What is qualified widower for tax purposes

Understanding Taxes from an Expert View

Understanding taxes may seem like an impossible task, but with the right education and advice, taxes can seem downright understandable. LoveToKnow recently interviewed Mark Steber, Chief Tax Officer of Jackson Hewitt Tax Service to find out the basics of what you really need to know about your taxes.

LoveToKnow (LTK): Why are so many people confused by taxes?

Mark Steber (MS): Taxes are an important topic, but they're also complex. The price of fairness is complexity. It's the largest financial transaction people take part in during the year outside of buying a house or a car. Taxes aren't something you deal with all the time. Anything you do only once a year that has a huge impact on your financial status is bound to make someone nervous.

LTK: What do tax payers need to know about selecting a filing status?

MS: Your filing status is based on marital status and is used to determine which tax rates and which standard deduction amounts apply to your tax return. Choosing an incorrect filing status can impact whether a taxpayer is eligible for certain tax credits and deductions, ultimately affecting the amount of a tax refund or tax liability due. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.

  • Single People - If a taxpayer is married as of midnight December 31, that means they are not considered single for that full year for tax purposes. This is true even if the individuals got married on December 31.
    • Head of Household - Unmarried taxpayers who provide more than half the cost of maintaining the main home for themselves and a dependent. Dependents include:
      • Children
      • Parents (note: parents do not have to live in the same house as the taxpayer to qualify for this filing status)
      • Other relatives
      • Non-related individuals who lived with them for a full year and whose relationship does not violate local laws
  • Single - Taxpayers who are not married and do not qualify for, or choose to file as Head of Household
  • Married People - Married taxpayers have the option to file either jointly, separately, or, if they meet all the special requirements, as Head of Household
    • Married filing jointly - All income received between January 1 and December 31 of the year for both taxpayers is included on the tax return. Married couples can still file a joint return, even if only one spouse worked,. All deductions from each taxpayer can be included on the tax return when choosing this filing status. Married filing separately - Only the income and deductions for the taxpayer filing the return is included. Each spouse will need to file a separate return; spouses are never considered "dependents" for one another on a tax return.. However, this filing status often has the highest taxes and disallows most credits and some of the common deductions.
    • Qualified widow/widower - Taxpayers who were able to file a joint return the year the spouse died and have dependent children may choose this option
    • Head of Household - Taxpayers who have not lived with their spouse since June 30 of that tax year and have dependent children who live with them

LTK: Many tax payers are confused by exemptions. What is a simple way to look at exemptions to make them understandable?

MS: Personal exemptions can be claimed by the taxpayer and his or her spouse. Dependent exemptions are for the taxpayer's children, relatives, foster children, and other individuals, and if the individual's income is less than $3,700 (for 2011) for the year.

Here are a couple of examples:

  • Sally's parents live in a home 15 miles from Sally. Sally pays all of the expenses for the house and her parents' living expenses (i.e. groceries, medicine, medical costs, etc.) Her mother receives no income and her father has a small pension of $3,600 a year. Sally can claim each of her parents as a dependent.
  • Jenna has lived with her friend Sara since 2009. Jenna is elderly and unable to work so she has no income. Sara pays more than half of Jenna's support throughout the year. Jenna is therefore the dependent of Sara.

Top Tips for Complex Tax Situations

LTK: What advice do you have for self-employed individuals?

MS: Self-employed taxpayers often have more difficult income situations and need to be aware of what is allowed as a reduction in self-employment income versus what may be claimed as a credit or deduction, including deductions for self-employment income such as:

  • Supplies
  • Advertising
  • Business related properties deductions (equipment, vehicle, building, etc.)
  • Business start-up cost deductions
  • Self-employed health insurance deductions
  • One half of self-employed taxes deduction
  • Estimated taxes

LTK: What are some tax tips for unemployed individuals?

MS: Taxpayers who were unemployed during the tax year may qualify for more credits and deductions but must also remember to claim all income received:

  • Wages from multiple sources
  • Retirement/IRA distributions and 10 percent additional taxes
  • Unemployment compensation
  • Capital gains
  • eBay sales
  • Moving expenses
  • Job hunting

LTK: Are there any specific tax tips for senior tax payers?

