It’s Your Money: 5 things to know about your taxes this year

NEWS: The Trump administration is laying off between 6,000-7,000 Internal Revenue Service employees just as 160 million Americans are filing their taxes before the April 15 deadline. Additionally, sensitive taxpayer information may be at risk if IRS information is being accessed by people who shouldn’t have access.

WHAT IT MEANS TO YOU: Can you still just file your taxes and hope for the best? Is everything working the way it should? Yes…and no.

1. Filing electronically is the best way to get your return quickly.

Staffing changes at the IRS should not have an impact on the computer systems that process electronic returns and send direct deposit payments, the IRS has assured taxpayers. Tax analysts largely agree. For now at least. The key to getting your payment, if you haven’t filed yet, is to make sure your return is complete and accurate. File electronically and get paid by direct deposit.

Delays will come for those whose return is incomplete or has to be handled by a human, rather than a machine. It generally takes about three weeks to get your return after filing, but anyone who’s done it knows that the longer you wait, the longer it takes when things are going well. It’s not clear what the impact of thousands of employees being fired will be, but the general belief is it will be disruptive throughout the agency at its busiest time of year.

If you file a return by snail mail, it could be delayed longer than it would have in previous years. All those returns are processed by hand, and there are fewer hands to do that with the layoffs.

2. Free filing through the IRS is still available, despite rumors to the contrary.

One of the rumors flying around in the past few weeks is that the Trump administration has scrapped the IRS’s year-old free Direct File online tax filing and/or it’s older Free File systems. That’s not true. At least for now. You can file your taxes, for free, online, through the IRS avoiding the fees that often come with using other electronic filing services.

IRS Direct File was launched as a pilot last year in 12 states, including New Hampshire. If you have a fairly simple tax return and live in one of the 25 states where it’s available (still includes New Hampshire!), then you likely can use it. It’s different from IRS Free File in that the income limit is higher and it’s also using the IRS’s own guided software, not that of a private tax company.

New this year, it imports your W-2s and other tax documents in most cases, so you don’t have to type that information in yourself.

When IRS Direct File launched, it had no income limit, but one was set for this year. You can’t use it if your wages are more than $200,000 ($168,600 if you had more than one employer; married filing jointly and your spouse’s wages are more than $200,000 ($168,600 if your spouse had more than one employer); married filing jointly and your combined wages are more than $250,000; married file separately and your wages are more than $125,000.

There are other things, too, that make a filer ineligible. If you have unreported cash income, including tips or alimony, or are self-employed or a contract worker, even if it’s only a portion of your income, you’re not eligible. If you get a 1099-R for a pension, use a medical savings account (MSA, not HSA, which qualifies), have 401(k) disbursements, qualify for certain credits, and some other things, it’s not set up to process those. Check the IRS’s easy to navigate guidelines to see if you qualify. It’s also available in Spanish. At least for now.

The IRS website says that some of these things will change, and eligibility will become more flexible “in March 2025.” If you want to wait a few days, or however long it takes, to see if that happens, keep in mind the longer you wait to file, the longer it’ll take to get your return.

IRS Free File, has been around a while, but few taxpayers are aware of. You must have an adjusted gross income level (for 2024 taxes, the ones you are filing by April 15, 2025) below $84,000 to use it. Adjusted gross income (AGI) is total income – wages, dividends, capital gains, business and retirement income, tips, etc. – minus adjustments (self-employment tax adjustment, retirement account contributions, student loan interest, etc.). It is calculated before the standardized deduction or itemized deductions, which aren’t included in AGI.

IRS Free File doesn’t use IRS software. Instead, the IRS partners with several tax preparation software companies that provide the guided tax preparation software everyone’s familiar with. Check their qualifications and requirements before choosing one. If they go beyond just the IRS’s income cap, you’ll get charged.

The IRS Free File webpage has a link that allows taxpayers to check out the “offers” from the software companies to find if one is a good fit. Some of them offer free state tax preparation as well, which for most New Hampshire residents isn’t an issue. But you do earn income from a state that has a state income tax, keep that in mind.

