On Dec. 17, 2010 the president signed into law the Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of 2010. The late passage of the bill has forced the IRS to delay processing some returns until Feb. 14. In addition, due to a Washington, D.C. holiday, the filing deadline has been pushed back to April 18.
Fox Business Network's Gerri Willis, host of "The Willis Report," appeared today on "Good Morning America" to explain important changes in the tax laws.
Q: The IRS processing delay will impact about 9 million filers. Just who will be affected?
A: Willis said that anyone who has a simple return is free to file now. Those who are filing returns with itemized deductions will have to wait until Feb. 14, when processing begins.
Q: Some tax preparers are offering to hold completed returns and submit them on Feb. 14. Is that a good idea?
A: "I don't feel comfortable with that," said Willis said. "I'm going to wait until the deadline and make my filing instead of relying on the IRS to keep my personal information in their offices." Especially if you're writing a check, Willis says. Her advice? Wait at least until Feb. 14 to send in your return.
Q: Key changes to the tax law are coming into effect this year, including a new health insurance credit. How does that work?
A: It's called the Affordable Care Act and it allows self-employed parents to deduct insurance premiums paid on behalf of their adult children up to the age of 27, Willis said. Those children must be on their parents' plans, but they don't have to be dependents. There are additional deductions available for parents paying for their adult children's health insurance. Taxpayers in that position should go to irs.gov and check Notice 2010-38 to find out if they are eligible for any deductions.
Q: What about credits for families adopting children?
A: Families adopting children will be able to get a larger credit for expenses incurred for travel, adoption fees and legal costs, Willis said. Under the Expanded Adoption Credit included in the Affordable Care Act, the credit was increased by more than $1,000 to a maximum of $13,170 per child for 2010 and this year. A credit reduces a taxpayer's bottom-line tax bill, dollar for dollar.
The adoption credit is refundable for 2010 and 2011, which means you'll get the credit as a refund if you don't owe any taxes. But once income reaches $182,520, the credit begins to phase out.
Q: Taxing unemployment benefits?
A: A year ago, jobless filers didn't have to pay income tax on the first $2,400 of their unemployment benefits, but now they will, Willis said.
Q: Are recent homebuyers getting hit by these changes?
A: The 2009-2010 first-time homebuyer credit gave purchasers $8,000 for when buying a house. Before that credit, there was another one that was less generous - $7,500 - and had to be repaid, Willis said. This is the first tax season where homeowners must start repaying that credit – which was available from April to Dec. 2008.
Even homebuyers who got the $8,000 credit in 2009 or 2010 may have to repay that money if they have since sold their house. The credit requires that homebuyers stay in the house for three years. You only have to repay based on any money you made from the sale. If you lost money, you won't have to repay.
Q: And now the IRS has an app for that?
A: IRS2GO, an application for your Android phone or iPhone, allows you to check your federal refund status and the amount you will get back, Willis said. You'll get an e-mail confirming the expected date of your refund. The app is free, includes tax tips and it's available at www.irs.gov.
Q: Why is a big refund not necessarily the best thing?
A: Willis said that getting a big refund isn't a sound financial practice. It means you've essentially given the federal government an interest-free loan. She advised that taxpayers recalculate their withholding so they get their money throughout the year and invest it rather than give it away.