MS: Senior taxpayers should remember to claim the following items:

  • Retirement and IRA distributions
  • Taxable and nontaxable interest
  • Capital gains
  • Social Security benefits
  • Estimated taxes

LTK: Should tax payers utilize a CPA or other tax professional instead of doing their taxes on their own?

MS: Not everyone needs a CPA, but self-preparation comes with a certain amount of risk. The benefit is determined by how much time a person wants to put into their taxes compared to paying someone to do your taxes. The most important aspect is the actual taxpayer; you have to be prepared. You have to arm yourself with information and then talk with a professional.

LTK: What is the last piece of tax advice you would like to give to LoveToKnow readers?

MS: Always file on time and pay what you can, and then extend if you have to do so. The penalties for ignoring the deadline far outweigh any other options like using a high interest credit card or a short term loan to pay your tax obligation. Do not ignore IRS notices; responding with a plan is better than ignoring deadlines.

List of 9 Main Pros and Cons of the Flat Tax

A flat tax system is where ALL taxpayers – regardless of income – pay the same tax rate. Having everyone pay the same rate no matter how much they make stirs debate between those who are in support of it and those who are against it. Supporters argue that the system is fair while those who don’t find it an unpleasant situation especially for the lower income class.

While the US adopts a progressive tax system, there are other countries in the world who have imposed a flat tax rate system on both individuals and businesses. The results? Estonia, Lithuania and Latvia have all experienced economic growth since switching to the system.

Estonia adopted the system in 1994 and put a 26% tax on both personal and corporate income. The country experienced an 11.7 percent gross domestic product (GDP) growth in 1997 which continuously grew between 7 and 10 percent throughout the early 2000s. Then again, other factors contributed to the case as well.

But an article by Josh Barro in Bloomberg View in 2013 will argue otherwise. In it was detailed the exit of several central and eastern Europena countries from flat-rate income taxes. The Czech Republic and Slovakia changed theirs to a progressive system. Barro wrote: “Even the poster child for flat-tax fans, Estonia, isn’t looking so hot. Since the 2008 crash, Estonia has resolutely kept its flat tax and signed up for severe fiscal and monetary austerity, even joining the Euro area. Its economy has strongly rebounded since 2010, but only after an extremely hard crash has left its gross domestic product still below its 2007 peak.”

Even more recently, Senator Rand Paul, in an article on The Wall Street Journal, suggested a flat tax rate system for the US. Rand is of course a candidate in the 2016 US Presidential Elections and this is his ticket he hopes would take him to the White House. In his plan, the following would be implemented:

– replacement of complicated personal income tax with a 14.5% flat tax.

– replacement of complicated corporate taxes with a new 14.5% value-added tax.

– elimination of estate and gift taxes.

– elimination of excises and tariffs.

– elimination of most credits, deductions and loopholes.

– elimination of most double-taxation of income.

The plan is hedged on the GOP’s three goals of tax reform: simplicity, fairness and growth. Paul’s plan does make things simpler and could do very well on growth. However, it’s still rather vulnerable when it comes to fairness.

According to the Tax Foundation, the Paul Plan can increase gross domestic product a full percent each year. Based on static analysis, the plan would raise the deficit by $3 trillion over 10 years.

While some agree that the plan looks good (even conservative pundit Glenn Beck called the plan “erotic”), there are several downsides to it as well. For one, it looks to favor the wealthy – even if it would increase income for everyone in the income scale – as they look to get the biggest gains out of it.

Arguments the Paul Plan mention that it’s not a true flat system as it still preserves several loopholes and exemptions such as the charitable deduction, mortgage-interest deduction, child credit, earned-income credit and tax exclusion for workplace health benefits.

Another argument for the Paul Plan is the system won’t likely stay flat. After all, some countries in Europe have opted out of it when they got into trouble. Just take a look at the tax reforms implemented during Reagan’s time – Reaganomics if you will. It limited taxes on the wealthy on the belief that it would “trickle down” to the lower-income class. While it did partly improve the economy, that system didn’t last long – just four years. And what happened then? The US diverted back to the really sad system that Reaganomics replaced.