MilTax is a free online tax filing service through the U.S. Department of Defense for eligible members of the military, veterans and surviving family members. Like IRS Free File, it connects filers with private online tax services, that partner with the program. Unlike the IRS programs, it also allows up to three state tax returns. There are eligibility rules, so check out the site if you’re considering it.

Why, you may wonder, is using the IRS’s system better than just one of the many online services that say they offer free filing?

The Federal Trade Commission determined last year that the majority of people who file their taxes using private online tax services end up paying a fee. The IRS Direct File program was launched, in part, because Turbo Tax, which had agreed to be part of the Free File program, was making it virtually impossible for people who qualified to find it or even know about it. Turbo Tax had to pay a $141 million settlement in 2022 for charging customers who would normally be eligible for the IRS Free File option. The IRS Free File option is open to any taxpayer who meets the income threshold, despite complications in their tax return.

Paper forms or IRS Free Fillable Forms. You fill the forms out yourself and do the math, old-school. The online fillable forms are quicker than scaring up paper forms, but they don’t offer any more guidance, or help with the math. I’m old enough to remember when we went down to the post office, got the 1040 or 1040-EZ out of the rack, went home, filled it out and dropped it in the mail. You can still do that, and it’s always free. In 1985, I didn’t get my return until July. I remember, because I was watching Live Aid (Google it) on TV when my return check arrived in the mail. Back then you had no way to check on the status of your return. You just waited. Things have gotten quicker for paper filers since then, including the fact that you can download forms from the IRS website, but some of the folks who are being fired are the ones who’d process paper returns, so it’s expected to slow down a lot as the firings and tax season continue.

3. Standard deduction, brackets and credits.

The standard deduction for your 2024 taxes (which you are filing by April 15, 2025) is $14,600 for a single filer; $29,200 for married filing jointly, $21,900 for head of household. Most taxpayers take the standard deduction, because itemizing deductions won’t come close to that amount.

If you’re over 65, or any age but legally blind, and filing singly or as head of household, your can add $1,950 to your standard deduction; married filing jointly (if both are over 65) add $1,550 each.

You can also claim $1,300 for a dependent, or $450 and the individual’s earned income, whichever is higher.

Tax brackets have been inflation-adjusted, with the amounts rising, so if you were close to minimum in a bracket, you may be in a lower-tax one this year.

The initial child tax credit is $2,000, the same as last year, but credit for additional children is $1,700, up $100 from last year. The initial credit begins to phase out when income reaches $200,000 ($400,000 for married filing jointly). Children must be 17 or younger on Dec. 31, 2024, to qualify.

A tax credit reduces the amount of taxes you owe; a deduction reduces the income you’re taxed on. So, if you were to get a $2,000 CTC, and you owed $5,000 in taxes, it would reduce what you owe in taxes to $3,000. If it were a deduction, it would reduce the income you’re taxed on by $3,000.

4. Earned Income Tax Credit caps increase; low-income taxpayers will still get screwed

You can claim the earned income tax credit if your AGI is less than $18,591 if you’re filing single, or $25,511 if you’re married filing jointly with no children. The allowed income rises with each child to $59,899 single with three kids; $66,819 married filing jointly with three kids.

The EITC is a way to help low-to-moderate-income taxpayers get a break. Certain income, like Social Security, unemployment, alimony, child support, pensions, and a couple other types of income don’t count. Only what you earn is included in the limit.

This year the credit ranges from $632 for single filers with no kids to $7,830 for married filing jointly with three kids.

As many as 20% of those who are eligible for it don’t claim their EITC. Another interesting thing about it is that those who do are audited at 5.5 times the rate of the rest of the population, according to the Bipartisan Policy Center. This is because errors, like claiming a child who doesn’t qualify or calculating qualifying income wrong, are easy for IRS software to catch. The types of things wealthy taxpayers are audited for are more complicated. If the IRS software detects an error in the taxes of someone who claims the EITC, the taxpayer is mailed a certified letter asking that they fix the issues and document it. The IRS holds the EITC money until the taxpayer responds and straightens it out. Many who are audited in this way never get whatever the issue is on their return right, or they don’t respond at all. So, they lose the credit.

