(LANSING, Mich.) -- Gov. Rick Snyder announced Tuesday that Fitch Ratings has upgraded Michigan's general obligation credit rating to AA, the first time Fitch has rated Michigan above AA- since January 2007.
Standard and Poor's also upgraded Michigan's credit outlook to "positive," while affirming its AA- rating. Moody's announced a similar upgrade last week.
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If you are among the four in 10 Americans who have no idea how they'll afford their tax bill this year, here are a few words of advice: Act now, not later.That being said, there are some simple steps taxpayers can take that will put them in the best position possible to wipe their slate clean and escape further consequences.
Don't stick your head in the sand. Like credit card bills, the longer you ignore the unpaid taxes, the worse it will be for your finances. The IRS will levy interest on past due balances in a heartbeat. "This could have negative ramifications on your finances by further impeding your ability to pay your tax bill and causing any tax lien reported in your credit file to stay there even longer," says Adrian Nazari of Creditsesame.com.
Pay whatever you can upfront. There's no need to throw your entire savings account at your tax bill if you can't afford it. Most tax software will allow you to pay a portion of your bill rather than the whole enchilada. This way, you'll skirt around any late fees and buy yourself some time.
Work out a payment plan. This is the most sensible option, especially if you know you'll be in for the long haul. The IRS calls it a "installment payment agreement" and offers a few ways to sign up: either fill out the Online Payment Agreement application, or submit a Form 9465-FS, Installment Agreement Request along with your return. Unless you can pay within 120 days, be ready to pay a fee upfront: It's $52 for a debit agreement, $105 to deduct payments from your salary or $43 for low-income taxpayers.
Ask for an extension. You've got until April 17 to submit a form 1127-A, Application for Extension of Time for Payment.
Pay by plastic. If you're at your rope's end, paying tax bills with credit is an option to consider. Just be ready to pay for the privilege. You must submit payment by credit card using a list of approved tax payment vendors. Fees for using a credit card range from 2 to 4 percent of your bill––not to mention the interest you'll accrue on the card balance itself. If you've got a card with a promotional 0% APR, you won't have to worry about interest for some time.
Make sure your credit report is clean. If you've waited long enough to pay your tax bill that the IRS has issued a lien against you, chances are it has turned up on your credit report. And even after you've paid off your bill in the future, that lien may not be automatically removed from your credit.
"It’s important to save all official tax lien documentation, and especially the release, for this reason," Nazari says. "Send copies of the lien release to the three credit bureaus and request that they update your tax lien record. Tax liens can appear on credit reports indefinitely until the lien is paid. Even after payment, the lien can impact your credit report for an additional seven years, though released liens will impact your credit less than unpaid liens."
Dispute any liens that aren't legit. If you see a tax lien on your credit report that you don’t recognize, don’t assume that it’s correct, Nazari adds. Tax liens are unfortunately filed under the wrong name often enough to warrant a second look. If you're sure it's an error, it's time for the usual drill: Dispute the lien on your report at all three credit bureaus.
SEE ALSO: 22 household tricks that will save you thousands >
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New York state just passed its $1.35 billion budget, bumping up the minimum wage to $8.00 from $7.25, and raising it incrementally each year. Good news for low-wage workers, right? In fact, it’s a classic example of how well-intentioned provisions might have unintended consequences.
Included in the budget was a measure to encourage small businesses to keep young student workers on their payroll. It subsidizes the minimum wage for them via a tax credit (pdf, p. 59). If businesses pay minimum wage to workers aged 16-19, they receive a refundable tax credit for the difference of the latest wage increase.
“The minimum wage/teen tax credit was a compromise we believed was necessary to protect businesses,” Scott Reif, a spokesman for Senate Republican Leader Dean Skelos of Long Island, told the New York Post.
The trouble is, for workers over 19, there’s no tax credit. So that gives companies a strong incentive to hire teens for low-wage positions that would otherwise be filled by adults, and even to replace current adults workers with teens. Since adults currently make up around 90% of New York’s low-wage workforce, that’s potentially a lot of money companies can save.
What’s worse, the provision rewards only companies that pay exactly minimum wage. So even teen workers whose wages are subsidized could get screwed, because this encourages companies to slash wages of the 54% of teenage workers (pdf, p.4) who were making more than $8.00 an hour as of 2011.
Moreover, the law is supposedly aimed at small businesses. But they aren’t the primary beneficiaries, says James Parrott, an economist at the Fiscal Policy Institute (FPI). “The biggest employers of low-wage workers [are] likely to include discount retail chains like Wal-Mart and fast food chains like McDonald’s and Yum Brands,” he told Quartz.
Which is why the final unintended consequence is that this subsidy could cost the state—i.e., taxpayers—much more than it was meant to.
Preliminary estimates from the state governor’s office put the total cost at $35 million in 2014, jumping to $63 million in 2015 and $66 million the next two years. Parrott says that “[We can't yet] quantify the overall impact” but that next year the tax credit will cost taxpayers $1,560 per full-time teenage worker, jumping to $2,808 in 2016-18. If the FPI is right, the governor’s estimates of the total cost imply around 22,000-23,000 full-time student workers.
Yet last year, New York had nearly 160,000 full-time teenage workers (pdf, p. 4) making around $8.00 an hour. Subsidizing the minimum wage for them all would cost just shy of $250 million in 2014, instead of $35 million. And that number could grow further if companies start replacing adult workers with teenagers.
Why is the governor’s estimate so low? It might be, says Parrott, because not many of the companies eligible for the tax credit are expected to take it up. But, he argues, when the main beneficiaries are big firms like Wal-Mart that stand to save millions of dollars in taxes, that’s a risky assumption.
In short, a law designed to help minimum-wage workers earn a little more money may merely end up impoverishing a lot of other workers while padding big companies’ profits. Not the best outcome. Neither governor Andrew Cuomo’s office nor the office of state senator Jeffrey Klein, the Democratic co-leader and a sponsor of the tax credit provision, responded to requests for comment.
Correction (March 29, 11:52 a.m.) This piece has been corrected to reflect that the current governor of New York is Andrew, not Mario, Cuomo. It also originally described the tax credit as a “deduction.” It’s actually a tax credit that is refundable if the business otherwise does not owe any taxes.
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