The debt ceiling deal scraps the graduate subsidized student loans. These loans didn’t charge students any interest on the principal of the loan until six months after the student graduated. This will not be the case now. They also nixed a special credit for students who make 12 months of on-time loan payments. These changes are to take place July 1, 2012. The other big cut that Congress is targeting is a credit that students get on the origination fee they pay the federal government to process their loans. Students pay 1% of a Stafford loan as an origination fee, but all students get half of that back unless they miss one of their first 12 payments.
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10
Aug
A new law governing how retirement income will be taxed starting in 2012 sets up a three-tier system, depending on a retiree’s age. All three tiers avoid taxing Social Security income and military pensions. For couples, the age of the older spouse applies. Here’s how the system works:
• Residents born before 1946 will continue to get the same tax breaks they have now. Public pensions will not be taxed. Income from private pensions, 401(k)s and IRAs will not be taxed on amounts up to $45,120 for single filers and $90,240 for joint filers. This will affect about 480,000 tax returns.
• Residents born between Jan. 1, 1946, and Dec. 31, 1952, will have all retirement income liable to tax, whether it’s from a public or private pension, 401(k) or IRA. Exemptions can be claimed for up to $20,000 for a single filer and up to $45,000 for joint filers. Above those levels, retirement income will be taxed at the state income tax rate of 4.35 percent. When these residents turn 67, the $20,000/$40,000 exemption applies to all income, not just retirement income. If household resources exceed $75,000 for a single return or $150,000 for a joint return, the $20,000/$40,000 exemption is eliminated. The exemption also is eliminated if a taxpayer claims a deduction for a military or railroad pension. This will affect about 230,000 returns.
• Residents born after 1952 will see all retirement income taxed as regular income until they turn 67, at which point they’ll qualify for a senior income exemption of $20,000 for single filers and $40,000 for joint filers on all income. If household resources exceed $75,000 for a single return or $150,000 for a joint return, the $20,000/$40,000 exemption is eliminated. A taxpayer can forgo the $20,000/$40,000 exemption and instead deduct 100 percent of Social Security income. A taxpayer claiming the $20,000/$40,000 exemption can’t claim the deduction for Social Security or the standard personal exemption. This will affect about 150,000 returns.
Sources: Senate Fiscal Agency, Treasury Department
For the full article, see Kathy Barks Hoffmann, “Michigan pension tax change takes toll on retirees; Critics say it’s a shift to help big business”, Lansing State Journal, June 6, 2011.
The Michigan Tax Amnesty program provides a 45-day window for taxpayers to settle tax liabilities with the State, for return periods ending on or before December 31, 2009 and avoid penalty payments. Qualifying taxpayers also avoid civil and criminal penalties and prosecution by the Michigan Depatment of Treasury.
Tax Amnesty is available for individual or business taxpayers who have tax liabilities for eligible taxes for return periods ending on or before December 31, 2009. This includes:
- Underreported tax liabilities
- Non-reported tax liabilities
- Overstated deductions, credits, or exemptions
- Failure to file Michigan tax returns
- Delinquent payment of past due taxes
- Taxpayers who have received a final tax due notice
Individuals and business taxpayers are not eligible for Tax Amnesty if they are:
- The subject of a current tax-related Court of Claims case or criminal investigation
- Eligible to enter into a Voluntary Disclosure agreement with the State
Qualifying taxes and interest, which are paid under the Tax Amnesty program, will have penalty waived, and the Department will not pursue criminal prosecution relating to taxes paid under Tax Amnesty.
A taxpayer who is eligible for Tax Amnesty and who does NOT apply for Tax Amnesty during the Tax Amnesty period is liable for any tax, accumulated interest, and penalty due. Civil penalties will not be waived and criminal prosecution may be sought.
Contact us today if you would like assistance in participating in this program.
On May 25, 2011, Governor Rick Snyder signed and eight-bill package in an effort to make Michigan more competitive economically as well as to bring fairness and simplicity to Michigan’s current tax structure. These new laws become effective January 1, 2012.
Snyder is quoted as saying, “The current tax system is riddled with inequities that are hostile to job growth. Eliminating these longstanding barriers will level the playing field for taxpayers, encourage entrepreneurship and spur more investment in Michigan. Working in conjunction with other reforms such as a balanced state budget and refocused economic development strategies, the overhaul of our tax structure lets job providers nationwide know that Michigan is the place to be.”
Some of the changes for individual taxpayers are:
- The current income tax rate of 4.35% will remain in effect until January 1, 2013. At that time, it will be lowered to 4.25%. In the Great Lakes states, only Indiana’s flat rate of 3.4% is lower.
- A three-tiered system will determine whether retirement income is taxed.
- Taxpayers born before 1946 will continue to receive the current retirement income exemptions as well as the personal exemption, Social Security exemption and the exemption for dividends, interest and capital gains.
- Taxpayers born between 1946 and 1952 will have a $20,000 single and $40,000 joint retirement income exemption in addition to the Social Security exemption and personal exemption until age 67. After attaining age 67, the taxpayer will receive a $20,000 single and $40,000 joint exemption against all income in addition to Social Security and personal exemptions.
- For individuals born after 1952 there will be no deduction allowed for retirement income. Once they reach age 67, the individual can elect to deduct $20,000 single and $40,000 joint against income. This exemption can be taken instead of the Social Security and personal exemptions if it is more beneficial to the filer.
- The current personal exemption is fixed at $3,700 through 2012, after that it will be adjusted annually for inflation. This personal exemption will be phased out for single taxpayers with household income between $75,000 and $100,000 and married couples filing jointly with household income between $150,000 and $200,000.
- Military pensions will continue to be exempt.
- The Michigan Earned Income Tax Credit would be reduced from 20% of the federal credit to 6%.
- Political contributions are no longer deductible.
- An individual born after 1945 can no longer deduct a portion of interest, dividends and capital gains received.
- Non-refundable credits like the public contribution credit, the homeless/food bank credit, the city income tax credit, the vehicle donation credit, the college tuition credit and the community foundation credit (which is a very popular contribution in Midland as well as Mount Pleasant) have been eliminated.
Some of the changes for business taxpayers are:
- The Michigan Business Tax will be replaced with a 6% Corporate Income Tax. This will only apply to companies that file as “C” corporations effective January 1, 2012. This means that nearly 100,000 small businesses will no longer have to file returns. Companies with apportioned gross receipts of less than $350,000 will not be required to file a return.
- The apportionment factor provided by the Multistate Tax Compact is eliminated. Income will be apportioned to Michigan based on the ratio of Michigan sales to total sales.
- If a company wishes to take advantage of previously issued certified credits, they may choose to continue to file under the MBT Act as opposed to the new corporate tax act to utilize the credits enumerated. Some of these certified credits are: Brownfield Redevelopment, Historic Preservation, Battery, Film and Michigan Economic Growth and Authority.
If you would like further information regarding the changes, please contact us at 800-448-0257 or 877-299-8334.
The estate and gift tax changes in the recently enacted 2010 Tax Relief Act. Before the new law, there was no estate tax for 2010, but some beneficiaries could have faced higher taxes because there were less favorable income tax basis rules. Also, under the prior law, estate and other transfer taxes were scheduled to rise substantially for post-2010 transfers.
If this affects you, please read the details of the changes in our recent letter and firm publication here: “Tax Relief Act 2010 – Letter re: Estate and Gift Tax Changes“
