Sept. 11, 2014 Conference Call with Tax Professionals and Software Vendors

Transcription

1 Sept. 11, 2014 Conference Call with Tax Professionals and Software Vendors Topic: Tax law changes that affect upcoming filing season Presenter: Terri Steenblock, Assistant Commissioner of Individual Taxes Agenda 2014 Schedule M1M Schedule M1READ Schedule M1C Schedule M1CD Schedule M1B Property tax provisions Error rejection codes Other updates Transcript Today we will be talking about tax law changes that take effect beginning with the 2014 income tax return. Please note the forms we are going to use today are not in their final format and won t be until October 1. This is especially important for the M1M and the M1Read Schedule M1M For today s conference call we are going to access the form by clicking on the software vendor link under the tax professional portion of our website. You will notice the date column. As you can see, the M1M has a near final date of 9/10/14. The date is there to help you identify the last time the form was updated. As I mentioned earlier, the final forms will not be available until October 1. Standard Deduction for Married Taxpayers. Married couples are no longer required to add back part of their standard deduction. For tax years 2011, 2012 and 2013, this addition was entered on Schedule M1M, Line 1. Military Subtraction. The subtraction allowed to members of the Minnesota National Guard or other reserve component of the United States military for active service was expanded to include income earned under title 32 Active Guard Reserve Status. This subtraction will be reported on line 26 of the 2014 Schedule M1M. Mass Transit Benefits. There is a new subtraction for employer provided mass transit benefits that are included in federal taxable income. The subtraction covers employer provided transportation in a qualified commuter highway vehicle and transit passes in excess of the federal monthly threshold of $130 for 2014.

2 A qualified commuter highway vehicle is a vehicle that can seat at least 6 adults (not including the driver) and for which 80% of the use can reasonably be expected to be: - for purposes transporting employees between their homes and place of employment, and - during which the number of employees transported will be at least half of the adult seating capacity (not including the driver). Transit passes are any pass, token or similar item that entitles a person to transportation (or transportation at a reduced price) if that transportation is: - on mass transit facilities, or - provided by someone in the business of providing transportation in a vehicle with a seating capacity of at least 6 adults (not including the driver). For 2014, the subtraction for each month is limited to the lesser of: - $120 - benefits received in excess of $130 To show how this subtraction is computed, let s take a look at a couple examples. Example 1: Jane s employer provides her transit passes valued at $200 per month during the months of January through June. Starting in July, the value of these passes rose to $260 per month. For the months January through June, Jane s monthly subtraction is $70. For the months July through December, Jane s monthly subtraction is $120. Jane s total subtraction for the year would be $1,140. Example 2: In each month of 2014, John s employer provides him with transit passes valued at $130. Because the value does not exceed $130 in any month, John would not be allowed a subtraction. This subtraction is allowed in computing alternative minimum taxable income. For Minnesota tax purposes, this subtraction provides permanent parity of the income exclusion thresholds for employer provided parking benefits and transit benefits and only applies if federal law allows a higher exclusion for employer provided parking benefits than for transit benefits. This subtraction will be reported on line 36 of the 2014 Schedule M1M and line 18 of the 2014 Schedule M1MT. Federal Itemized Deduction phase out. There is a new subtraction for taxpayers whose federal itemized deductions are phased out to below their standard deduction. The subtractions will be the smaller of: - The difference between their limited federal itemized deductions and their allowable standard deduction, or - The difference between their limited and unlimited federal itemized deductions. Taxpayers who are subject to the federal itemized deduction limitation, but whose federal limited itemized deductions are more than their allowable standard deduction are not allowed this Conference Call with tax pros/software vendors on Sept. 11,

