Don't Mess With Taxes

Today's Tax Tip

Tax season 2012 is here. To make fulfilling your tax duty as painless as possible, you'll find a Daily Tax Tip over there in the ol' blog's right column. Each day, including weekends and federal holidays, you'll find ways to cut your 2011 tax bill, ease your filing tasks and/or make key 2012 tax year planning moves. And if you miss a day, don't worry. You can visit the complete list of 2012 tips.

New York offers debit card refund option

Tax refunds via debit cards didn't work for Uncle Sam last year, but maybe the Empire State will have better luck.

The New York Department of Taxation and Finance announced this week that the state's taxpayers can now choose to receive their personal income tax refunds on a prepaid MasterCard debit card.

 
Click image to view a video on the NY tax refund debit card option.

The option was created to provide folks without a bank account a way to have their refunds directly deposited. 

New Yorkers can choose the debt card refund method when they file their tax returns.

Once the return is processed and refund is OK'ed, the money will be deposited into a bank account and your card -- or two cards if you filed a joint return with your spouse, one for each of you -- will be mailed to you.

When you get it, just activate it and use it as you would any other debit card.

Bank alert: Now here's where some folks might have an issue.

The financial institution with which New York tax officials have partnered is Bank of America.

Still want the card?

Fine.

A lot of folks are adamantly anti-BoA, but others don't have a problem with the bank. I just wanted you to know.

Other rules, possible fees: Once you activate your New York tax department refund debit card you can use it for purchases as you wish wherever such cards are accepted.

Your first bank transaction is free. You noticed that "first," right? You might face a $1 charge for each subsequent withdrawal.

But there are no fees for purchases.

And you don't have to use it regularly to keep the card active.

As for quick cash, if you use in-network ATMs -- those are Bank of America and Allpoint machines -- you won't face any charges for those transactions.

The New York tax office has published a complete fee schedule.

Of if you prefer, you can bring the debit card to a bank and cash out the entire refund amount.

Federal follow-up: I'm sure the U.S. Treasury Department and Internal Revenue Service will be closely watching the New York program. And that earns this post today's Follow-up Friday honors.

The New York program looks to be more streamlined than the ill-fated federal pilot program that failed miserably last year.

If the refund debit card works well in the Empire State, perhaps Uncle Sam will be able to follow New York's plan and one day reissue a debit card for IRS refunds.

You also might find these items of interest:

• New federal tax refund debit cards
  for taxpayers without bank accounts (2010)
• Direct deposit to replace U.S. checks
• When real life meets tax refund loans

Tax refunds delayed by fraud fine-tuning

Few folks are as eager as those awaiting a tax refund.

Well, there's bad news for some of you early filers.

New anti-fraud measures implemented this tax filing season have caused the Internal Revenue Service to be a bit slow in sending out refunds.

After getting calls from taxpayers and tax professionals wanting to know why folks were still waiting for refunds -- e-filers generally can expect their directly deposited refunds in about 10 days -- the IRS announced that the tax cash could be delayed a week because of a new anti-fraud safeguards.

Here's the official email word from the IRS via its QuickAlert notification system:

"As with the start of any tax season, there are system validations that occur requiring some fine-tuning of our systems. As part of this, some taxpayers will receive refunds approximately one week later than initial projections they may have received, but these are still in line with historical refund delivery times.

The one-week delay for some refunds relates to fine-tuning IRS systems to adjust for new safeguards put in place this tax season to provide stronger protection against refund fraud. The IRS is providing additional screening for fraud this year before issuing refunds, but the vast majority of taxpayers can still continue to expect to receive their refunds in a timely fashion."

ID theft issues: While the delay is understandably irritating, the reason is legitimate.

Tax refunds lost to identity thieves is a growing problem. In 2010 alone, reported the Government Accountability Office (GAO) last year, the IRS identified more than 245,000 incidents of identity theft.

