be a joyous time for those expecting a tax refund this year. They can also be a nerve-wracking time if you’re unsure about the return you just filed.

Find Out: This Is the One Type of Debt That ‘Terrifies’ Dave Ramsey
Read More: Owe Money to the IRS? Most People Don’t Realize They Should Do This One Thing

If you’re looking for some reassurance this tax season because you’re worried you made a mistake, we’ve got you covered on everything you need to know.

Sponsored: Credit card debt keeping you up at night? Find out if you can reduce your debt with these 3 steps

Why Would the IRS Reach Out to You?

“The IRS will normally reach out to you if there is something on your tax return that doesn’t match their records,” said Michele Cagan CPA, who’s also published 16 books on personal finance alone.

This could be something such as forgetting to report IRS Form W-2 or an IRS Form 1099-MISC. It could also be something minor such as forgetting to report interest paid to you from an investment (Form 1099-INT) or reporting income from the forgiveness of debt like student loans (Form 1099-C). Another common reason the IRS may reach out is that while your tax return matches its records, it still doesn’t make sense.

“For example, if you have a salary of $30,000 for the year and you report you have $20,000 in charitable donations, that doesn’t make any sense.”

Another example could be a freelance writer who writes within a certain niche and your write-offs don’t make sense.

“If you write about finance, and you’re trying to deduct 20% of your income to travel costs, that doesn’t necessarily make sense so the IRS might call.”

Check Out: Billionaires vs. the Middle Class: Who Pays More in Taxes?

How Long Does the Irs Have To Reach Out To You About a Mistake?

“The time frame the IRS has to reach out to you about certain mistakes can be anywhere from 3 years to forever,” Cagan explained. “Usually if there is a critical number that doesn’t match, you won’t even be able to e-file your tax return as it will bounce right back.”

A critical number could be a W-2 you forgot. It could also be that one of the forms mentioned above doesn’t match what was reported to them.

The IRS will usually send a letter stating the mistake and the amount you owe or if it’s a return, a refund check. This is something that its computer system can figure out on its own. This usually happens between three weeks to six months. However, if the IRS is coming to you years later, it’s because a person looked at your tax return and has flagged it.

Is It Likely That the IRS Will Catch a Mistake on Your Return?

“The IRS system automatically looks at everyone’s return that they process to see if it matches. However, the IRS also has another program where they will randomly audit people every few years to see how easy it is for people to follow tax laws.”

Story continues

If you are one of the unlucky few, a person will analyze every line of your return to see if it’s correct.

“This is done mainly with tax credits such as the earned income credit and child tax credit. It’s easy to make mistakes with these.”

Deductions that have a lot of different ways to qualify, unfortunately, are looked at the most. If this happens, the IRS will send a letter asking for verification and that’s that. But if the IRS is asking to meet in person, that’s a different story and a different reason.

When To Seek a Professional

Depending on the mistake, the IRS may look at additional returns to double-check. If you disagree and the IRS pushes back, that would be a time to call in a tax professional to help.

“If they want to meet you in person, you 100% want a professional to go in for you. As a matter of fact, you shouldn’t go because anything you say can be used against you. The IRS can make you feel uncomfortable and if you’re cracking jokes, they may take it seriously,” Cagan said.

Cagan emphasized that if the IRS requests to meet you in person, or even worse, meet you at your place of employment, you need a tax representative there and should allow them to do all of the talking on your behalf. Only enrolled agents (EAs), certified public accountants and attorneys are legally able to fully represent you when it comes to the IRS so it’s important to make sure that you have selected someone with the correct credentials.

“Other people can look at your stuff, such as your accountant can look at your return but not all tax preparers can speak to the IRS on your behalf.”

The best rule of thumb when it comes to filing your tax return is to find what way you feel comfortable with and go from there. Whether that’s using tax software on your own or finding an accountant to help, this will help you feel confident when it comes to Uncle Sam and your taxes.

More From GOBankingRates

This article originally appeared on GOBankingRates.com: How Long It Typically Takes the IRS To Reach Out If It Finds a Mistake on Your Taxes

Originally Appeared Here

The size of the Internal Revenue Service budget and whether it should see an increase was part of the focus of a Tuesday Senate Finance Committee hearing during which IRS Commissioner Danny Werfel played defense against what some members of Congress have called over aggressive audits.  

