For many taxpayers who are hoping to get a fast refund this year, that may not be possible. Congress, in December, passed the Unemployment Insurance Reauthorization and Job Creation Act of 2010. As a result of the bill that was passed and signed into law, the IRS needs to reprogram its processing system to accommodate three provisions contained in the law.
Becuase of this, taxpayers that itemize their deductions will not be able to file their taxes until mid to late February. Taxpayers, where the total amount of itemized deductions exceeds the standard deductions ($11,400 for married couples and $5,700 for single filers), are the ones that will be affected. This applies to you, if you own a home and write off the mortgage interest on your taxes.
The impact to you, is it will delay how quickly you can get your refund. If you cannot file until late February, most likely you will not see a refund check until sometime in March.
The law affects three categories:
- Taxpayers itemizing deductions on the Schedule A. This includes taxpayers who use the mortgage interest deduction, charitable contribution deduction, medical and dental deduction or real estate tax deduction.
- Taxpayers claiming the Higher Education Tuition and Fees Deduction. This deduction is for parents and students and covers up to $4,000 of tuition and fees to post-secondary institutions. There will be no delays for parents and students who claim other educational tax credits such as the American Opportunity Tax Credit and Lifetime Learning Credit.
- Taxpayers claiming the Educator Expense Deduction. This deduction is for K-12 grade educators with out-of-pocket expenses of up to $250.
If you are a taxpayer that falls into any of these three categories, and want to claim these deductions, you will have to delay your tax filing until the IRS updates its processing system. As soon as they make that date available we will update this post.
This should not stop you from visiting your CPA and having them prepare your taxes. You will want to make sure that they are prepared ahead of time and only need to be transmitted. Delaying the preparation of your taxes will only further delay, how quickly you can get your refund.
On Friday, December 17, 2010, President Obama signed into law, the much talked about, tax compromise and extension of the President Bush tax cuts. Included in the bill were some additional benefits to taxpayers and employees. Here are eight highlights from the recently passed tax bill:
- The tax rates for all individuals and all income groups, including the top 2% of earners has been extended for an additional two years.
- The capital gains and dividends tax rate remains unchanged at a top rate of 15%.
- A $2,500 college tax credit has been extended for two years.
- A $1,000 child tax credit has been extended for two years.
- The estate tax will be set at 35%, with a $5 million dollar individual exemption.
- Long-term unemployment insurance benefits will be extended for 13 months. Individuals can receive the unemployment benefits for up to 99 weeks.
- Employees will see a 2% reduction of Social Security withholdings. For employees the Social Security withholding amount will decrease from 6.2% to 4.2%. Employers do not receive a corresponding reduction in SS withholding amounts.
- The Alternative Minimum tax, which was originally set up to make sure the wealthy pay some income taxes, will be indexed to inflation. This had not been done previously and on a year to year basis, temporary adjustments had to be made. Indexing this to inflation, will prevent some 20 million middle-class taxpayers from having to pay the AMT. A group that the tax was never intended to target.