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Federal Employees News Digest : March 25, 2013
March 25, 2013 Vol. 62, No. 34 7 Visit us on the Internet at www.FederalDaily.com As they prepare their 2012 income tax returns, federal employees may think that the only type of deductions that reduce their income and their tax liability are itemized deductions. Itemized deduc- tions include real estate taxes, mortgage interest and charitable deductions. But as this week's and next week's columns will discuss, there are deductions and credits available to tax filers who do not itemize. This week's column discusses the deductions categorized as "adjustments to income." Adjustments to income reduce an individual's gross income, which subsequently reduces income subject to tax, as shown in the following: 1. Gross income less adjustments to income equals adjusted gross income (AGI) 2. AGI less personal exemptions less standard deduc- tion (or itemized deductions, if larger) equals taxable income → determines federal income tax liability The following are some adjustments to income potentially avail- able to federal employees: Health Savings Account (HSA) contributions. An HSA is a savings account established exclusively to pay the qualified medical expenses of the account beneficiary or the beneficiary's spouse or dependents. Employees have access to HSAs through the Federal Employees Health Benefits (FEHB) program. To contribute to an HSA, an employee: (1) must be enrolled in a high deductible health plan (HDHP); (2) may not be covered under any non-HDHP health plan through another family member; (3) cannot be enrolled in Medicare; and (4) cannot be claimed as a dependent on another indi- vidual's tax return. Those employees who participate in HSAs have a portion of their FEHB premiums automatically contributed to their HSAs. But employees can contribute additionally to their HSAs. The following table summarizes 2012 HSA contribution limits: Those employees who contributed additionally to their HSAs during 2012 (the deadline for contributing is April 16, 2013) must report their total contributions on Form 8889 with that amount carried over to Form 1040 as an adjustment to income. Traditional IRA contributions. Employees who contributed to their traditional IRAs during 2012 or between Jan. 1 and April 16, 2013, for 2012 (maximum contribution is $5,000 if an employee was born after Dec. 31, 1962, $6,000 if born before Jan. 1, 1963) may be able to deduct their contributions. The contribution deadline is April 16, 2013. But there are AGI limits for being able to deduct one's contributions to a traditional IRA for 2012, as presented in the following table: Moving expenses. Those employees who moved to their federal job from another job or started their first federal job may be able to deduct some of their unreimbursed moving expenses. Deductible moving expenses include the cost of moving household goods and per- sonal effects, travel expenses including lodging for one trip to the new job location made by the employee and members of the employee's house- hold. For moves within the United States, deductible moving expenses include storing and insuring household goods for up to 30 days after the day one moved from their former home and before they are delivered to the new home. To be eligible to deduct moving expenses, an employee must pass two tests; (1) distance test -- the distance between the employee's new job location and their former house must be at least 50 miles more than the distance between their old job location and their former house; and (2) time test -- employees must work full-time in the new job for at least 39 weeks in the 12 months following arrival. Moving expenses can be useful particularly for employees who started federal service during 2012 after graduating from a college or university located more than 50 miles from the location of their federal job. Student loan interest deduction. Employees can deduct up to $2,500 of interest paid on qualified education loans used to pay col- lege or vocational school expenses. The deduction is for interest paid on qualifying loans of the employee, the employee's spouse, or the employee's dependent. Interest paid during 2012 is reported on Form 1098-E. The deduction is also subject to modified AGI limitations. Alimony. Alimony payments are deductible by the payer and included in income by the recipient. Only payments that meet certain requirements qualify as alimony for tax purposes. The most impor- tant requirements are: (1) payments must be in cash; (2) payments must be required by a decree or written separation instrument; (3) the former spouses may not be members of the same household; and (4) payments may not be designated as child support. For additional information about adjustments to income, employees should check the IRS website www.irs.gov or contact a tax professional. Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in Silver Spring, MD. He is also a registered representative with FSC Securities Corporation, branch address: 833 Bromley St. - Suite A, Silver Spring, MD 20902. Phone: (301) 681-1652. Securities offered through FSC Securities Corporation,member FINRA/SIPC. EZ Accounting and Financial Services and FSC are independent companies. Informed Investor Consider adjustments to income to reduce tax liability Type of Coverage Under age 55 additional contributions age 55 or older as of 12/31/12 Self Only $3,100 $1,000 Self and Family $6,250 $1,000 Filing Status No Deduction if Modified AGI1 Exceeds… Single or Head of Household $68,000 Married Filing Jointly (spouse participates in a pension plan) $112,000 Married Filing Jointly (spouse does not participate in a pension plan) $183,000 Married Filing Separately $10,000 1Modified AGI is AGI before the IRA deduction plus student loan interest deduction plus tuition and fees deduction plus foreign earned income exclusion
March 18, 2013
April 1, 2013