Pa Tax Insurance 2014 Form
well welcome back everyone nice little morning discussion on insurance and how we reported on income tax returns we're gonna change gears here a little bit and talk about state tax issues just wanted to kind of start off with a filing requirement reminder of what we're looking at for the Commonwealth of Pennsylvania and even though we had already addressed this in the income section do you want to kind of remind you what Lancaster County would look like as well the main reason is that the local return system mirrors much more of the state system than it does the federal both of these you're not going to be found in the forty twelve or other IRS material but they are found in your volunteer guide on how to prepare our state local returns so one issue we have with Pennsylvania is Pennsylvania's going to require a return to be filed in 2018 if you have thirty three dollars of income so no $12,000 standard deduction twenty four thousand or add a couple thousand on there if you're over 65 in blond 33 is the threshold the reason why is Pennsylvania has a nice tax rate to calculate 3.07 percent flat tax irrespective of the amount of income that you have now they must have gone to the IRS school to figure out that let's just use numbers that are a little off 8.05 percent three point oh seven percent let's just try and get somewhere close there but we're looking at three point oh seven percent flat tax there is a requirement that anyone want over a thirty three dollars in income would need to file a return miners are not excluded so technically if an individual at the age of eight has interest income and dividend income because your grandparent thought it would be kind of nice to give them a couple shares of Disney stock as a gift technically that would be subject to Pennsylvania personal income tax and the child would need to file a return just as a caution once the child files return the Commonwealth of Pennsylvania will be looking for a return every year from them once they're in their system so for a miner there's no exception for filing again thirty-three dollars they are income threshold so we may see that quite a bit here in terms of individuals who may not have a filing requirement for federal but would for PA now we'll be talking about a couple reasons why they may not need to pay tax but they would still have a filing requirement one other issue that would be requiring a filing would be if they have a loss from a business that would include a self employment business or a pass-through from a partnership or S corporation ironically Pennsylvania won't allow you to deduct a loss but they will make you file a return if you have one so if you do have a loss from a sole proprietorship partnership or S corporation they would like you to file for Lancaster County just kind of a emphasizing that again that is only based on earned income so it's only gonna be earned income tax on wages active partnership activity anything like we'd have from a self employment business so wages self-employment active partnership would be considered earned income that's for all of Lancaster County and part of the octor Area School District as well so they cover that region now this does have a threshold you have to be over 16 to 16 and older to be able to file a local return so if you're under 16 there's no filing requirement which again kind of going back to the Amish when those kids are working on the farm from 12 to 15 they're in good shape once they hit 16 now they're following a local return so just a just something to watch out if you're under 16 you don't need to file a local return once you hit 16 you will be part of that filing mechanism another reminder if you're preparing a return and the taxpayer has received a blank form from Lancaster County with their name on it leister county expects that to be filled out and sent back even if they have no income so if they have no income check off the reason why there's no income retired homemaker deceased and send it back I've been checking deceased now for the past seven years they keep sending me one apparently they don't believe it so they will eventually take you off the rolls if they get the correct information hopefully they must be checking the obits and haven't seen me yet so I still keep getting one but all joking aside if you do get one be sure to send it back in for the client otherwise they make it an on filing notice later in the year which could be a $25 per person penalty so we don't want them to inadvertently have a $50 charge because then their spouse did not file a local return so they do get one be sure to check the box why there's no or an income and send it back to local County all right but getting a moat war so into Pennsylvania taxes Pennsylvania has a unique taxing system to put it mildly you know if you thought the federal was slightly confusing wait to see PA PA has a structure where they're one of the first areas to have a flat tax which sounds kind of nice right it's a pretty easy we don't have to worry about graduated rates there's no real differences in filing status in fact when we talk about PA you're technically not filing a joint return the taxpayer and spouse are going to be on the same form but they're going to be calculated separately so we'll talk about some offsets that we have mainly the reason to file a joint return for PA is for a matter of convenience one downside for PA if you file a joint return there's a liability due Pennsylvania you could go after either party so just one thing to maybe keep in mind that you can actually separate the returns for state and local purposes even if you file jointly for federal so if people say hey I want to file separately and you remind them by the way you may not want to if you want to take certain credits and opportunities and they say okay I'll file jointly you can still file separately for Pennsylvania and local purposes so you do have that option as well but basically what we're going to take a look at Pennsylvania has eight different classes of income so we're gonna have those as clear delineation what's unique about these is that they will add up any positive amounts but you don't get credit for a negative number in any of these categories so if you have a business loss it will not offset interest income like it does on a federal return now the unique aspect is a loss from a spouse will not offset income from another spouse so if one spouse has capital losses on their account and the other one has capital gains we only report the capital gains from that one spouse so it's kind of a unique scenario but Pennsylvania uses eight categories of income we're going to have wages we have interest we're gonna have dividends business income and gains and lost them to sale property those are traditionally the five categories we're gonna see with invited those first FOP top five categories they will