Ten Social Security Tax Questions

Ten Social Security Tax Questions

There were several programs established by the Social Security Act to ensure individuals with disabilities and people who retire have supplemental income. It also established a program for survivors to receive a death benefit. Supplemental income from Social Security keeps more than 40 percent of the elderly population out of poverty. With all of the changes and amendments made since 1935, the tax implications are complicated for individuals and employers. The following are 10 common tax questions related to Social Security.

1. Are Social Security benefits taxed? In some cases, benefits may be subject to federal income tax. If the benefits are a person’s only source of income, they are not likely to be taxed. However, people who have additional income will usually be subject to the federal income tax.

2. Are there base amounts for benefits? The base amounts are determined by a person’s filing status. The base amount for a married couple filing jointly is $32,000. For married couples filing separately who live together, it is $0. The base amount is $25,000 for all other taxpayers.

3. What percentage of benefits is subject to income tax? If an individual adds his or her income to half of the total received benefits and it exceeds more than the base amount, up to 50 percent of that individual’s benefit will be counted as gross income. The base amounts are the same as those listed in the previous paragraph. However, if the person’s income exceeds $40,000 for married filing jointly status, $0 for married filing separately status or $25,000 for all other taxpayers, up to 85 percent of the total amount of benefits must be counted as gross income.

4. Are workers’ compensation benefits counted as Social Security on tax forms? Yes, workers’ compensation benefits are counted as Social Security since they cause a reduction in the tier I category for disability benefits.

5. Why does adjusted gross income include nontaxable interest? This is done to limit the chances of manipulation on tax liability benefits.

6. What are the reporting requirements from the Social Security Administration? Information must be sent to each beneficiary every year that shows any repayments from the beneficiary and any reductions of benefits.

7. How are lump-sum retroactive benefits and over-payments taxed? Any benefits paid to an individual are reduced by over-payments that are repaid. Retroactive lump-sum payments are treated as payable during the year when they were received. Any benefits received before 1984 are not taxable.

8. Are income taxes withheld from Social Security benefits? Withholding is allowed but it is voluntary. Benefit recipients can submit a Form W-4 if they wish to have federal income taxes taken directly out of their benefits. Withholding can be chosen at several different percentage rates up to 25 percent of the total benefit payment.

9. How are Social Security taxes reported for domestic help? The 2015 threshold for coverage of a domestic worker was $1,900 in 2015. Always check current rules for updated threshold amounts. Any wages paid to domestic workers under the age of 18 are exempt from Social Security taxes. Being a student is classified as an occupation.

10. If a person receives wages as an employee but is also self-employed, how much income is subject to self-employment income tax? The difference between the base of maximum earnings and the wages earned as an employee is the amount that is subject to taxation as self-employment income. If the net earnings from self-employment income are more than $434, no self-employment tax is due. However, the amount that is considered taxable may be less than $400 in some cases.

There are many other common concerns related to Social Security taxes and benefits. To learn more or for answers to other questions, discuss concerns with an agent.

From the IRS: Top 10 Tips to Know if You Get a Letter from the IRS

Top 10 Tips to Know if You Get a Letter from the IRS

The IRS mails millions of notices and letters to taxpayers each year. There are a variety of reasons why we might send you a notice. Here are the top 10 tips to know in case you get one.

1. Don’t panic. You often can take care of a notice simply by responding to it.

2. An IRS notice typically will be about your federal tax return or tax account. It will be about a specific issue, such as changes to your account. It may ask you for more information. It could also explain that you owe tax and that you need to pay the amount that is due.

3. Each notice has specific instructions, so read it carefully. It will tell you what you need to do.

4. You may get a notice that states the IRS has made a change or correction to your tax return. If you do, review the information and compare it with your original return.

5. If you agree with the notice, you usually don’t need to reply unless it gives you other instructions or you need to make a payment.

6. If you do not agree with the notice, it’s important for you to respond. You should write a letter to explain why you disagree. Include any information and documents you want the IRS to consider. Mail your reply with the bottom tear-off portion of the notice. Send it to the address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

7. You won’t need to call the IRS or visit an IRS office for most notices. If you do have questions, call the phone number in the upper right-hand corner of the notice. Have a copy of your tax return and the notice with you when you call. This will help the IRS answer your questions.

8. Always keep copies of any notices you receive with your other tax records.

9. Be alert for tax scams. The IRS sends letters and notices by mail. The IRS does not contact people by email or social media to ask for personal or financial information.

