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Marriage Penalties and Marriage Bonuses

Marriage Tax Bonus?

In cases where a married couple’s total tax obligation is lower than the combined amount they would owe if filing separately as individuals, they can receive a marriage bonus. This scenario often occurs when one partner has a significantly higher income than the other in marriage.

Pooling their incomes, the couple can benefit from lower tax brackets, tax credits, and previously unavailable deductions to them when filing as individuals. Consider this scenario, suppose a couple who is not married collectively earns $120,000 in total income for the year 2023, with one individual bringing in $0 and the other earning $120,000.

In this scenario where the couple decided to tie the knot and file their taxes together, their total tax responsibility would amount to only $10,921. This reduction in tax burden is attributed to their eligibility for a higher standard deduction and a more favorable marginal tax rate due to their joint filing status.

marriage tax

Marriage Tax Penalty?

On the flip side, a marriage penalty emerges when the total amount of taxes owed by a married couple is greater than the sum of what they would owe if they were still filing separately as single individuals. The act of pooling incomes through joint filing can push both partners into higher tax brackets, resulting in couples with comparable earnings facing more marriage penalties compared to couples where one partner earns the bulk of the income.

In assessing the marriage penalty for individuals with higher incomes, it is crucial to consider the 3.8% investment income tax. This tax applies to single filers earning above $200,000 and married filers earning over $250,000 in adjusted gross income.

Moreover, individuals who fall under these tax brackets will also face an extra Medicare levy of 0.9% on income exceeding $200,000 for single taxpayers and $250,000 for those married couples filing jointly.

Avoiding Marriage Penalty

It is crucial for married couples to have a clear understanding of their tax situation to plan for taxes effectively. One helpful approach is to explore various scenarios to predict your tax obligations prior to filing. In most cases, choosing to file taxes separately does not typically lead to significant benefits for couples, although there could be exceptions in unique circumstances that arise.

Consider examining all available deductions and credits in order to lower your total tax obligation. Married partners who choose to file jointly are eligible for various tax credits, such as the Earned Income Tax Credit, education credits, and the Child and Dependent Care Tax Credit.

Take into consideration the phase-out thresholds that could impact your qualifications. To handle marriage penalties and bonuses effectively, it is advisable to seek guidance from a tax specialist. Their expertise can offer personalized advice based on your circumstances. The team of dedicated Tax Professionals at RapidTax are renowned experts in the field, boasting more than ten years of experience assisting clients with their tax returns.

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If I Got an IRS Notice CP90, What Now?

When the IRS sends you a notification, it can stir up feelings of unease, particularly concerning significant issues such as potential tax collections. Among these notices is the IRS Notice CP90. Knowing how to interpret and react to this notice is essential. Here is a detailed manual on the steps to take upon receiving IRS Notice CP90.

What’s IRS Notice CP90?

Upon receipt of IRS Notice CP90, also referred to as the Final Notice of Intent to Levy and Notice of Your Right to a Hearing, individuals are informed by the IRS that there are outstanding tax liabilities that need to be addressed.

In this letter, it is brought to your attention that the IRS is issuing a last cautionary message declaring their plans to seize your assets, including income, financial accounts, and other possessions, to settle your outstanding tax obligations. Additionally, you are being formally notified of your entitlement to initiate a Collection Due Process (CDP)

IRS Notice CP90

What Is IRS Notice CP90 For?

Upon receiving IRS Notice CP90, it signals that there is an outstanding tax debt that has not been resolved despite previous collection efforts. This particular notice is issued following a series of previous notifications urging payment, and it serves as a warning that more forceful collection measures, such as levies, are on the horizon unless prompt action is taken.

Steps to Takes When I Receive IRS Notice CP90

Thoroughly Understand My IRS Notice CP90 

Before doing anything else, carefully review the notice provided. It is crucial to go through it comprehensively to grasp its information. The notice will outline the outstanding balance, the specific tax periods under review, and the date by which a response is required. It is imperative to note the deadlines and carefully follow any guidelines outlined in the notice.

Verify the Details

Before proceeding, it is important to confirm the accuracy of the information provided. Take the time to carefully review all details in the notice to make sure there are no discrepancies. Check that the specified tax amount is correct and that the notice is indeed intended for your attention. Should you identify any inaccuracies, feel free to reach out to the IRS promptly to resolve any issues.

What Are My Options

What Are My Choices?

After verifying the correctness of the notification, take some time to explore the possible ways to settle the outstanding debt.

Pay the Amount Owed.

To settle the outstanding balance, it is advisable to remit the entire sum specified in the notification promptly to prevent additional charges and accruing interest. Payment options include settling the debt through the IRS online platform, over the phone, or by sending a check or money order through the mail.

Set Up a Payment Plan

Establishing a payment arrangement if you are unable to cover the entire sum owed, contemplate arranging a payment schedule with the IRS. By doing so, you can conveniently make regular payments to settle your tax obligations gradually.

Offer in Compromise

For individuals facing financial constraints in meeting their tax obligations, an alternative solution is an Offer in Compromise (OIC). This specialized program provides the opportunity to resolve tax debts for a reduced amount if certain qualifying criteria are met, offering relief to those unable to pay the full sum or arrange a payment plan.

Request a Collection Due Process (CDP) Hearing

To initiate a Collection Due Process (CDP) Hearing, you are entitled to request the hearing within 30 days of being served with Notice CP90. This opportunity enables you to discuss your situation with an IRS representative and consider different options for resolving the levy.