also attack or attacks anything from rent and royalties typically these are outside the scope of ADA also a state and trust income also typically outside the scope of Ida returns the eighth category is gambling and lottery winnings a couple years ago Pennsylvania changed its rules now all lottery winnings are taxed one PA a couple years ago I gave you advice if you wanted to play Powerball or Mega Millions buy the lottery ticket PA because it would not be taxed in PA if you bought it in PA they've changed their rule now to say no matter where you buy the ticket it's gonna be taxable for Pennsylvania purposes so feel free to buy your lottery ticket wherever you feel like it now if you go down to the shore and you want to buy a lottery you can down there with your grottoes pizza that's fine you can go ahead and do that no problem where you buy it it's gonna be taxable irrespective of where that ticket is purchased so those are the eight categories of income we'll take a look a little bit deeper at a couple of these areas a lot of things that people take a look at Pennsylvania is not a bad stage to retire other than the fact it's cold right now you know we have a fairly long winter but if you take a look at surrounding states Pennsylvania is actually a favorable place to retire the reason why is because Pennsylvania does not tax a lot of items of income like they do in New York New Jersey and other surrounding states Pennsylvania does not tax Social Security they don't tax railroad disability and retirement benefits they typically don't tax pension distributions or retirement distributions I mean you'll see there's a little asterisks up there that we'll talk about in just a minute they don't tax unemployment compensation they don't tax sick pay they don't tax disability or alimony they also don't tax inheritance or death benefits and active duty military pay is not taxed either so there are a lot of items of income that aren't even subject to PA tax so if you're a retiree your Social Security is not taxable your retirement income is not taxable if you're receiving alimony that's not taxable for PA either now the exception that we have we talked a little bit about this during our income section where if we had a 1099 our with a code one in box seven an early withdrawal from a retirement account Pennsylvania will treat those amounts as taxable compensation because it's coming from an employer type account if you take an early withdrawal from your retirement account it will be considered as taxable compensation so Pennsylvania will be looking at those to be reported on the PA return now the unique aspect about Pennsylvania tax law is when we take a look at w-2s typically your Pennsylvania wages may be higher than they are for federal taxable purposes it's because Pennsylvania does not allow a deduction for contributions to retirement plan meaning that when you take a distribution from your retirement plan part of that is your own taxable dollars coming back so Pennsylvania will allow you to recover your initial contributions before they tax you on the earnings the downside very few people know what their taxable or what their contributions were and in the past we've kind of said all right let's just come up with a best-guess scenario Pennsylvania will give you a number that's 0 we know you do not have 0 contributions I just recently worked with a client who got a letter from the Department of Revenue where we had taken a reduction of their taxable amount due to contributions they requested a statement from the third party administrator showing the amount of contributions to that account so we're gonna have to work with PA on how that's going to work obviously the state does not understand how some of these accounts will move from one to another so the issuer the retirement account had no idea how much the basis would be but we basically have to come up with an opportunity of how we're gonna report that some suggestions we have if it's a relatively recent retirement account you can go back and take a look at their w-2s and find out how much had been contributed the amount in box D if they have a 10 of w-2 would show how much that they contributed to their plan so what we may see is a situation where a taxpayer may have been employed left employment decided to take their money with them if that's the case we can take a look through your w-2 for the current year and maybe a few prior and come up with an amount that we believe is reasonable for their initial contribution that initial contribution comes back tax-free it's gonna be a recovery a basis there's a couple little quirks we have to work with in tax layer to get it to work and we'll see what happens with tax layers updates what those new quirks will be for the current year good news is we don't see this all that often but just bear in mind if there is an early withdrawal from a retirement account it may be partially taxable for PA which will also become taxable on the same amount for local purposes as well so we just want to kind of point that out all right so kind of continuing on compensation so we know that early withdrawals from retirement accounts would be considered compensation however you do get to recover any of your initial contributions first before the earnings become taxable now what happens with Pennsylvania is we will actually be able to have a schedule that it goes with the electronic file copy of the return called a w-2s this is gonna be reporting all the compensation the taxpayer has traditionally following after the PA 40 in terms of its print order again just bear in mind that the Pennsylvania wages may be different from federal box1 for federal we'll take into account some reductions things like the employee voluntary contribution to our retirement account again Pennsylvania does not allow that as a deduction so typically PA wages may be higher when you go in a tax layer it's automatically going to assume that federal Medicare and Social Security are all taxable in the same amount once we start overriding it we'll just enter the w-2 as shown Pennsylvania will have a presumption that the Medicare wages so it's showing up in box 5 of the w2 should be the exact amount that's PA taxable compensation sometimes they may be slightly off we do have an opportunity within tax layer that there is a reconciliation form fortunate I don't think we see it all that often just to show where PA wages match Medicare generally tax layer will pick up those differences fairly well but just as a reminder when you enter the information from w - just take a look at box 16 which would be your PA wages and enter the appropriate withholding in box 17 just be sure that when you're entering the local component we don't actually end up putting any local tax in the state section sometimes you'll see a employer put LST information or something else in the state and local lines just be sure