3 subtraction. The worksheet for the Minnesota itemized deduction limitation addition will account for the federal limitation. This subtraction will be reported on line 37 of the 2014 Schedule M1M. Schedule M1READ Reading Credit. A 2014 law created a refundable credit for tax year 2014 only. The reading credit will be calculated on Schedule M1READ. Unlike the K-12 Education Credit, the reading credit does not have an income limit. The credit is equal to the lesser of $2,000 or 75% of expenses paid for the qualifying instruction or qualifying treatment of a taxpayer s qualifying child or children. The maximum credit of $2,000 applies regardless of how many qualifying children the taxpayer has. Let s talk about some of the definitions for the reading credit. Qualifying Child. For this credit, a qualifying child is a child who: - meets the definition of a qualifying child for the Minnesota K-12 Education Credit, - has been evaluated by a school district for, but found not to have, a specific learning disability, and - was found, as part of the school district s evaluation, to have a deficiency in basic reading skills, comprehension or fluency that impairs him or her to meet expected age or gradelevel standards. It is important to note that while a qualifying child for the Reading credit is always a qualifying child for the K-12 education credit; the converse is not always true because of the evaluation requirements necessary to be eligible for the Reading credit. Qualifying Expenses. Expenses that qualify for the credit are: - paid for qualifying tutoring, instruction, or treatment, - not compensated by insurance, pre-tax accounts, - actual expenses for which the taxpayer can document, and - are not used to claim the K-12 Education Subtraction or Credit. Taxpayers may not use expenses used to claim the reading credit to claim the K-12 education subtraction. Qualifying Instruction or tutoring. To qualify for the credit, instruction or tutoring must help the qualifying child meet state academic standards in subjects such as language arts, math, science, social studies, history, geography, economics and government. Qualifying Treatment. To qualify for the credit, the treatment must: use recognized diagnostic assessments to determine what intervention would be most appropriate for the child, and employ a research-based method to teach language decoding skills in a systematic manner. Conference Call with tax pros/software vendors on Sept. 11,

4 Taxpayers who are unsure whether or not the treatment their child is receiving qualifies for this credit should contact the treatment provider. Qualifying Instructor. A qualifying instructor is someone who is not a lineal ancestor or sibling of the qualifying child and who: - has a valid teaching license for the grade level and subject taught (or is supervised by someone in this category), - has successfully completed a teacher competency evaluation, - provides instruction at an accredited school, or - has a Bachelor s degree. Schedule M1READ will flow to line 27 of Form M1. Schedule M1C To make room for this credit on Form M1, the total of credits for taxes paid to another state was moved to line 7 of the M1C, Other Nonrefundable Credits. Taxpayers must still file a separate Schedule M1CR for each state to which they paid taxes. Schedule M1CD Dependent Care Credit. The Minnesota credit is generally the lesser of the federal credit or $720 (which phases out based on income) for one qualifying child or $1,440 (which phases out based on income) for two or more qualifying children. For tax year 2013, the federal credit amount for Minnesota purposes was computed based on the rules of 2001 which limited qualifying expenses to $2,400 for one qualifying child and $4,800 for two or more qualifying child. The percentage of qualifying expenses allowed as the credit was also limited to a maximum of 30%. As part of the federal update legislation, the federal credit computation that Minnesota uses was updated to the current federal credit. This means the credit is calculated with qualifying expenses of up to $3,000 for one qualifying child and $6,000 for two or more qualifying children. The percentage of qualifying expenses allowed as the credit was also increased to a maximum of 35%. Schedule M1B Greater Minnesota Internship Credit. The 2013 Minnesota legislature created the Greater Minnesota Internship Credit which is available to employers beginning with tax year The credit is equal to the lesser of: - 40% of the compensation paid to an eligible student for work for which he or she can receive academic credit - The amount of credit certified to the taxpayer by the institution out of the institution s credit allocation for the year Conference Call with tax pros/software vendors on Sept. 11,

