Many may not know they can be taxed on their Permanent Fund dividend income. They may also not know their children can be taxed on theirs.
Those are just a couple of the items that most people might not be aware of as they prepare to file their taxes for 2021. Thanks to AARP and a couple of local volunteers, Wrangell taxpayers need not worry.
Every Saturday from now until April 15, Paula Rak and Nancy McQueen will be preparing taxes for those who wish to take advantage of the free service. Though they help everyone they can, Rak said there are some returns they can’t prepare.
“Some returns are out of scope for us, such as commercial fishermen that own their own boat,” Rak said. “We can do deckhands, but not boat owners. (We cannot do) certain types of rental properties.”
What they can do are itemized returns, small businesses and basic returns. Once approved, the returns can be electronically filed. Rak said the Internal Revenue Service acknowledges the returns within half an hour, and returns can be issued by direct deposit or by paper check.
Both Rak and McQueen have been trained by the IRS and AARP’s tax aid foundation, and they have to pass federal certification every year since “tax laws change all the time and we forget stuff over the winter,” Rak said.
One of the common mistakes people make on their returns is forgetting they have to pay tax on their Permanent Fund dividend − as do their children.
“If the PFD is more than $1,100, then the child has to pay because the child’s fund is income,” Rak said. The 2021 dividend was $1,114.
“This year the (IRS) cutoff is $1,100 on earned income. Even though (children) can file their own return, they can be counted as a dependent on their parent’s return (as well).”
She said people may also not know that cancellation of debt is considered income. So, if a credit card balance is waived or if someone secures a loan that consolidates debt − which typically means those debts are paid off with an agreed-upon lower settlement amount − the remainder of what was owed is then counted as income.
And children can still benefit parent’s tax returns even if they don’t live at home.
“If the child is in college, there are several credits we can get for them. People don’t know about those,” Rak said.
Rak said if someone takes advantage of the free tax prep, they have to bring all the relevant documents such as W-2 forms, ID and Social Security numbers and any other tax forms.
“They don’t need to have a statement with the PFD amount because we know what it is, but if they have paperwork of withholdings on the PFD, then we need that,” she said. Even if someone has their dividend garnished, such as for child support or other debt, it is considered income and taxes have to be paid on it.
A couple other things that taxpayers need to be aware of are two letters the IRS will be sending out. One will be a letter stating the amount of the third pandemic relief payment, Rak said. Those payments, at up to $1,400, started going out last March.
“A lot of people don’t even remember getting (the third payment), but the IRS will send out a letter.”
The other letter they will be sending out, she said, “is the advance child tax credit. It’s the first year they’re doing it. If they got that, we need it to file.” Congress last year approved a program issuing advances on child tax credits as monthly benefits checks to millions of Americans. The program ended in December.
Before the pandemic, Rak said they were able to schedule appointments and sit with the clients while preparing returns. This year, they are operating a drop-off model, so people will drop their paperwork off at the Nolan Center from 10 a.m. to 2 p.m. Saturdays, fill out a form with their phone number, then pick them up when returns are finished.
“When we first started (filing returns), I remember (AARP) saying we had to help at least 25 people,” Rak said. “At first … we made our quota, but not by many. In the past couple of years, it’s been a little more than 150 people per year.”
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