(07) 2013 Oregon new law update

Report
2013 Oregon New Law
Update – Tax Aide
Table of Contents:

New Information
 Same-sex Married Couples
 Personal Exemption Credit Change
 Special Oregon Medical Subtraction
 Claim of Right/PERS Repayments
 Working Family Childcare Credit
Overview
New Information:
Federal Tax Subtraction increased to
$6,250.
 Exemption Credit increased to $188 for
each qualifying exemption.
 Oregon 529 College Savings Plan
Subtraction increased to $4,455 for MFJ
and $2,225 for all other filing status.

Defense of Marriage Act (DOMA)
What is DOMA?
 In 1996, section (3) of the federal
Defense of Marriage Act denied federal
recognition of any same-sex marriages.
 In June 2013, the United States
Supreme Court decision issued - United
States v. Windsor - held that the federal
denial of any same-sex marriage
unconstitutional.
Defense of Marriage Act (DOMA)
How will Oregon handle DOMA?
 Oregon will recognize same-sex marriages
performed in other jurisdictions.
 If a same-sex couple is married in another
state – they must file married filing jointly
or separately for Federal and Oregon
purposes.
 Amended returns will be accepted for all
open tax years.
2013 Legislation –
Special Session
HB 3601 – Personal Income Tax

No Exemption Credits if AGI exceeds:
○ $200,000 for MFJ, HH or QW
○ $100,000 for MFS or S
2013 Legislation –
Special Session
HB 3601 – Personal Income Tax
Special Oregon Medical:

Converts the deduction to a subtraction.

Subtraction cannot include expenses already allowed
in Oregon taxable income (for example, self-employed
health insurance)

Cap per eligible individual’s age and AGI
 See handout*

Age requirement increases over the years
○
○
○
○
○
Age 62 – Tax Year 2013
Age 63 – Tax Years 2014 & 2015
Age 64 – Tax Years 2016 & 2017
Age 65 – Tax Years 2018 & 2019
Age 66 – Tax Years 2020 and beyond
Fall Rules –
Special Oregon Medical
How to Split Joint Expenses
(OAR 150-316.693)

Must prorate the expenses using a method
that is reasonable based on the taxpayers
particular facts and circumstances.
○ Dividing the eligible expenses that are for more
than one person by the number of insured
individuals.
○ In the case of spouses filing separate returns, split
any eligible expenses paid out of a joint checking
account in which both TP’s have the same interest
equally.
Special Oregon Medical
Calculation
Splitting Joint Expenses Example
Branden (age 66) and Natalie (age 61) file a joint return with
Oregon itemized deductions and three dependent children. During
the year, Branden and Natalie paid $19,380 in medical expenses:
$16,600 in health insurance premiums for a plan that covered
Branden, Natalie, and all three children; $500 in dental expenses
for Branden; $1,500 in medical expenses for Natalie; and $780 in
medical and dental expenses for the children. Natalie and the
children‘s medical and dental expenses do not qualify for this
subtraction because Natalie does not meet the age requirement
and the children are dependents. For Branden and Natalie, a
reasonable method to calculate the joint expenses attributable to
Branden is to divide the total health insurance premiums paid
($16,600) by the number of insured (5) to arrive at $3,320 for
Branden’s portion of the joint expenses.
What is Branden’s eligible expenses for the subtraction?
Special Oregon medical subtraction
worksheet
Column (A)
You
1. Medical and dental expenses for each qualifying taxpayer.
2. Total medical and dental expenses (Schedule A, line 1)
3. Divide line 1 by line 2 and round to three decimal places.
4. Enter the lesser of the expenses claimed on line 1 of your
Schedule A, or the amount on line 3 of your
Schedule A.
5. Multiply line 3 by line 4 and round to whole dollars.
6. Maximum allowable medical subtraction from the table
($1,800 max).
7. Enter the lesser of line 5 or line 6.
8. Add line 7, columns (A) and (B), and enter the total.
This is your special Oregon medical subtraction.
Column (B)
Spouse/RDP
1.___________
2.___________
3.___________
1.___________
2.___________
3.___________
4.___________
5.___________
4.___________
5.___________
6.___________
7.___________
6.___________
7.___________
8.___________
Special Oregon medical subtraction
worksheet example
Kenneth and Sophia were both age 66 on December 31, 2013 and file a joint return with AGI of
$78,000. Kenneth and Sophia had $12,300 in unreimbursed medical and dental expenses during
2013. They are self-employed and claimed $3,400 for self-employed health insurance premiums
on line 29 of their federal Form 1040. They also claimed $8,900 on line 1 of their federal Schedule
A. Of the amount claimed on Schedule A, $1,200 was for Kenneth’s expenses and $7,700 was
for Sophia’s expenses. Calculate the special Oregon medical subtraction as follows:
1. Medical and dental expenses for each qualifying taxpayer.
2. Total medical and dental expenses (Schedule A, line 1).
3. Divide line 1 by line 2 and round to three decimal places.
4. Enter the lesser of the expenses claimed on line 1 of your
Schedule A, or the amount claimed on line 3 of your Schedule A.
5. Multiply line 3 by line 4 and round to whole dollars.
6. Maximum allowable medical subtraction from the table ($1,800 max).
7. Enter the lesser of line 5 or line 6.
8. Add line 7, columns (A) and (B), and enter the total. This is
your special Oregon medical subtraction.
Column A
Kenneth
Column B
Sophia
1. $ 1,200
2. $ 8,900
3. 0.135
1. $ 7,700
2. $ 8,900
3. 0.865
4. $5,850
5. $ 790
6. $1,400
7. $ 790
4. $5,850
5. $5,060
6. $1,400
7. $1,400
8. $2,190
2013 Legislation –
Special Session
HB 3601 – Personal Income Tax

Penalty and interest waived if based on
underpayment due to:
○ Special Oregon Medical
○ Exemption Credit

Tax Year 2014: Increase Oregon
Earned Income Credit 6% to 8%
Claim of Right

If Oregon taxes were paid on income in one year
and then you have to repay a portion of the income
back in another year, a Claim of Right adjustment
can be made on the tax return in the year the
repayment is made.

