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 )  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) Column (B) You Spouse/RDP 1. Medical and dental expenses for each qualifying taxpayer.1.___________ 1.___________ 2. Total medical and dental expenses (Schedule A, line 1)2.___________ 2.___________ 3. Divide line 1 by line 2 and round to three decimal places.3.___________ 3.___________ 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.4.___________ 4.___________ 5. Multiply line 3 by line 4 and round to whole dollars.5.___________ 5.___________ 6. Maximum allowable medical subtraction from the table ($1,800 max).6.___________ 6.___________ 7. Enter the lesser of line 5 or line 6. 7.___________ 7.___________ 8. Add line 7, columns (A) and (B), and enter the total. This is your special Oregon medical subtraction. 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 They are self-employed and claimed $3,400 for self-employed health insurance premiums on line 29 of their federal Form 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: Column AColumn B Kenneth Sophia 1. Medical and dental expenses for each qualifying taxpayer.1. $ 1,2001. $ 7, Total medical and dental expenses (Schedule A, line 1).2. $ 8,9002. $ 8, Divide line 1 by line 2 and round to three decimal places 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.4. $5,8504. $5, Multiply line 3 by line 4 and round to whole dollars.5. $ $5, Maximum allowable medical subtraction from the table ($1,800 max).6. $1,4006. $1, Enter the lesser of line 5 or line 6.7. $ $1, Add line 7, columns (A) and (B), and enter the total. This is your special Oregon medical subtraction.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 – 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 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

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