2007 TAX FORM UPDATE

The 2007 Form 1040 and corresponding instructions have been posted online at the IRS website, as are 2007 Schedules A and B, C, C-EZ, D, E, EIC, F, and SE and many of the 2007 forms that relate to the 1040.

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There are only minimal changes to the 2007 Form 1040. On Page 1 Line 23 is now for Educator Expenses, replacing the Archer MSA, and Line 34 is now for the Tuition and Fees deduction, replacing repaid Jury Duty pay. On Page 2 there is some shuffling of the credits on Lines 47 through 53, and Line 71, used last year for the telephone excise tax refund, is now for the refundable prior year minimum tax credit.

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The Schedule A expands Line 5 under the “Taxes” category to include (a) for state and local income taxes and (b) for state and local sales taxes.

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For the most part finished returns are sent to the same addresses as last year. The only exception is that returns are no longer sent to the Philadelphia Service Center. Pennsylvania taxpayers will send their 1040s to Kansas City and Kentucky filers will use the Austin Service Center.

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The 2007 Form 1040 Instruction booklet clarified a question I had concerning a change in the law for retired “public safety officers” that became effective for 2007.

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An eligible retired public safety officer (i.e. law enforcement officer, firefighter, chaplain, or rescue squad or ambulance crew member) can elect to exclude from taxable income up to $3,000.00 in withdrawals from his/her retirement check to pay for the premiums for accident and health insurance coverage for the retiree, spouse and dependents, similar in the way health insurance premiums deducted from an employee’s paycheck can be treated as “pre-tax” under a Section 125 cafeteria plan.

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I was not sure if this election had to be made to the appropriate state Division of Pensions, or if this exclusion would be reflected in the “taxable amount” reported on the Form 1099-R. The instructions indicate that “the amount shown in box 2a of Form 1099-R does not reflect the exclusion”. You make the election on your Form 1040 (or 1040A) by reducing the taxable amount of the pension that is reported on Line 16b (or Line 12b on the 1040A) by the amount of the excluded premiums, up to $3,000.00, and writing “PSO” in the margin next to Line 16b (or Line 12b) on the return.

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Let’s say a retired firefighter receives a fully taxable pension of $12,000.00 in 2007. $275.00 is withheld from each monthly check for health insurance premiums. The taxpayer would report $12,000.00 on Line 16a of his 2007 Form 1040 and $9,000.00 on Line 16b. He would write “PSO” next to Line 16b. While a total of $3,300.00 was withheld from his retirement check for premiums, the exclusion is limited to $3,000.00. If the monthly premium deduction had been $225.00 instead the amount reported on Line 16b would be $9,300.00.

The 2007 New Jersey and New York individual income tax returns have not yet been published online.

The Fall 2007 issue of the New Jersey State Tax News is available to download. The main item of note concerns the federal provision that allows a taxpayer age 70½ or older to transfer up to $100,000 from an IRA to a qualified charity tax-free. The newsletter states, “For New Jersey gross income tax purposes, no similar legislation has been enacted, and there is no change to the New Jersey income tax treatment of distributions from an IRA account that corresponds to the Federal income tax treatment. Any amounts considered taxable income for New Jersey gross income tax purposes received as a distributions from an IRA must be reported as pension and annuity income on the New Jersey income tax return.”

NY has issued a summary of “Personal Income Tax Changes Enacted in 2007”. The only item of interest is the increase in the increase in the New York City school tax refund amounts.

TAFN