ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, February 19, 1996 TAG: 9602200020
SECTION: THE MONEY PAGE PAGE: 6 EDITION: METRO
SOURCE: DAVE SKIDMORE ASSOCIATED PRESS
Presidential candidates this year are talking about radically simplifying the federal income tax and reducing returns to post cards, but - for now - taxpayers are stuck with the old system.
Changes in tax rules this year affecting 1995 returns are relatively minor. Unless your personal circumstances have changed, you probably can use last year's return as a general guide for this year.
There's a slim chance that if President Clinton and Congress resolve the budget impasse, they could enact some retroactive changes. But, as time passes, the likelihood of that grows slimmer.
Here's an overview of what's new this year. Publication 553 has the details.
TAX RATES: The tax rates are the same as last year: 15 percent, 28 percent, 31 percent, 36 percent and 39.6 percent. But the brackets have been adjusted for inflation.
For a single person, the first $23,350 of taxable income - what is left after subtracting exemptions and deductions - is taxed at 15 percent. The next $33,200 is taxed at 28 percent; the next $61,400 at 31 percent; the next $138,550 at 36 percent; and everything over $256,500 at 39.6 percent.
The first $39,000 of a couple's taxable income on a joint return is taxed at 15 percent; the next $55,250 at 28 percent; the next $49,350 at 31 percent; the next $112,900 at 36 percent; and everything over $256,500 at 39.6 percent.
Capital gains are still taxed at 15 percent or 28 percent - no higher.
EXEMPTIONS: Your children are more valuable this year. The amount for each exemption - generally yourself, your spouse and your dependents - is $2,500, an increase of $50.
STANDARD DEDUCTION: The deduction has been increased to $3,900 for single people and $6,550 for couples filing joint returns, up from $3,800 and $6,350, respectively. Deductions can be smaller for dependents and larger for those 65 and older or blind.
HIGHER-INCOME PEOPLE: Couples and individuals with adjusted gross income over $114,700 (up from $111,800 the previous year) may have to give up part of some deductions. They lose all or part of their exemptions when their adjusted gross income is over $114,700 for single people and $172,050 for couples, up from $111,800 and $167,700. Upper-bracket taxpayers who elected to pay their 1993 tax increase in installments must pay the third installment by April 15.
EARNED INCOME CREDIT: The earned income credit for the working poor has been increased. Depending on its income, a family with more than one child can receive a maximum of $3,110, families with one child, $2,094, and childless people, $314. The income limits, when eligibility for a partial credit ends, have risen to $26,673 for families with more than one child, $24,396 for families with one child, and $9,230 for the childless. Most nonresident aliens no longer can claim the credit. But military personnel on extended active duty outside the United States now are eligible.
SOCIAL SECURITY AND MEDICARE TAXES: Only the first $61,200 of wages in 1995 was subject to the 6.2 percent Social Security tax. If you had more than one employer and paid more than $3,794.40, any overpayment can be claimed as a credit against your income tax or refunded. Note it on line 59 of Form 1040 or line 29d of Form 1040A. If any one employer withheld too much, see that employer. All wages are subject to the 1.45 percent Medicare tax.
BUSINESS DEDUCTIONS: For most business expenses, starting Oct. 1, 1995, you need receipts only for expenditures of $75 or more. For the earlier part of the year, the old threshold of $25 applies.
EMPLOYER-PAID TUITION: The tax exemption for employer-paid tuition expired at the end of 1994. If your employer paid your tuition last year, the amount should show up on your W-2 form as income, and you'll have to pay tax on it. If Congress renews the program retroactively, your employer will have to give you a new W-2, and you can file an amended return.
SOCIAL SECURITY NUMBERS: Social Security numbers now are required for all dependents born before November 1995. Last year, babies younger than a year did not need numbers.
UNEMPLOYMENT COMPENSATION: You now can report unemployment compensation on the simplest tax return, Form 1040EZ. Previously, you had to use 1040A or 1040.
MILEAGE: The standard mileage rate for business use of a car is 30 cents a mile, up from 29 cents. The mileage deduction for charitable purposes remains 12 cents a mile and, for medical purposes, 9 cents.
401(k) PLANS: The limit on contributions to these employer-sponsored retirement accounts and simplified employee pension plans in 1995 was $9,240, the same as in 1994. The limit rose to $9,500 for 1996.
NANNY TAX: There's a new Schedule H for reporting the Social Security and Medicare taxes you withheld from the checks of household employees earning $1,000 and more. The form replaces five separate forms that had to be filed in past years.
DIRECT DEPOSIT: Rather than taking the chance their refund checks will get lost in the mail, taxpayers filing paper returns now can have refunds electronically deposited into their bank accounts. To request direct deposit, they should attach Form 8888 to their return after double-checking their account number with their bank and asking for its routing transit number. Previously, only those filing electronically or using a computerized return, Form 1040PC, could get direct deposit.
PAYMENT VOUCHERS: More taxpayers will receive payment vouchers, Form 1040-V, in their tax packages this year. If you owe the IRS, attach your check to it and put it, loose, in the same envelope as your tax return.
PAID PREPARERS: About 33 million households who used a paid preparer last year should have received an IRS post card in the mail rather than a package of tax forms. The post card includes a preprinted label they can take to their preparer.
LENGTH: Long : 118 linesby CNB