Categories
Maine

Maine Property Tax Fairness Credit

Maine income tax returns saw a number of changes for the 2013 tax year, including a major revision to the state’s property tax refund program.  In the past, taxpayers needed to file for the property tax and rent “circuitbreaker” relief on a separate application from their income tax return.  For 2013 and later years, that program has been replaced by the Property Tax Fairness Credit.  Certain Maine taxpayers are now able to claim a credit on their state income tax return for a portion of their property taxes or rent paid.Photo of 384 Court Street Auburn, ME 04210

Under the new rules, taxpayers who are Maine residents for at least part of the year and who lived in a home in Maine that they owned or rented can qualify for the credit if they had a Maine adjusted gross income of $40,000 or less and paid more than 40% of their Maine adjusted gross on rent or more than 10% of it on property taxes.

For a taxpayer with a Maine adjusted gross income of $40,000, the credit would likely be available if their property taxes were more than $4,000 a year or their rent was more than $1,250.  This means that the taxpayers most at-risk for overlooking this credit are retirees who have social security or pension income that gets reduced or ignored for figuring Maine income, but may still have a high rent or property tax burden. This credit is generally not available for taxpayers in subsidized housing, unless they also received social security disability income.

This credit is new and hasn’t received a lot of press, so it’s fairly easy to overlook.  Taxpayers who are worried that they might have missed out on this credit should double-check their Maine returns, especially since up to $400 of the credit may be refundable.  That means that the taxpayer may get that much back, even if he or she had no Maine tax withheld during the year.

The Maine Revenue service has a page about the property tax fairness credit, and the worksheet used to calculate it is available on the Maine Revenue Service website.

 

Categories
Maine

Improved Maine 529 Plan Incentives

Qualified tuition plans, more commonly known as 529 plans, offer parents and other relatives a tax-advantage way to save money for college.   Taxpayers can fund a 529 plan only with after tax dollars, but the money in the plan grows tax-free, and can be withdrawn tax-free if used for qualifying educational expenses.  There’s a link in the resource section with more information about 529 plans generally, but the purpose of this post is to highlight a few of the Maine-specific incentives to invest in Maine’s version of 529 plans, called NextGen plans.  These grants have undergone some significant improvements for 2015!

 Maine 529 Plan Incentives

State-specific advantages to Maine’s 529 plans include:

  • A state income tax deduction for the first $250 contributed each year.
  • A $500 grant provided by the Harold Alfond College Challenge for babies born in Maine.
  • A $200 grant from the Finance Authority of Maine (FAME) for children with Maine ties who did not get the $500 grant.
  • A 50% matching grant from FAME on the first $200 each year for beneficiaries with Maine ties.
  • A $50 grant from FAME for establishing automatic funding and making 6 consecutive automatic funding transactions.

It’s worth noting that only one of these incentives is tax-related.  The rest are matching grants offered by a non-profit organization.

Maine 529 Plan Deduction

Maine offers a state income tax deduction for the first $250 contributed to a 529 plan each year.  It’s not much of a tax benefit – only about $20 in savings if you happen to be in the top tax bracket of 7.95%, but if you’re going to contribute to a college savings plan anyway, it’s worth remembering to get your deduction on the state return.

Harold Alfond Foundation  – 500 For Baby

Warren Buffet has called his purchase of Dexter Shoes his worst deal ever, but the proceeds of the deal have been put to good use.  The founder of Dexter Shoes, Harold Alfond, was extremely charitable both before and after the sale.  The Harold Alfond Foundation offers a grant of $500 towards college for any baby born in Maine.  Originally, the parents needed to complete the appropriate paperwork within the child’s first year, and the foundation funded the account with $500.   

