Why Paying More in Taxes is Great for Workers
Paying taxes is an onerous task for most people, but paying more taxes may have a number of beneficial side effects.
Tax Withholdings
Over the course of 2016, the growth of employee tax withholdings, as well as the growth of payroll taxes being withheld by the government, has increased over a steady rate this year. Compared to last year, these withholdings have increased up to 4%.
So how is this good for you, as a worker?
The increase in tax withholdings gives insight onto two noticeable benefits. The first is that when taxes increase for workers, both individually and as a whole, a steady wage inflation takes place. Basically, workers are getting paid more money now versus previous years. This means the economy is showing a significant growth in employment.
The second benefit that is noticed through higher taxes from workers will be their refund amounts. With higher taxes and withholdings, the more workers can expect back in the beginning of the year after they file taxes. Most people fall within the tax bracket to get a return back, so filing more money in advance can reassure you have paid all your taxes. Increasing your withholdings can also be a little investment savings annually.
Although paying higher taxes seems detrimental at first, it can be more beneficial for workers than they realize. With a constant inflation in the economy, we can expect workers to pay even more in the following years in taxes.
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Four New Tax Regulations You Need to Know About
If you have not explored the changes to tax regulations effective for the 2016 tax year, it is a good idea to get up to speed before you complete your return. These changes could significantly affect your refund, or result in you owing the IRS. If these new regulations are set to affect you negatively, seek out additional credits and deductions to help.
Affordable Care Act Penalties
The penalties for not having health insurance are increasing. The maximum penalty is now $2,085, which is the premium cost for the average of Bronze Plans in the federal exchange. Avoiding this penalty would have required you to obtain health insurance coverage by the end of February 2016.
Increased Earned Income Credit
The Earned Income Tax Credit was increased. With three qualifying children, the maximum deduction you can be eligible for is $6,269, which is an increase of $27. Families that qualify with no children can only claim $506 for the credit.
Exemption Changes
The amount claimable for personal exemption increased to $4,050. If you are in the higher income brackets, this exemption is not available to you. The trade-off is that heads of household have been given a slight increase to their standard deduction.
Educator Expense Deduction
Teachers that spend their own money on classroom supplies and educational materials may be eligible for a credit. When the educational facility you work for does not reimburse you for your expenses, you may be able to claim a $250 deduction.
Final Thoughts
Before taxes are filed in 2017, additional changes could come into play. It is important to review the IRS website for new tax regulations, especially for regulations which will affect you directly. Many of these increases can be offset with credits and deductions.
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The Truth about Undocumented Immigrants and Taxes
Every year, the government collects billions of dollars of taxes without knowledge of its origins. In some cases, the taxes were paid by people who got married and did not change their names for tax documents. Roughly, $12 billion annually is paid to state and local governments from illegal immigrants.
Lower Wages
Undocumented immigrants are typically paid lower wages than legal citizens. This reduces how much the illegal immigrants have to pay in income taxes, allowing those workers to send financial aid to family members outside of the U.S. Despite receiving lower wages, undocumented immigrants, on average, pay more income taxes than the highest earners in the country.
Income Taxes
Undocumented immigrants account for roughly 5 percent of the U.S. labor force. Without legitimate social security numbers and photo identification, income taxes are paid, but there are holes in the paper trail as to where the funds came from. About 14 percent of undocumented immigrants work in hard labor positions while another 13 percent work in sales and administrative roles.
Tax Dodgers
A large portion of undocumented immigrants pay income taxes merely because their employer requires it. And a large percentage of undocumented immigrants pay no income tax at all: it is estimated that 50 percent of undocumented immigrants do not pay income tax. Many of these persons are also receiving some kind of government benefit on top of their regular earnings.
Closing Thoughts
Many believe that undocumented immigrants do not pay taxes, but a large portion of them do. Without necessary paperwork, however, if they are due a refund, they may never see it. Reports show that one third of U.S. homes are owned by undocumented immigrants who are required to pay property taxes.