we're not inadvertently putting those in in the wrong categories once you put those in they will flow automatically generally not a whole lot of issues with the w-2s we just need to go ahead and report those as shown and then we'll automatically flow over a couple other things that we take a look at for compensation issues is Pennsylvania actually has a reciprocal agreement with a number of surrounding states one of the interesting parts much like we talked about surrounding states if you think back to when we talked about the definition of qualifying relative our first definition with someone not even related to us when I mentioned surrounding states the first state on this list is Indiana now even if you haven't looked at a map or a chart or some kind of legend you may know that Indianapolis is not on the other side of the PA border Indiana is a couple states away however we have a reciprocal agreement with them so this is one of the states on here that does not actually touch Pennsylvania but if you work in Indiana you are eligible to have Pennsylvania tax withheld on your Indiana wages much like if for some reason someone's commuting daily from Indianapolis to Lancaster County to work the employer can withhold Indiana income tax not Pennsylvania so the reason why we point this out you may see some unique issues where particularly here in Lancaster County I think the state will probably see a little bit more often maybe Maryland as employees may have jobs in Maryland the employer in Maryland should be withholding Pennsylvania tax same thing if an employee works in New Jersey the employer should withhold PA taxes it's a reciprocal agreement now we don't have these with Delaware and there's a state to our north that doesn't play well with others that's New York they don't reciprocate with anyone if you work there they tax you there if you go there they tax you there so we don't have an opportunity if someone has a New York job we may have to file multi-state returns and it gets a little bit unique of how that situation works in vitae so if we see that you may want to talk to a site coordinator about what to do with multi-state issues part of the other thing we take a look at here with well with these states again they should be withholding Pennsylvania wages if you're in Indiana Maryland New Jersey Ohio Virginia or West Virginia again Virginia's kind of a stretch they don't touch us either but you can kind of get through some more difficult States to get there if someone does have state taxes withheld in that state it becomes a little bit more complex we actually need a file a state return in that other jurisdiction to get that money back and then pay tax in PA so if you do see someone and they have a Virginia employer and they were withholding Virginia tax we need to file a Virginia return claim that they're not subject to tax get that money back and then file a PA return and pay the money to the Commonwealth so just to point that out it does become a little bit more complex so if you see that situation certainly talk to your site coordinator and we may have to figure out how to handle some of those issues now one of the unique things about Pennsylvania is that we do actually have a few deductions not many they don't really allow many deductions but they do have a schedule you E which is unreimbursed employee expenses these are not eligible for federal anymore when federal changed their itemized deduction rules they got rid of the 2106 the federal unembarrassed employee expenses however Pennsylvania has not changed their rules yet so you may still take unreimbursed expenses for Pennsylvania purposes we mentioned last time about the educator deduction up to $250 for federal Pennsylvania will allow you to take those same expenses on the Pennsylvania return there is no kapap though it's whatever you actually incurred can be deducted as Yui expenses so where we take a look at these is that there are a couple rules that we have to go through they have to be ordinary and necessary they have to be generally accepted in the in the occupation in which you work so you have to take a look and make sure that there's a reason why people are taking these expenses they actually have to be paid while you're performing your employment they have to be a reasonable amount not excessive they have to make sure that you can perform your duties and are directly tied to your employment or other type of occupation so they have to be reasonable and necessary they have to be kind of reasonable and amount they have to be directly tied in so a couple things that we typically see union dues so if you have an individual who works and pays union dues typically we may see this coming out of educators they may have union dues indicated in box 14 of your w-2 also if you have individuals who might be in a manufacturing type industry or other type of union do payment those aren't deductible so those are allowed as a Pennsylvania Yui expense work uniform and clothing now here's where it gets a little interesting a lot of people say well I need to buy clothing to go to work yes you do there are very few occupations where you can show up without clothing on now the issue is will the clothing actually help you perform your job if it's something that is specifically related to that occupation something like safety boots steel-tipped shoes perhaps if you're in a server opportunity that you have non-slip orthopedic shoes if you have scrubs that you need to work at a medical facility those are considered deductible expenses if you're a landscaper and you'd like to buy a nice car hard jacket because it keeps you warm that's not a deductible expense that item can be worn outside it's not directly related to your work environment but if you need safety equipment hardhat safety goggles specialized gloves those are acceptable if you can wear the items outside and the normal course of everyday wear traditionally will not be deductible and again in years past this is a fairly clear-cut you know we'd always kind of say if you would one to be caught wearing your work uniform while you're out it typically means it's deductible you know if you have the jumpsuit on if you're working as a mechanic you have the coveralls with your name and blazoned on the side that's traditionally work uniform but now you walk around town and you see people in all sorts of state of dress people that apparently don't get out of their pajamas before they head out to the store it's apparently acceptable now just casually walk around in whatever you feel like so now we have to change that definition now it's not just what do you feel comfortable walking around it but if it's things like safety vests dayglo you know any other type of safety equipment would be considered deductible but to say I need to wear a nice pair of shoes and a shirt to go to work that's not deductible that can be worn anywhere so