LAURINBURG — The city’s H&R Block office has seen an influx of people in recent days who are confused about a new tax withholding form that must be received by their employers by Jan. 1, according to Barbara Brown, office manager.
“They were really surprised that they got it,” she said. “No one really explained to them what it was about and what they were to do with it.”
North Carolina’s rules for withholding changed after the tax overhaul law passed this summer reduced income tax rates and eliminated dozens of tax exemptions and credits starting in 2014. The new rules means millions of the state’s workers will have to fill out updated forms to adjust the amount regularly withheld from their paychecks.
Employees must complete the form and give it to employers so the appropriate amount of state income tax is withheld from paychecks after the changes take effect Jan. 1. Otherwise, people could see a large tax refund or big tax bill when they file 2014 returns in early 2015.
In the past, for example, a couple filing jointly could receive several personal allowances for a spouse, dependents and other expected deductions and credits. Under the new law, personal exemptions have been eliminated save largely for a per-child tax credit that remains in place for households making under $100,000.
The new tax law will replace a three-tiered income tax of 6, 7 and 7.75 percent with one rate of 5.8 percent in 2014 and 5.75 percent in 2015. Standard deductions also will be higher — from $6,000 for a married filing jointly return today to $15,000 in 2014, meaning the first $15,000 in income won’t be taxed. The state’s version of the earned income tax credit, which helped the working poor, also has been repealed starting next year.
Brown, whose office oversees the filing of more than 2,000 returns each tax season, said the new law for many will mean less money in their paychecks. Deductions for household members over the age of 17 have been eliminated, meaning those tax filers who would previously claim adult dependents will now have an automatic exemption of 0.
“In North Carolina, folks will see less money because they will see higher withholdings,” she said.
Brown said most were unaware of the change, but have been resigned to it.
“I guess their reaction is that they have to do it,” she said. “It really wasn’t made public knowledge and if if it was public knowledge, a lot of people didn’t hear it. … If they had known about it they might have been able to put in their thoughts but it was just like, here, do it.”
The Department of Revenue sent the updated forms and other materials to about 240,000 employers and payers of annuities, which is considered income. Brown said employers are required to get the new forms to employees, including those who are receiving retirement.
Though the questions on the new form have been many, Brown said the biggest issue facing her office in the near future will be the processing of fines accessed to those who fail to carry insurance that meets the requirements under the Affordable Care Act.
Brown said her staff has not yet been made aware of how steep a fine to apply to the returns of customers who can not supply a policy number on their 2014 tax return.
Last year, she said, customers were asked if they had health insurance, and a “no” answer would advise them that a fee of $97 per adult in the household would be subtracted from their tax return if they answered in the same manner in 2014 — that number has since changed, she said, but her office has not yet received a new fee scale.
The customers “were not really warned” during the process, she said, “but they made aware of, last year, that this would happen.”
According to healthcare.gov, this fee is called the “individual responsibility payment” and will be applied to those who are uninsured for three months or more during 2014. It will be calculated by either 1 percent of the tax filer’s annual household income or $95 per adult and $47.50 per child under the age of 18, whichever is higher. That fee will double in 2015 to $2 of income or $325 per person. By 2016, the fee will jump to $695 per person.
For those uninsured for more than three months but not the whole year, each month uninsured will be assessed with 1/12 of the yearly penalty.
According to the site, the more than 20 percent of the county’s population who were determined ineligible for Medicaid because North Carolina did not expand eligibility for the program will qualify for an exemption from the fee.
Others may find other ways to be exempt from the penalty. Those who do not make enough money to file a tax return; members of federally recognized tribes, health care sharing ministries or a religious sect with objections to insurance, including Social Security and Medicare; those who are incarcerated and those in the country illegally will be exempt from paying a fee.
Hardship exemptions, defined on the government website as “circumstances that affect your ability to purchase” coverage, can also be applicable, including the recent death of a close family member; homelessness; a recent filing of bankruptcy or an excessive amount of medical expenses.
The Associated Press contributed to this report.