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Three Myths about Taxes
It can be difficult to understand tax language because of its complexity. The complexity of tax language often leads to misinterpretations of tax laws. Believing some of these misinterpretations can lead to mistakes on your tax return. Today we will discuss three common myths which surround taxes and provide clarification so you can avoid making mistakes in the future.
Students are Exempt
If a student earns less than $9,000 in a tax year, they are exempt from paying taxes. While students do not have to start paying back student loans until after graduation, that does not exempt them from paying taxes. Students are still responsible for paying federal and state taxes on all income over $9,000.
Having a Home Office is an Automatic Audit
Having a home office will not necessarily lead to an audit. But is important to review what can be claimed and what counts as a deduction to ensure that you are taking the proper steps for claiming your home office. Your numbers must make sense to the IRS.
Holding Accountants Liable for Mistakes
Accountants are not liable for mistakes on your tax return. You are signing the return and it is your duty to double-check all of the information on your return. If you notice a mistake or believe something is off, it is ideal to question your accountant before allowing your return to be submitted.
In Closing
If you are unsure about a tax law, it is important to research the answer or call a professional. Tax laws can change, so what is law this year may not be next year. Stay up-to-date on the laws that pertain to your tax situation to prevent return rejections and audits.
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How Taxes Have Evolved Over the Years
The history of taxes in the United States began with the protest against British taxation without representation. Tax issues have significantly changed since this time period. However, they have always played a vital part in shaping our country.
Taxes in Colonial Times
The tax issue during colonial times was not about the amount of tax being collected, but whether the British parliament had the right to collect taxes while American colonists were not present in government. The Stamp Act and Tea Act were some of the taxes imposed that led to the Boston Tea Party.
The Start of Tariffs and Income Tax
Tariffs have played various roles in the trade policies and general economic history of the United States. Tariffs remained the largest source of federal income until World War I; after World War I income from tariffs was surpassed by income taxes. Income taxes began in the 19th century in order to help fund the war effort.
Modern Income Tax
Our modern version of the income tax has changed greatly due to different economic events. In 1916 congress readopted income tax; in 1918 top marginal income tax was increased to 77%; and during the Great Depression the marginal tax was increased to 63%. In 1991 the Bush administration made a deal with congress to 31% while the Clinton administration raised the marginal rate to 39.6%.
Conclusion
Taxes have always varied with the changing circumstances of American society. They have evolved and grown, but they have always been used to aid the public. Our economy is forever changing and growing and so are our tax rates.
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Simplifying the Protecting Americans from the Tax Hikes Act into Layman’s Terms
New tax laws are added every year. These things don’t always make the nightly news. Here are a few pieces of information which will help you understand the newly signed Protecting Americans from the Tax Hikes Act.
Tax Credits Extended
Under this new act, tax credits that were scheduled to expire have been extended. Some of these include the deduction school teachers receive for supplies they purchase during the school year. The American Opportunity Tax Credit was extended. The Enhanced Earned Income Credit was also an extended under this act.
Taxpayers can make tax free distributions from their IRA accounts. This applies after the taxpayer has reached the age of 70 ½. Taxpayers can contribute up to $100,000 a year.
Healthcare Provisions Paused
A moratorium was placed on certain parts of the healthcare act. The moratorium was placed on the excise tax associated with certain medical devices and the excise tax associated with certain high cost healthcare plans.
Changes to Individual Taxpayer Identification Numbers
Individual Taxpayer Identification Numbers (ITINS) are issued to people that need to file a tax return but do not qualify for a social security number. Under the old rule, ITINs would expire after they hadn’t been used for five years. What has changed is that if the taxpayer’s number was issued prior to January 1, 2013, the number will expire on a staggered schedule. If the taxpayer’s number was issued after December 31, 2012, the number will expire if it is not used on a return in three years.
Changes in tax laws can be beneficial. Some of these changes will help you get more money when tax time comes. Check with your tax professional or accountant to see how these new rules will affect you during the next tax season.
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