It hasn’t been much noticed, but employers will be able to help their workers afford health expenses to a greater degree beginning next year.

 Remember the Health Reimbursement Arrangement, or “HRA”? It allowed employers to provide pre-tax dollars for their workers to pay health insurance premiums and out-of-pocket medical expenses. It has a history that dates back to 1954.

The HRA pretty much disappeared when “Obamacare” (Affordable Care Act) arrived. It survived on the books only in limited fashion.

Now the HRA has reappeared in its former glory! Employers large or small can offer it. Their employees also have fewer constraints. The Internal Revenue Service just released the new rules governing the HRA accounts in June.

As a result, business and non-profit agencies can assist their workers in buying insurance pretty much without limit, beginning on Jan. 1, 2020. In effect, that means for the 2020 tax year.

 Of course, it still is up to those employers to decide whether to offer HRA benefits in the first place. Here’s one important carrot for them. There are no ceilings on the amount of HRA money they can provide pre-tax to workers. 

The new rules also broaden use of HRA benefits. For example, individual workers and their families can use their HRA dollars for coverage through the “marketplace” insurance exchanges created under Obamacare. That wasn’t possible from the beginning of Obamacare until this revision appeared.

Eric Buehler, who is an IRS-approved enrolled agent, sees advantages to the newly revised Health Reimbursement Arrangements.  “I think this will really help individuals and small business,” says Eric, owner of EricJohn Ltd.

 But, let’s add a caution here. For some individuals, tapping an employer-provided HRA also could reduce or eliminate premium tax credits connected to coverage under the exchanges.

Employers also can run into complications when combining HRAs with other payroll plans, such as a Health Savings Accounts. Among them, companies must decide between a group health plan and HRA; they can’t offer both at the same time to any single work group within the firm.

Feel free to contact Eric at EricJohn Ltd., whether you’re a small business interested in offering an HRA or an employee who might benefit from your company’s HRA plan.

On Wednesday this week, taxpayers who help to pay for college educations officially could celebrate. Did you take time out to cheer National 529 College Savings Day?

Well, it probably wasn’t high on the day’s to-do list for most of us.  But, Minnesotans who contribute to a college savings plan ought to take a hint from the observance and look into two of the state’s educational tax breaks.

Many will be eligible for either the Education Savings Account Contribution Credit or the similar Education Savings Account Contribution Subtraction.

Both of these allowances are broad. They apply to contributions to any state’s college savings plan, the Minnesota Department of Revenue announced.   They are not limited to Minnesota’s plan.

In addition, any state taxpayer who makes a contribution can claim the credit or the subtraction. Translation:  You don’t have to be the account owner or the student benefiting from it to take the tax break.

How can this affect your tax return? The Education Savings Account Contribution Credit is particularly powerful, because it directly reduces taxes. It gives back 50 percent of your contributions to a maximum of $500.  However , it also requires income limits. Minnesota Revenue announced that the credit begins phasing out when a taxpayer reports more than $75,000 in Minnesota Adjusted Gross Income. The credit disappears at $101,900 for a single taxpayer and $162,680 for married couples. (2018 figures)

The Education Savings Account Contribution Subtraction does not require any income limits. However, it does reduce contributions by the amount of money distributed from the savings plan during the year. Still, the amount of the subtraction could be as much as $1,500 in income for a single taxpayer and $3,000 in income for a married couple. That’s a nice reward in any case.

Taxpayers calculate the tax credit or the subtraction on Schedule M1529. 

Here are two important notes:  

• A taxpayer can claim only one of the tax breaks. It’s either the credit or the subtraction – not both.
• These tax deductions apply only to college savings plans. Expenses for K-12 education have separate tax breaks in Minnesota.

For more information, jump to these pages on Minnesota Revenue’s Web site:

Education Savings Account Contribution Credit —  https://www.revenue.state.mn.us/individuals/individ_income/Pages/EducationSavingsAccountContributionCredit.aspx

Education Savings Account Contribution Subtraction – https://www.revenue.state.mn.us/individuals/individ_income/Pages/EducationSavingsAccountContibutionsSubtraction.aspx

For more detailed guidance about these Minnesota’s tax incentives, contact Eric Buechler at EricJohn Ltd.

One way Minnesota recognizes its military members and their service comes in their tax returns!