10. For more on this topic visit IRS.gov. Click on the link ‘Responding to a Notice’ at the bottom left of the home page. Also, see Publication 594, The IRS Collection Process. You can get it on IRS.gov/forms at any time.

Additional IRS Resources:
• Tax Topic 651 – Notices – What to Do
• Tax Topic 653 – IRS Notices and Bills, Penalties and Interest Charges
• Understanding Your CP2000 Notice
IRS YouTube Videos:
• Received a Letter from the IRS? – English | Spanish | ASL

From the IRS: What to Know about Late Filing and Late Paying Penalties

What to Know about Late Filing and Late Paying Penalties

April 15 was the tax day deadline for most people. If you are due a refund there is no penalty if you file a late tax return. But if you owe tax, and you failed to file and pay on time, you will usually owe interest and penalties on the tax you pay late. You should file your tax return and pay the tax as soon as possible to stop them. Here are eight facts that you should know about these penalties.

1. Two penalties may apply. If you file your federal tax return late and owe tax with the return, two penalties may apply. The first is a failure-to-file penalty for late filing. The second is a failure-to-pay penalty for paying late.

2. Penalty for late filing. The failure-to-file penalty is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. It will not exceed 25 percent of your unpaid taxes.

3. Minimum late filing penalty. If you file your return more than 60 days after the due date or extended due date, the minimum penalty for late filing is the smaller of $135 or 100 percent of the unpaid tax.

4. Penalty for late payment. The failure-to-pay penalty is generally 0.5 percent per month of your unpaid taxes. It applies for each month or part of a month your taxes remain unpaid and starts accruing the day after taxes are due. It can build up to as much as 25 percent of your unpaid taxes.

5. Combined penalty per month. If the failure-to-file penalty and the failure-to-pay penalty both apply in any month, the maximum amount charged for those two penalties that month is 5 percent.

6. File even if you can’t pay. In most cases, the failure-to-file penalty is 10 times more than the failure-to-pay penalty. So if you can’t pay in full, you should file your tax return and pay as much as you can. Use IRS Direct Pay to pay your tax directly from your checking or savings account. You should try other options to pay, such as getting a loan or paying by debit or credit card. The IRS will work with you to help you resolve your tax debt. Most people can set up an installment agreement with the IRS using the Online Payment Agreement tool on IRS.gov.

7. Late payment penalty may not apply. If you requested an extension of time to file your income tax return by the tax due date and paid at least 90 percent of the taxes you owe, you may not face a failure-to-pay penalty. However, you must pay the remaining balance by the extended due date. You will owe interest on any taxes you pay after the April 15 due date.

8. No penalty if reasonable cause. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show reasonable cause for not filing or paying on time. There is also penalty relief available for repayment of excess advance payments of the premium tax credit for 2014.

Additional IRS Resources:
• IRS Direct Pay
• Make a Payment – payment options
• Tax Topic 653 – IRS Notices and Bills, Penalties and Interest Charges
• Q&A about interest and penalties for filing and paying late
• Publication 594, The IRS Collection Process
• Filing Your Taxes
• IRS Tax Map
IRS YouTube Videos:
• IRS Tax Payment Options – English | Spanish | ASL
• Online Payment Agreement – English | Spanish | ASL
IRS Podcasts:
• IRS Tax Payment Options – English | Spanish
• Online Payment Agreement – English | Spanish

From the IRS: A Dozen Key Points about Paying Your Taxes

A Dozen Key Points about Paying Your Taxes

The IRS offers several payment options if you owe federal tax. Here are a dozen key points to keep in mind when you pay your taxes this year.

1. Never send cash. Electronic payment options are the quickest and easiest way to pay your tax.

2. Check out IRS Direct Pay to pay directly from your bank account. Access Direct Pay on IRS.gov. It’s secure and free. You will get instant confirmation that you have submitted your payment.

3. You can pay taxes electronically 24/7 on IRS.gov. Just click on the ‘Payments’ tab near the top left of the home page for details.

4. Pay in a single step by using your tax software when you e-file. If you use a tax preparer, ask the preparer to make your tax payment electronically.

5. Whether you e-file your tax return or file on paper, you can choose to pay with a credit or debit card. The company that processes your payment will charge a processing fee.

6. You may be able to deduct the credit or debit card processing fee on next year’s return. It’s claimed on Schedule A, Itemized Deductions.