Werfel’s written testimony included a request that IRA funding be extended through fiscal 2034 which would “provide $104 billion over the 10-year budget window and is estimated to generate at least an additional $341 billion in revenue.” 

“The inflation Reduction Act funding has enabled the IRS to have one of its best filing seasons ever,” Werfel told lawmakers at the hearing. “Our ongoing success hinges on sustained investments to make sure that we have the right size workforce with the right training and tools, as well as modern technology.”  

“The inflation Reduction Act funding has enabled the IRS to have one of its best filing seasons ever,” said Werfel. “Our ongoing success hinges on sustained investments to make sure that we have the right size workforce with the right training and tools, as well as modern technology.”  

IRS

The increase in funding from the IRA became a political football and took a $20 billion financial hit during the debt ceiling negotiations. 

Werfel pressed the lawmakers on the future need for additional IRS funding while some Republicans pushed back. 

“You stated before that the IRS would have a decade to rebuild with the $80 billion in funding and there would be a healthy pressure to immediately take the funds and demonstrate what a well-funded IRS means,” said Ranking Member Sen. Mike Crapo, R-Idaho. 

“Many of us raised concerns about that level of funding, which was five times or more of the budget of the IRS,” Crapo said. “Part of my question could be when will it stop?”  

The public finance industry has been tracking the growth of the IRS budget with concerns that funding boosts would translate into higher audit rates for bond transactions.

Werfel addressed the notion of enhanced enforcements by saying, “You have to be really cautious in terms of how we scale our enforcement efforts so there’s no sense that there’s any politics in IRS operations, that we’re doing things aboveboard, nonpartisan, and we’re tackling this issue in a way that’s above any reproach.”

The Senate Finance Committee also represents a stop along the route for the passage of of the troubled Tax Relief for American Families and Workers Act. The bill left the House Ways and Means Committee, passed in the House in early February and has been stuck in the Senate ever since. 

The bill included adjustments to Low-Income Housing Tax Credits issued by the Treasury that lowers the volume requirements of state-issued private activity bonds. 

“In addition to small businesses, the bill will boost low-income housing, adding more than 200,000 new units across the country. It’s paid for by shutting down a pandemic-era tax program that’s riddled with fraud,” said Committee Chair Sen. Ron Wyden D-Ore. in a statement yesterday. 

Werfel’s written testimony included a proposal to require electronic filing of form 8038-CP, Return for Credit Payments to Issuers of Qualified Bonds, which is used to claim tax credit payments relating to interest on Build America Bonds. Under current rules the agency accepts electronic filing of the form by doesn’t require it. 

Werfel spent most of his time defending the agency’s Free File program. Democrats like the pilot program while, Republicans believe the private sector is better suited for the job. 

IRS Free File was launched in February 2013 as public-private partnership with seven leading tax software providers. The service comes with eligibility requirements for taxpayers including age, income and state residency.

Originally Appeared Here

If there’s one thing we should be able to agree upon, it’s that everyone should pay the taxes they owe without having to pay for the privilege of doing so. This year, for the first time, residents of 12 states who file simple tax returns can file online for free using the IRS’s new Direct File portal.

Thanks to funding from the Inflation Reduction Act and as part of an ambitious modernization effort, this new public tool makes tax filing faster, easier and cheaper for eligible filers. The IRS wisely started small, piloting Direct File in four states — Arizona, California, Massachusetts and New York — each agreed to implement an integrated option for filing their state tax return and eight states without a state income tax. Similarly, eligibility for Direct File is limited to filers with certain types of income who don’t itemize their deductions — people with wage and salary income from an employer, Social Security benefits, modest interest income and unemployment insurance.

Importantly, Direct File can be used to claim the child and earned income tax credits, providing valuable support to millions of working families. In fact, helping families claim these credits by eliminating the cost of tax filing may be one of Direct File’s most important contributions. In 2020 — the most recent year for which data are available — nearly one out of every four individuals eligible for the EITC didn’t claim the credits they were owed.