The state Department of Revenue decided that this month, which is National Military Appreciation Month would be a good time to recap the list of tax deductions and other courtesies available to Minnesota’s men and women in the Armed Forces. They often include Minnesota residents serving actively with regular forces, reserves or National Guard

You can look up a list of tax breaks at one Internet address. Minnesota Revenue’s military information page  is:  https://www.revenue.state.mn.us/individuals/individ_income/Pages/Members_of_the_Military.aspx

Here are a few to note:

• Active duty military pay subtraction – Many taxpayers serving in the military can take pay for active duty off their Minnesota taxable income.  The subtraction extends even to re-enlistment bonuses and National Guard responses to emergencies.  
• Tax credit for service in a combat zone — This tax break covers combat and hazardous duty pay for service after Jan. 1, 2015. The credit could amount to as much as $120 for each month in the hazardous zone, Minnesota Revenue says. Taxpayers also can make claims backwards for years 2016, 2017 and 2018, if they haven’t so far. The filing period for the year 2015 ends on Oct. 15, 2019. The taxpayer actually  applies for this credit separately from his/her normal income tax return, and, once approved, the credit is  refundable. That means the state pays it even if no more taxes are due.
• Military pension subtraction – Veterans can cut pensions and some other types of military retirement pay from their Minnesota returns. (Those retirement payments must be taxable on the federal return.)  Or, going in another direction, veterans  who qualify, can take the state’s “Credit for Past Military Service.”  But they can’t take both at once, Minnesota Revenue says.

Minnesota offers several more items of tax relief to military, including extensions of times to file returns. A good wrap-up is found in a detailed fact sheet available at Minnesota Revenue’s Web site. Take a look: https://www.revenue.state.mn.us/individuals/individ_income/factsheets/fact_sheets_fs5a.pdf

Also, feel free to call on us at EricJohn Ltd. to keep up with Minnesota’s military tax benefits.

If the Internal Revenue Service hasn’t heard from you yet, it’s time to think about taking an extension!

April 15 really is Tax Day this year; there are no weekends or holidays pushing back the filing deadline, as in some previous years.  And, while there’s been some talk in Congress about giving everyone more time to file, those proposals haven’t turned into law yet.

Nonetheless, the government does give taxpayers six more months to file the paperwork. An extension can be filed online or by mail. Better yet, it’s automatically approved.

The IRS won’t ask you why you need it. BUT – and it can be a big “but” – the IRS still expects you to estimate income and pay any taxes due by the deadline.

If you can’t make the deadline, it’s time to join the multitudes of taxpayers asking the Internal Revenue Service some extra days on Form 4868, named or “Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.” For a copy of the form, see https://www.irs.gov/pub/irs-pdf/f4868.pdf

The IRS suggests using its online service called Free File. But the agency also notes that tax preparation software typically provides the form. It’s still legit to mail in a paper Form 4868 and a check – postmarked on or before April 15, of course.

The tax collectors also offer other online ways to pay, sch as IRS Direct Pay, which is available online and on the IRS2Go app. In fact, if you make an electronic payment and label it for an extension, you don’t need to file the extension form. The IRS automatically counts it as an extension.

Finally, don’t forget any state taxes you owe. In Minnesota, you don’t have to file an extension form. BUT – just as with the federal return – you must pay an estimate of taxes due to avoid penalties. Minnesota Department of Revenue accepts tax payments through its Web site.

We at EricJohn Ltd. wish you easy and accurate filings for your 2018 tax return!

Minnesota taxpayers now are discovering that what works on their federal income tax returns doesn’t always work on state returns. There is an unusual disconnect between the two systems this tax season. In short, the federal government made sweeping changes that began in the 2018 tax year, and Minnesota’s government hasn’t yet coordinated with them as it has in the past.

The result?  Minnesotan and their tax preparers now are dealing with numerous adjustments and some extra forms to undo those federal changes when filing state returns.

Let’s take a couple of examples that affect most taxpayers. The tax reforms in the new federal Tax Cuts and Jobs Act doubled the past standard deduction and dropped personal exemptions for individuals. (The new standard deduction for singles is $12,000; for married taxpayers, it’s $24,000.)

Minnesota didn’t change either of those basic allowances. So, a single individual can count on an automatic $6,500 deduction from income and a married couple receives a $13,000 standard deduction. Each person also is entitled to a personal exemption of $4,250.

