The 2011 Indiana General Assembly passed several bills that affect Indiana taxes:
Changes to credits, deductions, and add-backs
- Indiana’s earned income credit (EIC) has been decoupled from the federal current-year EIC. The state calculation will be based in part on the federal EIC as it existed before being amended by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Indiana will provide a publication with worksheets and an EIC table.
- Taxpayers are required to add back to their Indiana adjusted gross income several deductions that the IRS is allowing for federal AGI. Individuals will have 12 new add-backs; corporations, insurance companies, and life insurance companies will have 5; and trusts, estates, and financial institutions will have 6. Taxpayers have the option to report the add-backs affecting the 2010 tax year either on the 2010 tax return or on the 2011 tax return.
- There is a new deduction for individuals who have a dependent who is enrolled in a private school or is homeschooled. If the taxpayer incurs any costs for tuition, fees, computer software, textbooks, or school supplies, they are eligible for a $1,000 deduction per qualifying child.
- The cap on the total amount of credits that can be claimed in a fiscal year for contributions to scholarship-granting organizations has increased from $2,500,000 to $5,000,000.
- The teacher summer employment credit will not be awarded after Dec. 31, 2011.
- The maternity home, health benefit plan, and small employer qualified wellness program tax credits will not be awarded after Dec. 31, 2011, and credits previously awarded may not be carried forward during 2012 and 2013. However, they may be carried forward during 2014 and 2015.
Changes to adjusted gross income tax
- The corporate income tax rate will decrease by .5% per year beginning July 1, 2012 and continue until July 1, 2015, at which time the rate will be 6.5%.
- The provision to carry back a net operating loss (NOL) has been eliminated for individuals and corporations. No state NOL carryback claim may be filed after Dec. 31, 2011.
- Current law requires professional tax preparers who file more than 100 returns to use electronic filing. That threshold drops to 50 returns in 2012 and just 10 returns in 2013.
Changes to sales tax
- A registered retail merchant’s certificate (RRMC) will not be renewed if the merchant is delinquent in remitting withholding taxes.
- A taxpayer now has 60 days to pay or protest a proposed assessment; the previous limit was 45 days.
- A county clerk now is required to expunge a warrant if it is determined that the warrant was issued in error. In addition, the Department will be required to mail the release of the warrant and the order for the warrant to be expunged within seven days of the determination that it was issued in error.
- After Dec. 31, 2011, individuals who are receiving unemployment compensation from the Dept. of Workforce Development can elect to have Indiana state and local taxes withheld.
A complete list of the legislation pertaining to taxes can be found on our website at www.in.gov/dor/3656.htm
Top Five Individual Compliance Issues This Tax Season
Each processing year, the Department sees some of the same issues over and over. On the other hand, each year also has its own peculiarities. Below is a list of the top five recurring issues that the Department has identified while processing the 2010 individual income tax forms along with their solutions.
Problem 1: Tax returns that are missing the necessary schedules and attachments.
Solution: When filing by paper, make sure that all of the required schedules, attachments and/or documentation is included with your return. Without the necessary information, a delay in the processing of the return could occur. Missing information could even result in a reduction or denial of the credit/deduction being claimed. Determining what is being claimed without actually having the necessary documentation is nearly impossible.
Problem 2: W-2s were not included when the tax return was sent.
Solution: Please ensure that all W-2s, 1099Gs and any other statements reporting Indiana state/county withholding amounts are included when filing paper tax returns. Not including withholding statements is guaranteed to cause delays in processing your clients' tax returns.
Problem 3: Not enough documentation is included when claiming the net operating loss (NOL) deduction.
Solution: The Department requires both the Indiana Schedule IT-40 NOL and the federal Form 1045 for each loss year from which a client is figuring an NOL deduction. For example, if your client is filing a 2011 IT-40 and claiming NOL deductions generated by the 2009 and 2010 loss years, the client needs to provide the Department with the IT-40 NOL and the federal Form 1045 for both 2009 and 2010.
Problem 4: Clients not sure which form to choose, Form IT-40 RNR or Form IT-40 PNR?
Solution: Form IT-40 RNR is used by those nonresidents who have lived the entire year in Kentucky, Michigan, Ohio, Pennsylvania, or Wisconsin, and whose only source of Indiana income was from wages. The Department has a reciprocal agreement with those states that allows taxpayers to file Form IT-40RNR in specific circumstances. Unfortunately, the Department received a lot of 2010 Form IT-40PNRs filed by people who should have used Form IT-40RNR instead. Using the wrong form is guaranteed to cause delays. And don’t forget about I-File, the state’s fast, friendly, and free online filing system. It is one of the few places where you can file Form IT-40PNR or Form IT-40RNR directly via the Internet.
