Author: Leon Clinton

Social Security benefits include monthly retirement, survivor, and disability benefits; they do not include Supplemental Security Income (SSI) payments, which are not taxable.

Generally, you pay federal income taxes on your Social Security benefits only if you have other substantial income in addition to your benefits such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return.

Your income and filing status affect whether you must pay taxes on your Social Security. An easy method of determining whether any of your benefits might be taxable is to add one-half of your Social Security benefits to all of your other income, including any tax-exempt interest.

Tip: If you receive Social Security benefits you should receive Form SSA-1099, Social Security Benefit Statement, showing the amount.

Next, compare this total to the base amounts below. If your total is more than the base amount for your filing status, then some of your benefits may be taxable. In 2018, the three base amounts are:

• $25,000 – for single, head of household, qualifying widow or widower with a dependent child or married individuals filing separate returns who did not live with their spouse at any time during the year
• $32,000 – for married couples filing jointly
• $0 – for married persons filing separately who lived together at any time during the year

Taxpayers filing an individual federal tax return:

• If your combined income (adjusted gross income + nontaxable interest + 1/2 of your Social Security benefits) is between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
• If it is more than $34,000, up to 85 percent of your benefits may be taxable.

Taxpayers filing a joint federal tax return:

• If you and your spouse have a combined income ((adjusted gross income + nontaxable interest + 1/2 of your Social Security benefits) that is between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
• If it is more than $44,000, up to 85 percent of your benefits may be taxable.

Married taxpayers filing separate tax returns generally pay taxes on benefits.

State Taxes

Thirteen states tax social security income as well including Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.

Retiring Abroad?

Retirement income is generally not taxed by other countries. As a U.S. citizen retiring abroad who receives Social Security, for instance, you may owe U.S. taxes on that income, but may not be liable for tax in the country where you’re spending your retirement years.

If Social Security is your only income, then your benefits may not be taxable, and you may not need to file a federal income tax return. However, if you receive income from other sources (either U.S. or country of retirement) as well, from a part-time job or self-employment, for example, you may have to pay U.S. taxes on some of your benefits–the same as if you were still living in the U.S.

You may also be required to report and pay taxes on any income earned in the country where you retired. Each country is different, so consult a local tax professional or one who specializes in expat tax services.

Note: Even if you retire abroad, you may still owe state taxes–unless you established residency in a no-tax state before you moved overseas. Also, some states honor the provisions of U.S. tax treaties; however, some states do not. Therefore it is prudent to consult a tax professional.

If you receive Social Security, a tax professional can help you determine if some – or all – of your benefits are taxable.

• By Leon Clinton
• March 8, 2019

If you’re a small business owner with fewer than 25 full-time equivalent employees you may be eligible for the small business health care credit.

What is the Small Business Health Care Credit?

The small business health care tax credit, part of the Patient Protection and Affordable Care Act enacted in 2010, is specifically targeted to help small businesses and tax-exempt organizations provide health insurance for their employees. Small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible for this credit. Household employers not engaged in a trade or business also qualify.

How Does the Credit Save Me Money?

The tax credit is worth up to 50 percent of your contribution toward employees’ premium costs (up to 35 percent for tax-exempt employers). The tax credit is highest for companies with fewer than 10 employees who are paid an average of $27,100 or less in 2019 ($26,600 in 2018). The smaller the business, the bigger the credit is. For example, if you have more than 10 FTEs or if the average wage is more than $27,100, the amount of the credit you receive will be less.

Note: The credit is available only if you get coverage through the SHOP Marketplace.

Here’s an example: If you pay $50,000 a year toward workers’ health care premiums–and you qualify for a 15 percent credit–you’ll save $7,500. If you save $7,500 a year from tax year 2017 through 2018, that’s a total saving of $15,000. And, if in 2019 you qualify for a slightly larger credit, say 20 percent, your savings go from $7,500 a year to $10,000 a year.

Is My Business Eligible for the Credit?

To be eligible for the credit, you must cover at least 50 percent of the cost of single (not family) health care coverage for each of your employees. You must also have fewer than 25 full-time equivalent employees (FTEs), and those employees must have average wages of less than $50,000 a year. This amount is adjusted for inflation annually and in 2018 was $53,200.

Let’s take a closer look at what this means. A full-time equivalent employee is defined as either one full-time employee or two half-time employees. In other words, two half-time workers count as one full-timer or one full-time equivalent. Here is another example: 20 half-time employees are equivalent to 10 full-time workers. That makes the number of FTEs 10, not 20.

Now let’s talk about average wages. Say you pay total wages of $200,000 and have 10 FTEs. To figure average wages, you divide $200,000 by 10–the number of FTEs–and the result is your average wage. In this example, the average wage would be $20,000.

Can Tax-Exempt Employers Claim the Credit?

Yes. The credit is refundable for small tax-exempt employers too, so even if you have no taxable income, you may be eligible to receive the credit as a refund as long as it does not exceed your income tax withholding and Medicare tax liability.

Can I Still Claim the Credit Even If I Don’t Owe Any Tax This Year?

If you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments are more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.

Can I File an Amended Return and Claim the Credit for Previous Tax Years?

If you can benefit from the credit this year but forgot to claim it on your tax return there’s still time to file an amended return.

Businesses that have already filed and later find that they qualified in 2016 or 2017 can still claim the credit by filing an amended return for one or both years.

Don’t hesitate to call if you have any questions about the small business health care credit.

• By Leon Clinton
• March 6, 2019

Tax reform eliminated a number of deductions that many taxpayers counted on to reduce their taxable income. Here are four that could affect you.

1. Personal Exemptions

Personal exemptions enabled individual taxpayers to reduce taxable their income in addition to the standard deduction, but were repealed for tax years 2018 through 2025. While the standard deduction did increase significantly under tax reform to compensate – $12,000 for individuals, $24,000 for married taxpayers filing jointly, $18,000 for heads of household – some taxpayers could still lose out.

2. Tax Preparation Fees

Tax preparation fees, which fell under miscellaneous fees on Schedule A of Form 1040 (and were also subject to the 2% floor), were also eliminated for tax years 2018 through 2025 as well. Examples of tax preparation fees include payments to accountants, tax prep firms, and the cost of tax preparation software.

3. Unreimbursed Job Expenses

For tax years starting in 2018 and expiring at the end of 2025, miscellaneous unreimbursed job-related expenses that exceed 2% of adjusted gross income (AGI) are no longer deductible on Schedule A (Form 1040). Unreimbursed job-related expenses include union dues, continuing education, employer-required medical tests, regulatory and license fees (provided the employee was not reimbursed), and out-of-pocket expenses paid by an employee for uniforms, tools, and supplies.

4. Moving Expenses

Prior to tax reform (i.e., for tax years starting before January 1, 2018), taxpayers were able to deduct expenses related to moving for a job as long as the move met certain IRS criteria. However, for tax years 2018 through 2025, moving expenses are no longer deductible–unless you are a member of the Armed Forces on active duty who moves because of a military order.

If you have any questions about tax reform and how it affects your particular tax situation, don’t hesitate to call.

• By Leon Clinton
• March 4, 2019