First Social Security COL Adjustment Since 2009

The US Social Security Administration announced today that Social Security recipients will be getting a pay increase in 2012. Here is a link to the press release.  A cost of living adjustment is based on the Consumer Price Index, which did not increase in 2010 or 2011, so this is the first increase of its kind since 2009.

The 3.6 percent cost of living adjustment will benefit some 60 million social security beneficiaries across the nation.  However, by SSA’s own admission, some of these people will see no increase at all due to an increase in Medicare premiums.  So, no change really.

The SSA also announced that the maximum amount of earnings subject to the Social Security tax will increase from $106,800 to $110,100, affecting about 10 million taxpayers.  However, some of these people may be able to offset the tax increase by finding additional credits and deductions.  So, no change there either.

Even if you’re not one of the 10 million, you’re not out of the woods.  You’re not getting tax relief anytime soon either.  The temporary 2011 Social Security tax rate reduction (from 6.2% to 4.2%) — which affects all workers — will expire if nothing more is done to either revive it or further reduce it.

The Fake n’ Bake Tax

I spent more than a few minutes searching for an appropriate visual aid to go along with this post. I wanted to make sure it was just right.  Okay, maybe I got a little sidetracked.

If you’re not familiar with the new tanning tax that went into effect last summer, maybe you’re the type that likes to soak up the natural sunlight which, by the way, probably causes cancer just the same, but it’s harder to regulate.  The legislation that went into effect on July 1, 2010 imposes a 10% excise tax on ultraviolet tanning services — paid by the burn victims and collected (and reported) by the burners.

TIGTA (IRS’s big brother) released a report today showing that the new tax is not generating near the amount of revenue it was expected to generate.  It was supposed to raise as much as $50 million in the 4th quarter of 2010 and $200 million this year. Instead it raised only $17.8 million in the 4th quarter of 2010 and $36.6 million during the first 6 months of 2011.  So why the poor results?  These are some possible reasons that TIGTA identified:

  • The tax was pushed through quickly and the tanning industry wasn’t prepared
  • Businesses aren’t paying and the IRS isn’t enforcing compliance like it should
  • IRS has incomplete / outdated records of applicable businesses

Read about a recent public hearing on the tanning tax here.

Read about California’s recent ban on indoor tanning for minors here.

Read about the metal umlaut here.

NJ No Longer “Film Friendly”

Movie and television producers are going to realize, if they don’t know already, that they won’t find maximum tax relief by setting up shop in New Jersey.

You probably heard about New Jersey’s governor, Chris Christie’s denial of a $420,000 tax credit for MTV’s Jersey Shore earlier this year. Christie doesn’t approve of the show because it “perpetuates misconceptions about the state and its citizens.” It’s probably safe to say that most people from NJ would prefer out-of-staters soon forget the association with Jersey Shore.

However, democrats continue to push for passage of legislation that would grant tax credits for production companies that shoot films and TV shows in the Garden State. The democrats point to a 2008 study showing that movie maker tax credits are good for jobs and good for the local economy in general. The republicans point to a 2010 study showing that movie production incentives have no such effect.

The irony in all this is that New Jersey, specifically Fort Lee NJ, is known as the birthplace of the motion picture industry. The state suffered its first hit 100 years ago when most filmmakers moved their operations to California where they could film year-round with little threat of inclement weather. Could these tax issues be the second major setback for New Jersey’s film industry?

IRS Selects New ETAAC Members

The Electronic Tax Administration Advisory Committee (ETAAC) is a 13-member panel that consults with and reports to the IRS on electronic tax administration issues. Their goal: increasing electronic interactions between tax professionals and the IRS. Past panels have consisted of professionals in the banking, technology, tax law, accounting, and tax preparation industries.

Introducing the new members:

  1. Timothy Blevins: big shot at CGI, a global business process services firm
  2. Cyrus Daftary: attorney at Burt, Staples & Maner, a Washington D.C. taxation law firm
  3. Yasmine Nolan: big shot at H&R Block
  4. Timur Taluy: CEO of FileYourTaxes.com
  5. Mark Steber: big shot at Jackson-Hewitt (selected as ETAAC Chairman for 2011-2012)

If you’re a big shot and feel you were overlooked, maybe you deserve a spot on this committee. It is too late this time around, but feel free to review the membership application for future reference. Applications are accepted each February. This is a volunteer 3-year position with a 150-hour time commitment. And they’re just looking for experience in a few key areas:

  • public policy development
  • formulating, developing, and presenting proposals for ETAAC consideration
  • e-file security experience
  • tax software experience
  • accuracy-related experience

Fee Increase for California Installment Agreements

Starting October 26, the Franchise Tax Board will be raising the fees for installment agreements as follows:

Personal Income Tax Installment Agreements: $34 (previously $20)

Business Entity Installment Agreements: $50 (previously $35)

See the Installment Agreement information page for more information, but note that it has not been updated with the new amounts yet.

