Utah State Income Taxes

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Utah State Income Taxes Powered By Docstoc
					Understanding Taxes
                      Utah State Tax Commission
                            210 North 1950 West
                       Salt Lake City, Utah 84134
                                    801‐297‐2200
                                    800‐662‐4335



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Introduction
Welcome to the Utah State Tax Commission's
Understanding Utah Taxes course.

This tutorial will help you understand the basics
of Utah taxes and how they are distributed to
state, county, and local governments.

Because Utah income tax returns start with a taxpayer’s federal
adjusted gross income, it is helpful to understand federal tax returns
before completing a Utah return.

For more information on federal taxes, please review the IRS
Understanding Taxes course at www.irs.gov/app/understandingtaxes.


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Table of Contents
This tutorial explains the following topics. You may go through them in
order or click a topic below to go straight to that section.
  Utah Individual Income Tax Overview             How much tax do I pay?

           What are taxes?              How are Utah taxes different from federal taxes?

        Why do we have taxes?
                                           How do I complete my Utah return?
        How are tax laws made?
                                                  How do I file my return?
         Who does the taxing?
                                           How do I pay my tax/get my refund?
            What is taxed?
                                             What are penalties and interest?
      Where does the money go?

       How does this affect me?                 Where can I get more help?

       Do I have to file a return?                        Summary

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Overview

Utah Individual 
Income Tax

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Utah Individual Income Tax
Utah taxation started in 1896 when Utah was
admitted as a state to the Union.

At that time, Utahns paid taxes based only on the real and personal
property they owned in Utah.

During the Great Depression, many states—including Utah—decided
the overall tax burden could be better distributed between property
owners and non-owning taxpayers by taxing income.

In 1931, Utah adopted this tax law change. This is the system we still
use today.


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Utah Individual Income Tax
Of course, the methods used to calculate income tax have changed
many times from 1931 to today.
Because tax rules and regulations can be complicated, lawmakers try to
keep Utah taxes as simple as possible by using figures from federal
taxes to calculate Utah income tax.




Let’s look at the basics of Utah taxes.                  Table of
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What are taxes?


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What are taxes?
Taxes are the monies we must pay on certain:

  • Income


      • Transactions


           • Possessions

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Why do we have taxes?


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Why do we have taxes?
Taxes fund government programs and activities:


 Police and fire protection             Courts and corrections



 State parks, lakes,                    Highways, roads,
 animal control                         and freeways



 Public Schools                         Social services
                                         —Health
                                         —Jobs
                                         —Welfare
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How are tax laws made?


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How are tax laws made?
Tax laws are made by the Utah legislature during annual legislative
sessions. Those laws are administered by the Utah State Tax
Commission.

A proposed tax law—called a bill—goes through several steps to
become a law.




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How a Tax Bill Becomes a Law
       1. An idea is developed and the bill is prepared.

       2. The bill is introduced.

       3. The bill is reviewed and gets public comment.

       4. The bill is debated in open session.
          • A bill must get 38 votes in the House and 15 votes in the Senate to pass.

       5. The bill goes to the Governor.
          • Governor can sign, veto, or let it become law without a signature.

       6. The bill becomes law on its effective date.

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Who does the taxing?


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Who does the taxing?
Many government agencies assess taxes including:

  Federal government

                                        Special assessment districts
                                         — Transportation
  State government
                                         — Parks
                                         — Zoos

  County government


                                        School districts
  City government

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What is taxed?


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What is taxed?
Some income is taxable and other income is not. For example:

              Taxed                           Not Taxed 
   Wages, bonuses, commissions,       Scholarships and grants
   and tips


   Severance pay and                  Welfare payments and
   unemployment compensation          veteran’s benefits

   Alimony                            Child support



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What is taxed?
Some income is taxable and other income is not. For example:

              Taxed                           Not Taxed 
   Business, rental, and hobby       Worker’s compensation
   income
   Dividends and interest earned
   Gain on sale of property          Amounts for physical injury or
                                     death
   Pension and annuity income
   Awards and prizes                 Gifts and inheritances
   Gambling winnings
   Jury duty fees                                       Table of
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Where does the money go?


