Do you Qualify for the Saver's Credit?

Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit in 2013 and the years ahead, according to the Internal Revenue Service.

The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to IRAs and to 401(k) plans and similar workplace retirement programs. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.

Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2013 tax return. People have until April 15, 2014, to set up a new individual retirement arrangement or add money to an existing IRA for 2013. However, elective deferrals (contributions) must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees.

Employees who are unable to set aside money for this year may want to schedule their 2014 contributions soon so their employer can begin withholding them in January.

The saver’s credit can be claimed by:

• Married couples filing jointly with incomes up to $59,000 in 2013 or $60,000 in 2014;
• Heads of Household with incomes up to $44,250 in 2013 or $45,000 in 2014; and
• Married individuals filing separately and singles with incomes up to $29,500 in 2013 or $30,000 in 2014.

Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000, $2,000 for married couples, the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.

A taxpayer’s credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is used to claim the saver’s credit, and its instructions have details on figuring the credit correctly.
In tax-year 2011, the most recent year for which complete figures are available, saver’s credits totaling just over $1.1 billion were claimed on nearly 6.4 million individual income tax returns.

Saver’s credits claimed on these returns averaged $215 for joint filers, $166 for heads of household and $128 for single filers.

The saver’s credit supplements other tax benefits available to people who set money aside for retirement. For example, most workers may deduct their contributions to a traditional IRA. Though Roth IRA contributions are not deductible, qualifying withdrawals, usually after retirement, are tax-free. Normally, contributions to 401(k) and similar workplace plans are not taxed until withdrawn.

Other special rules that apply to the saver’s credit include the following:

• Eligible taxpayers must be at least 18 years of age.
• Anyone claimed as a dependent on someone else’s return cannot take the credit.
• A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.

Certain retirement plan distributions reduce the contribution amount used to figure the credit. For 2013, this rule applies to distributions received after 2010 and before the due date, including extensions, of the 2013 return. Form 8880 and its instructions have details on making this computation.

Begun in 2002 as a temporary provision, the saver’s credit was made a permanent part of the tax code in legislation enacted in 2006. To help preserve the value of the credit, income limits are now adjusted annually to keep pace with inflation. More information about the credit is on IRS.gov.

Hire a Veteran and you May Get IRS Tax Credit, Credit Expires 12/31/13

If you plan to hire soon, consider hiring veterans. If you do, you may be able to claim the federal Work Opportunity Tax Credit worth thousands of dollars.

You must act soon. The WOTC is available to employers that hire qualified veterans before the new year.

Here are six key facts about the WOTC:

1. Hiring Deadline.  Employers hiring qualified veterans before Jan. 1, 2014, may be able to claim the WOTC. The credit was set to expire at the end of 2012. The American Taxpayer Relief Act of 2012 extended it for one year.

2. Maximum Credit.  The tax credit limit is $9,600 per worker for employers that operate a taxable business. The limit for tax-exempt employers is $6,240 per worker.

3. Credit Factors.  The credit amount depends on a number of factors. They include the length of time a veteran was unemployed, the number of hours worked and the amount of the wages paid during the first year of employment.

4. Disabled Veterans.  Employers hiring veterans with service-related disabilities may be eligible for the maximum tax credit.

5. State Certification.  Employers must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their state workforce agency. They must file the form within 28 days after the qualified veteran starts work. For more information, visit the U.S. Department of Labor’s WOTC website.

6. E-file.  Some states accept Form 8850 electronically.

Don’t Fall for Charity Scams Following Disasters

The IRS warns consumers not to fall for bogus charity scams. They often occur in the wake of major disasters like the recent tornadoes in the Midwest or the typhoon in the Philippines. Thieves play on the goodwill of people who want to help disaster victims. They pose as a real charity in order to steal money or get private information to commit identity theft.

The scams use different tactics. Offering charity relief, criminals often:

• Claim to be with real charities to gain public trust.
• Use names similar to legitimate charities.
• Use email to steer people to bogus websites that often look like real charity sites.
• Contact people by phone or email to get them to ‘donate’ money or give their financial information. 

The IRS offers the following tips to help taxpayers who wish to donate to victims:

• Donate to qualified charities.  Use the Exempt Organizations Select Check tool at IRS.gov to find qualified charities. Only donations to qualified organizations are tax-deductible. You can also find legitimate charities at the Federal Emergency Management Agency website, fema.gov. For more information about the kinds of charities that can receive deductible contributions, see Publication 526, Charitable Contributions.
• Don’t give out information.  Don’t give your Social Security number, credit card and bank account numbers or passwords to anyone. Scam artists use this information to steal your identity and money.
• Don’t give or send cash.  For security and tax record purposes, don’t give or send cash. Contribute by check, credit card or another way that provides documentation of the donation.
• Report suspected fraud.  If you suspect tax or charity-related fraud, visit IRS.gov and click on ‘Reporting Phishing’ at the bottom of the home page.

