4 QUESTIONS TO ASK BEFORE HIRING HOUSEHOLD HELP

W

hen you hire someone to work in your home, you may have specific tax obligations, such as withholding and paying Social Security and Medicare (FICA) taxes and possibly federal and state unemployment insurance. 

Here are four questions to ask before you say, “You’re hired.”

1. Who’s considered a household employee?
A household worker is someone you hire to care for your children or other live-in family members, clean your house, cook meals, do yard work or provide similar domestic services. But not everyone who works in your home is an employee.
For example, some workers are classified as independent contractors. These self-employed individuals typically provide their own tools, set their own hours, offer their services to other customers and are responsible for their own taxes. To avoid the risk of misclassifying employees, however, you may want to assume that a worker is an employee unless your tax advisor tells you otherwise.

2. When do I pay employment taxes?
You’re required to fulfill certain state and federal tax obligations for any person you pay $2,100 or more annually (in 2018) to do work in or around your house.
In addition, you’re required to pay the employer’s half of FICA (Social Security and Medicare) taxes and to withhold the employee’s half.  You must also pay federal unemployment taxes (FUTA) equal to 6% of the first $7,000 in cash wages. And, depending on your resident state, you may be required to make state unemployment contributions.

3. Are there exceptions?
Yes. You aren’t required to pay employment taxes on wages you pay to your spouse, your child under age 21, your parent (unless an exception is met) or an employee who is under age 18 at any time during the year, providing that performing household work isn’t the employee’s principal occupation.

4. How do I make tax payments?
You pay any federal employment and withholding taxes by attaching Schedule H to your Form 1040. You may have to pay state taxes separately and more frequently (usually quarterly). Keep in mind that this may increase your own tax liability at filing, though the Schedule H tax isn’t subject to estimated tax penalties.
If you owe FICA or FUTA taxes or if you withhold income tax from your employee’s wages, you need an employer identification number (EIN).
There’s no statute of limitations on the failure to report and remit federal payroll taxes. You can be audited by the IRS at any time and be required to pay back taxes, penalties and interest charges. Our firm can help ensure you comply with all the requirements.

At Debreczeni and Petrash we are fully prepared to take care of taxpayers, no matter the category they fall in.  If you are currently a client, rest assured that we will guide you through this process.  If you are not currently a client please visit www.Debreczeni-Petrash.com or call (440) 230-5660 and see if we are a good fit for your needs.

Obamacare...What do I do?!

First...breath.  Everything will be OK.  Provided below is a summarized version of what you will need to know for the 2014 tax season:

Beginning in 2014, all taxpayers were responsible for obtaining health insurance by March 31 for themselves and their dependents.

Therefore there are 3 general scenarios taxpayers may find themselves in.

1.  You had health insurance not purchased through Healthcare.gov ("The Exchange")

Inform your tax preparer of that fact and your work is over.  If you have dependents that file their own taxes, your tax preparer needs copies of those before yours can be completed. Some people may receive a new form called Form 1095 from their insurance company.  Bring this with you if one is received.

2.  You had health insurance purchased through Healthcare.gov ("The Exchange")

You will receive a Form 1095-A in the mail before February.  Bring this to your tax preparer.  If you have dependents that file their own taxes, your tax preparer will need copies of those before yours can be completed.

3.  You did not have health insurance

There may be a penalty that applies for non coverage.  Certain exemptions are available to avoid paying a penalty.

     Examples of Situations Exempt from Penalty
- Covered through Medicare or Medicaid
- Receive insurance through Retirement Systems
- You did not earn enough income
- You qualify for a Hardship Exemption (listed here https://www.healthcare.gov/fees-exemptions/hardship-exemptions/ )

At Debreczeni and Petrash we are fully prepared to take care of taxpayers, no matter the category they fall in.  If you are currently a client, rest assured that we will guide you through this process.  If you are not currently a client please visit www.Debreczeni-Petrash.com or call (440) 230-5660 and see if we are a good fit for your needs.

Are you eligible for any of these tax credits? Don't forget!

Millions of Americans forgo critical refunds each year by failing to claim for tax credits. 
visit www.debreczeni-petrash.com for more info

Are you eligible for any of these tax credits?