we have to see that it's not available for general use small tools and supplies typically may have situations where an individual may have to buy certain things that they use within their work environment it may be circumstances that their employer requires them to have certain things if they're a repair person they might have things on their truck or they might be on a job site rather than go back to the company they may head out to a local hardware store or something along those lines to buy certain supplies and tools those are acceptable as well now we get into a little bit of a tricky situation Pennsylvania has really been cracking down on the Yui expenses so this is another area where they really kind of try to make sure in addition to now looking at that retirement area that we've been sending we've been seeing notices for quite some time on this schedule Yui the scheduled Yui Pennsylvania has been attacking this to say we need to see proof from your employer that you are not eligible for reimbursement so just bear in mind with these costs if you were eligible for reimbursement and you choose not to be reimbursed pensively will not allow you to take a Yui expense so for example if you are a air conditioner repair person and you have to go out to a local hardware store to get a fitting or some other type of device and you put it in on the customers job and the employer says well if you buy it you should go ahead and give me the receipt we'll reimburse you for it and you choose not to do so you're not allowed to take that part as a UE expense likewise if the employer reimburses you some element of mileage irrespective of how much it is you cannot take the mileage reimbursement any more so it's kind of unique in that aspect even though the IRS rate will change year to year hovering around fifty six fifty four cents a mile if they only reimburse you at eighteen cents a mile you don't get to take the difference on your PA UE so just a couple things to keep in mind professional license fees again if they're not reimbursed by the employer so typically we may see these in the medical profession if you have to have a professional licensure hairstylist anyone who has to pay a fees to the Department of Labor or Department of State would be able to deduct those professional fees vehicle expenses again we just have to watch on the mileage typically employers may say if you run business mileage submit a report to us we'll reimburse you if that's the case then they choose not to do it that way Pennsylvania will not allow you to deduct it likewise commuting costs do not count so your mileage from your home to your first job of the day is commuting that's not a deductible travel expense travel between lien work locations would be deductible that is business travel but your first drive of the day is considered commuting any parking fee east holes transportation travel expenses while you're away from home overnight and meals and entertainment so if you're entertaining clients if you have customers you take out for meals if you're buying things those are deductible at 100% federal for those of you coming next week for the advanced meals are deductible only at 50% for business expenses but they're deduct 100% for PA I like to think it's because Pennsylvania is a snack capital of the world with how many pretzels chips and candy manufacturers we have but it actually has to do with how they base their tax structure instead so those would all be considered deductible however we do want to make the caution to say we don't want to get into a discussion with clients to say oh I bought a ten dollar pair of shoes how much does that can impact my tax return well if you do the math $10 times 3.07 percents not a whole lot these are generally gonna be scenarios where we may see opportunities for people who have union dues educators who may also qualify the educator expense for federal if you have someone who their occupation is Pizza Delivery they may not have any direct related expenses for those items I don't think Pizza Hut requires you to have certain material that you can't wear elsewhere to help deliver pizzas so again the Commonwealth is taking a look they're cracking down a little bit more to make sure that these are actually deductible expenses and honestly in our profession we've become quite tired of having to deal with these notices because Pennsylvania will start disallowing those at relatively low levels so if you take a $50 deduction on your return Pennsylvania may send your notice to say we would like the following pieces of information we want to see a copy of your receipts we want a letter from your employers and you're not eligible for reimbursement or alternatively you can get a signed affidavit saying that you're entitled to take these deductions most likely the issue is do you do that or do you pay $5.00 we're have five dollars less left less than a refund so we just want to be sure that they do qualify if they do no problem at all taking I don't want to discourage people from taking something that they're eligible to take just I don't want us to go through the process of spending a lot of time trying to go through a scenario where it's not going to benefit the client ultimately so if they have situations predominantly things like union dues educator expenses if they are in a position where there are sales individual and I've cautioned people with this as well that they should probably go back to their employer and be sure that their employment agreement says that they're not eligible for reimbursement if they are Pennsylvania's going to disallow it so just before you get in the position where you say hey give me all your miles for the years give me all your meals and entertainment let me know everything that you've incurred we have to just be sure that they're eligible so just to kind of give you a quick piece of advice on that all right for interest income Pennsylvania interest is typically going to be very similar to PA however Pennsylvania does not tax certain items from interest so the first ones we take a look at they're not eligible to tax US government interest so if you have interest coming off of savings bonds basically box three of the 1099 int is not subject to PA tax you don't have to make any modification for that it simply will not carry over from tax layer PA also will not tax its own interest so where we may see this as if you are a individual who has municipal bond interest federal will not tax municipal bonds interest from state local governments Pennsylvania will not tax his own interest but it will tax interest from other jurisdictions so if you have a client who bought maryland transportation bonds they would be taxable for PA purposes but not for federal so we'd have to make some modifications within tax layer so any Commonwealth of Pennsylvania interest is not taxable for PA any municipalities of PA so municipal