Direct File was also designed to meet the needs of other segments of the public who aren’t served by existing private systems. Filers can prepare their returns on a smartphone, tablet or desktop, and real-time online support is available weekdays and evenings in Spanish and English from a live IRS professional — not an AI-powered chatbot.

Early reviews of Direct File show strong support, with users reporting it as “the fastest I’ve ever done my taxes” and “honestly the easiest tax experience I’ve ever had.” One reporter said that “the government has created an actually good piece of software.”

The enthusiastic response to a free online filing option shouldn’t be surprising. The typical taxpayer spends 13 hours and $270 each year preparing a federal tax return. Money saved by filing for free is money back in families’ pockets — money that can be used for rent, groceries and other necessities.

Direct File is arguably a long-overdue solution. The tax preparation software industry lobbied hard to block previous bipartisan public portal efforts dating back to the late 1990s. The industry deliberately suppressed participation in its privately managed alternative, resulting in just 3% of filers using the industry-backed program in 2020, in contrast to the estimated 70% of filers eligible to do so. Private firms also used hardball tactics to upsell consumers, leading state attorneys general to secure a record-breaking settlement with TurboTax’s owner for deceptive advertising.

As IRS Commissioner Danny Werfel has made clear, Direct File is a choice.

Individuals who prefer to buy private software or use an accountant are welcome to do so. However, the success of this year’s pilot suggests that Direct File is a choice a large share of the 91% of Americans with relatively simple tax situations will choose to make.

To scale the pilot to more tax filers in more states, the IRS must work quickly with state tax administrators to ensure filers who wish to use a public option can seamlessly file their federal and state tax returns. It will also require sustained support and the funding needed to reverse a decade of disinvestment and rebuild the IRS to improve customer service and ensure the nation’s tax laws are enforced effectively.

In the meantime, if you qualify for the Direct File pilot and have yet to complete your tax return, there’s still time to check it out. If you’ve finished your taxes, give yourself a well-deserved pat on the back. For all of us — filed or yet to file — the new Direct File tool represents government at its best: saving families time and money. That’s something to cheer about.

Happy Tax Day!

Jean Ross, a senior fellow for economic policy at the Center for American Progress, wrote this for InsideSources.com.

Originally Appeared Here

Twelve years after a hacker stole personal information from 3.6 million people through South Carolina tax returns, the state’s top police officer says he thinks he knows who did it

By

JEFFREY COLLINS Associated Press

April 10, 2024, 4:23 PM ET

• 4 min read

COLUMBIA, S.C. — Twelve years after a hacker stole personal data from more than 3.6 million people in South Carolina by obtaining Social Security numbers and credit card information from tax returns, the state’s top police officer said Wednesday he thought he knew who did it but wasn’t ready to name anyone.

State Law Enforcement Division Chief Mark Keel was careful not to release many details during his confirmation hearing for another six-year term. He said what authorities didn’t find shows that the state had the right response after the U.S. Secret Service identified the hack and data breach in October 2012.

“I think the fact that we didn’t come up with a whole lot of people’s information that got breached is a testament to the work that people have done on this case,” Keel said.

A contractor with the state Department of Revenue clicked on a malicious link in an email in the summer of 2012, allowing a hacker to access 6.4 million state income tax returns. They collected the Social Security numbers of 3.6 million people and almost 400,000 credit and debit card numbers.

The state paid $12 million for identity theft protection and credit monitoring for its residents after the breach, At the time, it was one of the largest breaches in U.S. history but has since been surpassed greatly by hacks to Equifax, Yahoo, Home Depot, Target and PlayStation.

Democratic Sen. Brad Hutto has been searching for answers for over a decade and has been repeatedly told it was an active investigation and couldn’t be talked about. Hutto decided to ask Keel about the breach Wednesday to try to get answers in public.

“Now you can tell us that y’all paid somebody in Azerbaijan $28,000 or whatever it was,” Hutto said.

Keel refused again to say if South Carolina paid a ransom to the hacker to get the information back.

“I’m probably still not going to be totally transparent with you, OK?” Keel said. “I’m not going to lie to you either.”

