I was having a bout of writer’s block and had a blog post due. Fortunately, I just received this email from Morgan, a disabled Navy vet, and it seemed like a worthy topic.
I was placed on “uncollectable status” by the IRS last year. Now, to keep my uncollectible status, they want me to provide them with the amount I receive from the VA each month along with my SSDI amount! Am I missing something here? I am totally
confused. I was told that VA disability benefits are tax exempt. So is my SSDI benefit. If that’s so, why is it considered income by IRS? Can you help me with this so I can understand?
This is a good question—if VA and SSDI payments aren’t taxable, why does the IRS ask about them when settling tax debt? Or in Morgan’s case, when determining collectability status?
The answer is—there’s a difference between “taxable” income and “money that you have that you can use to pay bills.” So even though things like VA payments and SSDI are not taxable, they are counted towards money available to pay bills.
So here’s what the IRS is doing. They’re taking all of your income—whether it’s taxable or not, and adding it together. Then they’re looking at all of your expenses and if there’s any money left over, that’s what they consider is available for you to pay your taxes with.
Here’s how the formula works: Income includes wages, interest, dividends, business income, rental income, distributions, pensions, social security, child support, alimony, and other income. VA payments and SSI would count as “other income”.
Expenses include: Food, clothing, and misc., housing and utilities, cost of owning and operating a car or using public transportation, health insurance, out of pocket health care, court ordered payments, child or dependent care, life insurance, taxes, and other debts.
Here’s the kicker. Expenses are limited to what the IRS calls “national standards.” The national standard for food, clothing, housekeeping supplies and personal care products is $583 for one person. Out of pocket healthcare is $60 if you’re under 65 and $144 if you’re over. If you own a car, the allowance is $517 for owning and operating it. If you use public transportation, you’re allowed $182 a month.
Housing and utility expenses vary greatly by area. Here in St. Louis County, the expenses allowed for one person is $1,426. If you live in St. Louis City, you’re only allowed $1,208.
You can look up all of the collection financial standards on the IRS website: http://www.irs.gov/Individuals/Collection-Financial-Standards
When dealing with the IRS on this issue, you are allowed to use the national standards for your family size without them questioning the amount you actually spend. The housing allowing will be the amount you actually spend or the local allowance, whichever is less.
So while the IRS is asking about VA payments and SSI to determine if you’re capable of paying a tax debt, SSI and VA payments will remain non-taxable income on your tax return.
Well that’s basically it. If you were trying to Google jury duty pay to find out if it’s taxable or not—here’s your answer. It is.
Usually when I make a blog post about something, it takes me a few sentences to get to the point. And this topic was so simple that I almost didn’t bother to write about it except that I just got back from the bank depositing my jury duty paycheck: $98.40! That’s for one entire week of jury duty. The going rate around here is $10 a day, $18 if you actually get put on a trial. They also reimburse you for mileage. Yeeehah!
As we commiserated around the jury room about our grand financial boondoggle, our jury foreman told us that the money wasn’t taxable, except he was wrong. You do have to pay tax on your jury duty income.
When you’re filling out your tax return, your jury duty income goes on line 21—other income. Most of the “do it yourself” computerized tax programs ask you if you had jury duty income and guide you through inputting it onto your return. It’s really not a big deal.
But what happens if you don’t put it down? Most people only get about $20 or $30 from their jury duty service. Will the IRS really go after you for missing that little amount of money? The thing is—yes, they will.
Now you have to remember that it’s not like some IRS agent is waiting to nab some poor innocent person who just happened to accidentally leave $30 off of his tax return. Believe it or not, they’re not vindictive like that. (Most of them aren’t anyway.) What really happens is that the big IRS computer does something called “document matching.” If your county courthouse issues you a 1099 for $30 and it’s not listed on your 1040, the IRS computer goes, “Whoopsies—this guys’ missing something,” and you’re going to get a nasty letter. (Okay, I’ve never really heard a computer say, “Whoopsies,” but you get my drift.)
So while a human would probably take a look and say, “Oh, I bet it’s just jury duty or something like that—it’s only $30, no big deal,” and skip right over it, the computer won’t. The computer will generate a letter saying that you didn’t report all of your income and that you need to pay additional tax. And that means paperwork, and IRS agents opening your file and looking. Now that probably isn’t a problem since you’ve got nothing to hide—except you’ve just neglected to report income in one area—what else aren’t you telling the IRS?
See how a simple little mistake can open a can of worms that shouldn’t even be a can of worms? So remember to report you jury duty income on your tax return. Don’t worry about the tax, you didn’t make that much on your jury duty pay to begin with. The tax won’t be that much.