Fees are still subject to change (again) without notice.

IRS Spends $80 Million with Credit Cards: Legitimacy of Purchases Cannot be Verified

Yet another TIGTA audit has brought to light deficiencies in the Internal Revenue Service. This time the problems relate to the use of IRS-issued credit cards that are made available to certain IRS employees. Purchases on these cards are supposed to be tightly regulated. But TIGTA found that many of the restrictions on these cards have been ignored, and management has failed to take corrective action when violations have been found.

The cards are meant for purchases under $3,000 — purchases over this amount are governed by a separate set of internal controls. Furthermore, card purchases must not be made without prior managerial approval. TIGTA found significant violations in both areas. The $3,000 limit rule is regularly circumvented by splitting up purchases into two transactions. Improper credit card purchases are not always detected because the IRS lacks sufficient management controls. Instead of asking for more funding and more staff for collections, the IRS really needs to keep a better eye on how they are spending the money they do have.

TIGTA’s review covered the period of September 2007 – March 2009. Here are the key stats:

  • 4,270 credit card holders within IRS
  • 1,024 approving IRS officials
  • 16 different IRS business units
  • 174,000 purchases
  • purchases totaling $80 million

One Perspective on Cain’s 9-9-9 Tax Plan

At a minimum, the Cain plan is a distributional monstrosity. The poor would pay more while the rich would have their taxes cut, with no guarantee that economic growth will increase and good reason to believe that the budget deficit will increase. . . . Mr. Cain’s tax plan stands out as exceptionally ill conceived.

~ Bruce Bartlett, former George W. Bush economic policy adviser

IRS Will be Watching EITC Claims More Closely in 2012

The Earned Income Tax Credit (EITC) is a refundable credit for low to moderate income households. It is a very desirable form of tax relief because it actually puts money back in their pockets . . . if they qualify.  The problem is that over the years the IRS has also paid out in circumstances where the taxpayer doesn’t really qualify. In fact, in 2009 over 26 million people received nearly $59 billion through the EITC.

In an effort to promote more accuracy (and less fraud) in connection with EITC, the IRS is likely going to make it a requirement that all paid tax preparers include Form 8867 with all returns that include the credit. Right now it is a proposed regulation still awaiting public comment and final approval. In years past, tax preparers were required to complete this form (to prove their due diligence) and retain it in case of audit. But under the proposed regulation, paid tax preparers would be required — beginning January 1, 2012 — to actually file the form along with the return.

TAS No Longer Taking Simple “Delay” Cases

The Taxpayer Advocate Service (TAS) — that independent organization within the IRS whose mission it is to assist taxpayers — announced that it no longer has the manpower to assist taxpayers where the only complaint is IRS delay. Taxpayers must go elsewhere for real tax relief.

TAS groups its cases into two broad categories: (1) Economic Burden and (2) Systemic Burden. They will continue to handle all Economic Burden cases, but the following “systemic burden” issues will be remanded to the IRS:

  1. Processing of Original Returns
  2. Unpostable/Rejected Returns
  3. Processing of Amended Returns
  4. Injured Spouse Claims
According to the TAS, delays associated with these 4 issues are typically due to the IRS being overloaded with work. And the way they see it, it makes no sense to push the problem off on them, who are also overloaded with work. So, the TAS will temporarily not be helping taxpayers with these specific issues. Of course, a systemic issue could be causing (or about to cause) an economic burden, and in that case, the TAS will hear it. Full details here.

Extension on CA State Taxes Ends October 17th

The California Franchise Tax Board (FTB) issued a news release on Friday reminding Californians of the extended tax return deadline and also siting some interesting statistics.

Like the IRS, the California tax authority does cut some slack for procrastinators. And like the IRS automatic extension, the California version also comes to an end on October 17th. Sometimes the tax relief most needed is just some more time. The FTB tries to make it as convenient as possible to both file and pay your state taxes.

Filing CA Taxes

  • ReadyReturns (partially completed returns just waiting for the taxpayer to complete online)
  • CalFile free e-file program
  • other free or fee-based e-file services listed on FTB’s website
  • view wage & income information online with MyFTB Account

Paying CA Taxes

And now for the statistics. This year over 1.5 million Californians requested an automatic extension and will have to file by the October 17th deadline. This actually eases the burden on the state in April by spreading out the work a little more evenly throughout the year. By now California taxpayers have filed more than 14.7 million personal income tax returns of which 11.7 million were e-filed. Also, the state has issued 9.5 million refunds totaling $8.1 billion.