Because this grant is so generous, so well publicized, and so easy to claim, it’s difficult to imagine anyone passing up on it – but many did.  According to the Bangor Daily News, fewer than half of new parents were claiming the $500 grant for their eligible newborns, and more recent comments from the Harold Alfond Foundation put that number at around 40%.  That’s why they’ve now changed the grant – retroactive to January 1, 2013 –  and are awarding it based on birth records with no paperwork required from the parents.  The Finance Authority of Maine will maintain these grants in one account, and then pay them directly to the college the child chooses to attend.

$200 Initial Matching Grant

If fewer than half of Maine parents are claiming the $500 grant for eligible newborns, many fewer are claiming the $200 initial grant.  This is a $200 grant for NextGen accounts opened after January 1, 2011 by a Maine resident or for the benefit of a Maine child.  The child can’t be eligible for the $500 for Baby grant, and there’s only one initial matching grant allowed for each child.

One of the things that’s so great about his grant is that its available to basically any child with Maine ties, because only the beneficiary or the person opening the account needs to be a Maine resident.  This means that grandparents in Maine can get the grant for opening a NextGen account for a child in Florida, and grandparents in Florid could get the grant for opening an account for a child in Maine.

NextStep Matching Grant

In addition to the grants mentioned previously, the Finance Authority of Maine also administers the NextStep Matching Grant program.  Under this program, FAME awards a 50% matching grant on the first $600 contributed to a beneficiary’s NextGen plan each year.  Only one NextStep grant is awarded per beneficiary each year, but language about a per-student limit on total matching grants has been removed from the NextStep matching grant section 2015 Terms and Conditions.

 $50 Automated Funding Grant

The $50 Automated Funding Grant is available to NextGen accounts that are owned by Maine residents or opened for the benefit of a Maine resident.  After six consecutive automated contributions are made to the account, the Finance Authority of Maine awards a $50 matching grant. As with the other grants, only one Automated Funding Grant is allowed per account, but this grant is in addition to the Harold Alfond grant or the Initial Matching Grant, if applicable.

Summary

Altogether, the Harold Alfond College Challenge, NextStep Matching Grant, and Automated Funding grant can be worth up to $1,550 in  grants to a Maine child’s 529 plan.  Residents who don’t qualify for the $500 grant are eligible for FAME grants worth up to $1,250.  Only the $500 Harold Alfond Grant is automatic.  The rest of the grants are triggered by opening and funding a NextGen plan.  Maine taxpayers can also benefit from a state income tax deduction for their contributions to a 529 plan, of up to $250 each year.   Additionally, these amounts can be expected to grow once they’re invested in the account, offering Maine college students a significant boost to their college savings. 

Resources

https://www.sec.gov/investor/pubs/intro529.htm

http://www.famemaine.com/files/Content/Terms_and_Conditions_-_2014_Final.pdf

Categories
Income Tax Maine

Pine Tree Development Zone Income Tax Credit

Businesses that have been approved for Pine Tree Development Zone (PTDZ) status by the Maine Department of Economic and Community Development are eligible for an income tax credit designed to eliminate their Maine income tax on the additional activity that results from expanding their operations in qualifying industries in Maine.  This can be an extremely generous tax credit, but it requires more forethought than most other income tax benefits because the business must go through the application process before it hires the additional people or adds assets.

Calculating the Pine Tree Development Zone Tax Credit – Corporations

The basic calculation of the credit for C-corporations is fairly simple compared to the calculation for individuals and pass-through businesses.

  1. Calculate Maine income tax without regard for the PTDZ credit or any other Maine tax credits.
  2. Add up all of the additional Maine payroll and the value of all of the Maine property in the qualifying business activity since the company received its PTDZ certification.
  3. Add up all of the Maine property and payroll.
  4. Divide the amount from #2 by the amount from #3.  This is called the apportionment factor.
  5. Multiply the company’s income tax from step 1 the apportionment factor calculated in step 4.

Keep in mind that property the company owns is valued at cost, but property that the company leases is included in the calculation at a rate of 8-times its annual lease payment.  Note that real estate, personal property, leased property, and payroll all factor into this formula.  That means that a company which is adding a small number of qualifying jobs but making significant capital investments in the targeted industries can receive a credit against a substantial portion of its Maine income taxes.

