Effective: February 7, 2022
Your Stuff & Your Permissions
When you use our Services, you provide us with things like your files, content, messages, contacts, and so on ("Your Stuff"). Your Stuff is yours. These Terms don’t give us any rights to Your Stuff except for the limited rights that enable us to offer the Services.
We need your permission to do things like hosting Your Stuff, backing it up, and sharing it when you ask us to. Our Services also provide you with features like eSign, file sharing, email newsletters, appointment setting and more. These and other features may require our systems to access, store, and scan Your Stuff. You give us permission to do those things, and this permission extends to our affiliates and trusted third parties we work with.
Sharing Your Stuff
Our Services let you share Your Stuff with others, so please think carefully about what you share.
You’re responsible for your conduct. Your Stuff and you must comply with applicable laws. Content in the Services may be protected by others’ intellectual property rights. Please don’t copy, upload, download, or share content unless you have the right to do so. We may review your conduct and content for compliance with these Terms. With that said, we have no obligation to do so. We aren’t responsible for the content people post and share via the Services.
Help us keep you informed and Your Stuff protected. Safeguard your password to the Services, and keep your account information current. Don’t share your account credentials or give others access to your account.
You may use our Services only as permitted by applicable law, including export control laws and regulations. Finally, to use our Services, you must be at least 13, or in some cases, even older. If you live in France, Germany, or the Netherlands, you must be at least 16. Please check your local law for the age of digital consent. If you don’t meet these age requirements, you may not use the Services.
Some of our Services allow you to download client software (“Software”) which may update automatically. So long as you comply with these Terms, we give you a limited, nonexclusive, nontransferable, revocable license to use the Software, solely to access the Services. To the extent any component of the Software may be offered under an open source license, we’ll make that license available to you and the provisions of that license may expressly override some of these Terms. Unless the following restrictions are prohibited by law, you agree not to reverse engineer or decompile the Services, attempt to do so, or assist anyone in doing so.
We sometimes release products and features that we are still testing and evaluating. Those Services have been marked beta, preview, early access, or evaluation (or with words or phrases with similar meanings) and may not be as reliable as other non-beta services, so please keep that in mind.
The Services are protected by copyright, trademark, and other US and foreign laws. These Terms don’t grant you any right, title, or interest in the Services, others’ content in the Services, CountingWorks and our trademarks, logos and other brand features. We welcome feedback, but note that we may use comments or suggestions without any obligation to you.
We respect the intellectual property of others and ask that you do too. We respond to notices of alleged copyright infringement if they comply with the law, and such notices should be reported to legal@CountingWorks.com. We reserve the right to delete or disable content alleged to be infringing and terminate accounts of repeat infringers. Our designated agent for notice of alleged copyright infringement on the Services is:
You’re free to stop using our Services at any time. We reserve the right to suspend or terminate your access to the Services with notice to you if:
We won’t provide notice before termination where:
Discontinuation of Services
We may decide to discontinue the Services in response to unforeseen circumstances beyond CountingWorks control or to comply with a legal requirement. If we do so, we’ll give you reasonable prior notice so that you can export Your Stuff from our systems.
Services “AS IS”
We strive to provide great Services, but there are certain things that we can't guarantee. TO THE FULLEST EXTENT PERMITTED BY LAW, CountingWorks AND ITS AFFILIATES, SUPPLIERS AND DISTRIBUTORS MAKE NO WARRANTIES, EITHER EXPRESS OR IMPLIED, ABOUT THE SERVICES. THE SERVICES ARE PROVIDED "AS IS." WE ALSO DISCLAIM ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT. Some places don’t allow the disclaimers in this paragraph, so they may not apply to you.
Limitation of Liability
WE DON’T EXCLUDE OR LIMIT OUR LIABILITY TO YOU WHERE IT WOULD BE ILLEGAL TO DO SO—THIS INCLUDES ANY LIABILITY FOR CountingWorks OR ITS AFFILIATES’ FRAUD OR FRAUDULENT MISREPRESENTATION IN PROVIDING THE SERVICES. IN COUNTRIES WHERE THE FOLLOWING TYPES OF EXCLUSIONS AREN’T ALLOWED, WE'RE RESPONSIBLE TO YOU ONLY FOR LOSSES AND DAMAGES THAT ARE A REASONABLY FORESEEABLE RESULT OF OUR FAILURE TO USE REASONABLE CARE AND SKILL OR OUR BREACH OF OUR CONTRACT WITH YOU. THIS PARAGRAPH DOESN’T AFFECT CONSUMER RIGHTS THAT CAN'T BE WAIVED OR LIMITED BY ANY CONTRACT OR AGREEMENT.