Keel justified the insurance for taxpayers and the federal and state investigative work by saying the quick action prevented the hacked information from being used and the proof was what didn’t happen — an onslaught of bogus credit card charges or people using stolen ID information.

In retrospect, the state may not have had to spend $12 million on insurance. But that is with the benefit of hindsight, Keel said.

“We didn’t really have a choice,” Keel said. “It was something that we had to do because at the time this happen we had to start trying to protect people immediately. We didn’t have time for the investigation to play out the way it ultimately played out.”

Hutto responded: “Did it play out? Do you know who did it?”

“Yes, sir, I know who did it,” Keel said, refusing to give any other details.

Hutto asked if the person had been prosecuted, then laughed and said it might have been because the person was paid off.

Keel didn’t respond to the bait. “If we could ever get to this individual, they may be,” he said.

The Senate subcommittee approved Keel’s nomination for an additional six-year term. It now goes to the full Judiciary Committee.

Keel has worked at the State Law Enforcement Division for nearly his entire 44-year law enforcement career, other than a three-year stint as the Department of Public Safety’s director.

He rose through the ranks in jobs like helicopter pilot and hostage negotiator before becoming the agency’s chief of staff in 2001. He spent a year as interim director in 2007 before being passed over by then-Gov. Mark Sanford for the top job.

Gov. Nikki Haley chose Keel to lead the State Law Enforcement Division in 2011.

Originally Appeared Here

The 2024 tax filing season will wrap up in just a couple of days now, and the IRS has been processing returns and delivering refunds to millions of Americans. If you’ve waited until now to file this year’s taxes, you might want to check out this IRS program that enables millions of Americans to file their federal tax returns for free. 

IRS Free File is a partnership between the IRS and seven of the country’s biggest online tax-prep companies. If your adjusted gross income was $79,000 or less in 2023, you are eligible to use Free File to process and submit a simple return for free. Some participating companies will even process your state return.

This story is part of Taxes 2024, CNET’s coverage of the best tax software, tax tips and everything else you need to file your return and track your refund.

2024 has been a big year for Free File. This year, the program is seeing a year-over-year increase in use of nearly 10%. So far this filing season, 943,000 filers have taken advantage of the program. 

Here’s everything to know about Free File: who qualifies for it, what it can do and what you’ll need to take advantage of it. 

For more, check out the best tax software for 2024, our cheat sheet for filing your taxes this year and everything to know about the child tax credit in 2024. 

What is IRS Free File?

IRS Free File is a nonprofit partnership between the IRS and the Free File Alliance, a group of commercial tax-prep companies that have agreed to process and file federal returns electronically at no charge. (Some may also offer free state returns.) 

If you use Free File, you’ll be directed to one of these companies’ sites to complete your return with step-by-step instructions.

• 1040Now
• Drake (1040.com)
• ezTaxReturn.com (offers both English and Spanish)
• FileYourTaxes.com
• On-Line Taxes
• TaxAct
• TaxHawk (FreeTaxUSA)
• TaxSlayer

Note that Intuit Turbo Tax withdrew from the program in 2021.

Who qualifies for IRS Free File?

Participating tax-preparation providers set their own eligibility rules, but individuals whose adjusted gross income, or AGI, was $79,000 or less in 2023 will likely find an offer for which they qualify.

The system is only set up to process relatively simple returns.

If you make more than $79,000, the IRS still provides fillable forms to let you file your federal taxes online, although there is no step-by-step guidance.

How does IRS Free File work?

The Free File program can answer basic questions, perform calculations and file your federal return with the IRS.

“Our software offers step-by-step help to get your federal taxes done quickly, safely, securely and at absolutely no cost,” Free File Alliance director Tim Hugo said in a statement. 

You can access the program on your computer, smartphone or tablet. It cannot be done in person or through the mail. In addition, Free File can’t be used to submit returns for any year prior to 2023.

To file with IRS Free File, you’ll need:

• Income statements (W2s, 1099s, etc.)
• Social Security numbers for you and any relevant spouse or dependents
• Your 2021 tax return to access your adjusted gross income

Once you have your documentation, follow these steps: 

1. Go to the IRS Free File website.

2. Click the Use Free Guided Tax Preparation button. Then hit Find Your Trusted Partner tool to find an offer for the right product for you. Alternatively, you can use the Browse All Trusted Partners tool to review each offer.