bond interest if you buy bonds for local school districts they would not be taxable either for PA also if you have interest of from bonds from Guam Virgin Islands Puerto Rico I'm yet to see anyone investing in Guam bonds but if you do see it the interest is not taxable for PA you do see it slightly take a picture of that we'd love to see what that actually looks like in terms of a Guam bond but that would be not taxable for PA so within taps layer and we'll kind of see this a little bit more as we get into the program itself there's actually in the interest screen an opportunity for you to edit the the button as well so basically you can add and edit the interest to make sure we have the appropriate amount going to Pennsylvania again in most cases it's probably going to come right from federal there's only the main issues we need to adjust this via a municipal bond interest non-taxable for PA or fir sorry for federal purposes and we need to take a look to see how much of that would be taxable for PA so again PA old tax any municipal bond injury since not from PA or its Commonwealth or Guam for Virgin Islands but other than that pretty much all taxable all right so the dividends I'll pretty much carry over the one unique aspect about dividends is that Pennsylvania will treat capital gain distributions differently than federal well if you have capital gain distributions from a retirement from a investment account those will be reported on our Schedule D and flow to the 1040 if you don't have any other capital gain transactions it just simply comes up without having a Schedule D attached for PA purposes however they will move those capital gain distributions up to dividend income so they just are reported separately so if you're taking a look at the returns and making sure you self review and have all the information the dividends may be different for federal than they are for PA and the nice little trick for PA as they move those cap gain distributions out because otherwise they may help offset capital losses if they were stayed in the capital gain section they move them to dividends because they treat them as dividend income so they will not be eligible to offset any capital losses these first few categories will be just interest dividends we don't see any losses so you don't have to worry about offsetting between spouses capital gains if you do take the advanced certification you enter capital gains just bear in mind if you have more losses and you have gains you can take part of it for federal you cannot take it for PA there is no carry over or anything else if one spouse has gains and the other has losses they will not be able to offset each other either they can it for for PA so Pennsylvania just has some unique things so if you think you're pretty good at math and you add a positive numbers and you're used to subtracting negative numbers forget about subtracting negative numbers for PA they don't take negatives into account they're only good in addition not so much subtraction so the 10 the PA 40 may look a little unique if you haven't seen one before more so if you have an advanced issue where you may have a couple things mainly coming a loss is from cap but you know we talked about $33 of income that's what you kind of need to be able to file a return we talked about all the ways PA will kind of add positive things in for income they don't give you a whole lot of deduction however we have a fairly nice tax credit that will be applicable to a majority of individuals within beta particularly seniors and others that may qualify for tax forgiveness so even though that you may have a senior who comes in and these and their retirement and comes on taxable their Social Security is not taxable they get a 1099 div and they show 63 dollars have dividend income so you'd say oh okay well how do I break the news we have to write a $2.00 check to PA because the good news if you have a one dollar payment they don't need it two dollars they want it but they may qualify for tax forgiveness and this is a Pennsylvania scheduled SP so this allows certain tax payers to actually reduce all or part of their tax liability for PA so a couple things we're going to take a look at first of all we have to go in and tell the system that you're eligible for tax forgiveness which is one of the just little downsides of this program but if you go into the credits and you tell them they're eligible for tax forgiveness it will go through the calculation for you it's typically going to base it off of their taxable income but there are couple additions that will have to happen it's going to add back things like alimony their non taxable interest get added back for purposes of determining income for tax forgiveness inheritance is never taxable on federal and state purposes but you have to add any inheritance in in calculation for economic gain so if they have an inheritance that gets added back in non-taxable educational assistance usually we don't really see that this is invited but if they're getting tax-free scholarships that would be added back for that individual not for dependents just for the individual if they have excluded a game from a principal residence this is kind of an area that may actually crop up if you have people and I've often seen this is you have an individual who may be moving from their primary residence into say a retirement facility and they've been accustomed to taking advantage of the PA tax forgiveness for many years and all of a sudden that they've had this gain on their home they don't have to worry about it because PA won't tax it federal won't tax it but you need to add that amount of gain back in for tax forget so if they had an $80,000 excluded gain on their home that comes into our tax rate given its calculation and $80,000 of income will put you out of tax forgiveness so they may have one year that they actually have to pay tax to PA so just bear in mind some of these will automatically calculate some you may need to go through and just verify the alimony will come over automatically the inheritance you will need to ask about the gain on the home depending on how you enter that for purposes of federal purpose may have to be entered separately for pa typically don't need to enter the exclusion for home sale but you do need to inquire about it for PA so if it is an amount we do need to add that back in now one of the other unique aspects is that it's gonna be based off your income in the number of dependents that you have the one caution that we have is that oftentimes dependents look like they can qualify for tax forgiveness so if you have an individual who files a return they have a part-time job and they only have four thousand dollars of income and you go into tax layer and by nature you just automatically check everyone's eligible for the tax forgiveness bear in mind that if you're a dependent on someone else's