IN COUNTRIES WHERE EXCLUSIONS OR LIMITATIONS OF LIABILITY ARE ALLOWED, CountingWorks, ITS AFFILIATES, SUPPLIERS OR DISTRIBUTORS WON’T BE LIABLE FOR:
THESE EXCLUSIONS OR LIMITATIONS WILL APPLY REGARDLESS OF WHETHER OR NOT CountingWorks OR ANY OF ITS AFFILIATES HAS BEEN WARNED OF THE POSSIBILITY OF SUCH DAMAGES.
IF YOU USE THE SERVICES FOR ANY COMMERCIAL, BUSINESS, OR RE-SALE PURPOSE, CountingWorks, ITS AFFILIATES, SUPPLIERS OR DISTRIBUTORS WILL HAVE NO LIABILITY TO YOU FOR ANY LOSS OF PROFIT, LOSS OF BUSINESS, BUSINESS INTERRUPTION, OR LOSS OF BUSINESS OPPORTUNITY. CountingWorks AND ITS AFFILIATES AREN’T RESPONSIBLE FOR THE CONDUCT, WHETHER ONLINE OR OFFLINE, OF ANY USER OF THE SERVICES.
Let’s Try To Sort Things Out First. We want to address your concerns without needing a formal legal case. Before filing a claim against CountingWorks or our affiliates, you agree to try to resolve the dispute informally by contacting legal@CountingWorks.com. We’ll try to resolve the dispute informally by contacting you via email.
Judicial forum for disputes. You and CountingWorks agree that any judicial proceeding to resolve claims relating to these Terms or the Services will be brought in the federal or state courts of Orange County, California, subject to the mandatory arbitration provisions below. Both you and CountingWorks consent to venue and personal jurisdiction in such courts. If you reside in a country (for example, European Union member states) with laws that give consumers the right to bring disputes in their local courts, this paragraph doesn’t affect those requirements.
IF YOU’RE A U.S. RESIDENT, YOU ALSO AGREE TO THE FOLLOWING MANDATORY ARBITRATION PROVISIONS:
These Terms will be governed by California law except for its conflicts of laws principles. However, some countries (including those in the European Union) have laws that require agreements to be governed by the local laws of the consumer's country. This paragraph doesn’t override those laws.
These Terms constitute the entire agreement between you and CountingWorks with respect to the subject matter of these Terms, and supersede and replace any other prior or contemporaneous agreements, or terms and conditions applicable to the subject matter of these Terms. These Terms create no third party beneficiary rights.
Waiver, Severability & Assignment
CountingWorks failure to enforce a provision is not a waiver of its right to do so later. If a provision is found unenforceable, the remaining provisions of the Terms will remain in full effect and an enforceable term will be substituted reflecting our intent as closely as possible. You may not assign any of your rights under these Terms, and any such attempt will be void. CountingWorks may assign its rights to any of its affiliates or subsidiaries, or to any successor in interest of any business associated with the Services.
We may revise these Terms from time to time to better reflect:
If an update affects your use of the Services or your legal rights as a user of our Services, we’ll notify you prior to the update's effective date by sending an email to the email address associated with your account or via an in-product notification. These updated terms will be effective no less than 30 days from when we notify you.
If you don’t agree to the updates we make, please cancel your account before they become effective. By continuing to use or access the Services after the updates come into effect, you agree to be bound by the revised Terms.
Effective: February 7, 2022
Thanks for visiting our website. Our mission is to create a web based experience that makes it easier for us to work together. Here we describe how we collect, use, and handle your personal information when you use our websites, software, and services (“Services”).
What & Why
We collect and use the following information to provide, improve, and protect our Services:
Account information. We collect, and associate with your account, the information you provide to us when you do things such as sign up for your account, opt-in to our client newsletter or request an appointment (like your name, email address, phone number, and physical address). Some of our Services let you access your accounts and your information via other service providers.