Problem 5: Incorrectly declaring unemployment income on the Form IT-40PNR
Solution: When deciding how to declare a client’s unemployment income, be sure to ask: where did the taxpayer live at the time they received that income? If a taxpayer lives all year in another state, but received unemployment from Indiana, that income is NOT taxable to Indiana at all. The Department received many Form IT-40PNRs where taxpayers reported all the unemployment compensation received from the Department of Workforce Development as taxable to Indiana, when their residency information seemed to indicate that only a portion (or perhaps none at all) should have been declared because they didn’t live in Indiana for the entire year.
As always, the Department is here to help. If you have questions, be sure to visit www.in.gov/dor/3336.htm, where you can find information that will help clarify filing requirements, tips on the credits and deductions your client may be eligible to claim, and more.
New Tax Bulletins and Notices Available Online
Income and Sales Tax Information Bulletins:
Be sure to check the Department’s Website regularly for additional updates to tax bulletins, directives, and notices at www.in.gov/dor/3330.htm
INtax Is for Practitioners, Too!
INtax is not only a great tool for business owners themselves, but is also a great tool for practitioners. With INtax, a practitioner can file and pay his or her client’s business taxes; take care of several other record-keeping tasks; manage several business tax types, including Indiana retail sales, out of state sales, prepaid sales, metered pump sales, tire fees, fuel tax, and withholding taxes; and more.
In fact, more than 1,900 practitioners already serve more than 6,000 clients using the free online tool.
Many taxpayers currently using INtax are extremely satisfied with this online tool. In a recent survey, 93 percent of INtax users said they were satisfied and would recommend INtax to others. Not to mention, it’s free.
Here are just a few of the other tasks a practitioner can complete using INtax:
- Correspond with the Department of Revenue online through a confidential secure inbox.
- Register and edit multiple clients.
- View and print a current client list.
- Schedule payments up to 30 days ahead.
- File a return even when no tax is due for that filing period so clients can avoid best information available (BIA) bills.
- Make a separate electronic payment for each client or pay multiple client accounts through a bulk payment upload.
- View the client’s payment and return history at any time.
While a client is not required to be registered with INtax before a practitioner can add the client, the client still has the option to register for INtax to be able to access his account information, as well as view the activities of the practitioner. Whether the client registers for INtax or not, he is notified that a practitioner is managing his state taxes using INtax.
INtax makes your life easier as a tax practitioner, gives you 24/7 access to your clients’ business-tax records, lets you file and pay your client accounts online right up to the last deadline minute, and saves on printing and postage.
To get started using INtax, visit http://www.intax.in.gov/ and register as a “service provider”. To see just how easy INtax is to use, watch the online tutorial for service providers at https://www.intax.in.gov/Web/Tutorial/SPINtaxDefault.htm
Save the Date
The “Tax Schools” provide wonderful opportunities to learn up-to-date information about all things taxes, and these schools are just around the corner. These joint collaborations are designed to educate and meet continuing education requirements for attorneys, certified public accountants, certified financial planners, and enrolled agents. Topics include, the "Revenue Update," retirement, depreciation, small business issues, and ethics among many others.
These events, organized by the Indiana Department of Revenue, Purdue University, Indiana University, and the Internal Revenue Service, occur throughout the state from October through December.
For more information regarding the 2011 Indiana University Tax Practitioner Institutes, visit http://scs.indiana.edu/prof-programs/on-site/tax-institute/index.shtml
For more information regarding the 2011 Purdue Income Tax School Programs, visit https://www.eventreg.purdue.edu/eC2K/Heading.asp?heading_id=91
Scan Line Error on IT-40ES Forms Provided by CCH
In May, the Department identified a problem with the scan line for IT-40ES forms provided by CCH. The form verbiage itself reads as a 2011 form, but the scan line reads for the 2010 tax year. This presented a problem in that the erroneous forms could create a misapplication of payment to the wrong tax period.
Though the Department was able to identify and correct the vast majority of CCH-provided IT40 ES forms, some payments might have been processed prior to the Department learning of the matter. These payments could have resulted in erroneous refunds or offsets to pay other outstanding tax debts to the State of Indiana or Internal Revenue Service.