IRS to end Tax Prep Walk-In Assistance in 2014

The IRS has notified its field offices that offer walk-in tax preparation assistance that the services will not be offered in 2014 due to budget cuts. The assistance centers prepared only 60,000 returns last year, and that number has dropped each year as the IRS has cut office hours and the number of appointments it has taken. Before 2002, the assistance was available to all taxpayers, but since then it has been available only to elderly, disabled, and low-income taxpayers. IRS National Taxpayer Advocate Nina Olson took issue with this decision in a speech to the 2013 Annual Meeting of the California Tax Bar & the California Tax Policy Conference and noted that, without assistance from the IRS, the elderly, disabled, and low-income taxpayers who rely on the free help will be forced to spend money on tax preparation. "I seem to think that preparing taxes for our citizens is a core tax administration duty, and I don't know of any [developed] country that is not doing it except the Internal Revenue Service of the United States," Olson said. "I think that's a shameful thing, and that is the new paradigm of tax administration."

Changes soon for Tax-Exempt Social Welfare Organizations????

The U.S. Department of the Treasury and the Internal Revenue Service today will issue initial guidance regarding qualification requirements for tax-exemption as a social welfare organization under section 501(c)(4) of the Internal Revenue Code. This proposed guidance defines the term “candidate-related political activity,” and would amend current regulations by indicating that the promotion of social welfare does not include this type of activity. The proposed guidance also seeks initial comments on other aspects of the qualification requirements, including what proportion of a 501(c)(4) organization’s activities must promote social welfare.

The proposed guidance is expected to be posted on the Federal Register later today.
There are a number of steps in the regulatory process that must be taken before any final guidance can be issued. Given the significant public interest in these and related issues, Treasury and the IRS expect to receive a large number of comments. Treasury and the IRS are committed to carefully and comprehensively considering all of the comments received before issuing additional proposed guidance or final rules.

“This is part of ongoing efforts within the IRS that are improving our work in the tax-exempt area,” said IRS Acting Commissioner Danny Werfel. “Once final, this proposed guidance will continue moving us forward and provide clarity for this important segment of exempt organizations.”
“This proposed guidance is a first critical step toward creating clear-cut definitions of political activity by tax-exempt social welfare organizations,” said Treasury Assistant Secretary for Tax Policy Mark J. Mazur. “We are committed to getting this right before issuing final guidance that may affect a broad group of organizations. It will take time to work through the regulatory process and carefully consider all public feedback as we strive to ensure that the standards for tax-exemption are clear and can be applied consistently.”

Organizations may apply for tax-exempt status under section 501(c)(4) of the tax code if they operate to promote social welfare. The IRS currently applies a “facts and circumstances” test to determine whether an organization is engaged in political campaign activities that do not promote social welfare. Today’s proposed guidance would reduce the need to conduct fact-intensive inquiries by replacing this test with more definitive rules.

In defining the new term, “candidate-related political activity,” Treasury and the IRS drew upon existing definitions of political activity under federal and state campaign finance laws, other IRS provisions, as well as suggestions made in unsolicited public comments.
Under the proposed guidelines, candidate-related political activity includes:
1. Communications

• Communications that expressly advocate for a clearly identified political candidate or candidates of a political party.
• Communications that are made within 60 days of a general election (or within 30 days of a primary election) and clearly identify a candidate or political party.
• Communications expenditures that must be reported to the Federal Election Commission.

2. Grants and Contributions

• Any contribution that is recognized under campaign finance law as a reportable contribution.
• Grants to section 527 political organizations and other tax-exempt organizations that conduct candidate-related political activities (note that a grantor can rely on a written certification from a grantee stating that it does not engage in, and will not use grant funds for, candidate-related political activity).

3. Activities Closely Related to Elections or Candidates

• Voter registration drives and “get-out-the-vote” drives.
• Distribution of any material prepared by or on behalf of a candidate or by a section 527 political organization.
• Preparation or distribution of voter guides that refer to candidates (or, in a general election, to political parties).
• Holding an event within 60 days of a general election (or within 30 days of a primary election) at which a candidate appears as part of the program.

These proposed rules reduce the need to conduct fact-intensive inquiries, including inquiries into whether activities or communications are neutral and unbiased.
Treasury and the IRS are planning to issue additional guidance that will address other issues relating to the standards for tax exemption under section 501(c)(4). In particular, there has been considerable public focus regarding the proportion of a section 501(c)(4) organization’s activities that must promote social welfare. Due to the importance of this aspect of the regulation, the proposed guidance requests initial comments on this issue.

The proposed guidance also seeks comments regarding whether standards similar to those proposed today should be adopted to define the political activities that do not further the tax-exempt purposes of other tax-exempt organizations and to promote consistent definitions across the tax-exempt sector.