Your Stuff. Our Services are designed to make it simple for you to store your files, documents, comments, messages, and so on (“Your Stuff”), collaborate with others, and work across multiple devices. To make that possible, we store, process, and transmit Your Stuff as well as information related to it. This related information includes your profile information that makes it easier to collaborate and share Your Stuff with others, as well as things like the size of the file, the time it was uploaded, collaborators, and usage activity. Our Services provide you with different options for sharing Your Stuff.
Contacts. You may choose to give us access to your contacts (spouse or other company staff) to make it easy for you to do things like share and collaborate on Your Stuff, send messages, and invite others to use the Services. If you do, we’ll store those contacts on our servers for you to use.
Usage information. We collect information related to how you use the Services, including actions you take in your account (like sharing, viewing, and moving files or folders). We use this information to improve our Services, develop new services and features, and protect our users.
Cookies and other technologies. We use technologies like cookies to provide, improve, protect, and promote our Services. For example, cookies help us with things like remembering your username for your next visit, understanding how you are interacting with our Services, and improving them based on that information. You can set your browser to not accept cookies, but this may limit your ability to use the Services.
Marketing. We give users the option to use some of our Services free of charge. These free Services are made possible by the fact that some users upgrade to one of our paid Services. If you register for our free Services, we will, from time to time, send you information about the firm or tax and accounting tips when permissible. Users who receive these marketing materials can opt out at any time. If you do not want to receive marketing materials from us, simply click the ‘unsubscribe’ link in any email.
We sometimes contact people who do not have an account. For recipients in the EU, we or a third party will obtain consent before contacting you. If you receive an email and no longer wish to be contacted by us, you can unsubscribe and remove yourself from our contact list via the message itself.
Bases for processing your data. We collect and use the personal data described above in order to provide you with the Services in a reliable and secure manner. We also collect and use personal data for our legitimate business needs. To the extent we process your personal data for other purposes, we ask for your consent in advance or require that our partners obtain such consent.
We may share information as discussed below, but we won’t sell it to advertisers or other third parties.
Other users. Our Services display information like your name, profile picture, device, and email address to other users in places like your user profile and sharing notifications. You can also share Your Stuff with other users if you choose. When you register your account with an email address on a domain owned by your employer or organization, we may help collaborators and administrators find you and your workspace by making some of your basic information—like your name, workspace name, profile picture, and email address—visible to other users on the same domain. This helps you sync up with workspaces you can join and helps other users share files and folders with you. Certain features let you make additional information available to others.
Workspace Admins. If you are a user of a workspace, your administrator may have the ability to access and control your workspace account. Please refer to your organization’s internal policies if you have questions about this. If you are not a workspace user but interact with a workspace user (by, for example, joining a shared folder or accessing stuff shared by that user), members of that organization may be able to view the name, email address, profile picture, and IP address that was associated with your account at the time of that interaction.
Law & Order and the Public Interest. We may disclose your information to third parties if we determine that such disclosure is reasonably necessary to: (a) comply with any applicable law, regulation, legal process, or appropriate government request; (b) protect any person from death or serious bodily injury; (c) prevent fraud or abuse of our platform or our users; (d) protect our rights, property, safety, or interest; or (e) perform a task carried out in the public interest.
Stewardship of your data is critical to us and a responsibility that we embrace. We believe that your data should receive the same legal protections regardless of whether it’s stored on our Services or on your home computer’s hard drive. We’ll abide by Government Request Policies when receiving, scrutinizing, and responding to government requests (including national security requests) for your data:
Security. We have a team dedicated to keeping your information secure and testing for vulnerabilities. We also continue to work on features to keep your information safe in addition to things like blocking repeated login attempts, encryption of files at rest, and alerts when new devices and apps are linked to your account. We deploy automated technologies to detect abusive behavior and content that may harm our Services, you, or other users.
User Controls. You can access, amend, download, and delete your personal information by logging into your account.
Retention. When you sign up for an account with us, we’ll retain information you store on our Services for as long as your account is in existence or as long as we need it to provide you the Services. If you delete your account, we will initiate deletion of this information after 30 days. But please note: (1) there might be some latency in deleting this information from our servers and back-up storage; and (2) we may retain this information if necessary to comply with our legal obligations, resolve disputes, or enforce our agreements.
Around the world. To provide you with the Services, we may store, process, and transmit information in the United States and locations around the world—including those outside your country. Information may also be stored locally on the devices you use to access the Services.
