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Income Tax Tips for PFMs Working with Military Families


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This is a free webinar hosted by the Personal Finance concentration area of the Military Families Learning Network.
This 90-minute webinar will address updates to tax changes that affect military families and service members. Barbara O’Neill will discuss tax basics and common tax errors during the first half hour of this interactive webinar. In the second half Taylor Spangler of University of Florida Extension will talk about the specific tax issues of concern to military families, as well as provide military specific resources for tax help and support. Carol Kando-Pineda of the Federal Trade Commission will close the session with an update on the resources available through Find more info:

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Income Tax Tips for PFMs Working with Military Families

  1. 1. PF SMS iconsPF SMS icons 1 Income Tax Tips for Personal Finance Managers Working with Military Families
  2. 2. Connecting military family service providers and Cooperative Extension professionals to research and to each other through engaging online learning opportunities MFLN Intro Sign up for webinar email notifications at
  3. 3. Today’s Presenters 3 Dr. Barbara O’Neill •Rutgers Cooperative Extension’s Specialist in Financial Resource Management •Outreach Coordinator for the Personal Finance concentration area of the Military Families Learning Network. Taylor Spangler •Family Consumer Science Extension Program Coordinator at the University of Florida. •Coordinator for the Florida Master Money Mentor, Volunteer Tax Assistance, Financial Ambassadors and the Florida Saves programs.
  4. 4. Webinar Objectives Present information on the following topics: •Federal Income Tax Background •Features of the Tax Cuts and Jobs Act •Resources about taxes and the Tax Cuts and Jobs Act •The tax filing process •Income tax filing errors and opportunities •Resources for income tax preparation •Income tax identity theft
  5. 5. Question 1: What are the most frequent tax questions that you get from clients?
  6. 6. Income Tax Background Photo by Barbara O’Neill
  7. 7. Background: Major Taxes Paid in the U.S.  Taxes on Purchases – Sales tax and excise tax (e.g., gas, cigarettes)  Taxes on Property – Real estate property tax – Personal property tax  Taxes on Wealth – Federal estate tax – State inheritance tax  Taxes on Earnings – Income tax and Social Security tax
  8. 8. Background: The Progressive Nature of Federal Income Tax • Progressive tax – Takes a larger percentage of income from high-income taxpayers than low-income taxpayers. – Federal income tax • Regressive tax – Takes a decreasing percentage of income as income increases. – State sales tax
  9. 9. Background: Marginal Tax Rate Is Applied to the Last Dollar Earned • Marginal Tax Bracket (MTB) – Income-range segments that are taxed at increasing rates as income goes up • Marginal Tax Rate – The tax rate applied to your last dollar of earnings • Established by Congress and change periodically 2018 Federal Marginal rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%
  10. 10. Background: Tax Credit Versus Tax Deduction $100 Tax Credit Reduces Your Taxes by $100 $100 Tax Deduction Amount Your Taxes are Reduced is Based on Your Tax Bracket Example: $5,000 x .22% mtb = $1,100 of tax savings; $3,900 net cost
  11. 11. Background: Types of Deductions Deduction = An amount subtracted from gross income to reduce the amount of income subject to tax. •Standard Deduction- Amount established each year by tax code; no need to itemize deductions; amount is based on a taxpayer's filing status, age, etc; no receipts needed •Itemized Deduction- Specific amounts spent on certain goods and services throughout the year; allowed deductions are outlined by the IRS and include such expenditures as mortgage interest and charitable donations (Mortgage tax deduction calculator) 11
  12. 12. Background: Itemizing Required for Charitable Gift Benefits • If you claim the standard deduction on your tax return, charitable gifts will not provide a tax benefit – Psychic benefits of giving to charity are another issue • You must itemize expenses on Schedule A to deduct charitable donations. • Donors' deductions are limited to 50% of adjusted gross income; rollover of excess for up to 5 years