To address this problem, the Department did the following:
- The Department’s information technology division programmed a temporary correction into its system to identify and correct estimated tax payments misapplied to the 2010 tax year. In addition, this programming correction allows the Department’s system to accept the erroneous IT-40ES forms provided by CCH for the remaining 2011 estimated tax payments and ensure they are applied to the correct tax year (2011).
- The Department also sent letters to those taxpayers issued a refund in error detailing the three options available to them to return the refund and have the funds applied to their first quarter estimated individual income tax payment.
- The Department communicated routinely with managers and employees, including detailing the issue and its solution in employee newsletters, to enable employees to correctly handle payments and taxpayer questions regarding the situation.
- The Department also communicated with chambers of commerce, the Indiana Bar association, the Indiana CPA Society, and tax practitioners who are subscribed to our practitioner newsletter and our website’s notification service. In addition to explaining the situation and its solutions, the Department asked its external partners to share the information with their members so the information would reach all the affected parties.
- The Department posted information about the issue on its website to help inform the public.
The fluid nature of the problem makes it difficult to know exactly how many taxpayers and estimated payments were affected by this issue. However, the Department estimates that the implementation of the temporary coding fix has saved upwards of 40,000 estimated payments from being posted to the wrong tax year.
For questions about this matter, tax professionals should contact the Department’s Tax Practitioner Hotline at (317) 233-4017.
Best Information Available Bills
When a business client receives a best information available (BIA) bill from the Indiana Department of Revenue, it can be a stressful situation for the client and the practitioner.
A BIA bill is mailed when a business taxpayer hasn’t filed taxes with the Department ever or when a business taxpayer missed filing a return for a tax period. When that’s the case, the Department has to use the best information available to produce a bill and prompt the taxpayer to file and pay his or her taxes.
A BIA bill amount is figured by the Department by reviewing the business taxpayer’s past filings on record and then coming up with an average. However, when a business hasn’t filed with the Department for a while or has never filed, the Department uses the average filing for that type of business based on the federal industry/business codes.
To resolve this type of billing, it is important that the business or practitioner call the Department as soon as possible. Once someone has contacted the Department, the business will need to provide one or more of the following:
- Completed and updated filings for the tax periods that are missing from the Department’s record to replace the BIA bill;
- Documentation showing that the business has paid the taxes; or
- Documentation that shows the business closed.
If the BIA bill is not resolved with the Department, it will proceed through the Department’s collection process and end up at a warrant stage. Once the BIA bill hits the warrant stage, it goes to either the business owner’s county sheriff to collect the tax due or a professional collection agency.
Practitioners can help clients keep on track and avoid BIA bills by managing their accounts through INtax. With this free online tool, a practitioner can file and pay sales, withholding, and many other tax types on behalf of his or her client, in addition to having access to their business tax records 24/7. To register as a service provider and begin managing your clients’ business taxes online, visit http://www.intax.in.gov/
To listen to an audio podcast of a Department expert and learn more about BIA billings, click here.
Get Connected and Get Critical Updates from the Department
It is important for tax practitioners to know the various ways in which they can contact the Department if they are in need of help or want to receive critical updates from the Department.
When you have a specific question that the website does not answer, we encourage you to use the online inquiry center to send your questions and concerns directly to our tax professional area. If you have an immediate concern, however, you can contact the Department at (800) 462-6320 (enter 4367) to connect. This number is for the use of tax practitioners only. If a taxpayer would like to contact the Department, he or she can do so by dialing (317) 232-2240.
In addition, the Department now offers several ways for you to learn about important tax updates at your convenience:
For previous editions of the Tax Dispatch, click here.
To better serve Indiana taxpayers, the Indiana Department of Revenue may occasionally inform taxpayers of new services, results of a survey or invite a randomly selected group of taxpayers to participate in a short electronic survey or focus group. Electronic communication and surveys enable the Department to inform you about our services and helps the Department learn how to better serve Hoosier taxpayers.
Electronic surveys and e-mail messages from the Indiana Department of Revenue will never ask for any financial or personal information and survey responses are always confidential.
If you are asked for personal or financial information (Social Security number, bank account information, etc), do not reply or click on any links in the e-mail message. Legitimate organizations should never ask for personal information by e-mail.
If you would like to further verify an e-mail you have received by the Indiana Department of Revenue, please call 317.233.5221.
Remember, the Indiana Department of Revenue will never request personal information by e-mail.