return that taxpayer also has to qualify for tax forgiveness in order for you to qualify so what will often happen is you'll have to file a return for a dependent child who may have a part-time job fortunately they typically don't owe any tax because most employers knowhat them withhold 3.0 7 percent of their taxable wages but don't try and get them in a tax forgiveness and say I'll get you fourteen dollars back for pa they only qualify if their parents also qualify for tax forgiveness so again we may only see this typically if we're preparing the student return with the parent is the best situation that way you can see what happens if you have a student who comes in if you're at a site near a college campus and they're trying to get their taxes done and you're giving them tax forgiveness you may want to double check to see if their parents are also eligible for tax forgiveness if the parents are not eligible and the student can't take it either okay so other issues we just want to kind of mention here about PA we can go on for four days about Pennsylvania taxes I used to do a three-hour seminar on Pennsylvania personal income tax so we'll kind of boil it down a little bit to just some more relevant issues but a couple other things that we take a look at we have said that retirement income is not taxable distributions from retirement accounts are not taxable for PA purposes and unless sir early or unless you're not really retirement distributions and this situation arises if we have individuals who invested in annuities so an annuity while it's being reported to you on a form 1099 our for Pennsylvania purposes is not a retirement account a retirement account for parents when your purpose is anything that you actually put into or your employer set aside for you for purposes of retirement an annuity contract is an investment vehicle under Pennsylvania rule so one of things we take a look at whether it's a purchased annuity that you purchase through an insurance company or a mutual fund company or a gift annuity that you purchased through a nonprofit or retirement community any tax will mount for federal purposes will also be taxable for PA purposes treated as interest income and one of the things we want to take a look at is 7 d so if you have a code D in box 7 of your 1099 our what we take a look at is that would be the amount that gets reported at pa again there's a little technique we need to do in tax layer to get it to work but those would be subject to tax your PA purposes the amount that's shown as taxable income on a distribution from an annuity would be taxable for PA we don't need to do any additional calculations that's actually coming from the annuity the annuity provider so they've already calculated how much of that distribution is return of capital and how much of that's going to be earnings off the account so if we just see ad in box 7 don't get all confused that there's no you know there's no 70 on the back those are two separate numbers 7 would be a normal distribution DS indicating that is coming from an annuitized product so if it's addy there's actually a spot on the PA interest form to include distributions from insurance companies annuities and charitable gift annuities so that will be taxable if someone asks is this new the answer is no it's not new so we've been preparing returns for a while that we haven't done it option of what you want to do with those returns but if you see a 70 it is taxable for PA purposes one of the other unique aspects that we have with PA is a concept called use tax use tax is a corollary to sales tax so for those of you who buy things you may be aware of there are certain elements of items that are subject to be a sales tax and that's a fun little area if you ever want to go through and determine what is and what is not subject to sales tax so coach you're not subject to sales tax but furs are if you go to the grocery store most of the food that you buy is not subject to sales tax unless it's ready for you to consume and it is some sales tax certain items like health items are not subject to sales tax sports equipment can be depending on the type of equipment but generally your retailer will tell you what's taxable and what's not taxable what's kind of unique is that we actually have a jurisdiction that's not on the reciprocal list that's not too far away from here even closer to areas like suburban Philadelphia which is very easy to go buy things in especially large items appliances jewelry things that travel well where they don't charge sales tax now Pennsylvania will say if you buy items and you don't pay sales tax on them and they're used and consumed here in PA you as a consumer owe use tax so if you've bought an item and say you went to Delaware and you came back and you said wallah I'm down here I'll pick up that big flat-screen TV I had my eye on so it's two thousand dollars I just saved myself 6% on a two thousand dollar purchase technically Pennsylvania would like you to pay the use tax uo to the Commonwealth same thing if you buy things online from a retailer that does not charge sales tax to PA we just had a recent Supreme Court decision that may change that a bit of how tax ability will happen but in years past when Amazon first started selling to PA they did not charge sales tax because they did not have substantial precedents so for people who went ahead and bought a lot of things online they never paid sales tax PA is gonna request that you submit that what's unique about this it's a voluntary compliance they have the question on the return do you have any use tax that you would like to report you have to answer the question but they can't force you to give them the right answer so the question is do you have any use tax that you would like to report to Pennsylvania in most cases that answer is most likely no I do not have any use tax I would like to report to PA zero is a valid answer because you're gonna ask the client and typically you're gonna get a blank response if you just ask them oh by the way I have to answer this question so I can actually file the return do you have any use tax you would like to report to PA and they have no idea what you're talking about so rather than getting a big discussion to say what it is and then they're starting to go through their mind and say well had a weekend in Rehoboth and I bought some pizza got a couple things on the boardwalk how much would that typically be well we have a couple options one that one of the one of the unique options is we have an opportunity for PA that they will automatically calculate what they think is an acceptable use tax based on your income so we have a little bit of information here at the bottom of your slide effectively if you have fifteen thousand dollars less of income they will say send us six dollars and we'll just call it even if you're between 15,000 and 30,000 it's twelve dollars