  13. 13. Background: Refundable and Non-Refundable Tax Credits • Refundable: When tax credits are greater than the amount of tax you owe, the IRS sends you a tax refund for the difference – Example: Earned Income Tax Credit (EITC) • Non-Refundable: Credit can’t be used to increase your tax refund or to create a tax refund when you wouldn’t have already had one. In other words, your savings cannot exceed the amount of tax you owe. – Example: Child and Dependent Care Expenses Credit
  14. 14. Background: Earned Income Tax Credit • Credit paid to low- and moderate-income workers with qualifying child(ren) or, in some cases, no children • Maximum EITC credit on 2017 tax returns is – $510 with no children – $3,400 with one qualifying child – $5,616 with two qualifying children – $6,318 with 3+ qualifying children
  15. 15. EITC Income Limits (2018) Adjusted gross income (AGI) must each be less than: •$49,298 ($54,998 married filing jointly) with three or more qualifying children •$45,898 ($51,598 married filing jointly) with two qualifying children •$40,402 ($46,102 married filing jointly) with one qualifying child •$15,310 ($21,000 married filing jointly) with no qualifying children
  16. 16. Background: Child Tax Credit • A $1,000 credit is available for each qualifying child under the age of 17 claimed as a dependent (2017) – The Child Tax Credit is non-refundable • The Child Tax Credit will rise to $2,000 per qualifying child in 2018 – Up to $1,400 per child is refundable
  17. 17. Background: Child and Dependent Care Credit • Available for workers who pay employment-related expenses for the care of children or other qualified individuals (e.g., incapacitated spouse) while they are working, seeking work, or in school full time • The total expenses that may be used to calculate the credit are capped at $3,000 (for one qualifying individual) or at $6,000 (for 2+ qualifying individuals)
  18. 18. Background: Saver’s Credit (Retirement Plan Savings) plans/plan-participant- employee/retirement-savings- contributions-savers-credit
  19. 19. Background: Completing the Federal Income Tax Return  Filing status  Income  Adjustments to income  Tax computation  Tax credits  Other taxes (such as from self-employment)  Payments (e.g., withholding and estimated payments)  Refund or amount you owe • Refunds can be directly deposited to a bank account • Payments may be directly debited from a bank account  Signature (most common filing error)
  20. 20. Background: Tax-Rate Schedules and Tax Tables • Tax-Rate Schedules – Used by filers with a taxable income of $100,000 or more; requires a mathematical computation to determine tax liability • Tax Tables – Used to look up one’s tax liability according to tax filing status and income range
  21. 21. Federal Income Tax Table Filing Status Taxable Income Tax Liability
  22. 22. Background: Tax Withholding
  23. 23. Background: Impact of W-4 Form Decisions on Net Pay 0 allowances = max taxes deducted* = Smaller take home pay = Larger tax refund + allowances = less taxes deducted = Larger take home pay = Smaller tax refund NOTE: Taxpayers can add extra withholding beyond “0” allowances; e.g., +$50 more
  24. 24. 2018 Tax Withholding
  25. 25. General Tax Planning Strategies to Minimize Taxes If you expect Then you should Because The same or a lower tax rate next year Accelerate deductions into this year Greater benefit to higher rate The same tax rate next year Delay income into next year Delay paying taxes A higher tax rate next year Delay deductions Greater benefit Accelerate income Taxed at lower rate
  26. 26. Background: Alternative Minimum Tax (AMT) – Paid by taxpayers with high amounts of certain deductions and various types of income – Designed to ensure that those who receive tax breaks also pay their fair share of taxes – Has increasingly been affecting less affluent taxpayers, especially in high-tax states (e.g., NJ) – A high proportion of long-term capital gains to ordinary income can trigger the AMT
  27. 27. Background: Tax Avoidance and Tax Evasion Tax Avoidance (Minimization) – Legitimate methods to reduce your tax obligation to your fair share but no more (e.g., deductions, credits, tax-deferred/tax-free investing) Tax Evasion – Illegally not paying taxes you owe, such as not reporting all income or overstating deductions
  28. 28. Question 2: What questions/comments are you getting about the new tax law (TCJA)?