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Where does the money go?




All Utah income taxes go to fund education.

The Tax Commission prepares annual reports to show what taxes were
collected and how they were distributed. Go to tax.utah.gov/research to
see a summary.

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How does this affect me?


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How does this affect me?
You can be taxed if you:




Save money                   Win money

    Earn money             Spend money

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How does this affect me? (Continued)
Income taxes are collected on a pay-as-you-earn basis.

           You get a paycheck.

              Your employer withholds part of your
              paycheck.

                 Your employer sends the withheld
                 amount to the Tax Commission.

                     The Tax Commission applies the
                     withheld amount to your tax liability.

                        You file your taxes by April 15 and
                        pay the rest of the tax or get a refund.

Without this process, you might have a hard time saving enough money
to pay your taxes at the end of the year.
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Do I have to file a return?


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Do I have to file a return?
You must file a Utah tax return in 2008 if you:



                  File a federal income tax return
                  — Single with income over $8,950
                  — Married with income over $17,900
                  — Parents claim you as an exemption and your income
                      is over $900
                  Have income from Utah sources

                  Request a refund of income tax overpayment

Note: You may be exempt from Utah income tax if you meet certain criteria. Complete the Exempt
Taxpayer worksheet in the instruction booklet to see if you qualify.
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How much tax do I pay?


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How much tax do I pay?
You are taxed a percentage of your income. However, the government
allows certain deductions, exemptions, and credits that can lower what
you owe.

–   Deductions and exemptions lower the income that can be taxed.

–   Credits take away from the amount you owe (if you meet the
    criteria).

This is why it is possible that two taxpayers with identical incomes will
pay different taxes.




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Example 1—Dave and Jim
For example, Dave and Jim both had the same income last year.
However, Dave owns a house and regularly gives to charity. These
qualify as deductions.

Jim rents an apartment and has no deductions. Dave’s taxable income
will be lower than Jim’s.

              Dave                                  Jim
  Federal Adjusted                      Federal Adjusted
   Gross Income
                         $25,000         Gross Income
                                                                      $25,000

   - Deductions          $10,000         - Deductions                     $0

 = Taxable Income        $15,000       = Taxable Income               $25,000


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Example 1—Dave and Jim (Continued)
In addition, Dave made some energy improvements to his home that
qualified for a tax credit. The credit will reduce the amount of tax he
owes:

              Dave                                     Jim
  Federal Adjusted                         Federal Adjusted
   Gross Income            $25,000          Gross Income                  $25,000
    - Deductions           $10,000          - Deductions                      $0
  = Taxable Income         $15,000        = Taxable Income                $25,000
 Initial Tax Amount           $750        Initial Tax Amount              $1,250
      - Credits                $50             - Credits                      $0
    Tax Amount                $700           Tax Amount                   $1,250

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How are Utah taxes different from 
federal taxes?

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Utah Differences
Utah income taxes differ from federal taxes in several areas:

• You start with federal income when calculating Utah income
• Utah has a single tax rate for everyone—5 percent
• Utah allows some credits federal does not, such as:
   –   Taxpayer tax credit
   –   At-home parent
   –   Retirement
   –   Energy
   –   Live organ donation expenses
   –   Tutoring disabled dependents
   –   Special needs adoption


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Utah Differences
• You can also voluntarily contribute to some organizations when
  paying your taxes:

   – Utah nongame wildlife fund

   – Homeless trust fund

   – Children’s organ transplant fund

   – School district foundation fund

   – Cat and dog community spay/neuter program

  Although these are not a technically a tax, they do add to the amount
  you pay or lower the amount of your refund.
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Utah Differences
• Another addition calculated on your Utah tax return is Use tax.

   Use tax is the tax on internet, mail catalog, or out-of-state
   purchases.




   Even though you didn’t pay the tax when you bought the item, you
   still owe the tax. You report and pay it on your income tax return.

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Utah Differences
• Utah does not need your withholding documents (W-2s, 1099s, etc.).
  Instead of sending them in with your taxes, you report the
  information on a Withholding Tax Schedule (TC-40W). The total
  amount is then carried over to your return.