3. Select the best product for you.

4. Follow the links to the provider’s website to begin your tax return. 

Is IRS Free File really free?

According to the IRS, you can’t be asked to buy any products or services in exchange for having a federal tax return prepared by a participant in the Free File program.

You may be charged to file a state return.

For more tax tips, here’s how to find out when you’ll get your 2024 tax refund and the fastest way to get your 2024 tax refund. 

Originally Appeared Here

LINCOLN — Gov. Jim Pillen opened the door Thursday to pausing or extending a planned decrease in state income taxes to help fund his property tax reduction plan.

Pillen’s property tax plan, Legislative Bill 388, was placed in flux on Tuesday when sponsors pledged to remove a controversial 1-cent hike in state sales taxes — a major component of the plan — to help finance a $1 billion shift from local property taxes.

The decision has set off a search for a new source of funding to finance the proposal and sparked speculation that pausing the gradual income tax reductions passed by the State Legislature last year might be the solution since it would provide a similar amount of revenue.

It also prompted the main sponsor of LB 388, State Sen. Lou Ann Linehan of Elkhorn, to pledge that she wouldn’t bring the bill back unless she could get agreement on how to replace the lost revenue.

Top bracket to drop to 5.84% this year

Under last year’s tax law, the state’s top income tax bracket is scheduled to drop to 5.84% in tax year 2024, and then continue to drop gradually until reaching 3.99% in tax year 2027. The cut was projected to reduce income taxes by about $450 million in the next fiscal year. That compares to the projected income of $527 million from a sales tax increase in the same fiscal year.

In comments to the Examiner on Thursday, Pillen said he was encouraged that several ideas are emerging to replace the revenue that a 1-cent hike in sales taxes would have generated.

“We’ve got everybody working together,” he said. “We’ve got lobby groups, instead of saying ‘No, no, no’ to ideas, people are coming forward with ideas.”

What about pausing the income tax cuts?

“We can’t be satisfied with 3.99%,” Pillen said. “I could be a big strong advocate of let’s extend our income tax conversation to get it down to 3% by 2032, for example.”

Pause called wrong-headed

One argument being advanced about “pausing” the income tax cuts is that it wouldn’t be a “tax increase” but just a delay in the planned decreases.

But opponents, especially Nebraska’s business groups, have argued that a deal was a deal and it would be wrong-headed to reverse course on the income tax cuts.

As a possible show of concern about the possibility, the executive committee of the Greater Omaha Chamber of Commerce scheduled a meeting to discuss the issue of pausing the income tax cuts.

The chamber has also expressed concerns about a companion bill to LB 388, which increases state aid to K-12 schools and lowers tax levies, and whether it might harm a key economic development tool, tax-increment financing or TIF.

Conservative groups opposed hike

Pillen’s proposed 1-cent hike in state sales taxes was assailed by conservative groups as a tax increase, by business groups as a “tax shift” that didn’t lower taxes, and by progressive groups as hurting low-income Nebraskans. It lacked the 33 votes last week to advance.

His administration had defended the tax hike as rebalancing the state’s three main sources of taxes, which currently has about $5 billion a year being paid in property taxes and less than $3 billion being paid in sales taxes. Officials also maintained that high property taxes were forcing hardship on homeowners and making farmers less competitive and that a shift to sales taxes wouldn’t be noticed.

Pillen initially called for a 40% reduction in local property taxes, as well as an increase in per-student “foundation aid” to K-12 schools from $1,500 to $3,000. LB 388, as advanced by the Legislature’s Revenue Committee, offered a reduction of about 30%.

GET THE MORNING HEADLINES DELIVERED TO YOUR INBOX

SUBSCRIBE

Originally Appeared Here

STATEN ISLAND, N.Y. — Americans are receiving, on average, more than $3,000 back on their annual tax returns this year.

Through March 22, the most recent date currently available, the agency has issued 54,990,000 refunds, roughly 7.3% fewer than the 59,342,000 that had been issued by this time last year, according to the latest Internal Revenue Service (IRS) data.

