Don’t ignore the tax man
WASHINGTON — You’ve lost your job, and your mortgage company is threatening foreclosure. Then, when it seems like things can’t get any worse, the tax man comes calling. What’s a person to do?
Don’t ignore the Internal Revenue Service.
"The most important thing for people to do even if they owe money is to go ahead and file that return," says Terry Lemons, senior spokesman for the IRS.
The average refund last year was $2,429. "That’s a lot of money for people who are facing hardship," he said.
In these tough economic times, taxpayers may find they’re due a larger refund than they expected.
The IRS considers taxation a "pay as you go" system, said Bob Meighan, vice president for the Consumer Tax Group, part of Intuit Inc., which publishes the tax preparation software TurboTax. "Most Americans are current in tax liability as they are earning income."
But if your annual income declined because you lost a job or had other changes in your financial situation, your tax bill is likely to be lower, and you could be due a larger refund.
You might find yourself eligible for a broad range of credits for which you didn’t qualify before. Among them: the Earned Income Credit, education credits and the Recovery Rebate Credit.
The stimulus checks people received last year actually were an advance payment on the Recovery Rebate Credit. Initial eligibility was determined based on 2007 tax returns.
If your financial circumstances changed, you may qualify for the rebate now, even if you didn’t when the initial payments were made.
If you did get a check, you also may qualify for an additional credit if you added a child to your family in 2008.
Through 2008, Treasury processed more than 118 million stimulus payments totaling about $96 billion. The IRS expects about $10 billion in Recovery Rebate Credits in 2009.
The credits are $600 for those filing individually, $1,200 for joint filers and $300 for each child.
The Earned Income Tax Credit was designed to help low-income workers by offsetting part of their Social Security and Medicare taxes. Since it boosts take-home pay, it is meant to provide an incentive to work. The maximum income limit is $41,646. That declines based on filing status and the number of children in the household. The maximum credit for 2008 is $4,824, up from $4,716 in 2007.
Lemons says the IRS is paying close attention to the hard times and wants Americans to take advantage of every credit and deduction due them.
For those who owe back taxes, the IRS is offering some assistance.
Taxpayers who lost a job, rely solely on Social Security or welfare, or who face "devastating illness or significant medical bills" may be able to have collection actions suspended.
For those facing financial hardship, missing a payment on an installment agreement with the IRS won’t necessarily result in suspension of the agreement. The agency said people should call the IRS to discuss their situation.
The IRS has put together a series of answers to "What If" questions to help taxpayers in financial distress. They can be found on its website at www.irs.gov/newsroom/article/0,,id=201853,00.html.
Don’t forget, tax experts say, that unemployment insurance benefits are taxable as income. If you didn’t opt to have federal or state income tax withheld or file estimated taxes, you could find yourself with a tax bill that you cannot pay no teletrack payday loans.
"However, the expenses that you incur to find a job are deductible to the extent that you can itemize," provided you are not looking for a job for the first time, Meighan said.
People struggling financially also could find themselves with a bigger tax bill if they withdrew money from an Individual Retirement Account or 401(k) and didn’t have taxes withheld. There also is a 10 percent penalty if you’re under 59