  29. 29. Federal Marginal Tax Rates: 2017 and 2018
  30. 30. Tax Cuts and Jobs Act The Tax Cuts and Jobs Act was passed by the U.S. Senate and House of Representatives in late December 2017 and signed by President Trump on December 22, 2017. This law will impact individual taxpayers and businesses on a scale that has not been seen in over 30 years. Photo by Barbara O’Neill
  31. 31. Tax Cuts and Jobs Act #1 • Eight year period of lower individual tax rates from 2018 through 2025 with seven temporary tax rate brackets ranging from 10% to 37% • Chained CPI (consumer price index) will be used for future indexing, resulting in lower inflation adjustments than the previous CPI • Elimination of personal exemptions (from 2018-2025) • Nearly double the standard deduction ($12,000 for singles and $24,000 for married couples filing jointly in 2018)
  32. 32. Tax Cuts and Jobs Act #2 • $10,000 cap for state and local tax (SALT) deductions (e.g., state income tax and municipal property tax) for taxpayers who itemize • Repeal of all miscellaneous deductions that were previously subject to 2% of adjusted gross income (AGI) floor (e.g., union dues, uniform expenses, unreimbursed business expenses, tax prep fees) • Enhanced child tax credit of $2,000 per qualifying child; $1,400 of the credit is refundable • The Affordable Care Act shared responsibility payment remains in effect for 2017 and 2018 and is $0 beginning in 2019
  33. 33. Tax Cuts and Jobs Act #3 • Lower medical expenses deduction threshold of 7.5% of AGI for tax years 2017 and 2018 • Retains the alternative minimum tax for individuals with higher AMT exemption amounts from 2018 through 2025 • 529 college savings plan distributions can be used (within the annual limit of $10,000 per student) for private elementary and secondary school expenses and homeschooling expenses • Alimony is no longer deductible by spouses who pay or taxable to recipient spouses for divorce decrees signed after December 31, 2018
  34. 34. Tax Cuts and Jobs Act #4 • The moving expense deduction is suspended from 2018 through 2025 with the exception of the moving and storage expenses of service members • Interest on home equity loans no longer deductible from 2018- 2025; no grandfathering for existing home equity loans • Tax-deductible interest is capped on mortgage debt (called acquisition indebtedness) up to $750,000 on new mortgages; for mortgages taken out before December 15, 2017, the previous $1 million debt limit for mortgage interest remains • The estate tax exclusion was raised to $11.2 million for individuals and $22.4 million for married couples (with proper planning to double the individual exemption; i.e., portability) from 2018 through 2025
  35. 35. Military Income Tax Issues Photo by Barbara O’Neill
  36. 36. Included and Excluded Income Included •Active duty pay •Special pay for foreign duty (not in combat) •Hardship duty pay •Enlistment/reenlistment bonus pay •Hazardous duty pay Excluded •Combat zone pay •Disability compensation •SEGLI benefits received for death •Family separation pay •Per diem travel allowances, moving allowances, and BAH
  37. 37. Other Military Tax Rules • While combat pay is nontaxable, it IS included for the purpose of calculating limits on contributions and deductions for an IRA • Home sale profits: Exceptions to standard ownership and use tests during the 5-year period prior to the sale: two of the preceding 10 years prior to the sale • Residency for tax purposes is the state a service member claims as home (typically where enlisted) • Military spouses can file in resident state or duty station state; need to compare options
  38. 38. Other Military Tax Rules • Moving expense tax deduction is still in effect for active duty service members (or spouses/dependents) pursuant to a military order or PCS • Standard 4/15 deadline unless in a combat zone or stationed outside the U.S.; 180 days after tour ends • Resource: IRS Publication 3: Armed Forces’ Tax Guide:
  39. 39. Income Tax Resources Photo by Barbara O’Neill
  40. 40. Recommended Resource “The Bible”: Annual Limits Relating to Financial Planning (College for Financial Planning):
  41. 41. Federal Tax Rates Rutgers Cooperative Extension Tax Information web page:
  42. 42. Nerd’s Eye View Blog Post For a through description and analysis of the Tax Cuts and Jobs Act, review the blog post Individual Tax Planning Under the Tax Cuts and Jobs Act written by Michael Kitces.
