As far as tax legislation, 1999 will largely be regarded as the year that might have been. Congress debated and approved a substantial tax cut bill that would have had a significant impact on individual tax payers. But, in September President Clinton vetoed the bill. Then, lawmakers tried to pass separately what they couldn't pass all together. Proposals providing tax incentives to assist with health insurance and higher education costs, to simplify the rules governing employer-provided pensions, and to provide marriage penalty and estate tax relief, were all put forward. None of the legislation, however, was enacted. All of this, however, sets the stage for 2000. Many of the items debated in 1999 will be considered anew when the 106th Congress reconvenes in 2000.
The single piece of tax legislation enacted in 1999 was the Ticket to Work and Work Incentives Improvement Act of 1999. This legislation provides that recipients of certain Social Security disability benefits can seek vocational rehabilitation and employment services from providers of their choice and can return to work while retaining their government-sponsored health insurance.
In addition, the same legislation authorized the extension of some key tax credits, including the work opportunity tax credit, the welfare-to-work tax credit, and the research and development tax credit.
Here is a summary of some of the tax law changes that took effect in 1999 and how they could affect you.
- Child Tax Credit
You may be able to claim a tax credit for each of your qualifying children under the age of 17. For 1999, this credit can be as much as $500 for each qualifying child.
Child Tax Credits.
The new law permits you to take full advantage of nonrefundable personal tax credits -- i.e., the dependent care credit, the credit for the elderly and disabled, the adoption credit, the child tax credit, the credit for interest on certain home mortgages, the Hope Scholarship and Lifetime Learning credits, and the D.C. homebuyer's credit. For 1999, 2000, and 2001, the nonrefundable personal credits can be used to offset regular tax in full, not just to the extent by which your regular tax exceeds the tentative alternative minimum tax (AMT). In addition, the provision in the law that otherwise would reduce the additional child credit for families with three or more qualifying children, will not apply for 1999, 2000, and 20001. This means that families with three or more qualifying children will be allowed additional credit in each of these three years.
Interest on Student Loans
You may be able to claim a deduction for interest paid on a qualified student loan. The maximum deduction for interested paid on a qualified student loan is increased to $1,500. You claim the deduction on line 24 of Form 1040 or line 16 of Form 1040A. See your form instructions.
Student loan interest deduction.
The maximum allowable deduction per taxpayer increases to $2,000 in 2000, up from $1,500 in 1999.
Tax From Recapture of Education Credits
You may owe this tax if you claimed an education credit on your 1998 return and, in 1999, you, your spouse if filing jointly, or your dependent received:
* A refund of qualified tuition and related expenses, or
* Tax-free educational assistance.
- Tax Alert 1
Employer-paid education costs.
The new law just passed by Congress allows you to exclude from your income a maximum of $5,250 in undergraduate-level education expenses that are paid by your employer. This exclusion was set to expire on June 30, 2000, but will now apply through December 31, 2001.
- Tax Alert 2
Estimated tax rules.
The new law just passed by Congress modified the estimated tax rules. If your prior year's adjusted gross income (AGI) was above $150,000 and you make estimated tax payments based on your prior year's tax, you must do so based on 108.6% your prior year's tax for estimated tax payments made for the tax year 2000. For tax year 2001, if you are similarly situated, your estimated tax payments must be based on 110% of your prior year's income. The modified percentage is not changed for estimated tax payments made for any taxable years other than 2000 and 2001. In 1999, you needed to pay 105% of last year's tax liability in order not to be subject to tax penalties.
Individual Retirement Arrangements (IRA)
Generally, if you have a traditional IRA and are covered by an employer retirement plan, the amount of income you can have and not be affected by the deduction phaseout is increased. The amounts vary depending on filing status.
- Tax Alert 1
The adjusted gross income (AGI) phase-out limits for taxpayers who are active participants in employer-sponsored plans increase to $31,000 - $41,000 for single taxpayers and $51,000 - $61,000 for joint filers.
- Tax Alert 2
If you convert amounts from traditional IRA into a Roth IRA after December 31, 1998, you must take those amounts into income in the year of conversion.
Capital Gain Distributions
For 1999, if the only amount you would have to report on Schedule D (Form 1040) is a capital gain distribution, you may be able to report that amount directly on Form 1040, line 13.
Foreign Earned Income Exclusion
The amount of foreign earned income that you can exclude increases to $74,000.
Standard Mileage Rate
The standard mileage rate for the cost of operating your car is 32 1/2 cents a mile for all business miles driven before April 1, 1999. The rate is 31 cents a mile for all business miles driven after March 31, 1999. The mileage change for 2000 is 32 1/2 cents.
Self-employed Health Insurance
The part of your self-employed health insurance premiums that you can deduct as an adjustment to income increased to 60%.
- Tax Alert
Itemized deduction for long-term care insurance premiums.
The amount of qualified long-term care insurance premiums that may be taken into account for 1999 is as follows: $210 for an individual 40 years old or less; $400 for an individual who is more than 40 but not more than 50; $800 for an individual who is more than 60 but not more than 70; and $2,660 for an individual who is more than 70.