7. Enroll in the Electronic Federal Tax Payment System. You can use EFTPS to pay your federal taxes electronically. You have a choice to pay using the Internet, or by phone using the EFTPS Voice Response System.

8. If you can’t pay electronically, you can still pay by a personal or cashier’s check or money order. Make it payable to the “U.S. Treasury.” Be sure to write your name, address and daytime phone number on the front of your payment. Also, write the tax year, form number you are filing and your Social Security number. Use the SSN shown first if it’s a joint return.

9. If you pay by paper check, complete Form 1040-V, Payment Voucher. Mail it with your tax return and payment to the IRS. Make sure you send them to the address listed on the back of Form 1040-V. This will help the IRS process your payment and post it to your account. You can get the form on IRS.gov/forms at any time.

10. Remember to include your payment with your tax return but do not staple or clip it to any tax form.

11. Even if you can’t pay your tax in full, the IRS urges you to file your tax return on time. You should pay as much as you can with your tax return. That will help keep your penalty and interest costs down. You have options such as an installment agreement, which allows you to pay the balance over time. The Online Payment Agreement tool on IRS.gov is the easy way to apply.

12. To listen to a recorded message on this subject, call TeleTax at 800-829-4477. Select Topic 202, Payment Options.

If you found this Tax Tip helpful, please share it through your social media platforms. A great way to get tax information is to use IRS Social Media. You can also subscribe to IRS Tax Tips or any of our e-news subscriptions.

Additional IRS Resources:
• IRS Free File
• E-file Options
• Filing Your Taxes
• IRS Tax Map

IRS YouTube Videos:
• Online Payment Agreement – English | Spanish | ASL
• IRS Tax Payment Options – English | Spanish | ASL

IRS Podcasts:
• Online Payment Agreement – English | Spanish
• IRS Tax Payment Options – English | Spanish

From the IRS: IRS Issues the Top 10 Tax Time Tips

IRS Issues the Top 10 Tax Time Tips

With April 15 right around the corner, the IRS wants make sure you get the help you need at tax time. Make things easier by not waiting until the last minute. Here are the top 10 tax time tips:

1. Gather your records. Make sure you have all the tax records you need to file your taxes. This includes receipts, canceled checks and other records that support income, deductions or tax credits that you claim on your tax return.

2. Report all your income. You will need to report your income from all of your Forms W-2, Wage and Tax Statements, and Form 1099 income statements when you file your tax return.

3. Try IRS Free File. You can prepare and e-file your tax return for free using IRS Free File. Free File is only available on IRS.gov. If you made $60,000 or less, you can use free name-brand tax software. If you earned more, you can use Free File Fillable Forms, an electronic version of IRS paper forms. Either way, you have a free option available on IRS.gov.

4. Try IRS e-file. Electronic filing is the best way to file a tax return. It’s accurate, safe and easy. The IRS issues more than nine out of 10 refunds in less than 21 days. If you owe taxes, you have the option to e-file early and pay by April 15.

5. Visit IRS.gov. IRS.gov is a great place to get what you need to file your tax return. Click on the “Filing” icon for links to filing tips, answers to frequently asked questions and IRS forms and publications. Get them all at any time.

6. Use IRS online tools. The IRS has many online tools on IRS.gov to help you file. For instance, the Interactive Tax Assistant tool provides answers to many of your tax questions. The tool gives the same answers that an IRS representative would give over the phone. If you want to find a tax preparer with the qualifications and credentials that you prefer, use the new IRS Directory of Federal Tax Return Preparers. IRS tools are free and easy to use. They are also available 24/7.

7. Use Direct Deposit. The fastest and safest way to get your refund is to combine e-file with direct deposit.

8. Weigh your filing options. You have several options for filing your tax return. You can prepare it yourself or go to a tax preparer. You may be eligible for free help at a Volunteer Income Tax Assistance or Tax Counseling for the Elderly site.

9. Check out number 17. IRS Publication 17, Your Federal Income Tax, is a complete tax resource that you can read on IRS.gov. It’s also available as an eBook. It can help you with many tax issues, such as whether you need to file a tax return, or how to choose your filing status.

10. Review your return. Mistakes slow down your tax refund. If you file a paper return, be sure to check all Social Security numbers. That’s one of the most common errors. Remember that IRS e-file is the most accurate way to file.