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Special Utah Circumstances
There are also times when you’ll owe tax on income you earn outside
of Utah.

    Work out of state for part of year




                        Go to college in another state



    Join the military


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How do I complete my Utah return?


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Completing a Utah Return (TC‐40)
There are several steps to filling out a
Utah Individual Tax Return (TC-40).

1.   Entering your personal information
2.   Filing Status and Exemptions
3.   Finding your Utah income
4.   Determining your total deductions
     from income
5.   Calculating your tax
6.   Credits and contributions
7.   Tax due or refund
8.   Signature



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Completing a Utah Return (TC‐40)
Before filling out a Utah Individual Income
tax return, you will need:

• W-2 Wage and Tax Statement for each
  company where you worked during the
  year.

• 1099-INT forms showing interest on
  savings or checking accounts.

• Completed federal tax return (1040,
  1040A, or 1040EZ) for the filing year.

• Blank Utah Individual Income Tax return
  (TC-40).
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Step 1—Personal Information
The first step of filling out your return is entering your personal
information:




•   Social security number
•   Name
•   Address
•   Phone number (in case we have questions on your return)
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Step 2—Filing Status and Exemptions
Step two is entering your filing status and exemptions:




•   Filing Status. This should be the same filing status you used on your
    federal form.

•   Exemptions. This should match the number of exemptions you claimed for
    yourself, your spouse (if you are married), and each dependent on your
    federal form.

•   Election Campaign Fund. You may donate $2 or more to an election
    campaign party.
     – This will not change what you owe or get back.           Table of
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Step 3—Utah Income Tax
Step three is to calculate your Utah taxable income. Start with your federal
adjusted gross income from your 1040, 1040A, or 1040EZ (line 4).

Then add any additions to income. These are reported on the Supplemental
schedule (TC-40A) and then entered on your return.

They include:

• Lump sum distributions

• Reimbursed adoption expenses

• Child’s income excluded from a
  parent’s return
See Additions to Income for a full list.
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Step 4—Deductions from Income
Once you have included your additions to income, you must determine
your deductions from income. These are reported on the Supplemental
Schedule (TC-40A) and are entered on your return.



They include:

• Railroad retirement income

• State tax refunds included on the
  federal return

• Nonresident active duty military pay


See Deductions from Income for a full list.
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Step 5—Calculating Your Tax
Once you have the amount of your Utah income that can be taxed, you
multiply by 5 percent to get your initial tax.

                      Utah 
                                                     Utah 
                     Taxable          5%              Tax
                     Income



Next you calculate the credits and contributions that will reduce or add to
your tax:
                                —Taxpayer tax credit
                                —Nonrefundable credits
                                —Withholding credits
                                —Refundable credits


                  —Contributions
                  —Use tax
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Step 6—Credits and Contributions
• Taxpayer tax credit
   All taxpayers are eligible for this 6 percent credit. However, the credit will
   decrease as your income increases.




See incometax.utah.gov/credits_taxpayertaxcredit.php for more information.
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Step 6—Credits and Contributions (Continued)
• Nonrefundable credits
  These are credits that can reduce your tax amount down to $0, but not less
  (they cannot result in a refund).
  Note: Some of these credits are apportionable—you only get part of the credit if you moved
  into or out of Utah during the tax year. Others are nonapportionable—you get the full credit
  regardless of how long you lived in the state during the tax year.




  See incometax.utah.gov/credits.php for more information.
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Step 6—Credits and Contributions (Continued)
• Contributions
   – Contributions are voluntary. They will add to your tax or reduce
     your refund by the total amount you donate.
   – See incometax.utah.gov/topics_charitablecontributions.php for
     more information.




• Use Tax
   – Tax owed for online or out-of-state purchases.


   See incometax.utah.gov/topics_usetax.php for more information.
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Step 6—Credits and Contributions (Continued)
• Withholding
  – This section reports your withholding information from the
     Withholding Tax Schedule (TC-40W).

      Since you have already paid this money through the tax year,
      these prepayments will reduce the amount of tax you now owe or
      cause you to get a refund if you overpaid through the year.




