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Life Events That Can Impact Your Taxes

 

Life Events That Can Impact Your Taxes

by Carol Wise

A change in life circumstances, whether good or bad, can affect your tax return.

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Here are some instances where you will need to reevaluate your tax situation:

Job Changes

If you lose your job, you should be aware that unemployment compensation is considered taxable income. If you have collected unemployment compensation, you will receive Form 1099-G showing the amount you were paid and any Federal income tax you elected to have withheld. These amounts should be reported on your income tax return when you file.

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If you retire on disability income, you must include as ‘income’ any disability pension you receive under a plan paid for by your employer. You must report your taxable disability payments as ‘wages’ on Line 7 of Form 1040 (or Form 1040A) until you reach minimum retirement age. Minimum retirement age is generally the age at which you can first receive a pension or annuity if you are not disabled.

Beginning on the day after you reach minimum retirement age, the payments you receive are taxable as a pension or annuity, and you must report these payments on Lines 16a and 16b of Form 1040 (or Lines 12a and 12b of Form 1040A).

If you were permanently and totally disabled at the time you retired, you may be entitled to a tax credit. You should review IRS Publication 524 (Credit for the Elderly or the Disabled) to determine whether you are eligible. Generally, you can qualify for this tax credit if you are age 65 or older at the end of the tax year; or if you are under age 65 but retired on permanent/total disability and have taxable disability income. For tax purposes, you are considered to be age 65 on the day before your 65th birthday. If you are married, you and your spouse must file a joint tax return in order to claim this credit. If you and your spouse did not live in the same household at any time during the tax year, you can file either a joint return or separate returns and still claim the credit.

Natural Disasters

In regions where there has been a recent disaster, the IRS may offer delayed tax deadlines or other forms of tax relief. For specific information about such relief, it is best to check the IRS website for Tax Relief in Disaster Situations. Do not rely only on well-intentioned word-of-mouth from friends or family.

Health Insurance

If you purchased health insurance coverage through the Health Insurance Marketplace, you must report to the Marketplace any changes that may affect your eligibility for the Premium Tax Credit. Some of the changes that must be reported include the following:

• Increase or decrease in your household income
• Marriage or divorce
• Birth or adoption of a child
• Starting a job that provides health insurance
• Gaining or losing your eligibility for other health care coverage
• Changing your residence

New Child

The birth or adoption of a child can be a joyous but chaotic occasion. You may be so busy that you forget to research the changes to your tax status. Most parents are eligible for the Child Tax Credit, which is worth up to $1,000 per qualifying child. This credit can be claimed in addition to the Child and Dependent Care Tax Credit (Line 49 of Form 1040) and the Earned Income Tax Credit (Line 66a of Form 1040) if you qualify. Note that the child must be a U.S. citizen, U.S. national, or U.S. resident alien — you cannot claim the Child Tax Credit for a child in another country who does not meet the criteria.

In the case of adoption, you may qualify for the Adoption Tax Credit or be eligible for an exclusion for adoption assistance provided by your employer. You can find more information about the adoption credit and exclusion under IRS Topic 607.

Death of a Family Member

For a deceased taxpayer, the individual’s personal representative — generally, the person appointed by a court to handle the decedent’s property — is responsible for filing his or her final tax return and any returns for the estate. Typically, the individual tax return covers the period from January 1 to the date of death, and any income, deductions, and credits are reported on a fiduciary income tax return for the decedent’s estate. For tax purposes, the estate terminates upon final distribution of the decedent’s property. For more information, refer to IRS Publication 559 (Survivors, Executors and Administrators).