If you found this Tax Tip helpful, please share it through your social media platforms. A great way to get tax information is to use IRS Social Media. You can also subscribe to IRS Tax Tips or any of our e-news subscriptions.

Additional IRS Resources:
• IRS Tax Map

IRS Youtube Videos:
• Welcome to Free File – English
• Interactive Tax Assistant – English | ASL
• How to Use the Tax Return Preparer Directory – English
• Choose a Tax Preparer Wisely – English | Spanish
• IRS Tax Payment Options – English | Spanish | ASL

IRS Podcasts:
• Welcome to Free File – English
• Interactive Tax Assistant – English
• Choose a Tax Preparer Wisely – English | Spanish
• IRS Tax Payment Options – English | Spanish

From the IRS: IRS.gov: Simply the Best Place to Get Tax Help

IRS.gov: Simply the Best Place to Get Tax Help
If you need help with your taxes, the IRS website is the place for you. There is no waiting for service and it has tax tools that are easy to use. You can even prepare and e-file your tax return for free with IRS Free File. If you have questions, you can get the answers you need, when you need them. Here are the best reasons to make IRS.gov your one stop shop for tax help from the IRS.

• Use IRS Free File. You can prepare and e-file your federal taxes for free with IRS Free File. Free File does the hard work for you. If you made $60,000 or less, you can use free name-brand tax software. If you earned more, you can use Free File Fillable Forms, the electronic version of IRS paper forms. Either way, you have a free e-file option, and the only way you can access it is on IRS.gov.

• Options to File Electronically. You should file electronically whether you qualify for free volunteer help, do your own taxes or hire a tax preparer. IRS e-file is the easiest, safest and most popular way to file a complete and accurate tax return. The fastest way to get your refund is to combine e-file with direct deposit. You get your refund in less than 21 days in most cases. If you owe taxes, e-file has easy pay options so you can file early and pay by the April 15 deadline.

• Help at Any Time. IRS.gov is always available. Use the “Filing” link from our home page for all your federal tax needs. Just about everything you need is right at the tip of your fingers. The Interactive Tax Assistant tool and the IRS Tax Map can answer with many of your tax law questions. You can view, download or print tax products right away. Many IRS tools and products are also available in Spanish.

• Find a Tax Preparer. The IRS has a new tool that you can use to help you find a tax return preparer. The Directory of Tax Return Preparers tool will search and sort for a list of tax preparers in your area with the credentials and qualifications that you prefer.

• Check Your Refund. You can track your refund using the ‘Where’s My Refund?’ tool. It’s quick, easy and secure. You can check the status of your return within 24 hours after the IRS has received your e-filed return. If you file a paper return, you can check your refund status four weeks after you mail it. Once IRS approves your refund, the tool will give you a date to expect it. The IRS updates refund status for the tool no more than once a day.

• Pay Tax Online. Electronic payments are a convenient and safe way to pay taxes. The IRS Direct Pay tool is the fastest and easiest way to pay the tax you owe. Visit IRS.gov/directpay to use this free and secure way to pay directly from your checking or savings account. If you can’t pay all your taxes in full, use the Online Payment Agreement to apply for an installment agreement.

• Use the EITC Assistant. The Earned Income Tax Credit may apply to you if you worked and earned less than $52,427 in 2014. The credit can be worth up to $6,143. Use the EITC Assistant tool to find out if you’re eligible. You may be among the millions of workers who get the EITC this year. And you can use Free File to claim the EITC.

• Figure Your Withholding. The IRS Withholding Calculator tool can help you avoid having too much or too little income tax withheld from your pay. You can use it anytime throughout the year to stay on target.

• Get Health Care Tax Information. You can get all the details about the Affordable Care Act tax provisions on IRS.gov/aca. Visit this site to find out how the health care law affects your taxes, including:

o Reporting health insurance coverage.

o Claiming an exemption from the coverage requirement.

o Making an individual shared responsibility payment.

o Claiming the premium tax credit.

o Reconciling advance payments of the premium tax credit.

The official IRS website is IRS.gov. Don’t be fooled by other sites that claim to be the IRS, but end in .com, .net, or .org. Some scams use phony websites to get your personal and financial information. Thieves also use the information to commit identity theft or steal your money. Visit only IRS.gov for tax help from the IRS.

If you found this Tax Tip helpful, please share it through your social media platforms. A great way to get tax information is to use IRS Social Media. You can also subscribe to IRS Tax Tips or any of our e-news subscriptions.