The idea of flat tax in the UK has also been thrown around. George Osborne cited Estonia as economies with “lessons we can learn from.” But he also admitted it wasn’t a popular choice for “mature economies.” But just like anywhere else, the idea had dissenters too. Robert Halfon called the measure “deeply regressive and would be hard to defend as fair.”

So, what is it exactly? Is there more harm than good of implementing a flat rate tax system? Let’s take a look at both sides of the argument:

Let’s take the US tax bracket as an example. For taxes filed on April 15, 2015, these were the tax rates:

Can college debt save me money on my taxes?

What is qualified widower for tax purposes

When it comes to federal taxes, there are three education deductions: student loan deduction, deduction on qualified higher education, and excluded income on employer education assistance.

For the student loan deduction, if you meet requirements, you can deduct up to $2,500 in interest per tax return, not person [source: The College Board]. The loan must be for higher education costs, such as tuition and fees, supplies and lodging. The student must be enrolled at least half time in a program that meets the U.S. Department of Education's guidelines and leads to a degree, certificate or credit. Note the following:

  • Duration - Interest can be deducted annually as long as the loan is for education and not being deducted in another manner.
  • Filing status and income - Your filing status must be married filing jointly, head of household, single or qualifying widow or widower -- not married, filing separately. The deduction amount depends on modified adjusted gross income, which must be less than $70,000 on single returns and less than $145,000 on joint returns [source: IRS.gov].
  • Deduction recipient - If the student is a dependent, the parent takes the deduction; if the student is not a dependent, he or she takes the deduction.

Next up is the deduction for up to $4,000 on higher education costs, such as tuition and fees, but not room and board. To qualify, your modified adjusted gross income must be at or less than $65,000 on single returns or $130,000 on joint returns. However, if your modified adjusted gross income is at or less than $80,000 single/$160,000 joint, you may still qualify for a maximum $2,000 deduction [source: USA Funds]. Keep in mind you cannot claim this deduction for the same student in a single calendar year if you are already taking one of the credits outlined on the previous page. Parents can qualify for this deduction if their student child is listed as a dependent on their tax returns.

Lastly, you can potentially exclude up to $5,250 annually in assistance your employer provides for higher education costs, such as tuition, fees and supplies [source: USA Funds]. When your employer calculates your final compensation for the year for tax purposes, it would not include that amount and you do not need to claim it as income. This tax-free money cannot be used in combination with other education deductions or credits.

You may be all set with your taxes, but you can also save money on your college debt by investing in the future. Click on over to the next section to learn more.

What is qualified widower for tax purposes

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Center on Budget and

The following FAQs provide answers to many of the common questions that arise when helping consumers apply for and enroll in health coverage through the marketplace, Medicaid, and CHIP.

These tax rules are important for the premium tax credit. For example, let’s look at Bob, who is caring for his uninsured mother, Marie. Bob provides more than half of Marie’s support and Marie has no income. Marie qualifies as Bob’s dependent. He wants to enroll Marie in a marketplace plan, but Bob’s income is too high to qualify for marketplace subsidies. Even if Bob chooses not to claim Marie as a dependent on his tax return, Marie is not eligible to claim her own personal exemption on a separate tax return. Because Marie qualifies as Bob’s dependent—whether or not he claims her on his tax return—she cannot qualify for PTC on her own. If Marie applies for health coverage on her own, and at tax time she attempts to file a separate tax return, she will be found ineligible for PTCs and any advance payments of the PTC she received during the year will need to be repaid, up to the cap. If instead, Bob claims Marie as a dependent at tax time, any APTC Marie received during the year will need to be reconciled on Bob’s tax return based on his income.

Modified Adjusted Gross Income (MAGI)
Tax Filing Status and Eligibility for Premium Tax Credits

  • Single is someone who is not married or is legally separated from their spouse.
  • Married filing jointly is a couple who are legally married and wish to file their taxes together.
  • A qualifying widow/widower is a person with a dependent child whose spouse has died in the last two years.
  • Head of household is someone who has a dependent child living with them, pays more than half the cost of keeping up the home, and is either not married or is married but lived apart from their spouse for the last 6 months of the tax year.
  • Married filing separately is the tax status used for a legally married couple that chooses to file their taxes separately.