While that amount is tiny when you consider that around 140 million of us file tax returns, it represents a nearly five-fold increase in taxpayer identity theft between 2008 and 2010.

It's just too bad the IRS couldn't test its fraud detection system before filing season began.

Not so fast: There are reports, however, that the "vast majority" of taxpayers the IRS says are getting their refunds quickly might be overstated.

Beverly Russell, a financial planner for Jackson Hewitt in Spartanburg, S.C., told CBS affiliate WSPA-7 that his office received a memo from the IRS saying they were "researching an issue with their fraud screening and detection process, which could impact between 60 to 70 percent of refunds for this funding cycle. This would include returns accepted by the IRS before 11 a.m. on January 18th."

"They're using the term 60 to 70 percent will get delayed," Russell told the TV station. "So that means 30 to 40 percent will get through, so I don't know which 30 or 40 percent is going to be happy or not."

Refund timing: As I noted in my earlier post about when to expect your tax refund, those delivery dates are estimates.

The IRS reiterated that in its notification about this delay:

"The IRS reminds taxpayers that refund time frames provided by "Where's My Refund" and tax providers are projected time frames and are subject to revision. Many different factors can affect the timing of the refund after the IRS receives the return for processing.  The IRS apologizes for any inconvenience caused by the revised refund dates."

So if you filed early and are getting a bit anxious about your refund, this probably is the reason you haven't received it yet.

You can find out its exact status by using the agency's Where's My Refund tracking tool.

And not to be too much of a tax nag, but it's also another reason why you should adjust your withholding.

A tweak of your W-4 will mean you won't have to depend on the IRS to send you back your cash that you could have had control of all year.

You also might find these items of interest:

• Tax refunds as forced savings accounts
• $153 million in tax refunds returned as undeliverable
• Tax refunds: Spending tips, payroll withholding effects

Federal workers and retirees owe more than $3 billion in taxes

Lost in the political sniping this week about which candidate pays how much in taxes was a report on which federal workers aren't paying what they owe.

The latest tax delinquency data shows that at the end of fiscal 2010, about 98,000 federal, postal and Congressional employees owed $1.03 billion in unpaid taxes.

Add in federal retirees and military personnel, and the Internal Revenue Service says the total comes to nearly 280,000 people owing $3.4 billion.

The numbers are from the IRS' Federal Employee/Retiree Delinquency Initiative (FERDI). Since 1993, FERDI figures have been send to Congress as part of an effort promote tax compliance among current and retired federal employees.

It's not working so well.

The 2010 analysis shows a 3 percent increase in delinquent federal worker/retiree tax debt from the previous fiscal year.

The tax scofflaw percentage is a bit bigger on Capitol Hill. And no, I'm not talking about Representatives and Senators.

There were around 18,000 Congressional staffers in 2010 and 684 employees, or almost 4 percent, owed taxes that year. That was an increase of 46 workers from the unpaid federal worker tax bills in 2009.

Specifically, 4 percent of House staffers owed $8.5 million and 3 percent of Senate employees owed $2.1 million, according to the 2010 IRS data.

The Washington Post has created an interactive table where you can sort alphabetically by name or numerically by dollar amount to see just which federal worker and retiree groups owed exactly how much in 2010.

Congressional tax targets: Rep. Jason Chaffetz (R-Utah), a member of the House Oversight and Government Reform Committee, noted that while the number of tax delinquent federal employees has remained fairly constant since 2004, the amount they owe has increased 72 percent from 2004 to 2010.

Table courtesy Rep. Chaffetz. Data from  IRS FERDI. Click image for larger view.
Excludes federal employees who have entered into tax repayment agreements.

Chaffetz has sponsored bills that would allow federal employees who owe the IRS to be fired. Current law only allows for the termination of IRS employees who haven't paid their federal income taxes. Companion legislation has been introduced by Sen. Tom Coburn (R-Okla.), who most recently also went after tax breaks for the wealthy.

