3 Ways Your Social Security Payments Are Already Being Cut

Policy experts have focused on alternative ways of eliminating Social Security's 75-year financing gap, but lost in the debate is the fact that even under current law Social Security will provide less retirement income relative to previous earnings than it does today. Combine the already legislated reductions with potential cuts to close the financing gap, and Social Security may no longer be the mainstay of the retirement system for many people.
In 2002, the frequently quoted replacement rate for the "medium earner" who earned about $42,000 in today's dollars and retired at age 65 was 41%; that is, Social Security benefits were equal to 41% of the individual's previous earnings. Under current law, three factors will reduce this replacement rate: 1) the extension of the full retirement age; 2) the increase in Medicare premiums; and 3) the taxation of Social Security benefits.
1. The Extension of the Full Retirement Age
Under current law, the full retirement age is scheduled to increase from 65 for those reaching 62 in 2000 to 67 for people reaching age 62 in 2022. This increase is equivalent to an across-the-board benefit cut. For those who continue to retire at age 65, this cut takes the form of lower monthly benefits; for those who extend their work lives, it takes the form of fewer years of benefits. Thus, as reported in the Social Security Trustees Report, the replacement rate for the medium earner will drop from 41% to 36% for people who retire at age 65 in 2030.
2. The Increase in Medicare Premiums
The rising cost of Medicare will also affect future replacement rates. For the medium earner, Medicare premiums, which are automatically deducted from Social Security benefits, are scheduled to increase from 5% of benefits for someone retiring in 2002 to 12% for someone retiring in 2030.
3. The Taxation of Social Security Benefits
The third factor that will reduce Social Security benefits is the extent to which they are taxed under the personal income tax. Under current law, individuals with less than $25,000 and married couples with less than $32,000 of "combined income" do not have to pay taxes on their Social Security benefits. (Combined income is adjusted gross income as reported on tax forms in addition to nontaxable interest income and half of your Social Security benefits.) Above those thresholds, recipients must pay taxes on either 50% or 85% of their benefits. In 2002, only 20% of people receiving Social Security had to pay taxes on their benefits, so median earners typically did not pay any taxes. But the thresholds are not indexed for growth in average wages or even for inflation so, by 2030, as real benefits and other income increases, many medium earners will pay tax on half of their benefits.
The bottom line is that the net Social Security replacement rate for the medium earner will decline from 39% in 2002 to 29% in 2030 under current law. Policymakers need to be aware of this fact when they consider how much of the 75-year financing gap should be closed by benefit cuts and how much by tax increases.
Alicia Munnell is the Director for the Center for Retirement Research at Boston College.

Congressman, IRS working to stop tax ID theft

Congressman, IRS working to stop tax ID theft

A tax fraud issue that affects thousands of taxpayers in the U.S. is finally getting some attention in Washington, D.C.
Sen. Bill Nelson of Florida gathered with victims and IRS officials at a hearing on identity theft and tax fraud last week, which Nelson says will help lay the groundwork for Congressional action on the issue.
“Victims of tax-related identity theft are the casualties of a system ill-equipped to deal with the growing proficiency and sophistication of today’s tax scam artists,” he said.
Nelson said the ease of electronic filing, combined with the option of using debit cards for refunds and the low risk of criminal penalties has created what he calls the “perfect crime.”
Thousands of people each year file complaints stating that someone used their personal information to file a tax return. An IRS official who attended the meeting with Nelson reported that the agency has identified more than 400,000 confirmed incidents of identity theft since 2008. The agent also reported that during the 2009 tax filing season, approximately $15 million in fraudulent refunds were issued.
The IRS has said it takes the issue seriously, but has difficulty dealing with it because the scammers are so savvy.
One program put into action in order to combat theft is a pilot program that provided PIN numbers to about 56,000 taxpayers who are victims of identity theft. The numbers are to be used to file their tax returns and will, theoretically, prevent theft. The results of the program will be available in September.
Another option the IRS is considering is eliminating the e-file option, since this is an all-too-easy route for identity thieves to access. No decision has been made to date.

