Callaway County firms that offer income tax preparation services report an unusual number of unemployed people seeking assistance with their taxes this year.
"This year is by far the most people I have helped with taxes who have been unemployed during the last year. Many of them didn't have a job for the entire year. Normally, I have only a handful of people but this year I've already had a lot of them and the tax season is still early," said John Meyers of B&N Accounting Service in Fulton.
Meyers said in 2009 the first $2,400 in unemployment benefits were not taxable. But in 2010 the entire jobless payment is taxable.
Another Fulton firm is offering free tax assistance to unemployed workers this week. Liberty Tax Service of Fulton will waive tax preparation fees this week only during its "Displaced Workers Appreciation Days" from Feb. 14-19.
Eugene Allan, CPA and owner of Liberty Tax Service in Fulton, said jobless people who received unemployment compensation payments during 2010 just need to present their 1099G or unemployment check to qualify for the free service this week only.
"This is a service we provide to those facing enough hardship because of job loss and adversity at a time they certainly are focusing on other issues in their lives," Allan said.
Unemployment benefits were extended for many through 2011 under legislation passed by Congress. As long as a person is seeking a job in their field and can file a Form 1040, some of the job search expenses may be tax deductible as miscellaneous deductions. This applies for an active job search, Allan said, whether or not a person finds a job.
If a job seeker itemizes expenses and his job-hunting costs along with other miscellaneous deductions total more than 2 percent of his adjusted gross income, he can claim them on Schedule A, which is filed with Form 1040.
Unemployment compensation is considered taxable income. But reduced earned income for 2010 because of unemployment may mean that the taxpayer may be eligible for the Earned Income Tax Credit, Allan said.
The American Recovery and Reinvestment Act of 2009 created a new category of families with three or more children and increased the maximum benefit of the Earned Income Tax Credit for tax years 2009 and 2010. The Tax relief and Job Creation Act of 2010 extended these changes through 2012.
The IRS reports the maximum credit for 2010 tax returns is $5,666 for workers with three or more qualifying children. Workers without qualifying children may also be eligible for a smaller credit amount.
Workers who earned $48,362 or less from wages, self-employment or farm income last year could receive larger refunds if they qualify for the Earned Income Tax Credit. Four of five eligible taxpayers claimed the EITC last year, obtaining an extra $2,200 from the credit on average for about 26 million workers.
Eligibility for the EITC is determined based on a number of factors, including earnings, filing status and eligible children. Many people who experienced a change in these factors will qualify for the first time this year and may not be aware of the credit.
Free assistance in preparing tax returns is available to low income taxpayers. The help is provided by University of Missouri Extension Service volunteers who know how to fill out forms for people who may owe little or no taxes but who still might qualify for a payment from the government.
In Callaway County the free tax preparation service is provided this season at the Central Missouri Community Action office, 610 Collier Lane, Fulton. An appointment is required. The phone number to make the appointment is 573-642-3313.
Anyone who wants to learn if he qualifies for the Earned Income Tax Credit, can access the IRS Web site at www.irs.gov and type EITC into the search box. There is an EITC Assistant link that will help taxpayers determine eligibility by answering a few questions.
Meyers said in an economic downturn some people may want to take on the task of preparing their return themselves rather than taking it to a tax professional.
"If their tax return is a little beyond the norm, they may see part of the picture but not all of it. It's possible they could make a mistake. While they are saving, let's say $100, they may lose $500 to $1,000 just from one nuance of the law that they may not know," Meyers said.
Meyers said decreases made this year in Social Security paycheck deductions may indirectly lead to a tax increase at the end of this year. Meyers was referring to the current temporary cut in the Social Security payroll deduction from the previous 6.2 percent of an employee's salary to 4.2 percent.
At the same time, the federal government also ordered an increase in federal income tax withholding for individuals. The change is made because the Making Work Pay credit has expired. Last year everyone making less than $75,000 a year qualified for this credit of $400, which last year was doled out in the form of reduced withholding increases ranging from $8 to $13 per week.
"People have noticed that the amount withheld for their income tax is larger. Usually, the IRS does not do that unless they plan to keep it. I have heard rumors that the people who now fall in the 10 percent tax bracket will have it raised to 15 percent. The other brackets are likely to shuffle and everybody is likely to have a slight increase in taxes due next year. I believe the tax change may come right at the end of the year. That delay is what slowed the IRS this year and the reason that refunds will be delayed. The IRS isn't accepting returns this year until Feb. 14 because of the delays," Meyers said.
Meyers said because of the extra tax withholding this year, people will still receive about the same refund next year but likely won't notice the actual amount they paid in taxes is higher than they paid this year.