Worthwhile Knowledge

A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are refundable – taxes could be reduced to the point that a taxpayer would receive a refund rather than owing any taxes. Below are some of the credits taxpayers could be eligible to claim:

Earned Income Tax Credit
(EITC) is a federal tax credit for individuals who work but do not earn high incomes. Last year, an estimated 21 million taxpayers received approximately $37.5 billion in EITC. However, the IRS estimates that 25 percent of people who qualify don't claim the credit! When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. For more information, see IRS Publication 596, Earned Income Credit (EIC).

Child Tax Credit 
This credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see Pub. 972, Child Tax Credit.

Child and Dependent Care Credit 
This is for expenses paid for the care of children under age 13, or for a disabled spouse or dependent, to enable the taxpayer to work. There is a limit to the amount of qualifying expenses.

Retirement Savings Contribution Credit 
Eligible individuals may be able to claim a credit for a percentage of their qualified retirement savings contributions, such as contributions to a traditional or Roth IRA or salary reduction contributions to a SEP or SIMPLE plan. To be eligible, you must be at least age 18 at the end of the year and not a student or an individual for whom someone else claims a personal exemption. For more information, see chapter four in Publication 590, Individual Retirement Arrangements (IRAs).

Education Credits 
There are two credits available, the American Opportunity Credit (formerly called the Hope Credit) and the Lifetime Learning Credit, for people who pay higher education costs. The American Opportunity Credit is for the payment of the first two years of tuition and related expenses for an eligible student for whom the taxpayer claims an exemption on the tax return. The Lifetime Learning Credit is available for all post-secondary education for an unlimited number of years. A taxpayer cannot claim both credits for the same student in one year.

Adoption Credit 
Adoptive parents can take a tax credit of up to $13,170 for qualifying expenses paid to adopt an eligible child. For more information, see Pub. 968, Tax Benefits for Adoption.

Credit for the Elderly and Disabled 
This credit is available to individuals who are either age 65 or older or are under age 65 and retired on permanent and total disability, and who are citizens or residents. For more information, see Pub.524, Credit for the Elderly or the Disabled.


There are other credits available to eligible taxpayers.  Please contact us so we may realize your specific situation, and offer advice. www.Debreczeni-Petrash.com

Tips for Donating to Charity Safely

It is common for scam artists to impersonate charities to get money or private information from taxpayers. The IRS has offered a number of tips for taxpayers to follow in making donations:

1. Donate to recognized charities to help disaster victims. Scammers operating bogus charities may contact people by telephone, social media, email or in-person to solicit money or financial information.

2. Scammers often send e-mail that steers the recipient to bogus websites that appear to be affiliated with legitimate charitable causes.

3. Be wary of charities with names that are similar to nationally known organizations. Fraudulent sites frequently mimic the sites of, or use names similar to, legitimate charities to persuade people to send money or provide personal financial information.

4. Consider using the search feature, "Exempt Organizations Select Check," on the IRS website, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.

5. Don't give out personal financial information, such as Social Security numbers or credit card and bank account numbers and passwords, to anyone who solicits a contribution from you. This information may be used by scam artists to steal your identity and money.

6. Don't give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

Let Debreczeni & Petrash help keep your donations safe

When to Start Receiving Social Security Benefits

As you approach retirement age, you must decide whether to begin taking reduced social security benefits early or wait until full benefit retirement age (FBRA). In many cases, this decision will depend on factors other than trying to receive the greatest lifetime benefit from social security. 

Remember that while you have the option of receiving social security benefits as early as age 62, the eligibility age for Medicare remains at 65. So, although you may be able to replace a sufficient amount of your earned income with social security benefits beginning at age 62, you may not be able to adequately replace your employer-provided health insurance.

Even if you have sufficient funds to live on without considering social security, many people prefer to begin receiving benefits as soon as possible. For 2013, the benefits at age 62 are reduced by 25% of what they would be at age 66 (i.e., the FBRA); but, you will receive more social security checks if benefits are drawn early. In addition, drawing early social security benefits may allow you to leave tax-deferred retirement accounts untouched and growing for longer periods.

Another reason to receive benefits early is if you have children living at home. Children under age 18 (or up to 19 if a full-time student) may be eligible for benefits if you are also receiving social security benefits.

You might carefully consider the long-lasting advantages of waiting until FBRA based on the following factors.

Life Expectancy. Your life expectancy may be the biggest factor in deciding whether to receive benefits early. By age 62, you should have a good handle on your own life expectancy based on your current health and the longevity of your parents. In general, 77 years might be a good cutoff point. If you reasonably expect to reach that age, waiting until FBRA may be a wise choice.