  43. 43. TCJA Tax Law Calculators • Tax Bill Calculator: Will Your Taxes Go Up or Down? (The New York Times): calculator.html? em_pos=small&emc=edit_up_20171218&nl=upshot&nl_art=0 &nlid=77794120&ref=headline&te=1 • Tax Calculator: What Tax Reform Means For You (Fox Business): what-tax-reform-means-for.html • Be sure to check the underlying assumptions! • You will get a rough estimate-not an exact number
  44. 44. TCJA Tax Law Resources • Congress Passes Sweeping New Tax Legislation (Iowa State University): legislation • Details of the Conference Report for the Tax Cuts and Jobs Act (Tax Foundation): act/ • Preliminary Details and Analysis of the Tax Cuts and Jobs Act (Tax Foundation): analysis/ • Tax Cuts and Jobs Act Summary (CCH Incorporated and Wolters Kluwer): • The Final GOP Tax Bill is Complete. Here’s What Is In It (The Washington Post): gop-tax-bill-is-complete-heres-what-is-in-it/?utm_term=.b82bad4b0124
  45. 45. Question #3: Any Other Good Income Tax Resources?
  46. 46. What’s New in 2018? • Disaster Tax Relief and Airport and Airway Extension Act of 2017 – Eased casualty loss rules, eased access to retirement funds, and charitable retention tax credit for victims of Hurricanes Harvey, Irma and Maria
  47. 47. UF/IFAS Extension Photo courtesy of IFAS Extension
  48. 48. From Our VITA Tax Sites • Opportunities for savings – Split Your Refund – Savings bonds – Debt pay down – Personal investments/ improvements
  49. 49. Observations From Our VITA Tax Sites • Balance “free” tax prep message and volunteer-based program with IRS- Certified Preparers • Emphasize refund accuracy
  50. 50. Questions From Our VITA Tax Sites • Questions – Healthcare forms – New tax law • Misconceptions – Taxpayer focus on deductions only taken when itemizing – 1099 underpayment
  51. 51. Question 4: What are some common misconceptions about taxes or tax errors?
  52. 52. Free Tax Prep Options • VITA – – lookup (includes installation program directory) • AARP – de/
  53. 53. Free File Software options • 12 software companies provide a free federal return to active military personnel with an AGI of $66,000 or less. – Finder lists income, residency, and age restrictions – From $33,000- $66,000 maximum AGI – Some states excluded • sp
  54. 54. Know Before You Go • Valid photo identification • Social Security cards and birth dates for you, your spouse and dependents • Your wage and earning forms, such as Forms W-2, W-2G, and 1099-R – W-2 forms are usually available for military members by the end of January and can be downloaded from MyPay website • Interest and dividend statements (Forms 1099)
  55. 55. Know Before You Go • Other relevant information about your income and expenses – E.g., total amount you paid for child care and the provider’s identifying number (usually an Employer Identification Number or Social Security number) • A copy of your last year’s federal and state tax returns, if available • Routing and account numbers for direct deposit of your tax refund
  56. 56. Opportunities to Save • Typically measured by Form 8888 split – Positive financial behaviors include paying down debt or transportation/ housing/ education investments • Tax Time savings tips – Make it personal, build on trust – Use anchor points – Mention several times – savings-conversation-toolkit-vita-volunteers
  57. 57. Question 5: What are your thoughts on over-withholding?
  58. 58. Refund Timing • The IRS issues most refunds within 21 days – Check status of refund at • EITC/ACTC hold
  59. 59. Refund Timing • Refund anticipation loans/ checks are interest-bearing loans – file-providers/tax- refund-related- products
  60. 60. Question 6: How do your service members use their tax refunds?
  61. 61. Extensions • File Form 4868 by April 17th , 2018 to receive a 6-month extension (October 15th , 2018). • Interests accrues on unpaid tax – “The late payment penalty is usually ½ of 1% of any tax (other than estimated tax) not paid by April 17, 2018. It is charged for each month or part of a month the tax is unpaid. The maximum penalty is 25%”.