if you're between thirty and fifty or seventeen so if you have individuals that say yes I like to purchase a lot of my items without paying PA sales tax I feel so guilty I would like to make sure that we can help reduce our deficit here at the Commonwealth tell me which number I should pick and I will gladly pay it so you may pick one of these options again zero is a valid option you can say let me go ahead and base it off the income or as I've had in the past I've had clients come in with a detailed listing of everything they bought without paying sales tax that's fine if they bring it to you I'm not gonna suggest we waste our time and pour through receipts and determine what they bought out-of-state where they did not pay appropriate sales tax because the sales tax issue is kind of unique if say you went to a state and you paid four percent sales tax you brought the item back here to PA you know the difference two percent if you buy anything in New Jersey New York or Washington DC you paid more sales tax than what they have here in PA you don't need to worry about it the main issue we pretty much have Ziff people who go down to Delaware if you've ever been around a waterfront you know most boats are registered in Delaware even though they've never seen any amount of water in Delaware it's kind of a tax saving opportunity most times we don't need to worry about people in vitae buying yachts and not paying sales tax on it or their aircraft but they can answer the question on sales tax if they have use tax opportunity they are more than welcome to answer the question believe the majority of our clients or zeros I think on occasion we have had people disclose sales tax and it's anyone here ever had a client bring in their use tax okay all right so on occasion it may happen but traditionally I think most of us have answered zero but they'd like to report to PA okay again it's voluntary compliance they would like you to submit but there's no requirement for you to do so there's no penalty for not filing use tax at this point time just a couple things we want to point out about PA here yet our school tax code so we do need to know what school district the individuals lived in for PA purposes and when we get to local return we drill down even further to their municipality but we've just provided a list of the school district codes for you here on the next two slides also available within your PA section of your volunteer guide most times people may have a good idea of what school district they live in they may not know if they live in a town chip burrow or where exactly the borders are particularly if they're renting most people know what school districts are in we do have a municipal lookup service that we can determine based on their address exactly where they live now one of the other things that we take a look at one of the other reasons we sometimes have people come in to get their taxes filed is this whole PA property tax rent rebate situation so seniors again may qualify for tax forgiveness we have to in tax layer elect that they are eligible for tax forgiveness but they may also get this property tax rent rebate opportunity an opportunity within PA that is restricted for certain individuals it's going to be seniors aged 65 or older widows who are age 50 or older and people with disabilities for age 18 or older so if you fall into one of those categories the senior 65 or older widowed 50 or older or disability basically being a 18 or older you can qualify for tax forgiveness these income limits are a little bit higher for property owners actually about twice as high a little more than twice as high for property owners these are kind of our kind of best guesses here where they're gonna be a little over $36,000 for homeowners to be able to take full advantage the other credit just a little under $16,000 for renters once your incomes above that level you no longer qualify and what do we mean by income well it's gonna effectively be some taxable income but we're also going to add back 50% of your social security and your railroad retirement benefits so 50% of your social Security's gonna be excluded 50% will be in so that'll be part of the calculation for the majority of time the PA 1000 will be automatically calculated by tax layer with a couple adjustments so a couple of things that we talked about that we're not eligible for sp alimony in inheritances spousal support and gain from the personal residence have to be added back for purposes of tax for the rent rebate claim as well so if we had it for tax forgiveness we also have to add it back for the PA property tax rent rebate another little wrinkle we've run into in recent years has been a exchanges of insurance policies about not taxable for PA per or for federal purposes so you can sometimes be a code W PA will treat those as income for purposes of the rent rebate credit so if you have a 1099 are they PA maybe excluding some income based on those activities situation where you ran into again kind of the fun summer stuff that even I get to take a look at on occasion where we wonder what happened with with some of these issues so there may be a few little interesting areas that may pop up but for the most part the PA 1000 will be fairly straightforward a couple things we take a look at it's a benefit amount is six hundred and fifty dollars that would be our maximum standard rebate they do have the opportunity to effectively supersize or rebate again that's coming from the Commonwealth it's not our calculation but if they have a situation where their property tax would be basically more than fifteen percent of their income and their incomes less than thirty thousand dollars they can actually boost that maximum rebate by another fifty percent so the state may calculate it so if you prepare to return for someone before and they said I don't know what you did you gave me a form that said I'd get six hundred fifty dollars back but I got a lot more what should I do with that money you know who do I need to tell because I don't want to go to jail well fortunately they're not going to go to jail and neither will you but it's a whole concept that the state will go ahead and if they see that calculation that if their incomes less than fifty thirty thousand dollars and the property tax is more than fifteen percent of their income they will automatically adjust that that credit so it works out fairly nicely now the downside is is that when we take a look at the credit it kind of phases out a little bit quicker here when we take a look at homeowners you can get your maximum rebate basically if you're under eight thousand dollars of income it will phase out completely once you're over about that thirty six thousand dollar figure effectively cuts up to about thirty five thousand when you look at the instructions but when they go through the calculation it ends up being a little bit closer at