Stop Smoking Program
You can now include in medical expenses the amount you pay for a program to stop smoking and for prescribed drugs to treat nicotine withdrawal.
Certain Amounts Increased
Some tax items that are indexed for inflation increased for 1999.
Earned Income Credit
The maximum amount of income you can earn and still get the earned income credit has increased. You may be able to take the credit if you earned less than $30,850 ($10,200 if you do not have any qualifying children). The maximum amount of investment income you can have and still be eligible for the credit has increased to $2,350.
You are allowed a $2,750 deduction for each exemption to which you are entitled. However, your exemption amount could be phased out if you have high income.
Limit on Itemized Deductions
Some of your itemized deductions may be limited if you adjusted gross income is more than $126,600 ($63,300 if you are married filing separately).
Social Security and Medicare Taxes
The maximum wages subject to social security tax (6.2%) is increased to $72,600. All wages are subject to Medicare tax (1.45%).
- Tax Alert 1
Unified estate and gift tax credit.
A unified credit is available with respect to taxable transfers by gift and at death. The unified credit amount effectively exempts from tax a total of $650,000 in 1999 and $675,000 in 2000 and 2001.
Tax Alert 2
Exclusion for conservation easements.
An executor may elect to exclude from your taxable estate 40% of the value of any land subject to a qualified conservation easement up to a maximum exclusion of $200,000 in 1999 and $300,000 in 2000.
IMPORTANT 1999 TAX REMINDERS FROM THE IRS
Listed below are important reminders and other items that may help you file your 1999 tax return.
- Write in Your Social Security Number
To protect your privacy, Social Security numbers (SSNs) are not printed on the peel-off label that comes in the mail with your tax instruction booklet. This means you must enter your SSN in the space provided on your tax form. If you filed a joint return for 1998 and are filing a joint return for 1999 with the same spouse, enter your names and SSNs in the same order as on your 1998 return.
- Taxpayer Identification Numbers
You must provide the taxpayer identification number for each person whom you can claim certain tax benefits. This applies even if the person was born in 1999. Generally, this number is the person's Social Security number (SSN).
- Advanced Earned Income Credit
If a qualifying child lives with you and you expected to qualify for the earned income credit in 2000, you may be able to get part of the credit paid to you in advance throughout the year (by your employer) instead of waiting until you file your tax return.
- Sale of Your Home
Generally, you will only need to report the sale of your home if your gain is more than $250,000 ($500,000 if married filing a joint return).
- Individual Retirement Arrangement (IRA) for Spouse
A married couple filing a joint return can contribute up to $2,000 each to their IRAs, even if one spouse had little or no income.
- Spouse Covered by Plan
Even if your spouse is covered by an employer-sponsored retirement plan, you may be able to deduct contributions to your traditional IRA if you are not covered by an employer plan.
- Roth IRA
You may be able to establish a Roth IRA. In this type of IRA, contributions are not deductible but earnings grow tax free and qualified withdrawals are not taxable. You may also be able to convert a traditional IRA to a Roth IRA, but you must include all or part of the taxable converted amount in income.
- Foreign Source Income
If you are a U.S. citizen with income from sources outside the United States (foreign income), you must report all such income on your tax return unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2 or 1099 from the foreign payer. This applies to earned income (such as wages or tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents and royalties). If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income.
- Claiming the Foreign Tax Credit
If your foreign taxes are $300 or less ($600 or less in the case of a joint return) and all your foreign income is passive income, you may be able to claim the foreign tax credit without filing Form 1116.
- Joint Return Responsibility
Generally, both spouses are responsible for the tax and any interest or penalties on a joint tax return. In some cases, one spouse may be relieved of that responsibility for items of the other spouse that were incorrectly reported on the joint return.
- Include Your Phone Number on Your Return
To promptly resolve any questions we have in processing your tax return, we would like to be able to call you. Please enter your daytime telephone number on your tax form in the space provided next to your signature.
- Payment of Taxes
Make your check or money order payable to "United States Treasury." You may be able to pay your taxes by credit card.
- Faster Ways to File Your Return
The IRS offers fast, accurate ways to file your tax return information. These include the following methods:
* IRS e-file (electronic filing)
* TeleFile, and
* Computerized returns
- Private Delivery Services
You may be able to use a designated private delivery service to mail your tax returns and payments.
Excerpted from THE ERNST & YOUNG TAX GUIDE 2000, edited by Peter W. Bernstein. Copyright 2000 by Ernst & Young LLP and Peter W. Bernstein Corporation. Reprinted by permission of the publisher John Wiley & Sons, Inc. To order a copy of this work call 1-800-CALL-WILEY or visit the Wiley website at http://www.wiley.com. This is available through all online bookstores, including amazon.com, barnesandnoble.com and borders.com, or any independent bookseller found on bookweb.org, or at your favorite local bookstore.