Read more: http://www.id-theft-security.com/lifelock-blog/2011/06/congressman-irs-working-to-stop-tax-id-theft/#ixzz1ODJg2uiW

Prepare for Disasters by Safeguarding Tax Records

Prepare for Disasters by Safeguarding Tax Records

June 1, 2011 WASHINGTON — The 2011 hurricane season starts today, and the Internal Revenue Service encourages individuals and businesses to safeguard themselves against natural disasters by taking a few simple steps. Create a Backup Set of Records Electronically Taxpayers should keep a set of backup records in a safe place. The backup should be stored away from the original set. Keeping a backup set of records –– including, for example, bank statements, tax returns, insurance policies, etc. –– is easier now that many financial institutions provide statements and documents electronically, and much financial information is available on the Internet. Even if the original records are provided only on paper, they can be scanned into an electronic format. With documents in electronic form, taxpayers can download them to a backup storage device, like an external hard drive, or burn them to a CD or DVD. Document Valuables Another step a taxpayer can take to prepare for disaster is to photograph or videotape the contents of his or her home, especially items of higher value. The IRS has a disaster loss workbook, Publication 584, which can help taxpayers compile a room-by-room list of belongings. A photographic record can help an individual prove the market value of items for insurance and casualty loss claims. Photos should be stored with a friend or family member who lives outside the area. Update Emergency Plans Emergency plans should be reviewed annually. Personal and business situations change over time as do preparedness needs. When employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes. Check on Fiduciary Bonds Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider. IRS Ready to Help If disaster strikes, an affected taxpayer can call 1-866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues. Back copies of previously-filed tax returns and all attachments, including Forms W-2, can be requested by filing Form 4506, Request for Copy of Tax Return. Alternatively, transcripts showing most line items on these returns can be ordered on-line, by calling 1-800-908-9946 or by using Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript or Form 4506-T, Request for Transcript of Tax Return.

Tax-free Memorial Day shopping for some

Tax-free Memorial Day shopping for some

Are you ready for some tax-free products?
That's what's awaiting shoppers in three states, as they've added the Memorial Day weekend to their sales tax holiday calendars.
For the last several years, around a dozen or more states have tried to entice consumers by offering the chance to buy certain products without paying the usual state and, in most cases, local sales taxes. These things have become so common, I half expect to see them start showing up on mass-market datebooks.
When that does happen, most of the tax holidays will be blocked off on fall weekends, giving retailers a chance to tie tax savings to back-to-school sales.
But Tennessee decided to offer a spring event back in April. And Texas, Virginia and Louisiana are kicking off their summer seasons with tax-free holidays beginning this Memorial Day weekend.
Don't worry. The early tax-free shopping option in these four states doesn't replace their fall events. I'll get you the details on them and the other states with sales-tax holidays scheduled for later this year as those dates near.
But for this weekend (and beyond, in one case) here's the scoop on tax holidays.
Texas
The Lone Star State's early tax holiday supplements its regular back-to-school event in August. While the fall event offers tax savings primarily on clothing and footwear, this weekend is designed to save you tax dollars on energy efficient appliances.
Dubbed the 2008 Energy Star Sales Tax Holiday, it runs from 12:01 a.m. on Saturday, May 24, through 11:59 p.m. Memorial Day, Monday, May 26. During this time, Texas shoppers won't have to pay the state's 6.25 percent sales tax or associated local levies (which make the combined rate here in Austin 8.25 percent) on just about anything that bears an Energy Star sticker.
Eligible products include air conditioners, washing machines, refrigerators, ceiling fans and dishwashers. Even some light bulbs qualify.
This Web page has details on all of Texas' tax-exempt products and special situations such as Internet and catalog sales, as well as lay-away purchases.
Louisiana
The Pelican State is still recovering from Hurricanes Katrina and Rita in 2005, so its officials are still a bit wary about what the upcoming storm season might bring. And to ensure that Louisianans are prepared, this Memorial Day weekend the state is waiving its sales tax on purchases of hurricane supplies.

On May 24 and May 25, hurricane preparedness items worth up to $1,500 each are tax free. Items that qualify include radios, generators, portable lights, cell phone batteries and chargers, food coolers and "storm shutter devices."
Having been through three hurricanes myself (yep, that's a big reason the hubby and I high-tailed it back home to a more inland Texas location), I can attest to the value of getting items to help you cope with a 'cane beforehand. So you bayou area shoppers, take advantage of this tax break.
You can check out this document for holiday details, as well as this special flyer.
And while this is Louisiana's first hurricane preparedness tax holiday, it won't be the state's last. The new law calls for the event to be held on the last Saturday and Sunday of each May.
Virginia I don't seem to recall Virginia suffering through a major hurricane in a while, but officials there don't want to take anything for granted. So the Old Dominion also is offering its shoppers a chance to stock up tax-free on hurricane and other emergency preparedness items.
In fact, Virginia shoppers have a week -- from Sunday, May 25, through Saturday, May 31 -- to pick up certain tax-exempt supplies, such as portable generators costing $1,000 or less and a wide range other eligible items priced at $60 or less.
This list of items has details. You also can check out the state's frequently asked questions about the Memorial Day event.

Was Your Tax Return Stolen?

