Social Security Benefits

Social Security Benefits

by | May 29, 2017 | Tax Planning

Social Security Benefits

Being a US resident or citizen, you must be aware of Social Security benefits provided by the State. Every employed individual, throughout his working career, contributes to the Social Security system also called the Old Age, Survivors and Disability Insurance Program (OASDI). This contribution accumulates into a corpus from which Social Security Benefits are paid put after retirement or permanent disability.

There are, basically, four different types of Social Security Benefits you can avail.

The rate of these benefits would depend on your earnings. The benefits are as follows:

  • Retirement benefit – if you have been employed at a non-governmental organization for a minimum period of 10 years, you are entitled to this retirement benefit when you retire. The benefit is available if you retire any time after attaining 62 years of age. However, if you retire post 65 years and then claim the benefits, you would be paid higher.
  • Disability benefit – if you are not nearing your retirement age but suffer permanent disability, you can claim this benefit. The disability benefit would be about the same as retirement benefit.
  • Survivors benefit – if you are the spouse of a disabled or a retired worker who qualified to get the disability or retirement benefit but is dead, you can avail the survivor benefit. Your minor and/or disabled children also qualify to get the survivor’s benefit. The amount of benefit would depend on your dead spouse’s earnings over the years.
  • Dependents benefit – if you are the spouse of a disabled or a retired worker who is alive and qualifies to get the disability or retirement benefit, you qualify to avail the dependents benefit whether you actually depend on your spouse or not. Your minor and/or disabled children also qualify for this benefit.

Taxability of Social Security Benefits

The taxability of your Social Security Benefits would solely depend on your filing status and your combined income from all sources. If you have income from other sources and your total income, (including Social Security Benefits) crosses a pre-defined limit, a portion of your Social Security Benefits would be taxable. This pre-defined limit is called the base amount and it depends on your filing status. The amounts are:

Filing Status Single Married Filing Jointly Married Filing Separately Head of Household Qualified widow/widower with Dependent Child
Base Amount
$25,000 $32,000 $25,000. However, if the couple lived together during the year, the base amount is Nil. $25,000 $25,000

To find whether your Social Security Benefits are taxable or not, you should take half of your social security income and add it to all other incomes. The total figure should then be compared against the above-mentioned base amounts.

If the figure is higher than the base amount, your Social Security benefit might be taxable.

To calculate the taxability you can follow the Form 1040 instructions when you file your tax. There is a worksheet in Form 1040 and Form 1040A which can be used for the same.

Whether your Social Security Benefits are taxable or not you should disclose it when you file a claim. Form 1099-SSA shows the total amount of Social Security Benefit you receive in a year. When you are filing your tax return in Form 1040, line 20a is meant for entering your Social Security Benefit amount. If you file Form 1040A the corresponding line is 11a.

Social Security Benefits help you when your source of income stops on retirement or disability.

They also provide benefits for your spouse and children. Most of the time, these benefits are not taxable if they are below a certain limit. However, you have a legal responsibility of displaying your Social Security Benefit irrespective of whether

Health Savings Account Deductions

Health Savings Account Deductions

by | May 29, 2017 | News and Social

Health Savings Account Deductions

Planning for healthcare costs is very important considering the high cost of medical treatments. As such it becomes imperative to opt for health insurance plans which cover the medical costs whenever they incur. However, health insurance plans have deductibles and if you have a High Deductible Health Plan (HDHP) your pockets would bear a very heavy burden. To combat these High Deductible Health Plans, a Health Savings Account comes to our rescue.

What is a Health Savings Account?

A Health Savings Account is like a tax-free savings account where you and your employer can contribute money. This money can then be used to pay such qualifying medical expenses which are excluded by your health insurance plan.

What are the features of a Health Savings Account (HSA)?

The account has various features which are as follows:

  • You can set up the Health Savings Account with a qualified HSA trustee.
  • You should have a HDHP to qualify for the HSA.
  • Contributions to the HSA can be made by you, your employer, or both. If your HDHP covers only you, the maximum annual contributions to the HSA account would be limited to $3400. If your family is also covered by your health plan, the annual contribution limit goes up to $6750. Individuals above 55 years of age can contribute an additional $1000 in excess of this limit. If you or your employer’s total contributions exceed the specified limits, a penalty of 6% would be levied.
  • The contributions made to the HSA, by you or by your employer, are tax-free. They are deducted in the ‘adjustments to income’ section on the Income Tax Form 1040.
  • If your HSA earns any interest, such interest is also tax-free.