Calculating the Pine Tree Development Zone Tax Credit – Pass-throughs

S-Corporations, partnerships, and LLCs with Pine Tree Development Zone businesses have no corporate-level income tax to take a credit against.  These businesses report their total income and their PTDZ income out to their owners.  The PTDZ income divided by the total income is called the apportionment factor, and is used at the individual level for calculating the income tax credit.

Calculating the Pine Tree Development Zone Tax Credit – Individuals

In addition to the regular PTDZ tax credit worksheet, individuals must include worksheet PTE and a copy of their Pine Tree Development Zone certificate with their  Maine income tax returns.  Worksheet PTE performs a two-step calculation.  First, it figures out what percentage of the taxpayer’s income comes from the PTDZ business and then multiplies that apportionment factor to determine the PTDZ tax credit from the business. The PTDZ credit cannot reduce Maine tax below zero and it cannot be carried forward to later years, but it is applied before all other tax credits.  This means that the PTDZ credit can cause other credits which are refundable or eligible to be carried forward to drive income tax below zero or provide a benefit in future years.

Tax Tip: Owners of PTDZ businesses who add funds to a tax deferred account such as an IRA, 401(k), SEP, Simple, or HSA can increase their PTDZ credit percentage for the year, which may make those accounts more attractive than they usually are because those contributions will reduce federal and Maine income tax without reducing the PTDZ tax credit.

The Pine Tree Development Zone Tax Credit – Multiple Businesses

The Maine income tax forms and guidance documents are silent about how an individual who owns interests in multiple PTDZ businesses should calculate the tax credit.  Each of the worksheets refers only to Pine Tree Development Zone Business in a singular sense.  This author believes that taxpayers who own interests in multiple PTDZ businesses should file separate worksheets to determine the credit separately for each business.  They should then include a statement totaling the credits attributable to each PTDZ business and report the total credit on schedule A of their Maine income tax returns.

Resources

Maine Revenue Service – Pine Tree Development Zone Tax Credit

Maine Revenue Service – Worksheet for claiming the income tax credit

Maine Revenue Service – Worksheet PTE

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Categories
Income Tax Maine

Pine Tree Development Zones

Maine Pine Tree Development Zones were originally select regions of the state where businesses who opened or expanded and added quality jobs were able receive special tax benefits.  The program has since been expanded to apply throughout Maine, although there are still two tiers of Pine Tree Development Zone.  The benefits are available for five years in Tier 1 and for 10 years in Tier 2.

Pine Tree Development Zone Benefits

Pine Tree Development Zone Benefits can reduce or eliminate income taxes on the additional profits a company generates by expanding in Maine.  The benefits of applying for and receiving PTDZ benefits and include a credit against corporate income tax, a credit against insurance premiums for financial services companies, a reimbursement for some of the state income tax resulting from the increase in activity, exemption from sales tax on business equipment purchases, exemption from sales tax on purchases that go into real estate improvements, and access to reduced electricity rates.  These benefits can be quite generous but the calculations involved can get fairly complicated, so they will be discussed in a separate blog post.

Qualifications

To qualify as a Pine Tree Development Zone Business, a company bust be operating in one of the following sectors:

  • Biotechnology
  • Aquaculture and Marine Technology
  • Environmental Technology
  • Advanced Technologies for Forestry and Agriculture
  • Manufacturing and Precision Manufacturing
  • Information Technology
  • Financial Services

Additionally, the company must be creating new “quality jobs” in Maine.  It cannot simply move jobs around within the state to claim PTDZ benefits, but it can relocate jobs from outside of the state to Maine.  To count as a “quality job”, the total compensation for the new employees must, including employer payments toward employee benefits, must be at least as much as the per-capita income for the county in which the job is created and the job must include access to a group health plan and a retirement plan subject to ERISA.