A person cannot claim a premium tax credit if he or she plans to use the filing status married filing separately in that year. This means that a married person will need to file jointly with his or her spouse or qualify as head of household in order to claim a premium tax credit.

Dependents for Premium Tax Credits

These tax rules are important for the premium tax credit. For example, let’s look at Bob, who is caring for his uninsured mother, Marie. Bob provides more than half of Marie’s support and Marie has no income. Marie qualifies as Bob’s dependent. He wants to enroll Marie in a marketplace plan, but Bob’s income is too high to qualify for marketplace subsidies. Even if Bob chooses not to claim Marie as a dependent on his tax return, Marie is not eligible to claim her own personal exemption on a separate tax return. Because Marie qualifies as Bob’s dependent—whether or not he claims her on his tax return—she cannot qualify for PTC on her own. If Marie applies for health coverage on her own, and at tax time she attempts to file a separate tax return, she will be found ineligible for PTCs and any advance payments of the PTC she received during the year will need to be repaid, up to the cap. If instead, Bob claims Marie as a dependent at tax time, any APTC Marie received during the year will need to be reconciled on Bob’s tax return based on his income.

Determining Household Size for Medicaid

See Figure 4 in the Health Assister’s Guide to Tax Rules for a chart that explains the households rules that apply to Medicaid.

For example, in the case of two married parents who file a joint return and claim their 9-year-old daughter as a dependent, the household of the daughter will include herself and both her parents. If the daughter was instead 30 years old (in which case she would be claimed as a qualifying relative instead of as a qualifying child) but everything else remained the same, her household would still include herself and her parents.

Age does affect which Medicaid household rule is applied to an individual claimed as a tax dependent by her parent if she lives with both parents but they do not file a joint tax return, or if she is a tax dependent claimed by a non-custodial parent. Under these circumstances, the tax dependent rules continue to apply if the individual is at least 19 years old (or at state option, a full-time student 21 years old). However, if the individual is under 19 years old, then the non-filer/non-dependent rules apply. (See Figure 4 in the Health Assister’s Guide to Tax Rules for a chart that explains the households rules that apply to Medicaid.

Anyone who wants coverage through the marketplace needs to enroll during an open or special enrollment period. If it is open enrollment, a student could drop her student health plan and enroll in a marketplace plan and receive premium tax credits if she is eligible for them. Outside of open enrollment, if she decides to drop her student health plan, this action would not qualify her for a special enrollment period. She would have to experience some other triggering event that qualifies her for a special enrollment period (such as losing her student coverage, for example because she leaves school) or wait until the next marketplace open enrollment period to enroll in a marketplace plan.

The fact she has student health coverage does not prevent her from signing up for additional coverage through the Marketplace, but she would not be able to receive premium tax credits through the marketplace while also covered under the student plan. This is because the student coverage is considered “minimum essential coverage” once she has enrolled in it.

Coordination between Medicaid and Premium Tax Credits

To illustrate this, assume John is a student in a state that had not expanded Medicaid in January 2014. When he applied for premium tax credits, his projected income from his part-time job was $13,000 for the year, which was over the $11,490 poverty line for a single individual in 2014. John does not work as many hours as he thought he would and his actual income ends being about $11,000. When the IRS reconciles his premium tax credits, it will use his actual income even though it is slightly below the poverty line.

John is 50 years old and is eligible for silver plan in the marketplace that costs $4,528 a year. He is found eligible for a premium tax credit in the amount of $2,799 for the year based on an estimated annual income of $25,000. In June, John reports that he will start a new job in July and his income will go up to $35,000 a year. Assuming he took the entire amount of the credit in advance monthly payments, $233 a month was paid to his insurer from January through June. When he reported his salary increase, his new annual income was calculated at $30,000. Based on that, he would be entitled to a premium tax credit of $2,016 for the year. John received $1,400 in advance premium tax credits from January through June (6 times $233, rounded). This amount is subtracted from the newly calculated premium tax credit of $2,016, which leaves John $616 available for the rest of the year. Assuming he wanted to take the entire amount in advance, his new tax credit would be $616 divided by 6, or $103 (rounded).