  See incometax.utah.gov/credits_itwithholding.php for more
  information.

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Step 6—Credits and Contributions (Continued)
• Refundable credits
   – These are credits that can reduce your tax amount down to $0 or
     less. They can also result in a refund.



  See incometax.utah.gov/credits.php for more information.




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Step 7—Tax Due or Refund
• Tax due
   – If you did not have enough withholding and other credits to cover your
     tax, you will have to pay the remaining tax by April 15.

   – If you are paying late, you will have to include penalties and interest.


• Refund
   – If you had more withholding credit than your tax amount, you will get a
     refund. You should let us know if you want to:
       • Apply all or some of the refund to your next year’s tax.

       • Have your refund deposited directly into a checking or savings
         account.

       • Get a refund check in the mail.                        Table of
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Step 8—Signature
Be sure to sign and date the return. If you are married filing joint, both
spouses must sign.




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How do I file my return?


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Filing Options
You can file your return in one of the following ways:
                                                            Ready,
• Electronic filing                                       Set, E-file !



      • TaxExpress (free online filing)


                         • Paper


                                • Professional preparer


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TaxExpress
You can file your Utah tax return free at
taxexpress.utah.gov if all of the following
statements are true:
1.   Your federal adjusted gross income is
     $100,000 or less.
2.   You lived in Utah for the full year.
3.   You do not itemize your deductions.
4.   You do not have any Utah tax credits besides the taxpayer tax credit.
5.   You do not have any deductions from income.
6.   You are not filing an amended return.
7.   You have less than 10 withholding forms with Utah income.
8.   You don’t have a credit for taxes paid to another state.
9.   You filed a 2007 Utah return.
See http://incometax.utah.gov/ifiling_taxexpress.php for more information.
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How do I pay my tax/get my 
refund?

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Tax Payments
You can pay your tax in one of the following ways:

• Pay online at paymentexpress.utah.gov using:
   – eCheck
   – American Express
   – Discover
   – MasterCard

• Pay at the Tax Commission


• Mail check or money order

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PaymentExpress
The following fees apply when
using PaymentExpress:

• eChecks—$1
  – Savings or checking accounts

• Credit cards—graduated fee based on payment amount
                          Credit Card Fees
                        Tax Amount           Fee
                         $ 1 – 50            $1
                        $ 51 – 100           $2
                        $ 101 – 150          $4
                        $ 151 – 200          $6
                        $ 201 – 250          $7
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Refund Options
If you had more withholding credit than your tax amount, you will get a
refund. You should let us know if you want to:                     2009




• Apply all or some of the refund to your
  next year’s tax.



• Have your refund deposited directly into
  a checking or savings account.



• Get a refund check in the mail.

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What are penalties and interest?


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Penalties
Penalties can be assessed if you:

• Underpay your tax

• File or pay late

• Don’t file at all

• Don’t pay at all

• Don’t provide complete information

Penalties can be up to 10 percent of the tax you owe.


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Interest
Interest is calculated on the amount you owe from the day it was due
until the day it is paid in full—including penalties and interest.

The interest rate changes each year. See tax.utah.gov/forms/pubs/pub-
58.pdf for more information and current rates.




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Where can I get more help?


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Getting Help
You can go to tax.utah.gov anytime, day or night, if you need
assistance.
The Utah State Tax Commission is open Monday through Thursday
from 7:00 a.m. to 6:00 p.m. to help you with tax issues.




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Summary


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Summary
Even though taxes can be confusing, they are a necessary part of our society as shown
in this basic course.
The following resources can give you more detailed understanding of Utah Individual
Income taxes:
•   Incometax.utah.gov

•   2008 Individual Income tax overview
•   Detailed 2008 online examples
     – Example 1—Single Filer with Retirement Income taking the Federal Standard Deduction

     – Example 2—Married Filing Jointly using the Standard Deduction

     – Example 3—Head of Household Itemizing with a Utah Educational Savings Plan
       (UESP) Credit
     – Example 4—Married Military taking the Federal Standard Deduction

We welcome suggestions regarding this example. Please send comments to hmcilrath@utah.gov.
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