Putting Your Name on Your Tax Return

1953 IRS Tax Form

Photo by Edwin Goei at Flickr.com

 

Wait right there.  I can hear you through the computer.  “How stupid does she think we are?”  “Who doesn’t know how to put their name on a tax return?”  “I’m not a moron you know.”

 

Yes, I know you’re not a moron.  (And no, I can’t really hear you through the computer, I’ve just dealt with this issue enough that I know what people generally say.)  For 99.9% of you, you put your name on the tax return and that’s it—no problem.   But there’s always that small number of people every year whose tax return gets rejected because, according to the IRS, their name is wrong.  This is about fixing those returns.

 

Number 1:   Often when you get an IRS “name error” message, it’s not your name that’s the problem at all.  It’s your social security number.  Check that first to make sure you didn’t transpose a number.  If that’s the problem, you may need to re-input your whole tax return.  My current software lets me correct a bad SSN, but I used to use one that made you do the whole return over.  That’s not fun.

 

Number 2:  You didn’t change your new married name with the Social Security office.  Many women get married and change their names.  They tell their friends, they tell their work, but they forget to do it officially with Social Security.  When they file their tax return with their new married name—reject!  They don’t exist.  You’ll need to file the return with your old name on it.  You can still do file as married, you’ll just use your maiden name.  Then go to Social Security and give them the new name.  Here’s information on how to do that:  http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/315/session/L3RpbWUvMTM4Mjc5MzQ0Ny9zaWQvKkRTVzFNRGw%3D

 

Although it will only take about 10 days to get your new social security card, it will take about 8 weeks to get your name into the federal computer system.     If you’re looking for a refund, or have a filing deadline, just use your old name for now and the new name next year.

 

Number 3:  You really spelled your name wrong.  You’d be surprised how easy this is.  We double check our numbers –of course, it’s taxes.  But we don’t double check spelling our names.  Why would we, it’s our name?  We know that.   But you know how it goes, “tiye dubfwea di  ib rgw qeibf jwta”.  I mean, your fingers go on the wrong keys.

 

Number 4:  If you’ve double checked your SSN, and your name is spelled correctly and you’re not recently married and you’re still getting a reject notice—you’ve got to pull out your actual social security card as see what it says.  On newer social security cards, the last name is printed under the first and middle names.  For example, Hillary Clinton’s return might be getting rejected because it should really say Hillary Rodham Clinton on it.

 

Number 5:  It’s wrong at the IRS.  It’s possible.  If you’ve checked everything on this list, including pulling out the actual SS card and checking everything and you still have the “wrong” name, you can still paper file the tax return, just to get it submitted.  You’ll still want to follow up with the IRS and Social Security and get your name fixed.  If you’ve filed returns before, you can get a transcript of your old return from the IRS.  Your transcript will have the name that the IRS has for you on it.  Here’s a link for that:  http://www.irs.gov/Individuals/Order-a-Transcript I know that sounds a little crazy, and even impossible, but I had to do that to once.    Well, I knew the person’s name, but the IRS had something completely different!

 

One final name issue for people who paper file their tax returns:  don’t forget to put your name on the tax return.   Really!  It’s one of the most common mistakes.  People who e-file—you can’t forget to do that.  People who paper file, they often do all of the math and plan on adding their name last.  Then they finish their return and forget to put the name on.  Back in the Stone Age when I was taking the income tax prep class, it was an automatic failing grade to not put a name on the return.  I thought it was silly (they were fake names on fake returns!)

 

If you file a tax return with no name on it, then that means it’s not filed.  If you don’t file your tax return on time, there’s a penalty of 5% per month of the tax you owe, up to 25%.   If you’re expecting a refund, it won’t come.  These returns just go into the trash.  And yes, this still really does happen.      I’ve had people come to my office with IRS letters telling the people they never filed.  The taxpayer shows me the photo copies of his mailed tax return to prove he filed and right there in black and white is a blank space for the name.   It’s a really easy mistake to make.   It happens quite often (or I wouldn’t bother to write about it.)

Would You Like to Donate $3 to the Presidential Election Campaign Fund?