The balance in the HSA should be used only to pay qualifying medical expenses. If the HSA is used for paying non-qualifying medical expenses a penalty of 20% would be charged. This penalty, however, would not be applicable if the individual is more than 65 years old, becomes disabled or dies.

If the money in the HSA is not utilized in any financial year, it is rolled over to the next year. This carries on every year and the cumulative balance also earns interest.

How to file HSA deductions?

Since HSA contributions qualify for tax exemptions, they can be availed as deductions. For your employer’s contributions it would be listed in box 12 of the Form W-2. Your total HSA contributions should be recorded in Form 8889 and the form should be attached to your Form 1040, i.e. your Income Tax Return and then you should file your taxes.

All you Need to Know About ITIN

All you Need to Know About ITIN

by | May 28, 2017 | Tax Planning, Tax Preparation

All you Need to Know About ITIN

Taxation, or the levying of tax is an important part of every nation’s economic scenario as it is one of the major sources of revenue for a Government. While salaried individuals get their salaries after deduction of the relevant tax, self-employed individuals have to file their tax returns themselves. US is a racially diverse country where individuals of various nationalities co-exist. While majority of US citizens qualify for a Social Security Number, many, who are either dependent spouse of US citizens or non-residents, are not eligible to avail the Social Security Number (SSN). When such individuals, who do not have a SSN, have federal tax filing requirements, they require an Individual Taxpayer Identification Number (ITIN) for the same. So, what is an ITIN?

As is evident from the name, ITIN is a number which is allotted to individuals who wish to file their taxes with the US Government.

This number is unique and is issued by the Internal Revenue Service (IRS).

The number acts as the taxpayer’s identification number and is a 9-digit number starting with 9. Who can avail an ITIN?

The Individual Taxpayer Identification number is issued to individuals who are not qualified to obtain a Social Security Number but have to report their taxes. The individuals who are eligible to avail an ITIN are:

  • The spouse or dependent of a US citizen or US resident who is a citizen of another country.
  • The spouse or dependent of a non-resident US Visa holder
  • A non-resident who has a source of income in US and thus has to file taxes in US
  • Other US citizens who are not qualified to avail a SSN but have to file their taxes in the US

Spouses and dependents of US citizens, residents or non-residents need an ITIN for being named as a dependent in the taxpayer’s tax returns.

So, individuals not having a SSN who are required to file their taxes have to avail an ITIN for the purpose of tax filing and processing. SSN and ITIN are mutually exclusive. An individual having a SSN cannot have an ITIN and vice-versa.

How to avail an ITIN?

The Internal revenue Service (IRS) is the authority which issues the unique ITIN to every individual.

For applying and availing an ITIN, individuals can either apply directly to the IRS or through the Certified Accepted Agents (CAAs) who are authorized to process the applications for issuing the ITIN.

The application form (W-7) is available online which should be downloaded and duly filled. The hard copy of the form, a valid Passport and other relevant documents are to be mailed to IRS for availing the ITIN. If the form is sent directly to the IRS, the original supporting documents are required to be mailed along with the form. However, if one is engaging the services of any CAA, the form and copies of the supporting documents would suffice. After processing, the ITIN is sent through mail within 7 weeks.

Limitations of an ITIN

Though the ITIN is required for filing tax, there are certain limitations associated with it which are as follows:

  • The Earned Income Tax Credit cannot be claimed using an ITIN as it requires a valid SSN.
  • The holder of an ITIN cannot avail a SSN.
  • The ITIN is solely for the purpose of federal tax filing and cannot be used elsewhere.
  • The ITIN could not authorize the individual to work in the US.

Benefits of ITIN

Despite its limitations, ITIN also has some benefits which are enumerated below:

  • For claiming a tax refund, the ITIN is required
  • To name any family member as a dependent in the taxpayer’s returns, the member’s ITIN is required.
  • It is a legal requirement for tax-filing for individuals not having a SSN.

Validity of an ITIN

As per changed laws and regulations,

the Individual Taxpayer Identification Number (ITIN) is valid for 5 years after it is issued.

ITINs issued before 2013 would expire in 2016 and individuals who wish to file their taxes in 2017 would have to renew the same. Furthermore, ITINs on which no tax filing has been done in the last 3 years would also become invalid and need renewal to file taxes in the next year.

So, an ITIN is an important requirement for every individual filing tax in the US who does not have a SSN. Now you know all about the ITIN and the next time you have to file your taxes, you would know exactly what would be required.