Military Spouses Residency Relief Act

Beginning with the tax year 2009, a military service member’s spouse, who moves to New Mexico solely to be with their spouse who is in New Mexico because of military orders, may keep their out-of-state residency status and may source their non-military wages, salaries, tips, etc., to their state of residence.

Certain restrictions apply:

• The service member must have declared “legal residence for purposes of withholding state income taxes from military pay” in another state.
• The service member and the spouse must be residents of the same state.
• The service member must be in New Mexico in compliance with military orders.
• The service member’s spouse must be in New Mexico solely to be with their spouse.

Once the service member leaves a spouse in New Mexico due to a change in the service member’s base “home”, the spouse no longer qualifies for the special residency rule and the spouse’s income becomes taxable as New Mexico source income. Deployment through temporary duty orders (TDY) does not change the base “home” to which the service member is assigned. For example, if the service member is deployed to Iraq or Afghanistan for combat assignment, the spouse still qualifies for relief under the Military Spouses Residency Relief Act.

A non-resident service member and qualifying spouse may report as a non-resident of New Mexico, regardless of whether they have spent 185 days or more in New Mexico. A non-resident military spouse who earns wages, salaries, tips, etc., from non-military employment in New Mexico must include that income in computing New Mexico taxable income and allocate that income outside New Mexico on Schedule PIT-B, Allocation and Apportionment of Income. The non-resident military service member who earns wages, salaries, tips, etc., from non-military employment in New Mexico must continue to include that income in New Mexico taxable income and allocate that income inside New Mexico on Schedule PIT-B.

If the military service member has established residency in New Mexico and is temporarily assigned outside New Mexico, then the service member and qualifying spouse must report as residents of New Mexico. A New Mexico resident military spouse who earns wages, salaries, tips, etc., from a non-military job located in another state must include that income in New Mexico as taxable income and allocate that income to New Mexico on Schedule PIT-B, Allocation and Apportionment of Income.

For recent discussions of this announcement, please review your NMSEA emails.

Effective for returns that we will be filing in the coming tax season, there will be a box on all individual tax returns that will allow all or part of a refund to be diverted toward the purchase of Series I U.S. Savings Bonds. The denominations available will be $50, $100, $200 and $1,000. Unlike the old Series E bonds, which were purchased at a discounted dollar amount, you pay face value for the Series I bonds. It cost $50 for a $50 Series I bond. The bonds will be mailed directly to the taxpayers. See http://rockfordsquire.com/tag/tax-preparation/ for good discussion about this refund option for your clients.

Many May Have to Repay Obama Tax Credit (Stephen Ohlemacher, AP , 11-17-09)

WASHINGTON — More than 15 million taxpayers may owe the government $250 or more because of how the IRS set up President Obama's tax break that was designed to help consumers spend the economy out of recession. Individuals with more than one job and married couples who both work may have to repay the government $400, either through a smaller tax refund or a larger tax bill, according to a report released Monday by the Treasury Department's inspector general for tax administration.

Social Security recipients who also earn taxable wages may have to repay $250.

The tax credit, which is supposed to pay individuals up to $400 and couples up to $800, was Obama's signature tax break in the massive stimulus package enacted in February. The credit has increased weekly paychecks for 95 percent of working families.

Workers concerned about whether they are withholding enough taxes can use a calculator on the IRS Web site http://tiny.cc/AtuhO . Taxpayers can adjust their withholding by filing a new W-4 form with their employer.

Most workers started receiving the credit through small increases in their paychecks in April. The tax credit was made available through new tax withholding tables issued by the Internal Revenue Service.

The withholding tables, however, do not take into account several common categories of taxpayers. And that could force some people to repay. For example, a worker with two jobs gets a $400 boost in pay at each job, for a total of $800. That worker, however, only is eligible for a maximum credit of $400, so the remaining $400 will have to be paid back at tax time — either through a smaller refund or a payment to the IRS.

The IRS recognized there could be a similar problem for married couples if both spouses work, so it adjusted the withholding tables. The fix, however, was imperfect.

A married couple is eligible for an $800 credit. However, if both spouses work and make more than $13,000, the new withholding tables give them each a $600 boost — for a total of $1,200. There were 33 million married couples who both worked in 2008. That's 55 percent of all married couples, according to the Census Bureau.

(As Reported in our Nov newsletter: The NY State Society of Enrolled Agents sponsored a bill to recall the registration requirement (A09028) that passed in the Assembly.