Busch Stadium St Louis

Photo by Robert Jackson at Flickr.com

 

***Roberg Tax Solutions congratulates the St. Louis Cardinals for making the 2013 World Series.  We have been having “Cardinal Apparel Day” every day this week.  As of now, the series is 1-1, game 2 was a Cardinals 4-2 win, and we are back on track after game 1’s ugly loss.

 

Let’s face it—this is the long lost question in the world of tax preparation.  You probably have a better chance of Miley Cyrus stealing your “Go Cardinals!” foam finger than you do of being asked about this inquiry.  This does not mean that people aren’t checking the box however.  In 2012, there has been about $37 million contributed up to July with a total fund balance of about $232 million.  Not a bad chunk of change.  During my time in the Volunteer Income Tax Assistance Program—commonly referred to as VITA—other volunteers and I routinely asked the question because it was part of our standard operating procedure.  I am not sure if the mainstream brick and mortar tax firms ask the question but I bet Jan knows.

 

Anyways, my point in this brief writing is to inform you about this tiny section of the 1040 series—the who, what, why, when, how, etc. of the presidential election fund or at least point you in the direction of knowing those questions.

 

2012 Form 1040 instructions page 12 states verbatim:

 

“This fund helps pay for Presidential election campaigns.  The fund reduces candidates’ dependence on large contributions from individuals and groups and places candidates on an equal financial footing in the general election.  If you want $3 to go to this fund, check the box.  If you are filing a joint return, your spouse can also have $3 go to the fund.  If you check a box, your tax or refund will not change.”


It is important to understand that that checking this box will not change your tax or refund.  So what is actually happening?  It means that you want $3 of tax dollars you already owe to the government to go towards the Presidential Election Campaign Fund (PECF).  When you check the box, the government has to allocate that $3 into the PECF.  So there is no tax incentive to check or not check this box.  This is a valid reason for self research about the fund to make a well informed decision and to support your reasons for doing so.

 

In 1975, the Federal Election Commission (FEC) was born to oversee the Federal Election Campaign Act (FECA).  This is the law that governs the financing of federal elections.  Obligations of this independent agency include the divulgence of campaign finance information, enforce limits and prohibitions on contributions, and become the all seeing eye of Presidential election public funding.

 

Furthermore, the agency is made up of six members that of which are appointed by the President of the United States and contingent upon Senate approval.  Each member serves a six year term.  Stated precisely from http://www.fec.gov/about.shtml, “By law, no more than three Commissioners can be members of the same political party, and at least four votes are required for any official Commission action. This structure was created to encourage nonpartisan decisions.”

 

It was that the check box used to be $1 dollar but increased to $3 in 1994 by Congress.  Extensive detail about the $3 check off can be found at http://www.fec.gov/pages/brochures/checkoff.shtml.  The information is well put, easy to read, and concise.

 

The Federal Election Commission has charted the Fund since its 1976 inception.  The most recent chart can be found here: http://www.fec.gov/press/bkgnd/pres_cf/PresidentialFundStatus_September2012.pdf.

 

If the candidates decide to use the fund money, they must agree to a spending limit.  In the 2012 election, neither Barack Obama nor Mitt Romney used the Presidential Election Fund resulting in a very expensive election.

How Can Social Security Be Out of Money If We Only Take Out What We Put In?

Photo by Scott at Flickr.com

I hear this question all the time.  We all put our own money into Social Security so how can it run out of money?

 

First, let me point out that Social Security is not out of money.  It’s estimated that it could run out of money by 2035 if changes are not made, but it is not out of money yet.  But, how could it run out of money if it only pays out what we pay in?  The problem is–and I hate to call this a problem, but we’re living too long.  (Like I said, hate to call that a problem.)

 

Let me use a real example of a real person.  I’ll call him Sam.  Over the years, Sam has paid $120,698 into Social Security.  His employers have paid $131,693.  So all together, $252,391 has been paid in.

 

According to Social Security, Sam will receive $2,611 a month in benefits.  At that rate,  Sam basically uses up all his money in just over 8 years.    ($252,391 divided by $2,611  =  96.66 months.  96 months divided by 12 months = 8 years)  So assuming that Sam retires at age 66, if he lives to age 75 then he’s used up all the money put in for him in the first place.