EU-U.S. Privacy Shield and Swiss-U.S. Privacy Shield. When transferring data from the European Union, the European Economic Area, and Switzerland, We rely upon a variety of legal mechanisms, including contracts with our customers and affiliates. We comply with the EU-U.S. and Swiss–U.S. Privacy Shield Frameworks as set forth by the U.S. Department of Commerce regarding the collection, use, and retention of personal information transferred from the European Union, the European Economic Area, and Switzerland to the United States.
We are subject to oversight by the U.S. Federal Trade Commission. JAMS is the US-based independent organization responsible for reviewing and resolving complaints about our Privacy Shield compliance—free of charge to you. We ask that you first submit any such complaints directly to us via privacy@CountingWorks.com. If you aren’t satisfied with our response, please contact JAMS at https://www.jamsadr.com/eu-us-privacy-shield. In the event your concern still isn’t addressed by JAMS, you may be entitled to a binding arbitration under Privacy Shield and its principles.
If we are involved in a reorganization, merger, acquisition, or sale of our assets, your information may be transferred as part of that deal.
Your Right to Control and Access Your Information
You have control over your personal information and how it is collected, used, and shared. For example, you have a right to:
Your personal information is controlled by CountingWorks, Inc. Have questions or concerns about CountingWorks, our Services, and privacy? Contact our Data Protection Officer at privacy@CountingWorks.com. If they can’t answer your question, you have the right to contact your local data protection supervisory authority.
Third Party Vendors
Amazon Web Services
Updated: June 2020.
strives to ensure that its services are accessible to people with disabilities. has invested a significant amount of resources to help ensure that its website is made easier to use and more accessible for people with disabilities, with the strong belief that every person has the right to live with dignity, equality, comfort and independence.
makes available the UserWay Website Accessibility Widget that is powered by a dedicated accessibility server. The software allows us to improve its compliance with the Web Content Accessibility Guidelines (WCAG 2.1).
Enabling the Accessibility Menu
The accessibility menu can be enabled either by hitting the tab key when the page first loads or by clicking the accessibility menu icon that appears on the corner of the page. After triggering the accessibility menu, please wait a moment for the accessibility menu to load in its entirety.
continues its efforts to constantly improve the accessibility of its site and services in the belief that it is our collective moral obligation to allow seamless, accessible and unhindered use also for those of us with disabilities.
In an ongoing effort to continually improve and remediate accessibility issues, we also regularly scan with UserWay's Accessibility Scanner to identify and fix every possible accessibility barrier on our site. Despite our efforts to make all pages and content on fully accessible, some content may not have yet been fully adapted to the strictest accessibility standards. This may be a result of not having found or identified the most appropriate technological solution.
Here For You
If you are experiencing difficulty with any content on or require assistance with any part of our site, please contact us during normal business hours as detailed below and we will be happy to assist.
If you wish to report an accessibility issue, have any questions or need assistance, please contact customer support.
DON’T FORGET: The tax deadline is fast approaching. Contact us to get started on your return today.
Special Tax Birthdays
Birth of a Child
o Qualifying Child
o Child Tax Credit
o Child Care Credit
o Earned Income Credit
U.S. Savings Bonds Used for Education Expenses
Retirement Plan Catch-up Contributions
Retirement Plan Distributions
o Public Safety Employees
o Early Distributions
Social Security Benefits Taxation
Additional Standard Deduction
Qualified Charitable Distribution
Required Minimum Distributions
When Congress enacts tax laws, many times whether the law applies is based on the age of the taxpayer or a taxpayer’s dependent. Reaching a certain age sometimes provides a tax benefit, while in other cases there’s a tax “penalty” – meaning that a specific type of income becomes taxable, or a credit no longer applies. Most of these age-related tax rules concern dependent children or retirement plan contributions or distributions. If you or a member of your tax family is having one of these special birthdays this year, you may be interested in knowing how your taxes will be affected, so here are some birthdays (or half-birthdays in a couple of cases) that have tax significance, listed by the age as of the birthday:
0 – “Zero” in this context means the birth of a child. In tax lingo, when you have a “qualifying child” you are entitled to claim that child as your tax dependent, which will then make you eligible to claim certain tax credits. A qualifying child is an individual who meets the following tests:
(1) Has the same principal place of abode (residence) as you for more than half of the tax year. Exceptions include the year of birth and temporary absences;
(2) Is your son, daughter, stepson, stepdaughter, brother, sister, stepbrother, stepsister, or a descendant of any of these individuals;
(3) Is younger than you are;
(4) Did not provide over half of his or her own support for the tax year;
(5) Is under age 19, or under age 24 in the case of a full-time student, or is permanently and totally disabled (at any age); and
(6) Was unmarried (or if married, either did not file a joint return or filed jointly only to claim a refund).
