The Truth about City Taxes

American Greetings may move out of town and it's the residents fault.

The nation's largest publicly held greeting card manufacturer, is launching a study to determine whether they should move the company's world headquarters from the city of Brooklyn Ohio.

Reason: residents voted to raise the city's payroll tax 25%.

Cities or incorporated communities may levy city taxes. A taxpayer is usually responsible for TWO types of city taxes:

• Employment Tax – to cities where the taxpayer is employed or conducts business
• Residence Tax – to city where the taxpayer lived when income was earned

The city tax rate is determined by the local politicians and approved by voters in the community. Residents of Brooklyn, Ohio last spring voted to raise the city's tax rate to 2.5 percent of wages from 2.0 percent.

Moral of the story: residents have no reason to complain about their high city tax rates because it's the residents who control them. Reject tax increase proposals on Election Day. Even better: vote against council members and mayors who propose income tax hikes. The effects of a large company moving out of the city could be devastating. Just ask the Brooklyn City Schools.

2009 tax law changes

Plenty of changes to deductions and limits for this year's Form 1040. Here are some to make note of:

Increased personal exemption is $3,650 (up from $3,500 in 2008, will remain $3,650 in 2010).

Increased Standard Deduction:

• Married filing Joint / Qualifying Widower: $11,400
• Head of Household: $8,350
  
• Single / Married filing Separate: $5,700

Note: Head of Household increases to $8,400 in 2010.

Additional Child Tax Credit
Earned Income amount used to figure the additional child tax credit is 15% of the income that exceeds $3,000 (down from $8,500). To take advantage of this credit, complete Form 8812 and report the total on Form 1040, line 65.

Maximum amount of wages subject to social security tax is $106,800 (up from $102,000)

Standard Mileage Rates: Business purposes is 55 cents per mile; medical reasons and moving expenses is 24 cents per mile; charitable purposes is still 14 cents per mile

IRA contribution limits remain unchanged.

Health Savings Accounts (HSAs)
Maximum deduction is now $3,000 ($5,950 for family coverage). Minimum annual deductible of a high deductible plan is $1,150 ($2,300 for family coverage). Complete Form 8889 and report the deduction on Form 1040, line 25.

"Kiddie Tax"

• Investment income over $1,900 of a child age 18 or younger will be taxed at the parent's rate on Form 8615.
• Parents may be able to include on their own return the child's gross income in excess of $1,900 on Form 8814.

New Tax Forms

• Schedule L – Standard Deduction for Certain Filers
• Schedule M – Making Work Pay and Government Retiree Credits