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Question: I have heard a lot about this new “Bush-era tax cut” bill signing. How does this affect my family of four with two children?
Answer: After much discussion Congress passed, and President Barack Obama signed, a bill keeping the Bush-era tax cuts in place for two more years. In addition, a measure to lower Social Security for employees by two percent cleared both houses and was signed by . For the most part, most of us will not see any more money in our refund than 2009 for a family tax, but our take home pay in paychecks will be two percent higher from the Social Security tax reduction. According to IRS.gov, in a Dec. 17, 2010, article, this reduction in Social Security tax will not affect future Social Security benefits. Employers are mandated to adjust withholding as soon as possible but no later than January 31, 2011. This reduction would put another $500.00 in a taxpayers pocket assuming they make $25,000.00 per year in wages. Had the continuation of the tax cuts not passed, families were looking at their tax bill going up $1,500 to $3,000, higher capital gains and dividend rates as well as a reduction in depreciation write-offs for business. Unemployment benefits for the long-term unemployment were extended another 53 weeks.
These are difficult economic times with a 9.8 percent national unemployment rate. Practically one in ten Americans are out of work. As more factories close, businesses do more with less, and more jobs are outsourced over-seas, the job market has been difficult at best. The president and Congress are hoping the extra money in our pockets will help stimulate the economy and provide help for struggling families. When money is spent with businesses, especially small ones, those businesses can expand and produce more jobs. Jobs are the basis of our economy. Small business contributes in excess of 50 percent of total jobs in the United States.
The tax bill, as it relates to families, does not contain provisions that are new and exciting meas-ures. Rather, it continues programs such as the child tax credit, earned income credits, college credits, energy credits, and additional child tax credits. All of these areas have their own set of rules and will vary with each taxpayer. The good news is they are still in place and will continue to lower the tax burden for families with children.
Paid tax-preparers have new rules. Every paid tax preparer must have a Preparer Tax Identification Number and register with the Internal Revenue Service. In addition, these tax preparers must pass a competency exam every three years to work as a paid preparer in the tax industry. The IRS also requires these preparers to complete fifteen hours of continuing education credits per year to maintain their IRS registration. Taxes are complicated and the IRS wants paid preparers to have a higher level of competency. Some states, like California and Oregon, have tested and registered tax preparers for several years.
For years, consumer groups have lobbied against Refund Anticipation Loans. These loans are made by a few banks to taxpayers using their refund as “collateral.” The banks would issue a check, usually within 24 hours of the taxpayer filing their taxes and the refund would pay off the loan. Sometimes the RAL check would be for several thousand dollars. With new changes in information provided to tax preparers and these banks, banks are unwilling to accept the risk of these high dollar loans and have reduced the amounts a taxpayer can receive, dramatically. This lower RAL amount is industry wide and may signal the demise of the Refund Anticipation Loans in the future.
In summary, not much has changed. The Bush-Era tax cuts are back in place. Paid tax preparers must register with the IRS prior to Dec. 31, 2011. RAL checks will be much smaller. Refunds will remain close to last year’s levels. Some good, some bad. We all hope for a better 2011, with jobs coming back for struggling families.
Jerry Morphis is owner of Accutax in Elizabethtown.