 

But you don’t quit getting social security when it runs out.  Social security payments go on until you die.

 

But what about interest?  Isn’t the money invested, shouldn’t it go farther?

Well yes, I did over simplify things.  The Social Security trust funds are invested in “special issue” securities of the US Treasury.  For 2012, the annual effective interest rate of return was 4.091%.  (But that’s because of some special circumstances, the actual rate right now is closer to 1.48%.)

 

There is no social security withholding on wages over $113,700.  Why can’t the wealthy just contribute more to social security?

I hear that all the time too–why not just have the higher income people keep contributing and eliminate the cap–but here’s a catch–if you are supposed to take out what you put in–then those higher wage earners are going to want to take out what they put in too.  Given that people are living longer than their benefits are holding out–do you really want people taking even higher benefits?  That would actually make the situation worse than it already is.

 

Let’s go back to Sam for our example.  If Sam lives to age 80, that’s 4 extra years of social security.  At his current rate of $31,332 a year, that’s an extra $125,328 more than what he originally paid in.    In reality, Sam earns well above the social security base wage.  Let’s say his contributions to social security are unlimited.   Based upon Sam’s “unlimited” contributions, when I run the numbers, I get Sam’s monthly payment to be close to $7,500 a month ($90,000 a year.)  Now if Sam lives an extra 4 years,   that’s $360,000 more than what he paid in.   So having the wealthy pay in more to social security actually costs more than keeping it capped like it is now.

 

So how do we “fix” social security? I wish I knew the answer to that one, but I don’t.

Why Social Security Wants You to Retire at 62

Social Security and early retirement

If you are going to life past that age of 83, then Social Security comes out ahead if you take your retirement benefits early.

 

Social Security would rather have you retire at age 62 than at your full retirement age.  That sounds a little backwards, but it’s all about money.  (Of course!)

 

When Social Security started back in 1935, the average person died before ever claiming any benefits.  Now, people are living longer than ever and Social Security payments continue through the end of your lifetime and even beyond for widow(er) benefits.

 

So, if the Social Security Administration is paying out so much money, why would they want you to retire early?   Let’s do the math.  (Don’t worry, I’ll keep it simple.)

 

Frank has worked all his life and he’s tired.  He doesn’t have to, but he’s thinking about retiring at 62 so he can spend more time with his wife, Delores.  If Frank retires at his full retirement age of 66, his monthly Social Security benefit would be $2,000 a month.  If he retires at age 62, he’ll get $1,500 a month.

 

So the first round of math is going to be–how much does Frank get before he ever turns 66?  He’s got 4 years of benefits, 12 months in a year, at $1500.  So he gets $72,000.

 

$1500 per month x 12 months =  $18,000 per year

 

$18,000 per year times 4 years = $72,000 per four years

 

So at first blush, it makes a whole lot of sense for Frank to take the money and run.

 

If Frank waits until he’s 66 to start claiming Social Security benefits, how long would it take for him to make up the $72,000 that he’s lost by waiting?  He’d catch up at age 77.   So if Frank’s family has a history of dying young–it might not make sense for him to wait until he’s 66 to retire.  You can do that math with different numbers, but generally it will take 12 years to catch up to your benefits.

 

But what if Frank comes from a family with an average life expectancy of 90 years?  What then?

 

Remember, by retiring early, Frank loses 25% of his payment every month.  In this case, that amounts to $6,000 a year ($500 a month x 12 months). So if Frank catches up at age 77, then he’s got 13 more years with $6,000 a year extra, now Frank is ahead by $78,000.

 

According to Social Security Statistics, the average person today lives to be 83 years old.  Going by the numbers, Social Security saves money on people claiming their benefits at age 62.

 

This is a very simplified example.  Frank has many things to think about–his wife’s benefits, what if he waits until age 70, how long does he expect to live?  What other benefits might he be entitled to?  Social Security won’t tell you all of your options.  If you call them to file for benefits, they take your application and you’re done.

 

At Roberg Tax Solutions, we’ll sit down with you and chart out your benefits so that you know all of your options.   At the end of the day, the decision is yours, but you deserve to know what all your options are before you have to make that decision.