A Senate version of the recall bill (S6117) was scheduled to go to the floor for a vote, but due to some political FU the bill was never acted on. It is doubtful that the NY Senate will meet again before the end of the year – so it may not be addressed until early 2010. NYSSEA reports that S6117 has the backing of the governor, the NYS Department of Taxation and Finance, the Chairman of the Senate Finance Committee , and the Senate Majority Leader.

NYSSEA also has a lawsuit pending in the Supreme Court, New York County to have the registration law declared unconstitutional based on the U.S. Supreme Court Sperry case which mandates that no state can hinder a federal license granted by an Act of Congress , i.e., Enrolled Agents are not exempt from the registration and fee, but CPAs and lawyers licensed to practice in the State of New York are exempt.

(From New Jersey Tax Practice Blog Oct 13, 2009) The final legal brief is due to be served on the NYS Attorney General by October 16th. The next step is the oral argument before the judge. That might not take place until Nov with a decision hopefully sometime in Dec.

Of course the NYSSEA is, I expect, only interested in the fact that Enrolled Agents are not exempt from the registration and fee, as are CPAs and lawyers licensed to practice in the State of New York. I do not know if they are also interested in the non-resident issue.

(From New Jersey Tax Practice Blog Oct 26, 2009) NYS Assemblyman David McDonough has introduced legislation in NYS will exempt Enrolled Agents from registering and paying the same as CPA's and attorneys but does not repeal the law, as it is expected to raise $3.6 Million.

I expect that if this bill passes the NYSSEA will be happy and will not continue with its legal action to repeal the requirement altogether. After all the NYSSEA is only concerned about Enrolled Agents who live and work in New York.

I hope that NATP, NSA, AICPA and NSTP would join forces to fight the application of these new requirements to tax preparers who live and work in states other than New York and have no physical presence in New York.

(From Independent Accountants Association of Michigan web site Nov 11, 2009) "This is an easy revenue-generating scheme for lawmakers," said Jon Hayes, Executive Director of the Independent Accountants Association of Michigan. "It taxes people who can't punish the politician at the voting precinct. More importantly, it sets a dangerous precedent for every state to pass similar revenue-generating laws that punish preparers."

Hayes also blamed the recent push by the Internal Revenue Service for stiff federal tax preparers regulation as incentive for the punitive fees. "If IRS Commissioner Shulman gets the reforms he is pushing, and more states jump on board with massive state preparers fees, we'll see people leaving the profession and nobody willing to step in to help taxpayers comply with a complicated tax code. We could see the cost of doing business in the tens of thousands of dollars."

Thousands Reveal Offshore Accounts By Curt Anderson/The Associated Press Albuquerque Journal Nov 18, 2009

MIAMI - More than 14,700 U.S. taxpayers came forward to disclose billions in offshore bank accounts in 70 countries under a voluntary Internal Revenue Service program allowing most to avoid criminal prosecution as long as they pay what they owe, IRS officials said Tuesday.

A flood of people came forward in the last days before the amnesty program expired Oct. 15, IRS Commissioner Doug Shulman said. The final total far surpasses the number who disclose offshore accounts in a typical year - about 100 - and comes amid a broad U.S. crackdown on international tax evasion at Swiss bank UBS AG and other institutions.

"To put it simply, this is a historic milestone for the nation's hardworking taxpayers," Shulman said in a conference call from Washington.

The total in taxes, interest and penalties collected from those in the voluntary disclosure program will be in the "billions of dollars," Shulman said. The disclosures involved accounts on every continent but Antarctica.

Taxpayers flocked to the amnesty program after the U.S. reached an agreement in August with the Swiss government and UBS to obtain names of 4,450 U.S. taxpayers believed to be hiding assets in secret bank accounts. Earlier this year, UBS paid a $780 million penalty under a deferred prosecution agreement filed in a Florida federal court that included disclosure of an additional 150 names.

Seven of those people have been charged criminally, with at least two getting sentenced to prison time.

Shulman said the combination of the UBS disclosures and the amnesty program have fundamentally changed the offshore tax landscape, particularly in Switzerland where bank secrecy was the tradition for centuries.

"It shows we are serious about piercing the veil of bank secrecy," he said. "The whole game has changed."

Also Tuesday, the IRS and Swiss unveiled the criteria being used to determine which American UBS accounts will be disclosed under the August agreement.