The reason for the reduction in refunds issued to date is a simple one; the agency officially began processing tax returns one week later this year, with the 2023 filing season beginning on Jan. 23 and the 2024 filing season beginning on Jan. 29.

The average refund amount through March 22 was $3,081, roughly 6.1% higher than the average refund of $2,903 at that time last year.

Through Feb. 9, the average had been just $1,741, but has increased dramatically now that the IRS has begun issuing refunds to taxpayers who claimed the Earned Income Tax Credit or Additional Child Tax Credit, the refundable portion of the Child Tax Credit.

Due to the Protecting Americans from Tax Hikes (PATH) Act, which took effect during the 2017 filing season, the IRS legally cannot issue refunds or credits to anyone who claimed an Earned Income Tax Credit or Additional Child Tax Credit before Feb. 15, with the agency expecting those who claimed those credits to receive their direct deposit refunds by Feb. 27.

The policy was implemented “to help prevent revenue loss due to identity theft and refund fraud related to fabricated wages and withholdings,” according to the IRS.

TRACKING YOUR REFUND

If you’re one of the millions of Americans who have already sent in their tax returns, there are online portals that will allow you to monitor the status of your refund.

For federal taxes, residents can use the IRS “Where’s My Refund” tool or the IRS2Go mobile app to see when their refunds have been received, processed and sent.

Refund status will appear roughly 24 hours after you e-file a current-year return, three or four days after you e-file a prior-year return or four weeks after you file a paper return.

To access the information, which is updated overnight each day, residents must provide their Social Security or individual taxpayer ID number (ITIN), filing status and exact refund amount on their return.

Once refunds are sent, those using direct deposit should receive their refund within five days, while those expecting checks in the mail may have to wait several weeks.

For state taxes, New Yorkers can visit the Department of Taxation and Finance website and click “Check refund status.”

This allows residents to see if their return has been received; when it’s being processed; if the return requires additional review; if the state requires additional information; if a requested refund amount has been adjusted and when a refund has been issued.

NEW TAX INCOME BRACKETS

While tax rates have remained the same as last year, the IRS has announced new brackets with adjusted thresholds, boasting upper limits that are 7% higher than last year.

In addition to the new tax brackets, the standard deduction, the amount you can deduct to adjust the amount of income on which you’re taxed, has also increased from $12,950 to $13,850 for single filers and from $25,900 to $27,700 for married couples filing jointly.

Here’s a look at the new tax brackets that will be used when filing in 2024.

MARGINAL TAX BRACKETS FOR SINGLE FILERS

• $11,000 or less in taxable income – 10% of taxable income
• $11,001 to $44,725 in taxable income – $1,100 plus 12% over $11,000
• $44,726 to $95,375 in taxable income – $5,147 plus 22% over $44,725
• $95,376 to $182,100 in taxable income – $16,290 plus 24% over $95,375
• $182,101 to $231,250 in taxable income – $37,104 plus 32% over $182,100
• $231,251 to $578,125 in taxable income – $52,832 plus 35% over $231,250
• $578,126 or more in taxable income – $174,238 plus 37% over $578,125

MARGINAL TAX BRACKETS FOR MARRIED COUPLES FILING JOINTLY

• $22,000 or less in taxable income – 10% of taxable income
• $22,001 to $89,450 in taxable income – $2,200 plus 12% over $22,000
• $89,451-$190,750 in taxable income – $10,294 plus 22% over $89,450
• $190,751-$364,200 in taxable income – $32,580 plus 24% over $190,750
• $364,201 to $462,500 in taxable income –$74,208 plus 32% over $364,200
• $462,501 to $693,759 in taxable income – $105,664 plus 35% over $462,500
• $693,751 or more in taxable income – $186,601 plus 37% over $693,750

Originally Appeared Here

Government websites have a mostly deserved reputation for being terrible and driving us nuts.

So it was a pleasant surprise to try IRS Direct File, a new (and politically controversial) option to file a tax return online directly with the Internal Revenue Service. Direct File works like TurboTax, but it’s run by the government and free to file a federal tax return.

Most people aren’t eligible to file their taxes with Direct File. I thought I could, was rejected partway through and instead used TurboTax.