However, suppose the same family initially projected a household of three (parents and son) and claimed a premium tax credit for all three based on an income at 179% of the federal poverty line. The premium tax credit for the couple (both 40 years old) and their 21-year-old son is $7,145 per year (or $595 per month). But as of July 1, the son gets a job and his income is such that he is no longer a dependent for the tax year. The parents report this change right away and their premium tax credit is now recalculated based on a household of two. At the same income, their maximum annual premium tax credit for 2014 is $3,961. They have already received $3,570 for January through June. For the remainder of the year, they will receive $391 ($65/month).

If a change in cost-sharing reductions occurs, federal rules also provide enrollees in a marketplace plan the option to change plans using a special enrollment period (for example, to get into a plan in the silver level, which is required to receive cost-sharing reductions). If a person with a change in eligibility for cost-sharing reductions already has a silver plan and does not change plans during the special enrollment period, then the insurer providing the person’s plan is required to move him to the appropriate version of the silver plan, which is either a new cost-sharing reduction variation of the plan or to a silver plan without any cost-sharing reductions.

The requirement for continuity of cost-sharing charges is not just limited to movement between the marketplace and Medicaid. It applies any time someone re-enrolls in the same marketplace plan they had during the same year.

Many people who move between the marketplace and Medicaid are likely to be eligible, while in the marketplace plan, for a federal subsidy called a cost-sharing reduction that lowers their out-of-pocket costs in the plan. To receive the cost-sharing reduction, an eligible person must enroll in a plan at the silver level. If she is eligible for a larger or smaller cost-sharing reduction when she returns to the marketplace from Medicaid in the same year, she gets credit for past cost-sharing charges under the plan as long as she enrolls in the same silver plan she had before.

Immigrant Eligibility for Premium Tax Credits and Medicaid

Because he is treated as if his income is at the federal poverty level, he would qualify for a cost-sharing reduction which would raise the actuarial value of his plan to 94 percent. This means he would be able to lower his deductibles, copayments and other out-of-pocket charges. He would need to purchase a silver plan in order to receive the cost-sharing reduction.

Coordination with International Coverage

If the person selects a plan on or before the date that he loses MEC, the effective date of coverage for the newly selected plan would be the first day of the month following the loss of coverage. For example, someone who reports he is losing coverage on June 30 and selects a marketplace plan on or before June 30 will be able to start his new coverage on July 1, thereby avoiding a gap in coverage.

In the Federally-Facilitated Marketplace, if the plan selection is made after the date that MEC is lost, the coverage effective date would be the first day of the month following plan selection. Thus, someone who loses coverage on June 30 and selects a Marketplace plan anytime in July will have a coverage effective date of August 1 for the new plan.

In states that run their own marketplace, if plan selection is made after the date that an individual loses MEC, the State-Based Marketplace has two options:

  • The SBM could make coverage effective on the first day of the month following plan selection.
  • The SBM could apply the regular rules for coverage effective dates. This means that if plan selection occurs between the first and the fifteenth day of any month, the coverage effective date would be the first day of the month following plan selection. If plan selection occurs between the sixteenth and the last day of the month, the coverage effective date is the first day of the second following month.

Individuals living in states with SBMs should check to determine which rules are in effect in their state.

Beginning in 2017, when there will be an option for advance availability of the permanent move special enrollment period 60 days before the date of a permanent move, if plan selection is made before or on the date of the move, the coverage effective date will be the first day of the following month.

The effective date of coverage for newly selected plans is either the first day of the month following the loss of coverage if the plan selection is made before or on the day of the loss of coverage, or the first day of the month following plan selection.

Exemptions from the Individual Responsibility Requirement

Alternatively, a person can wait until tax filing and claim an exemption based on the cost of coverage relative to her actual income for the year. The exemption largely mirrors the affordability exemption the marketplace can grant during open enrollment, but the IRS exemption granted at tax filing is based on actual income whereas the marketplace exemption is based on projected income.