Small Business Healthcare Tax Credit

http://www.smallbusinessmajority.org/tax-credit-calculator/

 

“Starting in 2010, up to 4 million small businesses that offer healthcare coverage to their employees may be eligible for a tax credit. Fill in the amounts below to find out what your tax credit will be.

 

To qualify, a small business must:
Have fewer than 25 full-time equivalent employees
Pay average annual wages below $50,000 per FTE
Contribute at least 50% of each employee’s premium

 

Notes:
Owners are excluded, and should not be counted in number of employees, wages, or premium contribution amount.
Tax credits can’t be larger than actual income tax liability.
For detailed information about how the tax credit works and other issues related to the new law and small businesses, see this list of frequently asked questions. We’ll be adding to this document regularly.”

Introducing Two New Tax Forms for High Income Individuals

Money

Photo by 401(K) 2012 at Flickr.com

 

Back in July of 2012, I wrote about the new Medicare taxes that higher income earners will be subject to under the Affordable Care Act starting in 2013.

 

Briefly, there is an additional Medicare tax of .9% on wages and self employment income over $200,000. ($250,000 for married filing jointly couples/$125,000 for married filing separately)  For more details and a complete breakdown of the taxes you can read the post at:

http://robergtaxsolutions.com/2012/07/obamacare-what-you-need-to-know-part-2/

 

And there’s also the new Medicare tax of 3.8% on your investment income. The 3.8% tax is going to apply to the lesser of your net investment income or the amount of your AGI in excess of a certain threshold amount.   The thresholds are $200k-singles and Head of Household, $250K-MFJ, and $125K-MFS.  For more information you can check this post out.

http://robergtaxsolutions.com/2012/07/obamacare-what-you-need-to-know-part-3/

 

Now that 2013 is more than halfway through and the income tax filing season will be here before you know it, how are you supposed to report those taxes on your 1040 tax return?  Well, the IRS has introduced not one but two new tax forms for you to fill out.

 

I don’t know why, but introducing new tax forms makes me feel a little like a late night talk show host, so forgive me for saying, let’s bring out our first guest, Form 8959http://www.irs.gov/pub/irs-dft/f8959—dft.pdf Okay, it’s no Johnny Depp.  It’s not even as interesting as the Aflac Duck.  But it is new.  If you click on the link, you’ll have to scroll past all the warning it’s only a draft signs.  (If you’re reading this in 2014, you should be able to find actual forms instead of drafts.)  The Form 8959 is what you’ll be filling out if you have to pay the .9% Medicare tax on wages or self-employment income.

 

If you have investment income, the new form is called the Form 8960 and here’s a link to that:  http://www.irs.gov/pub/irs-dft/f8960—dft.pdf That’s going to be the form you file for the 3.8% Medicare tax on investment income.

 

Now the upside to both of these forms (if there’s an upside to paying more taxes) is that if you’re using computer software (like the 1040.com software you can access from this website) — the software will compute everything for you.  I have 100% confidence that Turbo Tax, H&R Block at home, and all the others will get the 8959 right.  The 8959 form is for the .9% tax on wages.  The form is very straight forward (as far as tax forms go, at least to a tax geek like me.)  You basically take numbers from your W2 or self employment tax form and do a little multiplication.  Bam—you’re done.

 

But I am a little concerned about potential errors in the 8960 forms.  There are 21 official lines to the form and there are 16 places where the form says “see instructions.”  That’s telling me there’s a lot of room for error there.   You’re still going to be better off using a tax software if you have to file the form 8960, but I’d be cautious.  Don’t rush to be the first one to file your return.  During tax season, software programs are updated daily.  This form is likely to have bugs, so let the IT folks work those bugs out before you submit.

 

As a tax professional, I’ll be going over those forms with a fine tooth comb until I’m confident the numbers are all flowing correctly.

 

The taxes that you compute on forms 8959 and 8960 will be reported on line 60 of your 1040 tax return:  http://www.irs.gov/pub/irs-dft/f1040—dft.pdf Line 60 used to just say “other taxes” but now it will specifically 8959 and 8960 with little checkboxes.

 

So technically, Congress can say that your 1040 form won’t be longer.  You’ll just have extra pages to attach to it.