In a previous article, I mentioned how we prepared three years of amended individual income tax returns for a client to claim the self-employed health insurance premiums.
The client has now received the three refund checks. With interest, the total for the three years is more than $12,000.
Another new client came in this year. She had been doing her own income tax returns, even though she was born in 1932.
She asked us to prepare the 2011 return, and we did. But we claimed the special retirement saver's credit on Form 8880 for a special $400 tax credit (like income tax withheld). That increased her 2011 refund.
She had relatively low other income and the wages were only $17,200, so she is eligible for that credit and she is happy about that.
Then we looked at her three prior years' returns. She will get a refund of $215 just because of the retirement saver's credit in year 2010.
The IRS had adjusted her return for 2010. IRS workers noted she had wage income and did not claim the "making work pay" credit of $400. They increased her refund for that credit.
We explained that since she had earned and received wages, but had also had part of her wages withheld for the retirement plan where she worked, she was eligible for the retirement saver's credit, in addition to the "making work pay" credit that the IRS adjusted for.
Form 8880 has a table of how much credit is available. It depends on the filing status (single, head of household, joint) and is "phased out" or eliminated based on the adjusted gross income (Form 1040, Page 2, Line 38). She gets $215 more refund.
In 2009, her income from taxable wages was more than in 2010 because she had less withheld for retirement plan savings. That also caused more of her Social Security benefits to be taxable income. It's sort of a "double whammy" - more taxable income in two places on the return, but only wages were actually increased.
In 2009, she received the $250 economic recovery payment. That reduced her "making work pay" credit from $400 to $150. The IRS adjusted that year correctly, except the standard deduction was increased that year by up to $500 of real estate taxes paid. She paid enough real estate taxes on her home to get $60 refund from 2000.
Because her 2009 adjusted gross income was increased, she did not get any credit from the retirement saver's credit. It "phases out" at relatively low incomes.
It's just another illustration of how complicated our tax law is for all taxpayers. It's time to do a complete revision of the income tax law.
Did you hear, "Giving up is the ultimate tragedy"?
• John Bullis is a certified public accountant, personal financial specialist and certified senior adviser serving Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs, LLC.