You can be sure these two lawmakers will cite FERDI's latest nonfiling numbers when they reintroduce their bills this year.

You also might find these items of interest:

• Federal workers owe IRS $3 billion 
• Uncle Sam's tax deadbeat trouble
• Who owes the IRS millions? Uncle Sam

State of taxes in Obama's State of the Union address.

Tuesday was the day that news really wasn't new.

First, Mitt Romney released his tax returns, which didn't tell us very much we didn't already know.

Then came Obama's 2012 State of the Union address, which also contained a lot of tax ideas that we've heard before.

And we've still got a week until Groundhog Day!

In case you missed it, you can watch the White House video of the speech.

Or you can read the transcript. Or you can peruse a collection of Twitter comments posted while Obama spoke.

But since you've stopped by the ol' blog, here are the tax highlights.

Buffett Rule booster: Let's start with individual taxes.

Obama wants Congress to sign off on the Buffett Rule. The White House floated this idea of taxing the wealthy more last fall, shortly after Warren Buffett announced that he didn't believe he paid enough to Uncle Sam.

The reason for the low tax rate, according to the Berkshire Hathaway head and the prez, is the preferential tax treatment given to investment income. That 15 percent long-term capital gains tax rate is enjoyed by not only Buffett and many of his financial peers.

But if Obama gets his wish, households with annual incomes of more than $1 million would pay a minimum tax rate of 30 percent. That would be double the rate paid by Willard Mitt over the last two years.

In addition, the prez wants to end many tax breaks for rich taxpayers. Again, this is something the Administration has proposed before.

"[M]y Republican friend Tom Coburn is right: Washington should stop subsidizing millionaires," said Obama, referring to the Oklahoma Senator's report on tax subsidies of the rich and famous.

Obama proposes ending tax breaks for mortgage interest, health care cost, retirement contributions or child care for those making more than $1 million a year. Charitable contributions, however, would still be allowed to wealthy donors.

Business tax enticements, penalties: On the corporate tax side, Obama decried a tax system that provides "tax breaks for moving jobs and profits overseas" while "companies that choose to stay in America get hit with one of the highest tax rates in the world. It makes no sense, and everyone knows it. So let's change it."

Obama's suggested corporate tax changes include both carrots and sticks. He wants to:

• Require U.S. companies pay a minimum tax on overseas profits. The U.S. Treasury would get any difference between the foreign tax and a new, unspecified minimum tax.
  
• Prohibit companies from claiming a business eduction for any costs associated with closing American operations that are then sent abroad.
• Offer a new tax credit for companies coming back to the United States. It would cover the costs of closing overseas operations that are relocated in the U.S.
• Lower tax rates for manufacturers, with added tax breaks for high-tech manufacturing.

What now? The Buffett Rule is a nonstarter in this current political climate. But it will lead to continued discussion of our current tax system and how it might be adjusted to erase perceptions of unfairness.

As for actual individual tax changes, don't count on them until sometime in 2013 at the earliest regardless of (or depending on) who gives that year's State of the Union address.

Some corporate tax refinements might have a better chance of making it through the legislative process this year. But even then, look for any changes here to be minor.

Or, to paraphrase the president as he was wrapping up his remarks, that brings us back to where we began. Just like so many times before.

You also might find these items of interest:

• Who wants to tax a millionaire?
• Rethinking mortgage tax breaks
• Is it time for tax reform?

Mobile posting test

Testing my ability to post via my new phone. Thanks for your indulgence of this nontax detour, but I'm hoping that once I master it, I'll be able to post tax items even when I'm out and about.

Comparing presidential -- and presidential wannabe -- 1040s

Not to run this Mitt Romney tax return thing into the ground, but I just ran across a nice 1040 comparison graphic by the Washington Post.

That's a snippet of it below.

Click image for full version view.

So how did the prez and two of the guys who want his job do on their 2010 taxes?

Barack and Michelle Obamas' tax effective rate was 26 percent.