Application Process

A company cannot simply hire a new employee and claim PTDZ benefits.  To claim PTDZ benefits, a company needs to get certified as a PTDZ business by the Maine Department of Economic and Community Development (DECD).   Prior to announcing its plans to expand publicly, the company must write a letter to the DECD stating that they would not be creating the new jobs without the PTDZ benefits.  Once the DECD acknowledges the letter, the company can then complete an application for PTDZ benefits.  There are DECD representatives available to help business who are considering expanding in Maine apply for PTDZ benefits, and any business considering

Resources

Maine Department of Economic and Community Development –  “Governor’s Account Executives”

Maine Department of Economic and Community Development – PTDZ Benefits

Per-Capita Personal Income Table

 

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Categories
Income Tax Maine

Maine’s Educational Opportunity Tax Credit

The Educational Opportunity Tax Credit (technically the Job Creation through Educational Opportunity Program) is a Maine state income tax credit that offsets the principle and interest  portions of student loan payments made by qualifying borrowers.  Depending on the student’s debt load, the credit may be worth up to $5,900 per year for up to 10 years.  The actual amount of the credit is based on the in-state tuition at Maine’s community colleges or the University of Maine System, but the students can attend any accredited schools in Maine.  Only loans awarded as part of the student’s financial aid package are eligible – outside loans, such as credit cards, home equity loans, or loans from family members do not qualify.

Who Qualifies

The credit is available to students who earn their associates or bachelor’s degrees in Maine and continue to live and work in the state.  Only loans used to pay for course work after January 2008 are eligible for the credit.  Prior to January 1, 2013, all  of the course work since 2008 had to have been completed at a Maine school.  The law was amended in 2011 to allow individuals to transfer to a Maine school after completing up-to 30 credit hours of work outside of Maine to claim half of the credit if they earned an associates degree or 3/4 of the credit if they earned a bachelor’s degree. 

If an employer makes student loan payments for an employee, the employer is then able to claim the tax credit instead.

How to Claim

The tax credit is claimed by the student or employer by attaching the appropriate worksheet when they file their Maine income tax return.   Keep in mind that not all tax software gets fully updated for every state tax credit, and taxpayers who prepare their own returns will need to be very careful to ensure that they don’t miss the credit or claim it inappropriately.

Policy Consideration

Not everyone agrees that the Educational Opportunity Tax Credit is good tax policy.

  • The tax credit isvery generous but helps very few people.  This means that students who started college in 2008 or later win.  Students who earned their degrees before then lose.  Undergraduate students win, and graduate students lose because the credit is only available for associates and bachelor’s degrees.  The credit is also not available to students who completed any part of their course work outside of Maine since 2008.
  • The tax credit is not well-publicized.  High school students selecting colleges may not be aware of it.  Students who qualify may not be claiming it, which keeps it from serving its purpose.  Some tax professionals may not be aware of it or remembering to ask the right questions to find out if their clients qualify for it.
  • There is a very long lead time between deciding to go to school in Maine and beginning to pay off student loans.  Incentives that have such a long delay are less effective than more immediate incentives, such as tax credits for tuition.
  • The 2011 changes to the law, which took effect in 2013, are not widely known.  As of October 22, 2013, the Opportunity Maine web site and many college web pages about the Educational Opportunity Tax Credit have not been updated for the changes.

Because the credit itself may be considered questionable tax policy, there is a good chance that the credit may some day be repealed.  Therefore, even students who meet the provisions of the credit may not be able to receive it for a full ten years.

 

More Information About Maine’s Educational Opportunity Tax Credit

Opportunity Maine Website – Note, this site appears to be out-of-date for some of the changes to the law.

Maine Revenue Service – Worksheet for Individuals (2012 version.  2013 is still pending)

Maine Revenue Service – Worksheet for Employers (2012 version, 2013 is still pending)

Maine Revised Statute  – Title 20-A, §12541: Definitions – Maine State Legislature