  62. 62. Combat Zone Extension • Additional time to file if you are stationed overseas or serving in a combat zone • Deadlines extended for the period of service, plus 180 days • Applies to service members and those working in support of/ under direction of U.S Armed Forces
  63. 63. Combat Zone Pay Considerations • EITC: While combat pay is nontaxable, service members may elect to include it as earned income it to qualify for the Earned Income Tax Credit, which may decrease tax liability and could increase refund • IRA: Combat pay is tax-free, but service members can contribute to a Roth or Traditional IRA
  64. 64. Filing After ID Theft • identity-theft • File a complaint with the FTC at • Contact credit bureaus to place a ‘fraud alert’ on your credit records • Contact your financial institutions • If SS# was compromised, complete IRS Form 14039, Identity Theft Affidavit
  65. 65. 17.6 millionidentity theft victims in 2014 (7% of US population)* Over 370,000 complaints to the FTC in 2017. *U.S. Dept. of Justice, Bureau of Justice Statistics, Victims of Identity Theft, 2014 (September 2015)
  66. 66. What Is Tax Identity Theft? • Filing a fraudulent tax return using another person’s Social Security number • Claiming someone else’s children as dependents • Claiming a tax refund using a deceased taxpayer’s information • Earning wages under another person’s Social Security number
  67. 67. Short-term Trends Between 2016 and 2017: •Total identity theft complaints down 7% •Tax identity theft complaints down 46% •IRS imposter scam complaints down 54% » Consumer Sentinel Data
  68. 68. Id Theft Complaint Trends 2013 2014 2015 2016 2017 Total Number of Identity Theft Complaints 290,102 332,647 490,220 399,223 371,157 Consumer Sentinel Data
  69. 69. Scope of the Tax Id Theft Problem 2014 2015 2016 2017 Percentage of Id Theft Complaints that are Tax-related 33% 45% 33% 22% Consumer Sentinel Data
  70. 70. How Does Tax Identity Theft Happen? • Lost or stolen wallets, Medicare cards, smartphones • Theft by family, friends, visitors, advisors • Dumpster diving • Stolen mail or tax returns • Imposter scams • Corrupt insiders • Corrupt tax preparation services
  71. 71. How Does Tax Identity Theft Happen Online? • Data breaches • Phony emails from imposters • Unsecure Wi-Fi hotspots • Peer-to-peer file sharing • Downloading software or apps from unknown sources
  72. 72. Warnings Signs of Possible Tax Identity Theft • Social Security number is lost, stolen, or compromised • Unusual delay in getting a refund • IRS notification: – duplicate tax return filing – unreported income – duplicate dependents
  73. 73. Tips to Minimize Your Risk of Tax Identity Theft • Who? – Know your tax preparer • When? – File first: beat the crooks. File your returns as early in the tax season as possible • How? – If mailing, do not put tax returns in outgoing mail; mail tax returns directly from the post office – If filing electronically, use a secure network – Store returns securely and shred drafts
  74. 74. Reducing the Risk of Identity Theft • Protect what you have – Minimize personal information in wallets or on smartphones – Keep personal information secure - locked • Be careful what you share – Don’t give info unless you know who’s asking and why – Don’t click on links sent in unsolicited email • Monitor – Review mail and financial statements – • Dispose properly – Shred
  75. 75. Identity Theft • Free print materials to order:
  76. 76. Questions?
  77. 77. Connect with MFLN Personal Finance Online! MFLN Personal Finance MFLN Personal Finance @MFLNPF PF SMS iconsPF SMS icons 89
  78. 78. Evaluation and Continuing Education Credits/Certificate MFLN Personal Finance grants 1.5 credit hours for today’s webinar for AFC-credentialed participants through AFCPE and CPFC-credentialed participants through FinCert. Please complete the evaluation and post-test at: KZntH Must pass post-test with an 80% or higher to receive certificate. 90
  79. 79. MFLN Personal Finance Upcoming Event Getting to Know You: Introducing Personal Finance Managers to Cooperative Extension and to Each Other • Tuesday, March 27, 2018 • 11:00 am – 12:30 pm Eastern • Location: For more information on MFLN Personal Finance go to: 91