Accounts being targeted include those that contained 1 million or more Swiss francs at any time between 2001 and 2008; instances in which there was clear fraudulent actions, such as false documents; and accounts that earned an average of 100,000 francs a year for at least three years.

NM Workforce Solutions (SUTA) Taxable Wage Base has been DECREASED to $ 20,800 for 2010.

Tax-Friendly Places to Retire...Harder to Locate (By Mary Beth Franklin, Kiplinger's Personal Finance magazine, October 2009

The financial climate is more pleasant in some states than in others.

States differ vastly on their tax burden to retired seniors.  State tax revenues plunged nearly 12% during the first 3 months of 2009, sharpest drop on record...if you itemize deductions, how much you pay and deduct in local sales and property taxes affect the bottom line of your IRS federal return, too.  Remember, sales and property taxes can more than offset the lack of a state income tax.  Probate costs are rising.  Single folks be careful...you have to analyze the whole cost-of-living picture.

Nine states have NO broad-based individual income tax,but of the remaining 41 states (and the District of Columbia) that impose an income tax, many offer generous incentives for retirees in many topic "write-offs."  If you qualify, moving to one of these retiree-friendly areas could be cheaper than relocation to a state simply with no income tax.  Look at our analysis...

Social Security Benefits...this is critical!

Nine states have no broad-based individual income tax period...don't worry about SSA benefits in Nevada, Texas, Florida, Washington, South Dakota, Wyoming, Alaska, Tennessee and New Hampshire. But beware of Community Property Tax States - Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

27 states and the District of Columbia do not tax Social Security - Alabama, Arizona, Arkansas, California, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Virginia and Wisconsin.

The remaining 14 states tax Social Security - Colorado, Connecticut, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia. Iowa will gradually phase out its Social Security tax by 2014.

Watch out!  Seniors living in Colorado, New Mexico and Utah must add back the portion of Social Security benefits that were not taxed by the federal IRS worksheet to calculate their liability for certain state tax computations.  Be very careful here!

Pensions... another area of wide variation. Most states that impose an income tax exempt at least a portion of pension income from tate tax computation, but they often treat public, private and out-of-state pensions very differently.

38 states are not very tax-friendly to retired seniors.  Five states are particularly tough on retirees.  Not only do they fully tax most pensions and other retirement income, they also have high top tax brackets for seniors - California [9.55% on income less than $1 million per taxpayer], Rhode Island [9.9%] and Vermont [9.5%].  Connecticut and Nebraska fully tax retirement income, with top rates of 5% and 6.84%.

Here are some of the few exceptions ... 10 states exclude all federal, military and in-that-state government-issued pensions - Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, New York and Pennsylvania. Kansas taxes public pensions from all other states outside of Kansas.  Pennsylvania and Mississippi exempt all retirement income including individual distributions from IRAs and 401(k) plans.

Real Estate Taxes [median]

Yes, sales prices have been falling.  Property taxes, however, have not been moving down as quickly.  There's a powerful reason here.  When states and counties drop property taxes, they incur a terrible tax pain!  State tax revenues are plunging nationwide, and states need to tax to keep those huge spending budgets.  Remember, States must balance their annual budgets and cannot run a deficit like the Federal politicians. 

But many local jurisdictions offer property-tax breaks to full time residents, some based on age alone and others linked to income. 

Careful!  Tax rates vary significantly from state to state and among cities in the same state.  You'll find huge differences between the East and West Coasts of Florida, for instance.

The five states with the very lowest median real estate taxes [from lowest to highest] are Louisiana, Alabama, West Virginia, Mississippi and Arkansas.

The five states with the highest median real estate taxes [from highest to lowest] are New Jersey, New Hampshire, Connecticut, New York and Rhode Island.

Sales Taxes...  another wide variation, continuously changing.

Five states have no state sales tax -Alaska, Delaware, Montana, New Hampshire and Oregon [though the Oregon Legislature is considering adding one].

Six states have a state sales tax of 7% or more -California, Indiana, Mississippi, New Jersey, Rhode Island and Tennessee.

Most states allow cities and counties to assess their own sales tax.  Chicago imposes a 10.25% combined [city and state] sales tax, the highest of any major US city.  combined rates can reach 10% in Alabama, Arizona and California.

Only three states do not allow municipalities to impose their own sales tax on top of a state tax - Connecticut, Kentucky and Maine.