Shortening the Retirement Period. A significant factor in retirement planning projections is the length of the retirement period. For example, if you want to retire at age 62 and you have a life expectancy of 85, you have a 23-year retirement period to fund. By working past age 62, you are shortening the retirement period and lowering the amount of money needed to fund your retirement regardless of longevity.

The Earnings Test. If you are considering receiving retirement benefits before your FBRA but you intend to keep working, you must consider the earnings test. For 2013, social security benefits are reduced $1 for every $2 in earnings above the exempt amount of $15,120.

Replacing Lower-wage Years. Your social security benefits are calculated based on your highest 35 years of indexed earnings. If you can replace lower-wage years early in your career with higher-wage years after age 62, the benefit can be increased. This can lead to a greater benefit when you retire.

Inflation Adjustments. Social security benefits receive an annual inflation adjustment. By taking early benefits, your starting base for these annual adjustments is smaller. For example, if your benefit was $1,000, but you retired early and received only $750, each year you would miss out on the compounded inflation adjustment of that $250 in lost benefits. In other words, the gap between the early retirement benefit you receive and the amount you would have received by waiting will get bigger and bigger.

The Effect on Your Spouse. Your decision to start receiving social security benefits before reaching FBRA may also affect your spouse’s benefits. If your spouse does not have a personal earnings record, he or she will only receive half of your retirement benefit.

After FBRA. If you delay receiving benefits until after your FBRA, you will receive larger benefits because of the delayed retirement credit. You may receive a credit of up to 8% per year for each year you delay receiving benefits until age 70.

If you are able to wait, the delayed retirement credit can have a significant impact. In addition to the higher retirement benefit you will receive, you will also shorten your retirement period and increase your spouse’s survivor’s benefit.

Residency Issues for Retirees and Home Office Deductions

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Residency Issues for Retirees With 10,000 baby boomers turning 65 each day, some may decide to move to another state for a variety of reasons. These include living in a warmer climate, being closer to children or other relatives, avoiding state income tax, health reasons, or a combination thereof. But, states and municipalities are looking for every available dollar to shore up shrinking budgets. So retirees should use caution to avoid being overtaxed due to a move. If the retiree's move is intended to be permanent, it is important that legal domicile be established in the new state. If domicile is not established, the retiree may be subject to income tax as a resident of both the old and new states. In addition, since each state has its own rules relating to residence and domicile, both states may try to impose taxes on the retiree even if he or she has established domicile in the new state, but has not adequately relinquished domicile in the previous state. Furthermore, if the retiree dies without establishing domicile, both the old and the new states may claim jurisdiction over the retiree's estate. The more time that elapses after the move and the more steps the retiree takes to establish domicile in the new state, the more difficult it will be for the old state to assert that the retiree resides or has domicile there. The following steps tend to establish domicile in a new state: Register to vote in the new location. File a change of address form with the post office at the old location and change the address on documents, such as tax returns, wills, contracts, insurance policies, passports, and living trust agreements. Obtain a driver's license and register automobiles in the new location. Open and use bank accounts in the new location. Move items from safe deposit boxes in the old location to the new location. Purchase or lease a residence in the new state and sell the residence in the old state. If an income tax return is required, file a resident return in the new state and a nonresident return (or no return, if appropriate) in the old state. File for property tax relief under a homestead exemption (if any) in the new state. For many purposes, the location of property is determined by reference to state law, and legally may be deemed to be somewhere other than where the property is physically located. The state in which the property is deemed to be located may assess income taxes (if any) on income or gains relating to the property. The state may also assess death and succession taxes, and that state will be where probate proceedings will occur when the individual dies. Furthermore, rules of that state will be used to determine whether testamentary instruments are valid and whether the terms of the instruments (such as the powers of a trustee) are legally enforceable. The retiree's state of domicile generally determines the rules relating to the ownership and tax treatment of intangible personal property. Thus, if the retiree established domicile in a new state, that state's laws generally will apply to his or her intangible assets, such as bank accounts, stocks, bonds, notes, partnership interests, trust income rights, and insurance contracts. Interest income from a savings account, for example, will normally be taxed by the state of domicile, rather than the state in which the account is located. New Simplified Home Office Deduction The IRS recently announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes. The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and record-keeping burden on small businesses. The new option is available beginning in 2013. Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes, and casualty losses on the home as itemized deductions on Schedule A, if they choose to itemize their deductions. These deductions need not be allocated between personal and business use, as is required under the regular method. Business expenses unrelated to the home, such as advertising, supplies, and wages paid to employees, can still be fully deductible. Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option. In tax year 2010, the most recent year for which figures are available, the IRS indicates nearly 3.4 million taxpayers claimed deductions for business use of a home. Please contact us if you would like more information on the home office deduction or any other tax compliance or planning issue. For More Information Please Visit Debreczeni-Petrash.com