Newt and Callista Gingrich paid almost 32 percent in taxes.

And Mitt and Ann Romney, as noted (and noted and noted) were the big tax winners, with an effective tax rate just a smidge under 14 percent.

Of course, even with that low tax rate, the Romneys ended up writing the biggest check -- around $3 million -- to the U.S. Treasury.

Paper chase: But what really caught my eye was the number of tax return pages filed by each couple.

The Gingriches sent the IRS a 46-page tax return for 2010.

The Obamas' 2010 filing took 59 pages.

And the Romneys 2010 tax returns (not counting their charitable foundation's filing) covered 203 pages.

I know taxes are not A to B to C much of, OK most of, the time, but I couldn't help but notice that the duo who had the lowest tax rate <cough, Romneys, cough> filed more than four times the paperwork than did the pair with the highest tax rate <cough, Gingriches, cough>.

Sure looks like that sometimes complicated does pay off, at least for some folks ... not to mention for their tax advisers.

You also might find these items of interest:

• Obamas, Bidens release 2010 tax returns
• Obamas, Bidens release 2009 tax returns
• Romney refuses Occupy Iowa demand that he release his tax returns

Romney releases 2010, 2011 tax returns

Now we know. The economic downturn also affected millionaire Mitt Romney.

Tax data released by the Republican presidential candidate show that he had income of $21.7 million in 2010 and $20.9 million last year.

For the 2010 tax year, Romney made public the joint personal tax return he and his wife Ann filed, as well as returns for the Mitt Romney Trust, the Ann Romney Trust, their family trust and the Tyler Charitable Foundation filing.

He also released a 2011 estimated return.

Details, details: What exactly have we learned from all these electronic pieces of paper?

Mitt and Ann Romney are very, very rich even after bringing in a bit less in 2011 than 2010.

For 2010, the couple reported $21.7 million in income, most of it from investments, and paid $3 million in federal taxes. That's an effective tax rate of 13.8 percent.

They expect in 2011 to have around $21 million in income and to pay $3.2 million. That pushes their 2011 effective tax rate up to 15.2 percent.

Since the Romneys' money is primarily from investment earnings, those tax rates are in line with the top long-term capital gains tax rate of 15 percent.

The couple got no money -- nada, zilch, zip -- from ordinary income sources such as the wages most of us report and pay tax rates of up to 35 percent on that income.

They also helped shave a few tax dollars off their IRS bills by giving to charity, primarily to the Mormon church of which they are members.

Of the $7 million in itemized charitable gifts made by the Romneys over 2010 and 2011, just over $4 million of it went to the Church of Jesus Christ of Latter-day Saints.

Also of note (although it's already been widely reported), Romney has money in offshore accounts. You can find Romney cash in such expected tax havens as Switzerland, the Cayman Islands and Bermuda.

But not to worry. CNNMoney reports that:

Brad Malt, a Washington lawyer who serves as trustee of the Romneys' blind trusts, said Romney pays all U.S. taxes on income from the trusts' foreign investments. Further, he said Romney has no role in choosing how the blind trusts invest his money.

"The blind trust investments in the Cayman funds are taxed exactly as if Gov. Romney owned his share of the funds in the United States," Malt said.

And like many less-wealthy Americans, the Romneys are subject to the alternative minimum tax.

This parallel tax system, usually referred to as the AMT, was created to ensure that people couldn't legally avoid all taxes. However, conveniently for the Romneys and other similarly situated taxpayers, the AMT doesn't eliminate the tax benefits of investment income.

Finally, the big reveal in case you didn't already know: Mitt's first name is Willard.

You also might find these items of interest:

• Would Mitt Romney's tax plan keep his personal tax rate
  at 'around 15 percent'?
• Romney's earnings prompt renewed attention
  to carried interest taxation
• Marginal tax rates vs. effective tax rates,
  or what Mitt's and Newt's taxes tell us