March 17, 1994
IRS Offers Advice to Filers
WASHINGTON - With less than a month to go before the April 15
filing deadline, the Internal Revenue Service has some advice to
help people avoid errors it has seen on some of this year's early
A new mistake affects some people who lost their jobs due to
corporate downsizing or restructuring. They often receive severance
pay, which is taxable. As part of their separation agreements, they
may also sign waivers releasing their former employers from
potential future claims. Some have mistakenly treated the payments
as nontaxable damages because of the waivers. According to the IRS,
however, such waivers do not change the taxable nature on the
severance pay, a conclusion reached in two 1993 court cases.
Some taxpayers are failing to report the tax on early
distributions received from individual retirement arrangements or
deferred compensation plans. If a distribution is not rolled over
within 60 days, a 10 percent tax generally applies if the account
holder is under age 59 and one-half. People who owe this tax must
use Form 1040 not 1040A, listing it on line 51. The Form 1099-R
reporting the early distribution payment should have code number "1"
in box 7.
When itemizing deductions on Schedule A, people putting "other
taxes" on line 7 must explain what type of tax it is, such as
personal property tax. Some filers this year are omitting the
description and just entering a deduction amount.
Some taxpayers who appear to owe self-employment tax are
failing to include that tax on their returns. People who list
self-employment income as "other income" on line 22 of Form 1040
should complete Schedule SE if their net profit was $400 or more.
The number of returns filed continues to draw closer to last
year's figure--as of March 11, 1994, the IRS had received 47 million
returns, about 1.2 million fewer than last year. Federal tax
refunds now total nearly $29.2 billion. At $1,077, the average
refund is up more than six percent.
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