Save Taxes When Paying Health Care Costs

There are four types of tax-advantaged accounts that can be used to pay for unreimbursed medical expenses: (1) Health Care Flexible Spending Accounts (FSAs), (2) Health Reimbursement Accounts (HRAs), (3) Health Savings Accounts (HSAs), and (4) Archer Medical Savings Accounts (MSAs). 

Comparison of the four types of accounts 

FSAs. These are employer-established arrangements that are usually funded through salary reduction agreements. The employee's contribution isn't subject to either income or employment taxes. Under the ACA, beginning in 2013, FSA contributions are limited to $2,500 per employee. 

HRAs. These are employer-established arrangements that are funded only through employer contributions. HRA contributions are not subject to either income or employment taxes and health care benefits used for medical care are tax exempt. 

HRAs are group health plans that typically consist of a promise by an employer to reimburse medical expenses for a year up to a certain amount, with unused amounts available to reimburse medical expenses in future years. That causes a problem under Sec. 2711 of the Public Health Service Act (PHSA), as added by the ACA, which generally prohibits plans and issuers from imposing lifetime or annual limits on the dollar value of essential health benefits. IRS has ruled that HRAs are permitted when they are integrated with other employer-provided coverage, and are not permitted when they are stand-alone accounts. 

HSAs. These are tax-exempt accounts that can be established (and to which contributions can be made) only when the account owner has a qualifying high deductible health insurance plan (HDHP). For example, for 2013 as well as 2014, the plan must have a deductible of at least $1,250 for self-only coverage and $2,500 for family coverage.

For 2013, annual out-of-pocket expenses (deductibles, co-pays, and other amounts, but not premiums) can't exceed $6,250 for self-only coverage or $12,500 for family coverage (for 2014, $6,350 and $12,700 respectively). The plan holder may have no other major medical health insurance policy. Contributions made by employers are exempt from income and employment taxes, and account owners may deduct contributions they make. Withdrawals for medical expenses are not taxed. Unused balances may be carried over from year to year. Contributions for 2013 are limited to $3,250 for self-only coverage and $6,450 for family coverage (for 2014, $3,300 and $6,550 respectively). An additional contribution of $1,000 is allowed to people age 55 and older.

MSAs. These accounts, also known as Archer MSAs, are earlier versions of HSAs and are in limited use under current law. MSAs can be established generally only when account owners have qualifying high deductible insurance and no other coverage. Contributions made by employers are exempt from income and employment taxes, and contributions by account owners (which are allowed only if the employer doesn't contribute) are deductible. Withdrawals are not taxed if used for medical expenses. Unused balances may be carried over from year to year without limit.

The principal difference between HSAs and MSAs is that MSA eligibility is limited to people who are self-employed or employed by a small employer (50 or fewer employees, on average). In addition, the MSA minimum deductible levels are higher and the contribution limits are lower. Generally, no MSAs can be created after Dec. 31, 2007, although MSAs existing at that time are grandfathered. 

National statistics

40% of all civilian workers in 2012 had access to a health care FSA. When viewed by firm size, 53% of civilian workers in firms with 100 or more workers had access to an FSA. In establishments with fewer than 100 employees, 20% of the workers had access to a health care FSA.

HSAs are only available to employees who have HDHPs. In 2012, 26% of firms offering health benefits offered an HSA-qualified HDHP (up from 18% in 2011 and 12% in 2010). Workers in larger firms were more likely to have access to an HDHP than those in smaller firms.

Although employers are not required to restrict HRA benefits to employees with HDHPs, most employers chose to do so. Of employers offering health benefits, there was no discernible upward or downward trend in the percent who offered an HDHP and an HRA in recent years; the percentage was 4% in 2010, 7% in 2011, and 5% in 2012.

The CRS report says that almost no data is available on usage of MSAs, as very few new MSAs are being created, and the number of them always has been limited.