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Tax law change may mean larger refunds

March 17, 1999|By KERRY LYNN FRALEY

The average Maryland taxpayer can expect larger federal and state refunds this year thanks to tax law changes for 1998, according to Internal Revenue Service and Maryland State Comptroller's office representatives.

The average federal refund is $1,700, up from $1,500 last year, according to IRS spokesman Domenic J. LaPonzina.

State refunds are averaging $522 this year, up 11 percent from last year, according to Maryland State Comptroller's office spokesman Michael D. Golden.

While several changes benefit families with children, about three-fourths of all taxpayers will gain from an increase in the standard deduction, LaPonzina said.

Only about a quarter of taxpayers itemize on their federal return, he said.

The standard deduction is $100, $150 or $200 more than in 1997, depending on filing status. The personal exemption is $50 more for the taxpayer and each dependent.

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Taxpayers don't need to itemize to take advantage of the new tax credits, which apply to families with children under 17 or dependent children in college and to adults pursuing higher education.

Tax credits are more significant than an allowable deduction because they are subtracted off income tax owed, not deducted from income before it's taxed, LaPonzina said.

For example, the new Child Tax Credit can slice up to $800 from the tax bill of a family with two children, he said.

The maximum federal Earned Income Tax Credit for low-income, working people was raised $100, which will provide an additional benefit to many families, LaPonzina said.

Maryland's Earned Income Credit was expanded in 1998 so people not only can wipe out tax liability but can apply the credit toward a tax refund, Golden said.

An additional 150,000 taxpayers are expected to benefit from the state earned income credit this year, he said.

A drop in the state tax rate and increase in the personal exemption will benefit all Maryland taxpayers, Golden said.

The top state tax rate was dropped from 5 percent to 4.875 percent this year, he said.

The Comptroller's office had braced for increased confusion this season because the cut in the state tax rate wasn't mirrored at the local level, Golden said.

Still, despite the fact taxpayers can't use their 1997 form as a guide, the number of calls and questions seems to be about the same as last year - low, he said.

The state tax cut required a change in the state tax form so that local tax could be calculated based on what the state tax would have been without the cut, Golden said.

"It's just 10 more lines, just a little more math," he said.

Short form 503 was eliminated.

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