Tax filing changes could generate confusion
Published January 20, 2015
by Richard Craver, Winston-Salem Journal, January 18, 2015.
Tax filing season begins in earnest Tuesday in North Carolina, with significant federal and state changes that could confuse and exasperate some taxpayers.
For example, North Carolinians will be required for the first time to provide basic information regarding their health insurance, or whether they had any at all, on their federal tax return.
“The vast majority of tax filers – over three-quarters – will just need to check a box on their tax return indicating they had health coverage for all of 2014,” the U.S. Department of Health and Human Services said in a statement.
“For people who purchased coverage through the Health Insurance Marketplaces, or decided not to enroll in coverage, they should be aware of the additional steps that will be a part of the tax filing process.”
On the state return, taxpayers will experience the reality of the give-and-take in the tax-reform package that passed by the General Assembly in 2013 and went into effect for the 2014 tax year.
The standard taxpayer deduction went from $3,000 to $7,500 for single and married filing separately, from $6,000 to $15,000 for married filing jointly or a widower, and from $4,400 to $12,000 for head of household.
In exchange, legislators eliminated personal individual deductions that were worth between $2,000 and $2,500 each in the 2013 tax season, as well as tax credits that include child care expenses and special education expenses.
Individuals who chose to itemize their state deduction will face a $20,000 limit on mortgage interest and property taxes. State itemized deductions are no longer identical to federal deductions for charitable contributions.
The $50,000 business deduction had ended for Schedule C proprietors and the self-employed.
“Individuals should use the Jan. 20 opening date as the baseline when calculating tax refund expectations,” the state Revenue Department said.
Some tax-preparation experts said it may not be clear until well into the 2014 filing season whether state tax reform will result in the average taxpayer getting a larger or small state refund, or whether they will pay when they are accustomed to getting a refund.
“Each individual tax situation is different, so the changes will have varying effects for North Carolina taxpayers,” said Genie Petrangeli, senior manager of Bernard Robinson & Co. LLP, which has two Triad offices.
“Although there is a drop in deductions in 2014, the good news is the tax rate is a flat 5.8 percent. This will suffice for many of the lost deductions. That is a tremendous decrease for taxpayers who paid 7.75 percent in prior years.”
Mark Steber, chief tax officer for Jackson Hewitt, projects the majority of North Carolinians will be affected positively in terms of their state refund. He said it will take several weeks of returns to see if that projection holds true.
“The changes are likely to confuse some people because they won’t need the usual paperwork to verify the deductions they have claimed in the past,” Steber said.
Steber said he believes the bigger lesson taxpayers will learn from the 2014 tax filing season is making sure to reflect any life and family changes in their return.
“If someone is now taking care of mom and dad, they likely have another dependent to claim,” Steber said.
“If someone is now taking educational classes, they likely qualify for one of the educational or lifelong learning tax credits.”
Regarding the federal tax return, taxpayers who met the minimum essential coverage requirement of the Affordable Care Act will just have to check off the box.
What qualifies as minimum essential coverage includes: most job-based plans, including retiree plans and COBRA coverage; Medicare Part A or Part C; Medicaid; the Children’s Health Insurance Program; most individual health plans bought outside the federal marketplace; and coverage under a parent’s plan for those under age 26.
“All marketplace consumers will receive a new statement – called a Form 1095-A – in the mail by early February that includes all the information they need about their coverage to file their return,” according to the federal DHHS. A downloadable version will be available in most states in late January.
“It’s very important to wait for your Form 1095-A to arrive before you file your taxes,” the federal DHHS said.
“If your marketplace coverage started partway through 2014 and you were uninsured earlier in the year, or if you were uninsured for only a short period of time during the year, you may be eligible for an exemption from the requirement to have health coverage.”
