The 2015 tax season brings about a variety of changes for every consumer. From the new healthcare law and required payments for penalties to adjusted calculations for different tax brackets, you might be surprised at how much of a refund you get or how much you have to pay.
Personal credit-related issues might affect your tax situation as well. Whether you currently owe money to the IRS for a past due tax bill, need to pay off a defaulted student loan or simply want to consolidate your credit card debt with your refund, unforeseen factors can lighten your refund to the point where you won't see any of it.
The following top things to know about taxes will help you set a concrete plan for your refund or help you negotiate payment terms with the IRS if you owe them money:
Important Changes You Need to Know
The tax code is changed every year. This means that, even if you received thousands of dollars back from Uncle Sam last year, don't expect for the same type of refund this year. You might even end up owing money to the government if any of the changes affected you.
The following are some of the most basic changes that took place for the 2015 tax season:
- Standard Deductions- The standard deductions rose for both single taxpayers and couples. For single individuals, the deduction rose from $6,100 to $6,200 while married couples filing jointly now have a standard deduction of $12,400 which is an increase from the 2013 amount of $12,200.
- The Maximum Earned Income Credit- The maximum Earned Income Credit for those who have three children who qualify is now $6,143, an increase from $6,033 in 2013.
- The Affordable Care Act- The new healthcare laws that took effect last year might affect your refund amount. If you had qualifying healthcare coverage during 2014, you won't be responsible for the "Individual Shared Responsibility Payment"(also known as the penalty payment for not maintaining healthcare coverage). The dollar amount you are responsible for depends on your income, and is either a percentage of your income or a fixed amount set by the federal government. While you likely won't have to pay the penalty in cash, the total amount of your penalty will be calculated as part of your income taxes.
Related Article: 4 Reasons to File Your Taxes Now
In Most Cases, The Outcome of Your Taxes is Determined By Your Withholding Amount From Each Paycheck
When you get right down to the bare bones of taxes, if you don't have a lot of itemized deductions that add up to more than the standard deduction, the amount of your return you receive or the amount of taxes you owe will largely depend on the paperwork you filled out for your employer.
If you want to receive a large refund at the end of the year, ask your employer about what options are available for additional withholding. If you want a bigger paycheck each week, expect to receive little to no refund or pay income tax to the federal government when April comes around.
Who Can Garnish Your Tax Refund?
If you have delinquent debts from either the federal government or any other government-related creditor, they may try to garnish your tax refund.
The following are some examples of creditors who can take your refund in April:
- The Internal Revenue Service - If you owe money to the IRS from previous tax years, they will take their portion from your refund first before other creditors can collect on their debts. If no other creditor has garnished your wages, you will receive the remaining amount as your tax refund.
- The Treasury Offset Program - Also known as the TOP, this program allows any other state, federal or local agency to collect the money owed to them from previous debts. Some common examples include child support payments, student loans and other federal loans that are delinquent.
- Other Miscellaneous Government Debts - Other various debts you owe to various government agencies will likely be taken from your tax refund. Whether you owe money for unemployment payback plans or have a delinquent business loan from the government, they will likely request to garnish your tax refund.
How To Challenge Your Tax Refund Offset
If you've been trying to repair your credit for awhile and are confident that you've already paid a debt that the government is still trying to collect, or you've been a victim of identity theft, there are ways you can challenge the tax refund offset.
The most popular challenges for tax refund garnishment include the following situations:
- You filed for bankruptcy and the case is still pending.
- The loan is not valid for a variety of reasons, including fraud and forgery.
- A "false certification discharge" or "closed school discharge" are two potential issues because your school failed to meet specific standards for operation or they lied about their certification.
- The original borrower is either totally disabled or deceased
If you want to challenge an offset and want the offset to be on hold while you challenge it, you must contact the Internal Revenue Service to begin the process. You must contact them within 65 days of receiving the offset notice. You must write them an official letter requesting to put the garnishment on hold to the address listed on the notice. You can also first request to see the loan file, but must do so within 20 days of receiving the notice. After you have requested to see the loan file, you only have 15 days to request the offset hold.
In order to officially appeal the offset, you must contact the Department of Education directly by writing them a letter or requesting a hearing online through the My Ed Debt system.
Using Your Refund to Consolidate Your Credit Card Bills
If you are expecting to receive a refund this year and are still trying to repair your credit, you can use your refund to pay off credit card debts or any past due credit accounts.
The average tax refund during tax season in 2014 was roughly $3,100. While this will take care of much of your credit card debt, it might not take care of any other loans on your file.
The following tips will help you choose which credit lines to consolidate and pay off with your tax refund:
- Pay Delinquent Debts First- If you have any credit cards or other debts that are still open but past due, pay them off first. Doing so might save those credit lines from being permanently closed and sent to collections.
- Pay Down High Balances- One of the easiest ways to increase your credit score is to pay down your credit card balances to under 30 percent of the total available credit on your report.
- Sub Prime and High Interest Credit Cards- If you have both high interest and sub prime credit cards on your profile, pay off the cards that charge you the highest annual fee. These are likely cards that you first opened when you began the credit rebuilding process, but might not be useful anymore. While they may have an impact on your credit score if the credit line was your oldest revolving account, the temporary credit score dip will be nothing compared to the savings you experience when you close the account.