In the United States, there were ten million victims of identity theft last year, and many of these victims had their information compromised electronically. Cyber identity theft targets almost any document or website that may contain sensitive personal or financial information, and tax returns contain a great deal of both. If you submit your tax returns online or save a copy of your return on your PC, your return may be vulnerable to identity thieves. Mailed tax returns are not much safer; identity thieves can and often do steal mail quite easily. In this post, we’ll describe how to tell if your tax return has been stolen and how you can prevent it from happening in the first place.

Warning Signs

Although stolen tax returns often go undetected, there are several warning signs taxpayers can watch for. Here are a few red flags that your tax return may have been compromised:

• You receive a letter or notice in the mail from the IRS. If the IRS receives more than one tax return for the same taxpayer, it will send you a notification in the mail. Typically, multiple tax returns indicate some sort of identity theft. Similarly, the IRS will notify you if you appear to be receiving wages from an unknown employer. In this case, an identity thief may have used your information in order to get a job and has filed taxes under your name.
• You don’t receive your refund. If your tax refund never comes, you should contact the IRS immediately. While the refund may just be delayed or lost in the mail, it could have also been diverted into another account by an identity thief. When thieves steal tax returns, they often alter the account information so the refund is electronically wired to their bank accounts.
• You notice inconsistencies on your credit report. There is also the possibility that the thief did not steal your actual tax return, but did steal the information it contained. In this case, the thief could use the information to open credit cards, get jobs, and apply for loans in your name. Review your credit report for irregularities and, if you find any, consider your tax return as a possible source of the breach.

Prevention

So many tax return thefts can be prevented with a few simple precautions. Here are some things you can do to reduce the risk of theft:

• Don’t store electronic copies of your tax return on your computer. Anything you store on your computer could potentially be accessed by an unauthorized party. Many tax returns end up in large online repositories for public viewing because identity thieves have sold them for money. Instead of keeping an electronic copy, write down your tax information and keep it in a safe or lockbox.
• Shred unneeded tax-related documents. Tax documents only need to be retained for three years. After this time has passed, shed any records you will not need.
• Don’t respond to emails or unsolicited calls from the IRS. The IRS does not communicate via email and will not ask you to give your information out over the phone, so do not respond to these forms of communication.
  
  
  
  
  
  
  
  
  
  
   
  
  
  
  

Tax Relief for Victims of April 19 Storms in Tennessee

Tax Relief for Victims of April 19 Storms in Tennessee

Updated 5/27/11 to include Gibson and Lauderdale counties. AL/TN-2011-30TN, May 10, 2011 NASHVILLE — Victims of severe storms, tornadoes, straight-line winds and flooding beginning April 19, 2011 in parts of Tennessee may qualify for tax relief from the Internal Revenue Service. The President has declared the following counties a federal disaster area: Dyer, Gibson, Lake, Lauderdale, Obion, Shelby and Stewart counties. Individuals who reside or have a business in these counties may qualify for tax relief. The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after April 19 and on or before June 30 have been postponed to June 30. In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after April 19 and on or before May 4, 2011, as long as the deposits were made by May 4, 2011. If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period. The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief. Covered DisasterArea The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below. Affected Taxpayers Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief. Grant of Relief Under section 7508A, the IRS gives affected taxpayers until June 30 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after April 19 and on or before June 30. The IRS also gives affected taxpayers until June 30 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (August 20, 2007), that are due to be performed on or after April 19 and on or before June 30. This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above. The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after April 19 and on or before May 4 provided the taxpayer made these deposits by May 4. Casualty Losses Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors. Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions. Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Tennessee/Severe Storms, Tornadoes, Straight-line Winds and Flooding” at the top of the form so that the IRS can expedite the processing of the refund. Other Relief The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS. Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case. Taxpayers may download forms and publications from the official IRS Web site, irs.gov, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

IRS Gives Joplin Area Taxpayers Additional Filing and Payment Relief

IRS Gives Joplin Area Taxpayers Additional Filing and Payment Relief

ST. LOUIS –– Following the devastating tornado Sunday in the Joplin, Mo., area, the Internal Revenue Service is giving victims additional time to meet their tax obligations.

Individual and business taxpayers in Jasper County now have until Aug. 1, 2011, to file various returns and pay any taxes due. In addition, federal employment and excise tax deposits due on or after May 22 are now due June 6, 2011.

This relief applies to Jasper County victims of the May 22 tornado as well as earlier storms and flooding that began April 19. For any affected taxpayer, a filing or payment deadline falling on or after April 19 and before Aug. 1 is postponed until Aug. 1, 2011. The postponement also applies to other time-sensitive actions required to be performed during this period including the June 15 deadline for making the estimated tax payment for the second quarter of 2011. 

The filing, payment, and deposit deadlines for other Missouri counties affected by recent storms remain unchanged