IRS YouTube Videos:
• Welcome to Free File – English
• Interactive Tax Assistant – English | ASL
• When Will I Get My Refund? – English | Spanish | ASL
• Help for Taxpayers – English | ASL
• IRS Tax Payment Options – English | Spanish | ASL
• Online Payment Agreement – English | Spanish | ASL
• IRS Withholding Calculator – English | Spanish | ASL

IRS Podcasts:
• Interactive Tax Assistant – English
• When Will I Get My Refund? – English | Spanish
• Help for Taxpayers – English
• IRS Tax Payment Options – English | Spanish
• Online Payment Agreement – English | Spanish
• IRS Withholding Calculator – English | Spanish

From the IRS: Five Key Tax Tips about Tax Withholding and Estimated Tax

Five Key Tax Tips about Tax Withholding and Estimated Tax

If you are an employee, you usually will have taxes withheld from your pay. If you don’t have taxes withheld, or you don’t have enough tax withheld, then you may need to make estimated tax payments. If you are self-employed you normally have to pay your taxes this way. Here are five tips about making estimated taxes:

1. When the tax applies. You should pay estimated taxes in 2015 if you expect to owe $1,000 or more when you file your federal tax return next year. Special rules apply to farmers and fishermen.

2. How to figure the tax. Estimate the amount of income you expect to receive for the year. Also make sure that you take into account any tax deductions and credits that you will be eligible to claim. Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax.

3. When to make payments. You normally make estimated tax payments four times a year. The dates that apply to most people are April 15, June 15 and Sept. 15 in 2015, and Jan. 15, 2016.

4. When to change tax payments or withholding. Life changes, such as a change in marital status or the birth of a child can affect your taxes. When these changes happen, you may need to revise your estimated tax payments during the year. If you are an employee, you may need to change the amount of tax withheld from your pay. If so, give your employer a new Form W–4, Employee’s Withholding Allowance Certificate. You can use the IRS Withholding Calculator tool help you fill out the form.

5. How to pay estimated tax. Pay online using IRS Direct Pay. Direct Pay is a secure service to pay your individual tax bill or to pay your estimated tax directly from your checking or savings account at no cost to you. You have other ways that you can pay online, by phone or by mail. Visit IRS.gov/payments for easy and secure ways to pay your tax. If you pay by mail, use the payment vouchers that come with Form 1040-ES.

Additional IRS Resources:
• Publication 505, Tax Withholding and Estimated Tax
• Estimated Tax – frequently asked Q & As
• Tax Topic 306 – Penalty for Underpayment of Estimated Tax
• Make a Payment

IRS YouTube Videos:
• Estimated Tax Payments – English | Spanish | ASL
• IRS Tax Payment Options – English | Spanish | ASL
IRS Podcast:
• Estimated Tax Payments – English | Spanish
• IRS Tax Payment Options – English | Spanish

From the IRS: Five Key Points about Children with Investment Income

Special tax rules may apply to some children who receive investment income. The rules may affect the amount of tax and how to report the income. Here are five key points to keep in mind if your child has investment income:

1. Investment Income. Investment income generally includes interest, dividends and capital gains. It also includes other unearned income, such as from a trust.

2. Parent’s Tax Rate. If your child’s total investment income is more than $2,000 then your tax rate may apply to part of that income instead of your child’s tax rate. See the instructions for Form 8615, Tax for Certain Children Who Have Unearned Income.

3. Parent’s Return. You may be able to include your child’s investment income on your tax return if it was less than $10,000 for the year. If you make this choice, then your child will not have to file his or her own return. See Form 8814, Parents’ Election to Report Child’s Interest and Dividends, for more.

4. Child’s Return. If your child’s investment income was $10,000 or more in 2014 then the child must file their own return. File Form 8615 with the child’s federal tax return.

5. Net Investment Income Tax. Your child may be subject to the Net Investment Income Tax if they must file Form 8615. Use Form 8960, Net Investment Income Tax, to figure this tax. For more on this topic, visit IRS.gov.

Refer to IRS Publication 929, Tax Rules for Children and Dependents, for complete details on this topic. Visit IRS.gov/forms to view, download or print IRS forms and publications anytime.

Additional IRS Resources:
• Questions and Answers on the Net Investment Income Tax
• Filing Your Taxes
• IRS Tax Map