However, for some Minnesotans, it’s still practical to lower taxes by claiming itemized deductions instead of the standard deduction. That’s less likely on federal taxes, because of its higher standard deduction.  So, the Minnesota Department of Revenue created a new form , Schedule M1SA, to allow itemized deductions. (Yes, you can use it even if you took the standard deduction for the federal return.)

On another schedule, Form M1NC, taxpayers must reconcile about 25 types of income or deductions that differ between state tax codes and the new federal law.

For a much more complete listing of Minnesota’s updates, go online to:  https://www.revenue.state.mn.us/Pages/Tax-Law-Changes-FAQs.aspx  

Also check into “Tax Law Changes” button on the Minnesota Department of Revenue’s main site, https://www.revenue.state.mn.us/Pages/default.aspx

The phrase “For Minnesota purposes” is meaningful this year. Eric Buechler, owner of tax preparation firm EricJohn Ltd. can take on those differences between Minnesota and federal tax codes for you this season.

While the federal government largely remains on “Stop!”, the month-long shutdown apparently will not stand in the way of a normal beginning to the tax filing season.

The Internal Revenue Service has called in about two-thirds of its work force to start processing of 2018 tax returns on Monday, Jan. 28. Of course, those 46,000 workers will be working without pay, like other government employees caught in the partial shutdown.

The Minnesota Department of Revenue also kicks off its annual income tax rush on Monday.  Minnesota Revenue did note that many individual taxpayers who use tax professionals or tax prep software can have their returns prepared and ready to go automatically to both tax collecting agencies on Monday.

More important for many millions of taxpayers is the other end of the season, the income tax due date. This year, Monday, April 15, actually is the date for both federal and state tax returns in Minnesota. The federal deadline had been extended in recent years for calendar reasons, including weekends and a holiday in the nation’s capital.  (If you’re interested, only Maine and Massachusetts get extensions because of calendar conflicts this year.)  

But let’s get to the question we’re all wondering. Will the federal shutdown halt or delay taxpayer refunds? Well, they are going out. “We are committed to ensuring that taxpayers receive their refunds notwithstanding the government shutdown,” IRS Commissioner Chuck Rettig pledged in a news release.   

The sweeping changes made by the 2017 Tax Cuts and Jobs Act (TCJA) could become a factor, some pros in the accounting industry are saying. We’ll talk about some of those changes in future posts this tax season.

As the season begins the IRS is making a temporary change that benefits taxpayers with estimated payments.  According to its announcement last week, the taxing agency will waive normal penalties if their payments were at least 85 percent of what they owe in taxes for the year.  The relief has to do with the numbers of taxpayers who did not change their withholding rates this year, after the new law took effect.

The speed of IRS service could well be affected by the shutdown, though.  Accounting Today recently quoted a tax expert from accounting firm CBIZ MHM, who noted that a backlog of taxpayer questions is greeting IRS staff when they return from their furloughs. The TCJA, which largely takes effect for 2018 taxes, also prompts its own questions, Nate Smith noted.

With tax season upon us, now’s the time to reserve time to talk taxes with Eric Buechler, proprietor of EricJohn Ltd. and an enrolled agent certified by the IRS, or your tax preparer.

It’s New Year’s Eve and the clock has just a few hours to tick away until the beginning of 2019!

Benevolent taxpayers might still be able to reduce their 2018 income taxes with a very last-minute donation to a favorite charity. In fact, some non-profits have been reminding their benefactors about an opportunity to contribute.

Making a donation online today or mailing a check in a letter postmarked on Dec. 31 are two ways that often can beat the year-end deadline. However, from a tax standpoint, donors also will want to remember that their gifts still are itemized deductions. Last year’s federal tax reform greatly increased the standard deduction, and the boost may be a better tax deal than itemizing donations and other expenses.

Some other tax-saving moves actually linger until April.They involve contributions by workers to their retirement plans. The rules vary by the type of retirement account.

Retirees who are taking money out of those accounts also should remember that Dec. 31 is the annual deadline for collecting Required Minimum Distributions from most IRAs.

Sweeping changes from recent tax reforms took effect in 2018, and you’ll be encountering them during the coming tax reporting season.  We at EricJohn Ltd. will be ready to assist.

For now, HAPPY NEW YEAR as you celebrate the arrival of 2019!