The audits have a significant impact on Black taxpayers, who are more likely to claim the EITC, according to the BPC.

The IRS was trying to turn around this inequity as it added staff and updated software under the 2022 Inflation Reduction Act, but the latest administration’s cuts are going to likely put it back where it was. EITC audits are largely automated and take an average of five hours according to the BPC. Auditing the complicated taxes of someone with money often requires a caseworker, in-depth investigation and can take years. Americans for Tax Fairness found that audits of millionaires dropped 92% over the past decade as IRS cuts increased, but audits low-income Americans have risen sharply.

Tax advocates point out that cuts to the IRS budget that close tax assistance centers – something that’s happening with the new administration – increase the kinds of things that prompt EITC audits, since most are because of mistakes not deliberate fraud.

In September 2023, The Senate Finance Committee revealed that between 2017-20, under the first Trump administration’s watch, 1.5 million wealthy tax evaders failed to pay the  U.S. Treasury up to $66 billion, according to ATF.

“Many evaded their taxes by simply refusing to even file a return. About half of those unpaid taxes (plus fines and penalties)—$34 billion—were owed by fewer than 1,000 individuals, each with income over $1 million; about a quarter was owed by 58 scofflaws who each enjoyed an annual income of over $10 million,” the ATF report said.

The report added that even though the IRS determined that several thousand non-filers each owed at least a half million dollars in unpaid taxes over those years, because of lack of funding IRS  only a few dozen had been prosecuted or otherwise pursued.

While it may seem like this is a tangent far from the original point about the EITC, it’s not. It’s a great illustration of how cuts to the IRS are achieving the opposite of what they’re purported to be doing. But if the goal really isn’t to cut the government’s debt, but rather to allow really wealthy people to pay even less taxes on the back of some family that’s making $20,000 a year and can probably use that few hundred EITC bucks to heat their home or feed their kids, then it’s succeeding.

But don’t just take my word for it. Former IRS commissioners who served under both Democratic and Republican presidents, including Ronald Reagan and Donald Trump, authored a group opinion piece that was published in Monday’s New York Times that said that the large-scale firing of IRS employees “will shift the burden of funding the government from people who shirk their taxes to the honest people who pay them.”

5. You are protected – kind of 

This is anything but a normal tax season. Last week, the president called for the IRS to be abolished. Meanwhile, Elon Musk’s “department” is likely hacking into IRS information, according to numerous news reports. The best advice on what to do this year is, if you haven’t already filed your taxes, do it ASAP. Make sure your return is accurate. File electronically. Get your refund via direct deposit.

Beyond that? Who knows.

The IRS has your Social Security number, all your other identifiers, your income information, and in-depth details on what you do with your money. Even as you read this, someone else may now have it, too.

There’s something called the Taxpayer Bill of Rights. It’s on the IRS website. At least for now.

It has 10 protections you are supposed to be able to expect when dealing with the IRS:

• The Right to Be Informed
• The Right to Quality Service
• The Right to Pay No More than the Correct Amount of Tax
• The Right to Challenge the IRS’s Position and Be Heard
• The Right to Appeal an IRS Decision in an Independent Forum
• The Right to Finality
• The Right to Privacy
• The Right to Confidentiality
• The Right to Retain Representation
• The Right to a Fair and Just Tax System

An IRS page dedicated to the Taxpayer Bill of Rights, was updated Jan. 24 to focus on The Right to Confidentiality.  [You have to click a link, then click another one, to open a PDF to get the full 10-point document now].

The Right to Confidentiality states: “Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.”

The page says the IRS “regularly reminds its employees about these rights. The IRS expects employees to understand and apply taxpayer rights throughout every encounter with taxpayers.”

If you don’t find any of that reassuring, you’re not alone.

Reach Maureen Milliken at mmilliken47@gmail.com.