Tax Time 1994

Tax Packages

The Internal Revenue Service will send over 108 million income tax packages this year. Most taxpayers will get their forms in early January. IRS expects to receive more than 117 million tax returns in 1994, with continued growth in such alternatives as the 1040PC format and electronic filing and a decline in the "long" form 1040:

         Type of Filing               1993             1994

         1040PC Format                 4.8m             6.1m
         Electronic Filing/TeleFile   12.5m            14.6m
         Form 1040EZ                  16.6m            18.6m
         Form 1040A                   20.2m            19.0m
         Form 1040                    60.6m            59.2m

In December 1993, the IRS expanded its postcard system, with over 22 million mailings to farmer, fishers, self-employed persons and other taxpayers who used a paid preparer last year. The postcard includes a pre-printed label and a payment voucher. Taxpayers who want to prepare their own forms may request a package of forms and instructions from the IRS. Those using paid preparers should give the labels and vouchers to their preparers for use with the taxpayers' returns. Since preparers seldom use IRS-printed forms, this postcard program saved the public $1.4 million in printing and distribution costs last year, when 11 million postcards were sent.

About 3 million Form 1040 filers will get a tax package that includes a payment voucher. If they have a balance due, they should follow the instructions on mailing their payments with the vouchers. The IRS expects such vouchers to increase accuracy and efficiency when crediting payments to taxpayers' accounts.

The printing bill for the tax packages is $14.6 million, with postage costing another $19.9 million. This works out to an average 32 cents for each package.

Additional forms and publications are available by calling 1-800-829-3676, Monday through Saturday.

What's New for '93?

• Married couples can use easier form. About 2.5 million couples with taxable incomes under $50,000 and without dependents can now use the easiest tax form--Form 1040EZ. In the past, only single persons could use this form.

• Presidential election campaign fund check-off increase. The amount of the contribution has increased from $1 to $3. Checking "yes" for a contribution to this fund will not reduce your refund or increase your tax.

• Business vehicle information. Five million self-employed taxpayers will no longer need to complete Form 5462, Depreciation and Amortization, to report information on business vehicles. Taxpayers who do not need this form for any other reason can simply report the vehicle information directly on Schedule C, Profit or Loss from Business, for vehicles which the standard mileage rate is being used, leased vehicles and fully-depreciated vehicles.

• Capital gains and loss form. Taxpayers subject only to the ten percent early distributions tax on amounts received from IRAs and certain retirement plans before age 59-1/2 may no longer have to file Form 5329, Additional Taxes Attributable to Qualified Retirement Plans, but will merely put the tax amount on Form 1040.

• Standard Forms W-2. All 1993 Forms W-2 should look alike. The first two boxes will contain wage and income tax withholding information. In the past, taxpayers could receive W-2s from different employers that had key information in different places on the forms. Now taxpayers should be able to find the information needed in the same spot on the form--all the time.

Inflation Adjustments for 1993

The filing requirements, personal exemption, standard deduction and earned income credit amounts are adjusted each year for inflation. This year all of these amounts have increased.

• The 1993 filing requirements are:

          Single                     $6,050
          Head of household          $7,800
          Married filing joint       $10,900
          Married filing separately  $2,350
          Qualifying widow(er)       $8,550

Different amounts apply if the taxpayers or spouse is age 65 or older, or if the taxpayer can be claimed as dependent on someone else's return.

• Personal exemption amount for 1993 is $2,350--$50 more than last year. Higher income taxpayers may have to reduce the personal exemption amount they claim their adjusted gross income exceeds:

          Single                              $108,450
          Head of Household                   $135,600
          Married filing jointly or
               Qualifying widow(er)           $162,700
          Married filing separately            $81,350

This is a worksheet in the tax package for these taxpayers to figure their personal exemption amount.

• The increase standard deduction amounts for 1993 are:

          Single                               $3,700
          Head of Household                    $5,450
          Married filing jointly or
               Qualifying widow(er)            $6,200
          Married filing separately            $3,100

Different amounts apply if the taxpayer or spouse is age 65 or older, is blind, or if the taxpayer can be claimed as a dependent on someone else's return.

• The earned income credit dollar limits have increased. Earned income (including nontaxable earnings) and adjusted gross income must each be less than $23,050. The maximum credit has increased to $2,364, up from $2,211.

Tax Law Changes

• Higher tax rates for some taxpayers. New law imposes a higher tax rate on high income taxpayers. These higher tax rates should affect less than two percent of all taxpayers. The new top rates apply for taxable incomes above:

        Filing Status                     36%           39.6%
        Single                         $115,000       $250,000
        Head of Household               127,500        250,000
        Married, joint return           140,000        250,000
        Married, separate returns        70,000        125,000

Deferred payments for taxpayers affected by increased tax rates. Taxpayers affected by the increased tax rates may choose to defer part of their 1993 tax. These taxpayers will use the new Form 8841, Deferral of Additional 1993 Taxes, to determine the amount of tax they can deter until 1995 and 1996.
• Self-Employed health insurance deduction. As many as 3 million taxpayers can claim the self-employed health insurance deduction for 1993. The deduction had previously expired for premiums paid after June 30, 1992, but Congress reinstated the deduction retroactive to July 1, 1992.
• Travel Expenses. Travel expenses paid or incurred after 1992 in connection with your employment away from home and not deductible if that period of employment exceeds one year.
• Electric vehicle credit and clean fuel deduction. Owners of new electric vehicle placed in service after June 30, 1993, may be eligible for a credit of up to $4,000 per vehicle. Use new form 8834, Qualified Electric Vehicle Credit, to claim the credit. Owners of new vehicles that use a clean-burning fuel--or a vehicle converted to operate on a clean-burning fuel--may be eligible for a tax deduction of up to $2,000.
• Depreciation: Section 179 expensing--Section 179 of the tax code allows taxpayers to elect to deduct all or a part of the cost of business property in the year they place the property in service instead of over several years. For 1993, the section 179 amount has increased from $10,000 to $17,500 for property placed in service for tax years beginning after 1992.

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