Changing tax environment across the nation poses new challenges and opportunities

March 10, 2016 : H&R Block

Taxes are supposed to be one of the only things in life that are certain, but taxes change every year. When something changes on a state return, it can sometimes fly under the radar, leading taxpayers to make mistakes and leave money on the table. This year, changes in some states could even delay taxpayers’ refunds if they don’t comply with new state requirements. Taxpayers across the nation should pay attention to new anti-fraud measures and see if they can claim one of the new tax benefits ranging from tax credits for lower-income workers or for certain local and county taxes.

33 states implement new anti-fraud measures

Stolen tax identify refund fraud is a million dollar business – for the fraudsters. In 2013, the last year of available statistics, the IRS identified 5.1 million potential fraudulent returns. That same year the IRS paid out more than $5.8 billion in fraudulent refunds.

In an effort to reduce fraud risk, some states have increased their review processes to validate returns. This can result in delayed refunds, and some states may not start distributing refunds until March 1 or later. Many states have requested taxpayers provide their driver’s license or state-issued ID when filing as an additional form of identification. And before issuing a refund, some states may send a letter to the taxpayer asking them to verify their return online or by submitting documentation. Finally, taxpayers may receive their refund in the form of a paper check, even if they elected to receive their refund via direct deposit.

Married same-sex couples now married for federal and all state returns

Because of the Obergefell Supreme Court decision last summer, for the first year, married same-sex couples in all states must use a married filing status when completing their federal and state tax returns.

New tax rates may come into effect because the couples will be combining income, which will really hit home if there is a large discrepancy in incomes. Generally, the larger the discrepancy, the greater the overall tax benefit.

In addition to new tax rates, same-sex couples may now jointly claim many tax deductions and credits: dependent care, child tax credits and more. However, the fact that the couple now must combine income or file separately could mean phasing out of or becoming ineligible for some of these tax benefits.

New state tax benefits increase refunds, chances of leaving money on the table

Residents of states from the West Coast to the Midwest to the East Coast may be eligible for new tax benefits this year. With new Earned Income Tax Credits available in California and Colorado, lower-income working taxpayers could get a credit of up to $624 in Colorado or $2,653 in California.

Taxpayers in IowaKansas and Maryland not only could have a new tax benefit for 2015, but they may also be able to amend tax returns since 2012 to claim the benefit. Because of the Supreme Court’s decision in Wynne v. Maryland, taxpayers living in these states and working in other states, counties or municipalities could be due a tax refund for taxes paid to the city or county where they work.

The Wynne decision could mean hundreds of dollars in refunds for affected taxpayers over the past three years of returns. It could be well worth the effort of pulling out those old tax files and talking to a tax professional to help taxpayers get their money back.

Taxpayers can learn more about changes to their state taxes from their state’s department of revenue or by talking to a tax professional. A qualified tax professional can help taxpayers understand any changes and make sure they get the maximum refund they deserve.

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