The Claim of Right Credit is only allowed for
repayments over $3,000.

Tax year 2013 and forward - Only a Claim of Right
Credit is allowed on the Oregon return. A Claim of
Right Repayment claimed on the federal return will
flow through to the Oregon return.
Claim of Right – 150-315.068
Spring Rule

Claim of Right rule changed during the Spring
rules process- changes are for repayments made
on or after 1/1/13.

EXAMPLE: In 2013, Shannon had to repay wages of $3,800 from tax
year 2011. She qualifies to claim itemized deductions and chooses to
claim the deduction on her federal return. Oregon allows this deduction
to flow through or allows her to claim the credit instead. Her itemized
deductions are mostly Oregon taxes, so her Oregon itemized
deductions are less than the standard deduction. Therefore, she will not
claim itemized deductions for Oregon and will claim the credit instead.
In 2011, she had federal AGI of $45,000 and her 2011 tax was $2,988.
If Shannon had not received the $3,800 she had to repay, her 2011 tax
would have been $2,679. Her 2013 credit is the difference of $342,
which she will claim on her 2013 Oregon return as a claim of right
credit. There’s no addition required because she claimed the standard
deduction for Oregon, so the federal deduction did not flow through.
Filing Reminder
 Must
have a valid SSN or ITIN
to receive a refund.
 For more information on
getting an ITIN, go to
www.irs.gov
Working Family Childcare Credit
2013 Overview
At least $8,400 of earned income from Oregon sources
$3,300 or less of investment income
AGI less than the limit for household size
Paid qualifying child care expenses to allow TP (and
spouse/ RDP, if married) to work or attend school at
least part time or is exempt from this requirement due to
qualifying disability (discussed later).
 Paid qualifying child care expenses for TP’s qualifying
child.
 Child care provider was not child’s parent or guardian,
or a relative or step relative under age 19.




What is a Qualifying Child?

A qualifying child is TP’s child, step child, grandchild,
step grandchild, brother, sister, stepbrother, stepsister,
nephew, niece, step nephew, step niece, or eligible
foster child who:
 Can be claimed as a dependent on the federal return, or
 Could have been claimed as a dependent except custodial parent
released exemption to child’s other parent, and
 Under age of 13 at time care was provided, or
 Was a child who qualifies for additional exemption credit for a child
with a disability, and
 Lived with the taxpayer more than half the year.
Attending School
 The
taxpayer (or spouse/RDP, if
married) must have attended school at
least part time.
 Reminder!
Check the box next to the
name if the taxpayer or spouse/RDP
attended school at least part time.
Disabled Spouse
 For
married/RDP TP’s - if one
spouse/RDP has a qualifying disability
that keeps them from working,
attending school, and caring for
themselves and children, the child care
expenses may qualify for WFC.
 Only
one spouse can qualify for
exception.
Household Size Calculation
•Household
size is number of people claimed as
exemptions on federal tax return that are related to
the TP by blood, marriage/RDP, or adoption and
live in their home more than half the year.
•Household
size can include a child of whom TP has
primary custody even if they allowed child’s other
parent to claim the personal exemption on his or
her tax return.
*An individual cannot be counted in a household size on
more than one return.
Qualifying Child Care Expenses
Qualifying child care expenses are paid
primarily so TP (and spouse/RDP, if married)
can work or attend school.
 Only one spouse or RDP must be working or
attending school if other qualifies for exception
due to disability.
 Expenses can be paid with pre-tax dollars
from an employer benefit plan and still qualify.
 Expenses must be paid during 2013.

Expenses That Do NOT Qualify

Qualifying child care expenses do not include:
 Costs to attend public or private school;
 After-school
activities;

Sports;
 Overnight camps;
 Boarding school; or
 Late payment fees.
 Food and supplies

Only claim expenses TP actually paid during
year.
Proof of Qualifying Expenses



TP must be able to prove that they paid child care expenses.
Acceptable proof may include, but is not limited to, copies of:
 Cancelled checks or carbon checks w/ bank statements,
 Money order stubs along with bank statements or bank receipts,
 If cash, bank statements or bank receipts showing withdrawals,
 Signed receipts from child care provider received at time of
payment.
Receipt(s) should include:
 Child’s full name and dates of care,
 Date and amount of child care paid,
 Name of person or agency paying,
 Provider’s name, address, and telephone number,
 Provider’s identification number (SSN/FEIN),
 Method of payment (check, money order, cash, etc.).
What Errors Are We Seeing?
Substantiation
Cash payments
Cash payments to relative or friend
Expenses not paid by taxpayer
 Provider related and under age 19
 Provider is mother/father of child
 Altered/fictitious receipts
 Taxpayer not working or attending school
 Claiming extracurricular activities
 Form not filled out completely.




How Can You Help?






Fill out the form entirely.
Advise taxpayers to keep their records.
Advise taxpayers to pay in money orders or checks.
Respond to request for information in a timely
manner.
Provide all information requested.
Advise taxpayers WFC returns take longer to
process.
Documentation Taxpayers
Need to Keep

Substantiation:






contemporaneous receipts,
detailed year end statements,
copies of cancelled checks,
bank statements,
copies of money orders, etc.
College transcripts,
 if the taxpayer attended school.

Records of job searches:
 denial letters,
 appointment letters, etc.

Monthly statements received from DHS,
 showing how much DHS paid and taxpayer’s co-pay amount for
childcare.
Questions

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