FEDERAL - The recently passed Tax Relief and Health Care Act of 2006 reinstated several tax deductions for 2006, including the above-the-line deductions for educator expenses and tuition and fees and the option to deduct state and local sales tax instead of state and local income tax.
However, the IRS had already gone to press on the 2006 Form 1040 and 2006 Schedule A and the corresponding instructions without the reinstated tax breaks. The IRS has said it will issue a special publication with instructions for all the extended items.
The lines on the 2006 Form 1040 previously used for educator expenses and tuition and fees have been replaced by the deductions FOR Archer MSA contributions (Line 23) and jury duty pay returned to an employer (Line 34). How taxpayers will report the extended deductions on the 1040 is not yet known.
The only other major change to the 1040 is the addition of a line in the “Payments” section of Page 2 for the refundable “Credit for federal telephone excise tax” (Line 71). The 2006 Form 1040 has a total of 76 lines, one more than last year.
Similar changes have been made to the 2006 Form 1040A.
The 2006 Schedule A allows for only “State and local income taxes” on Line 5.
There are some new federal tax forms for 2006 to accommodate new tax breaks, including:
* Form 5695 Residential Energy Credits,
* Form 8888 Direct Deposit of Refund – allows you to split your refund among up to three (3)accounts, including IRAs and HSAs (see my December 10th posting),
* Form 8910 Alternative Motor Vehicle Credit – for qualified hybrid cars,
* Form 8913 Credit for Federal Telephone Excise Tax Paid – to be used if you want to claim the actual tax paid instead of the standard amount
The mailing addresses for the federal income tax returns of New Jersey residents have been changed again. For most of my tenure as a tax preparer the returns were sent to Holtsville NY. Then it was changed to Philadelphia for refunds or and Cincinnati for balance due returns. For 2006 I will be sending client returns with no payment to Kansas City MO and returns with a payment to St Louis MO. It is a good thing I stopped buying pre-printed mailing envelopes and changed to address labels instead!
NEW YORK - While the New York State full-year and part-year resident income tax returns (IT-201 and IT-203) remain unchanged from last year’s new 4-page format, there have been several changes to NYS income tax for 2006.
The maximum tax rate for NYS has been reduced back to $6.85% and the maximum rate for NYC has been reduced back to 3.648%. The 7.25% and 7.7% state brackets and 4.05% and 4.45% city brackets have been eliminated. The Standard Deduction for Married Filing Joint and Qualifying Widow(er) has been increased from $14,600.00 to $15,000.00 and from $6,500.00 to $7,500.00 for Married Filing Separate.
The New York City School Tax Credit has been increased from $125.00 to $230.00 for Married Filing Joint and Qualifying Widow(er), and from $62.50 to $115.00 for Single, Head of Household and Married Filing Separate. This particular credit always puzzles me – I claim it for all applicable NYC resident taxpayers and sometimes the client gets it and sometimes he/she does not.
There have been some new credits added for New York, including some energy credits for residents, and changes made to existing ones – but these do not affect my clients.
NEW JERSEY - New Jersey has not yet released the 2006 NJ-1040, although there should be no major changes. As soon as Trenton issues the 2006 forms I will let you know what is new.