For an example, let’s say a person with an offer of employer-sponsored coverage has projected income of $36,000 in 2014 and the premium for her coverage at work is $3,000. The insurance costs more than 8% of her income (8.3%), which qualifies her for an exemption. Instead of applying in advance, she decides to wait until tax filing to claim the exemption. In December, she gets a $2,000 bonus. Her insurance now costs slightly less than 8% of income (7.9%), and she no longer qualifies for the exemption. She discovers this after the tax year is closed, so unless she qualifies for a different exemption, she will owe a penalty for being uninsured for the entire year. In this case, applying for an exemption early based on projected income would have saved her from paying the penalty.

People who, at tax time, have annual household income that is under 138% of the poverty line, resided at any time during the tax year in a state that did not expand Medicaid and would have been eligible for Medicaid had the state expanded will be eligible for a Code G exemption that can be claimed directly on the tax return.

The renewal process may be different in states that established their own Marketplaces. People enrolled in coverage through state-based Marketplaces should check with their state about the process for renewing coverage and re-determining premium tax credit eligibility.

However, beginning with the open enrollment period for 2019 coverage—which will be November 1, 2018 through December 15, 2018—open enrollment will no longer run through January of the coverage year. Because open enrollment will end in December, a person will no longer be able to switch plans in January unless she qualifies for a special enrollment period.

Health Reform: Beyond the Basics is a project of the Center on Budget and Policy Priorities designed to provide training and resources that explain health coverage available through Medicaid, CHIP, and the Marketplace. It is aimed at navigators, advocates, state and local officials and others who help consumers get and keep their health coverage.

To receive updates and information on new resources, please join our Health Reform Beyond the Basics News email list!

© Copyright 2013 Health Reform | Beyond the Basics

"What Tax Bracket Am I In?" -- "It's Complicated."

What is qualified widower for tax purposes

You don't need a Hogwarts sorting hat to figure out what tax bracket you're in. Photo: Flickr user Cleavers.

This article was updated on Oct. 3, 2014.

It's common for us taxpayers to think about, and occasionally look up, our tax bracket, to see how big a tax hit we're taking. But many people misunderstand the tax bracket concept.

You might, for example, glance at the table below, which features the tax brackets for the current tax year, and note that your taxable income of $50,000 parks you in the 25% bracket. You might then assume that your tax rate for those 50,000 dollars (as a single person) is 25%. Wrong!

Married filing jointly

Head of household

Here's what really happens: Your first $9,075 of taxable earnings are taxed at 10%. Then, your next $27,824 is taxed at 15%. Finally, the remainder of your taxable income, $13,101, is taxed at 25%. So actually, most of your dollars got hit with a 15% tax rate. Still, the answer to the question, "What tax bracket am I in?" isn't 15%.

When someone refers to your "tax bracket," it usually means the highest rate at which you're being taxed -- and the rate at which your next dollar of taxable income will be taxed. That's also referred to as your "marginal" tax rate. Most of us have more than a single rate that affects us, though. For example, someone with taxable income of, say, $500,000, will actually pay taxes at every bracket's rate. In our example, your tax bracket, and your marginal tax rate, would be 25%.

The marginal tax rate matters for planning purposes. If you're wondering whether to generate more income in the year, for example, you'll know that it will be taxed at your marginal rate. Just remember to keep things in perspective: If additional income kicks you into a higher bracket, it doesn't mean that all your income will suddenly get taxed at that rate -- not at all.

The tax rate that should usually interest you most is your "effective" tax rate. That's the tax rate you actually pay on your taxable income. In the example above, you'd pay $907.50 (that's 10% of $9,075), plus $4,173.60 (that's 15% of your next $27,824), and $3,275.25 (that's 25% of your final $13,101). Add them up, and your total tax paid would be $8,356.35. Divide that by the $50,000 you started with, and you'll see that your effective tax rate is 17%. That's much more attractive than 25%, right?

So, next time you ask yourself, "What tax bracket am I in?" be sure to look at the big picture, not just your marginal tax rate.

Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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