Nation: New laws sowing widespread confusion among taxpayers
By CURT ANDERSON, AP Tax Writer
February 21, 2002
WASHINGTON (February 21, 2002 3:17 p.m. EST) - As if tax forms weren't already complicated enough, the sweeping tax law enacted last year is making taxpayers grapple with dozens of changes. One new line alone has caused over 1 million errors.
Even with the tax relief President Bush signed, the tax laws are " an abomination " and new government reports will illustrate the " absurdities, "
Treasury Secretary Paul O'Neill said Thursday. He pledged anew to try to simplify tax laws, but the White House could make his job more difficult: Bush is proposing new tax credits that would add more complexity.
The 10-year, $1.35 trillion tax cut passed by Congress and signed by Bush in June made 441 tax law changes, according to H&R Block Inc. Most will be phased in gradually over the decade, but some important ones are in effect.
The Internal Revenue Service expects about 132 million individual returns this year, including a projected 45 million to be filed electronically. The deadline is midnight April 15 in most of the country. Procrastinators can request an automatic four-month extension to file the forms but any taxes owed must be paid on time to avoid penalties.
Through Feb. 15, average refunds were $2, 210, almost 12 percent more compared with the same period last year, mainly because of the lower tax rates and a bigger child tax credit, according to statistics released Thursday. E-filing by people using home computers is running 38 percent ahead of last year.
Due to extra mailroom precautions resulting from last year's anthrax scare, IRS Commissioner Charles Rossotti says more taxpayers should give computer e-filing a fresh look to reduce the chance for paperwork delays and to cut the agency's costs.
" The less paper we get, the better off we're going to be, " Rossotti said. Millions of taxpayers got some benefit of the big tax cut in the form of rebate checks of up to $300 for individuals and $600 for married couples that were mailed out over the summer and fall.
But Congress, seeking to spread the wealth, authorized a new line on this year's tax forms for people to claim a credit if they got no check or received less than the full amount. This credit is sowing widespread confusion; the IRS has received more than 1 million returns with errors related to it.
The upshot is that people who got a check in the full amount cannot claim the credit, and those who got nothing or got less than the full amount might be able to. That includes people claimed as dependents in 2000 but not in 2001. Consult the 1040 Form instructions carefully to find out.
Other important changes affecting 2001 returns:
-The child tax credit for eligible families rises from $500 to $600.
-Alternative minimum tax exemptions rise by $4, 000 for married couple filing jointly, $2, 000 for individuals and heads of households.
-Income tax rates, except the 15 percent rate, were reduced by 1 percentage point on July 1, 2001.
More changes are on tap for 2002. For starters, a new 10 percent income tax rate will apply to the first $6, 000 earned by single taxpayers, $10, 000 for heads of households and $12, 000 for married couples filing jointly.
For 2001, the rebate checks were chosen by Congress to deliver the benefit of this lower tax bracket. The upper income tax rate cuts remain the same until 2004, when they fall by another percentage point.
People saving for retirement gain a number of important benefits in 2002, beginning with a $1, 000 increase in the maximum annual contribution to an individual retirement account and a $500 increase in limits for 401(k)-type plans. These limits will continue to rise through the decade.
Those age 50 and up get special, higher " catch-up " limits permitting additional contributions in 2002 of $500 to an IRA and $1, 000 to a 401(k). Other changes taking effect in 2002 include:
-Increased annual contribution limits for tax-favored Coverdell Education Savings Accounts and tax-free distributions from Section 529 education plans if the money is used for qualified expenses. A $3, 000 higher education deduction for qualified taxpayers also will apply to 2002 expenses, even for taxpayers who do not itemize deductions.
-The child adoption tax credit rises to $10, 000 and the income limits for taxpayers become more generous.
-The top estate tax rate drops from 55 percent to 50 percent and the per-person exemption rises from $675, 000 to $1 million. The annual gift tax limit rises by $1, 000, to $11, 000.
Selected figures from this year's individual tax filing season through Feb.
15 and comparison with the same period last year:
-31 million, down 0.7 percent.
-Total, 21 million, up 8.2 percent.
-Computer, 18.6 million, up 11 percent.
-Telephone, 2.3 million, down 9.3 percent.
-Self-prepared, 3.2 million, up 38 percent.
-Tax professionals, 15.4 million, up 6.6 percent.
-22.8 million, up 3.1 percent.
-Total: $50.5 billion, up 15.2 percent.
-Average: $2, 210, up 11.7 percent.
-Direct deposit: 16.9 million, up 10.5 percent.
-Direct deposit amount: $42.4 billion, up 20.5 percent.
Source: Internal Revenue Service.