Direct File was not perfect. Still, I liked using the IRS website — and I definitely prefer it over TurboTax, which annoys me with constant nags for more money and my private data.

You might feel differently about it. I’ll tell you about my experience with Direct File and why it’s important even if you don’t use the site.

We deserve effective online government services. Direct File is visible proof that government websites don’t have to stink.

How to file your taxes with IRS Direct File (if you can)

The first thing to know about Direct File is that it’s a trial project. And you probably can’t use it.

You can only file your tax return with the new IRS site if you’re in one of 12 states including Texas, New York and California; work for an employer rather than yourself; and meet many other eligibility requirements. (Read more here.)

Just going through Direct File’s seven online screens of eligibility checklists and doing an online identity verification almost made me quit.

But once I did start my tax return, Direct File felt pleasantly similar to TurboTax, which I have used for years.

Direct File guides you through yes or no questions about your income and potential tax breaks. You can chat online for help, too.

There are far fewer questions than there are in TurboTax because Direct File only permits use by people who have simple tax returns.

There were things I didn’t like. Unlike TurboTax, which had a digital copy of my W-2 tax form and let me pull in digital records from my investment accounts, I had to type into Direct File details like my income and interest payments.

That took more time and left room for me to mistype numbers.

The biggest problem was that part way through, Direct File told me that I couldn’t actually file my federal tax return with the site. Ugh.

I missed a detail in the eligibility checklist that you can’t use Direct File if you had more than $1,500 in interest income last year. I did. I was also nixed because I paid into a Health Savings Account, a fund through my employer to help pay for medical expenses.

I went through the whole Direct File process anyway to see how it went. And again, I was pleasantly surprised that the website was easy to use with clear questions and helpful explanations. And did I mention that it’s free? (If you can use it.)

A warning: Don’t mix up Direct File with existing IRS options to complete your tax return online.

You can also set up an account on the IRS Free File Fillable Forms website. Unlike Direct File or TurboTax, you need to go through the tax form yourself line by line. (Read more here about free or low-cost tax filing options.)

A colleague, Monica Rodman, found it confusing to use Free File Fillable Forms. Monica was so unsure of the results that they double checked the work with TurboTax. The whole process took 12 hours!

Monica gave up and had a good experience using Free Tax USA — which charged nothing to file a federal return and $15 for a state return.

The Free File Alliance, which runs Fillable Forms and a program called IRS Free File, has said about 463,000 households filed returns using Fillable Forms last year. NPR recently reported that more than 50,000 people have tried Direct File so far. Tens of millions of Americans file taxes with TurboTax each year.

The problem that IRS Direct File is trying to solve

Critics of Direct File in Congress and industry say the government is wasting money by replicating existing services like those from Intuit’s TurboTax, H&R Block and smaller tax preparers.

I can’t answer whether Direct File should exist or not. I can say as a technology writer and longtime user of TurboTax that commercial tax software drives me batty.

I like using TurboTax. But I hate that it nudges me over and over to pay more for extra features I don’t want. TurboTax also repeatedly tried to get me to use Credit Karma, a personal finance site also owned by Intuit.

And TurboTax wants permission to use private information like your income and debt to make more money pitching you financial services. (Here’s how to say no to that.)

Direct File didn’t work for me, but I liked that it had zero yucky nagging as TurboTax has.

Intuit didn’t respond to my questions.

I know that not everyone will trust a government tax website. But I appreciate a choice between filing my tax return for free directly with the IRS or using a paid commercial website.

Hillary Hartley, chief executive of U.S. Digital Response, a nonprofit that helps governments create technology services, said citizens and government agencies benefit from competent public websites like Direct File.

We expect technology in our lives to just work. “When government can deliver on that same promise, then it pays dividends in rebuilding trust in our institutions,” Hartley said.

Julie Zauzmer Weil contributed to this report.

• Yes, you can file your tax return for free. Here are your options.
• The IRS says nearly 1 million people have an unclaimed tax refund from 2020. Here’s how to find out if the IRS owes you money.
• TurboTax and H&R Block now use AI for tax advice. It’s awful.

Originally Appeared Here