about thirty six once you're over that you do not get the credit for renters it's a much lower threshold basically you have to have income a little less than about fifteen thousand sixteen thousand dollars to qualify so the system will automatically calculate this based on your amount of income that you have again what we need to add back in are certain things that the tax layer may not know things like inheritance and gain on the sale of a personal residence those need to be added back now in terms of how we complete the return there are a couple things we want to take a look at so income attachments what we basically need to attach to the PA 1000 are a couple things if they lived in PA for the entire year we do not need to give them a copy of the Social Security Statement Pennsylvania already has a copy of that typically what we'll do is we'll give copies of the 1099 that would show anything we have for purposes of pension retirement distributions annuities that type of things the 1099 s go this is one of the reasons how PA will pick up on whether or not there's some unique codes federal returns typically we've also depending on your site have attached page 1 which will be kind of weird because now page 1 doesn't do anything for you so I'm gonna be page 2 of the 1040 can go along with the copy of the PA 1000 now in order to claim the credit we also have to prove that some sort of property tax was paid so if you're a homeowner you need to attach proof of property tax payment that can either be a copy of the receded tax bill so if you've gone to your local office and you walked in so your local municipality which will welcome you to walk in with a check and they'll stamp your receipt as paid or you can go back later and request receipted copy they watched and give you a copy of your bill showing that it has been paid that will be sufficient if you don't have a receipted copy from the tax payer office you may actually show copies of your canceled checks and a copy of your real estate tax bill the way banks work now sometimes easier to go down and the tax payer office and get a receipt a copy then requesting copies of your electronic statements and get a copy of the check either way can work if you are using a mortgage service if you having escrowed property taxes your form 1098 if it shows property taxes paid will be sufficient as well so you don't need to receive a copy of the tax bill if P of a 1098 that'll show the amount of real estate taxes paid so that can work as well so for a renter you need a couple other things though the renter is going to need a PA rent certificate completed by the landlord so your landlord has to fill out a form that basically says you're a renter and then you meet the qualification so that sign form needs to be part of the rebate claim oftentimes we may have individuals who come in that they don't have all their documents together we can prepare as much of that rebate claim is necessary and let them know what else they need to attach oftentimes we may have the people who come back in after they have all the documents to make sure they have everything together and that is perfectly acceptable as well but we can complete as much of the PA 1000 rent rebate as necessary so a couple other unique aspects that only apply to first time filers again we're looking at a couple situations that we either need proof of age proof of kind of widow status or disability so for first time filers only you need to have some documentation once you're in the system you can go ahead and continue to file and you don't need to go through the first-time file it what's unique about this is that in order to get it for the first time when you turn 65 the government wants to see copies the documents to show how old you are the first document they ask for is your birth certificate if anyone's take a look at a birth certificate in big letters it says do not photocopy issued by the Commonwealth of Pennsylvania who's now asked for a copy of the document back again that they told you not to photocopy little ironic but so a copy of the birth certificate the one time I think you're allowed to copy the birth certificate is to send it back to the people that gave it to you in the first place hospital birth records so if you don't have a birth certificate and you have that little slip from the hospital that may be in a scrapbook somewhere that says congratulations here's your kid the hospital birth record would count as well so that just basically gives record in case someone doesn't have a birth certificate they changed the rules a little bit obviously if you try to get a passport in the past couple years some of you may have had to go back to request a new birth certificate with the raised seal if you haven't done that yet you have the birth record which I stopped I'll have a copy of I guess it was in my scrapbook somewhere that would count driver's license would count passports PA ID card a Medicaid card pace your pace net card anything that shows who you are and your birth date would prove your age so the first time filing if you're 65 or older people who may have just moved here to PA we do need to go through and show proof of age widow or widower we still need to go through the age thing is above so again when you photocopy your birth certificate you also need to attach a copy of the death certificate so that ironically that also says that you can shouldn't be photocopying that either but you can send a photo copies of all those documents usually you can get the short certificates but if you send proof of death of your spouse as well that'll prove your age and also put you in that widow category for anyone permanently disabled you would need to get a letter from Social Security if you have an SSI award so if you have a Social Security disability you take your Social Security award letter if you have a VA disability you will provide the VA a letter and if you didn't have your disability from SSI or the VA you can actually get a physician to sign a statement that will disclose the nature of your disability and that's actually a PA 1000ps which stands for physicians statement which is kind of a unique way of how we've done that it's alright so those are the issues we take a look at if you have a medical condition again you need either the SSI award letter or the VA award letter or a signed statement from the physician just to be attached with your initial filing after that you'll be in the system and you don't need to do it again alright so that kind of takes through a whirlwind here of Pennsylvania issues again the majority which I think will be covered within tax layer the one issue we may want to take a look at is schedule SP that you have to elect to participate in there may be a few little wrinkles when it comes to some early withdrawal from retirement accounts but I think we'll go ahead and take some questions here all right
