- Days left

Late Tax Law Changes Affect Workers Seeking Child Care, Education Credits

filed under: Taxes, Tax Credit
NEW YORK (AP) - Americans who claim tax credits for child care expenses, college costs or home energy updates may have to wait a while for their refund checks from the IRS this year.
That's because Congress didn't get a major tax bill passed until December, giving the Internal Revenue Service too little time to fix the forms consumers need to file with their income tax returns for five major tax credits.
Some taxpayers may be able to work around the problem, tax experts say, but many won't.
"It's a big issue," said Timothy C. Gokey, president of retail tax services at H&R Block in Kansas City, Mo. "A lot of people, especially early filers, don't know about it - or don't know how it will affect them."
It's the second year in a row that tax legislation got put off until so late in the year that IRS forms couldn't be prepared on time. The result, according to Nina E. Olson, national taxpayer advocate, is that many taxpayers miss out on money they're due.
Olson said in a report to Congress last week that late-year changes in the tax code are "the most serious problem facing taxpayers."
She estimated that in 2006, more than a million taxpayers may not have claimed deductions they were entitled to "simply because they did not know about them." Low-income families, she added, "may experience financial hardship because their refunds are delayed."
This year's problem with tax credits is a fallout from congressional repair of the alternative minimum tax. The AMT is a parallel tax that eliminates many deductions and credits most taxpayers claim, thus increasing the tax liability of wealthy families who might otherwise pay less.
The AMT "patch" approved by Congress raised the AMT exemption so that millions more middle-income families wouldn't be drawn into AMT. While many forms were quickly updated to conform to the AMT changes, the forms for some credits got hung up.
The IRS said it won't be able to process returns involving any of the five credits until Feb. 11 and that as many as 13.5 million taxpayers face the possibility of delayed refunds.
The five forms affected by the delay are:
Form 8863, Education Credits (Hope and Lifetime Learning Credits).
Form 5695, Residential Energy Credits.
Form 1040A's Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers.
Form 8396, Mortgage Interest Credit.
Form 8859, District of Columbia First-Time Homebuyer Credit.
Taxpayers can, of course, wait until Feb. 11 to file. But experts offer some alternatives for those who want to file claims earlier.
H&R Block's Gokey estimated that about 4 million of the 13.5 million affected taxpayers file early, and that about half claim a credit for child and dependent care expenses.
The "workaround" for this group, which normally would file the simplified 1040A form, is to file the more complex 1040 tax form along with Form 2441, Child and Dependent Care Expenses.
Mark Steber, vice president for tax resources at Jackson Hewitt Tax Service Inc., said taxpayers also may be able to file at any time without claiming the credits, and then file an amended form later including the credits.
"The hassle is that amended forms have to be paper-filed, and that can slow the refund even more," Steber said. Taxpayers who file their returns electronically and request an electronic deposit of refunds can get their money within 10 days; taxpayers using paper often wait six to eight weeks for their refund, Steber said.
Still, he suggested that taxpayers consult their tax preparers.
"If you're concerned, go in and ask early what your options are," he said. "I worry it could be like last year. How many said, 'The heck with it!' and didn't get the money they deserved?"
Mark Luscombe, principal tax analyst at CCH Inc. of Riverwoods, Ill., said that it's not unusual that tax forms contain new items or special items that get overlooked. The company is a division of Wolters Kluwer, which provides tax information and services to tax professionals.
Last year, for example, federal tax forms included a telephone excise tax refund, "and a lot of people missed it," said Luscombe.
But, he added: "It's been quite a while since we had legislation so late in the year that tax forms had to be amended."
Luscombe suggested that before taxpayers take extraordinary measures to claim credits early, "they should check on the cost" of amending their filings.
Luscombe also warned that similar problems could occur again next year if Congress delays acting.
"Remember, this was a one-year AMT patch, so they'll have to go at it again next year," he said.
On the Net:
2008-07-21 15:51:23

Increase your money and finance knowledge from home

Goal Setting

Want to succeed? Then you need goals!

View Course »

Intro to Retirement

Get started early planning for your long term future.

View Course »

TurboTax Articles

Cities with the Lowest Tax Rates

The total amount of tax you pay reaches far beyond what you owe the federal government. Depending on where you live, most likely you're required to pay additional taxes, including property and sales tax. The disparity between the amount of tax you pay in a low-tax city and that in a high-tax city can be dramatic. Living in any of these 10 cities could save you a bundle, although the exact amount may fluctuate based on your income and lifestyle choices.

Cities with the Highest Tax Rates

Much ado is made in the press about federal tax brackets, but cities can carry a tax bite of their own. Even if you live in a state that has no income tax, your city may levy a variety of taxes that could eat away the entire benefit of living in an income tax-free state, including property taxes, sales taxes and auto taxes. Consider all the costs before you move to one of these cities, and understand that rates may change based on your family's income level.

Great Ways to Get Charitable Tax Deductions

Generally, when you give money to a charity, you can use the amount of that donation as a deduction on your tax return. However, not all charities qualify as tax-deductible organizations. While there are many types of charities, they must all meet certain criteria to be classified by the IRS as tax-deductible organizations. There are legitimate tax-deductible organizations in many popular categories, such as those listed below.

A Freelancer's Guide to Taxes

Freelancing certainly has its benefits, but it can result in a few complications come tax time. The Internal Revenue Service considers freelancers to be self-employed, so if you earn income as a freelancer you must file your taxes as a business owner. While you can take additional deductions if you are self-employed, you'll also face additional taxes in the form of the self-employment tax. Here are things to consider as a freelancer when filing your taxes.

Tax Deductions for Voluntary Interest Payments on Student Loans

Most taxpayers who pay interest on student loans can take a tax deduction for the expense ? and you can do this regardless of whether you itemize tax deductions on your return. The rules for claiming the deduction are the same whether the interest payments were required or voluntary.

Add a Comment

*0 / 3000 Character Maximum