THAT WAS THE TAX SEASON THAT WAS - PART TWO

Issues continued with NJ taxpayers who no longer receive 1099-G forms for unemployment income and withholding in the mail – they are only available online.  Unlike the 1099-G forms for state tax refunds, also no longer mailed, these forms are not easy for me to access online.  And, while I know that a client had a state tax refund, I do not know if he or she received unemployment if not told (sometimes there is only a one- or two-week carryover from a previous year’s claim and the client forgets).

On the plus side, the Form 1098-T sent to college students by universities is finally no longer the equivalent of tits on a bull.  The 2018 Form 1098-T actually provided the information necessary to calculate the education tax credits – “the total payments received by an eligible educational institution in 2018 from any source for qualified tuition and related expenses less any reimbursements or refunds made during 2018 that relate to those payments received during 2018”.  Previously these forms only told us what the college billed.  I don’t give a rat’s hind quarters what the college billed during the year – I need to know what was actually paid.

I did not have to deal with any clients who did not have “appropriate” health care coverage for the year, and did not have to calculate the shared responsibility penalty for anyone.  However, there were a few more who had to pay back some, or all, of the advance premium credits they received during the year.  In most instances I had the victims make deductible traditional IRA contributions to either reduce their household income and the amount required to be paid back, or to reduce their income tax liability and lessen the net amount due.

This year the cafones in Congress added the “Head of Household” filing status and the newly created “Other Dependent Credit” to the items that require excessive additional “due diligence”, and certification of compliance with this additional due diligence on Form 8867.  As with the other items on Form 8867 I did absolutely nothing new or more than I would normally do, and normally did before the institution of the excessive due diligence nonsense, when claiming these items on a client’s return.

The biggest issue of this tax season was the occasionally disastrous results of what I called “the IRS withholding FU”.  As I explained to clients in my explanatory memo, last February the IRS revised the federal withholding tables to reflect the reduced tax rates.  But they did it too “liberally” – on purpose I believe so it would look like the GOP Tax Act benefited taxpayers more than it really did. 

Taxpayers did benefit from the lower rates of the Act, but the perhaps $50 per week more in their paycheck was usually more than the actual perhaps $25 tax savings.  The additional $25 or more per week had to be paid back when filing their 2018 return.

In addition, since the Act did away with the deduction for personal exemptions as well as many itemized deductions, the concept of the withholding exemption no longer applied.  Individuals who claimed additional exemptions for a spouse or dependents or for excess itemized deductions and did not revise their withholding for 2018 were royally screwed.  The increased amount and availability of the Child Tax Credit for dependent children under age 17 helped in some cases – but often not enough.

Almost every taxpayer whose withholding was based on the federal tables – and not a flat amount as with most IRA withdrawals and Social Security benefits – was under-withheld.  This was especially disastrous with multiple sources of withholding – like two-income couples, taxpayers with more than one job, and those receiving both pension and W-2 income.  I had clients owing $4,000, $9,000 and $20,000 because of the IRS withholding FU.

This problem will continue until the IRS figures out how to properly structure the withholding tables to properly reflect the new law.  In the meantime, my advice to EVERY taxpayer is to claim “Single-0” or “Married but withheld at the higher Single rate-0” for EVERY source of income subject to withholding.

Thankfully the IRS somewhat “relaxed” the safe-harbor for avoiding the penalty for underpayment of taxes - going from 90% of current year liability to 80%.  But this may not be enough for many taxpayers.  There should be no penalty for taxpayers relying on withholding for 2018 returns.

As for the state returns – this season we not only had a new federal 1040 but, for the first time in decades, a revised Form NJ-1040 and supplemental schedules and totally rewritten NJ-1040 instruction book.  However, unlike the new federal 1040, the 2018 NJ-1040 was changed for the better – thanks, I think, at least in part, to the fact that Jake Foy, former head of the “NJ Taxation University”, is now in charge of reformatting forms, instructions and correspondence to make them more “user-friendly”.

I used the new online fill-in NJ-1040 and supplemental schedules when I could not use NJWebFile.  I wish NJ would make this online filing option available and accessible for more filers.  The NJWebFile system has not been revised since its inception.

I continued to use, and truly appreciate, the New York state “enhanced” fill-in forms, which did the math and calculated the tax for the IT-201 and IT-203.  This is an excellent online system.  I wish the online fill-in NJ-1040 and supplemental schedules were similarly “enhanced” (Jake, are you listening?).

I got a new “designation” this year.  Previously the son of a long-time close friend and client had called me “Master of Taxes”.  This year a long-time client bestowed on me the title “Supreme Tax Expert”.  So, while not an EA and certainly not a CPA, I am a MOT and STE.  These titles appreciated, although not necessarily earned.

So that was the 2019 tax filing season.  Thank God it’s over!  Now – on to the GDEs.

TTFN