Request a CDP Hearing

To initiate a CDP Hearing, submitting your request within 30 days of receiving the notice is essential. Fill out the Tax Form 12153, also known as the Request for a Collection Due Process or Equivalent Hearing, and forward it to the specified address on your notification. Once a timely CDP hearing request is made, the levy process will be temporarily paused until the hearing is held and a determination is reached.

Consult a Dedicated Tax Professional

For professional assistance regarding IRS Notice CP90, it is essential to seek tax advice from an dedicated tax professional. The implications of receiving this notice are significant, and dealing with the associated procedures can be challenging. To effectively address this matter, it is advisable to engage a tax professional like a certified public accountant (CPA) or a tax attorney. They possess the expertise to clarify your choices, assist with documentation, and advocate for you in discussions with the IRS.

Do Not Delay

Act promptly without delay. It is crucial to promptly address the notice, no matter which path you decide to take. Disregarding the IRS Notice CP90 could lead to serious outcomes, such as the confiscation of your belongings and additional monetary fines.

Save My Tax Documentation

Ensuring thorough documentation is essential in managing interactions with the IRS. It is important to retain duplicates of all communication exchanged with the IRS, encompassing official letters, payment records, and any completed forms. The significance of maintaining accurate documentation cannot be overstated, especially when needing to challenge assertions or address potential concerns down the line.

What Happens If I Don’t Respond?

Neglecting to address IRS Notice CP90 can result in serious repercussions. The IRS has the authority to take action by garnishing your wages and seizing your assets. This could involve the IRS deducting a percentage of your earnings directly from your employer in order to settle your outstanding tax obligations.

Should individuals fail to settle their tax debts, the IRS may resort to freezing and confiscating funds from their bank accounts. In more severe instances, the IRS has the authority to seize tangible assets such as properties or vehicles to offset the outstanding amount. Disregarding such notifications will not alleviate the debt, potentially leading to adverse financial consequences.

Tax Help for Those Who Received IRS Notice CP90

When faced with an IRS Notice CP90, it’s natural to feel overwhelmed, but it’s important to approach the situation with a clear mind and a proactive attitude. Exploring the available solutions, enlisting expert support, and swiftly responding can empower you to tackle the notice head-on and progress in managing your tax obligations.

By taking the initiative now, you can avoid exacerbating financial troubles and take charge of your financial well-being. Dedicated tax professionals at RapidTax are committed to assisting you in tackling and resolving any tax issues you may have encountered.

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Tax Tips for Resident and Non-Resident Aliens

Suppose you find yourself residing within the borders of the United States or frequently staying in the country without being a citizen. In that case, you are still required to fulfill U.S. income tax obligations irrespective of your citizenship status. The IRS employs a combination of evaluations known as the green card test and the substantial presence test to determine your alien status. Meeting the criteria of one category will establish you as a resident alien for income tax purposes, while failing to do so will classify you as a non-resident alien. In order to comply with tax regulations in the United States, both legal residents and citizens are required to report their annual income on tax returns. This includes income earned in any country. Non-resident Aliens, on the other hand, are only taxed by the IRS on income that is linked to the U.S.

Non-Resident Aliens

Determining Resident or Non-Resident Alien

When determining your alien status for tax purposes, the IRS employs two criteria: the green card test and the substantial presence test. Meeting the criteria of either test results in being classified as a resident or non-resident alien for tax purposes; failing to meet the criteria will lead to classification as a non-resident alien.

In the event that you are a visitor from another planet and possess a green card which signifies approval from the U.S. Citizenship and Immigration Service to live lawfully within the nation, you would be classified as a resident alien.

In the event that an individual doesn’t possess a green card and stays in the United States for a minimum of 31 days in the present tax year, along with a combined total of 183 days throughout the past three tax years (which include the current one), they typically fulfill the physical presence requirement and are considered a resident alien.

Counting 183 Days for Non-Resident Aliens

In determining the total days spent in the United States over a three-year span, it is important to exclude certain days from the count. Only a portion of the days within two out of the three years should be considered. For instance, if you need to ascertain your residency status for the tax year of 2025 based on having resided in the U.S. for 60 days, this calculation method will be useful.

In calculating your presence in the U.S. over a three-year period, consider 50 days for 2025, one-third of the days in 2024, and one-sixth of the days in 2023. For instance, if you spent 150 days in the U.S. in 2024 and 240 days in 2023, your count should be adjusted to include only 50 days for 2024 and 40 days for 2023. The total for the three years is 140 days, in which you pay income tax as a non-resident alien.

If you’re questioning whether you qualify as a resident or non-resident for tax purposes, our team of skilled tax experts at RapidTax is here to help. We will assess your residency status and promptly prepare your non-resident tax return.

Non-Resident Aliens Tax

When it comes to non-residents, they are required to pay income taxes to the IRS only on the earnings that can be linked to the United States. This typically covers the income generated while physically present in the U.S. Notably, the IRS lacks the jurisdiction to levy taxes on the income non-residents make in their native lands or any foreign nation.

Upon completion of your U.S. tax filing, Form 1040NR will be your go-to document. It is essential to note that only income originating from the U.S. will be included in your report, irrespective of the form utilized. Similar to how resident aliens and American citizens operate, there are opportunities for tax deductions and tax credits that can lower your taxable income.

Transitioning Dual-Status Taxpayer

During the phase when you are transitioning from being a non-resident to a resident for tax purposes, you are typically classified as a Dual-Status Taxpayer. As a Dual-Status Taxpayer, you will need to submit two separate tax returns for the year—one for the period in which you were categorized as a non-resident and another for the period in which you were classified as a resident. There are instances where a taxpayer has the option to choose to be considered a full-year resident during the transition year in order to prevent the need to submit two distinct tax returns.

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