5 For this credit, an eligible student is a student who: - is enrolled in a Minnesota public postsecondary institution or Minnesota private, nonprofit, baccalaureate or graduate degree-granting college or university, and - has completed one-half of the credits needed for their degree or certificate. To claim this refundable credit, employers must be certified by the academic institution the student is enrolled in. The certification must provide the amount of credit the employer is eligible for. This credit will be reported on line 4 of the 2014 Schedule M1B. Angel Investment Credit. The amount appropriated for this credit was increased from $12 million to $15 million for tax year The program was also extended through tax year 2016 with an annual appropriation of $15 million. Beginning with tax year 2015, $7.5 million of the appropriation must be allocated to investors in qualifying businesses that are minority-owned, women-owned, or operating in greater Minnesota. To claim this credit, investors must be certified by the Minnesota Department of Employment and Economic Development. Property tax provisions that will affect 2014 income tax returns Homeowners Homestead Credit Refund. Homeowners homestead credit refunds based on property taxes payable in 2014 were increased by 3%. This means taxpayers who qualified for the credit will receive a 3% larger refund than they would have under prior law. For homestead credit refunds based on taxes payable in 2014 and received in 2014, homeowners must reduce their 2014 real estate tax deduction by the credit they receive. Previous legislation required the department to send notifications to taxpayers who may qualify for a homestead credit refund based on property taxes payable in Homeowners who filed for the credit based on taxes payable in 2013 or had already filed for the credit based on taxes payable in 2014 were not sent a letter. The letter was only sent to homeowners for whom the department estimated a refund based on property taxes payable in 2014 of $1,000 or more. Supplemental Agriculture credit information and the Supplemental Agriculture Credit for taxes payable in Qualifying agricultural homesteads were allowed a supplemental credit equal to the lesser of $205 or the net property taxes payable on the property excluding the taxes attributable to the house, garage and surrounding one acre of land. These credits will be issued in October; qualifying taxpayers do not need to do anything to receive the credit. Taxpayers who receive this credit must reduce their federal real estate tax deduction by the amount of credit they receive. If you have questions on the credit you should contact the county. A list of county contacts is available on our website. Conference Call with tax pros/software vendors on Sept. 11,

6 Error rejection codes We have inactivated 5 of our warnings on business returns and 2 warnings have been converted into error rejection codes. These rejection codes are: 0683 Minnesota Tax ID must be registered under the correct Federal Employer Identification Number (FEIN). To change or correct your tax type, please call business registration at Minnesota Tax ID is required and must match Department of Revenue Records. We have also made some changes to how error rejection codes will be presented. For 2014, you will receive a four digit code beginning with a zero (0006) for errors in your acknowledgements, instead of text. This change is for all tax types. You will be able to look up the error codes on our website. Go to rejection error codes under the tax professional tab. Other important updates Payment vouchers and payment information on our website. We ve heard your feedback and in early 2015 we are simplifying how we communicate payment information. You will see payment information on our homepage more organized and a clear list of payment options. For those of you that wish to still pay by check, we are replacing all 60 payment coupons, or vouchers that accompany checks with an online wizard. Instead of figuring out which voucher to use or searching for the right one on our website, users will answer a few simple questions, complete a few fields and a voucher will be generated for you to print and mail with a check. We will be conducting usability testing on the wizard so watch our notifications if you are interested in being a tester. We will provide more information when it is available for use. As a result of the wizard, the vouchers themselves have changed from previous years. The new spec documents are available on our software vendor page under Forms, Specs, and Schema. Your individual taxpayers can always electronically pay, even if they are making estimated payments. They can schedule all at one time with the dates they would like them withdrawn. Debit Cards. As you know, we take the privacy and security of taxpayer data very seriously. For this reason, we are continuing to explore a refund solution that could include debit cards that meets the needs of the taxpayer and our security expectations and requirements. We will not be rolling out a debit card solution for 2015 filing season. We will provide updates as we learn more about this solution. Direct Deposit. Direct deposit is the safest and most convenient way to get refunds. We reached a 10% increase in direct deposit last year with your help and we are asking for you to make sure taxpayers are aware of this option again this year. Reminders for software vendors Conference Call with tax pros/software vendors on Sept. 11,

7 We encourage you to provide a link to your users that take them to the error rejection codes. If you don t provide a link, you will need to incorporate our error rejection codes into your software. The deadline for registering to electronically file in Minnesota is October 30. You will find the registration on our website under the software vendor link and the registration and standards tab. If your company participates in the Free File program, your letter of intent is due to us by November 1, We did send a letter notifying all software vendors of this information. If you did not receive the letter, you can contact us at efile.devsupport@state.mn.us or by telephone at option 2. Fiduciary returns will be MEF for returns sent in the legacy format will be rejected. STAY CONNECTED! Check our website for more information. and click on the orange tax law changes button. Sign up for our alerts. Visit our website and click the red envelope. Thank you! Before we go, we want to thank you for your continued support and the job that you do helping taxpayers file their returns. We look forward to working with you over this next filing season. Contact us Tax preparer liaisons Software vendor support efile.devsupport@state.mn.us or option 2 Conference Call with tax pros/software vendors on Sept. 11,