For a newborn child, the “half the year” requirement of (1) doesn’t apply if your home was the child's home for more than half of the time he or she was alive during the year. So, in most instances, if you welcomed a baby into your family this year, even if the child was born on December 31, 2022, the child will be a qualifying child and your dependent for 2022, and you may be able to claim one or more of the following tax credits:
Child Tax Credit – The child tax credit is $2,000 per child for 2022. If the credit is not entirely used to offset your tax, the excess portion of the credit, up to the amount that your earned income exceeds a threshold ($2,500 for 2022), but not more than $1,500, is refundable. The credit begins to phase out at modified adjusted gross incomes (MAGI) of $400,000 for married joint filers and $200,000 for other filing statuses. The credit is reduced by $50 for each $1,000 (or fraction of $1,000) of modified AGI over the threshold. See also “17” below.
Child Care Credit - If you use the services of day care providers to look after your dependent child, you may qualify for a tax credit if the expense is an “employment-related” expense, which is one that you or your spouse, if married, incur to work, or look for work. Married couples must file jointly, and both spouses must work (or one spouse must be a full-time student or disabled) to claim the credit.
The qualifying expenses for the credit are capped at $3,000 per year if you have one qualifying child, while the limit increases to $6,000 per year if you have two or more eligible children. However, the qualifying expenses are limited to your income from working and, if you are married, the expenses are limited to the lower of your or your spouse’s work income. An exception applies when one spouse has no actual income from working and that spouse is a full-time student or disabled. In that case the nonworking or student spouse is considered to have a monthly income of $250 (if there’s one qualifying child) or $500 (for two or more qualifying children).
The credit is computed as a percentage of qualifying expenses with the credit rate ranging from 35% for those with AGI of $15,000 or less to 20% if AGI exceeds $43,000. The credit will reduce your tax bill dollar for dollar, but if the credit is more than your tax, the excess credit is not refundable. See also “13” below.
Some employers provide dependent care assistance programs to help their employees with the cost of daycare. If you participate in such a plan and use payments from the plan to pay childcare expenses, the payments are excludable from your income, up to the lower of your earned income (or if you are married, the earned income of your spouse if it is lower) or $5,000 ($2,500 for married filing separate). Because reimbursement up to these limits is excludable from your income, it is treated as reimbursement for day care expenses that reduces the $3,000 or $6,000 expense limits when computing the credit. Reimbursement more than these limits is taxable to you and does not reduce qualified expenses for the credit.
Earned Income Tax Credit (EITC) - If you have income from working either as an employee or a self-employed individual, you may qualify for this refundable credit. The credit is based on three factors: your earned income, AGI, and how many qualifying children you have. If you have investment income such as interest and dividends more than $10,300 (for 2022), you are ineligible for this credit. The credit was established as an incentive for individuals to obtain employment. It increases with the amount of earned income until the maximum credit is achieved and then begins to phase out at higher incomes. The table below illustrates the phase-out ranges for the various combinations of filing status and earned income and the maximum credit available.
Although the EITC is available for lower-income taxpayers without children, the credit increases substantially for those with children.
2022 EIC PHASEOUT RANGE
Number of Children
$15,290 - $22,610
$9,160 - $16,480
$26,260 - $49,622
$20,130 - $43,492
$26,260 - $55,529
$20,130 - $49,399
3 or more
$26,260 - $59,187
$20,130 - $53,057
13 – In the year that your child turns 13, only the day care expenses you paid for the child for the part of the year when he or she was under age 13 qualify for the Child Care Credit.
17 – You can no longer claim the Child Tax Credit on your return starting for the year that your child is 17 at year’s end. So, for the year of your child’s 17th birthday, no Child Tax Credit is allowed for that child.
18 – The year in which your child has their 18th birthday is the last year that the child is considered a qualifying child, unless the child is a student and under age 24. To qualify as a student for this purpose, during some part of each of any 5 calendar months of the year, your child must be:
A full-time student at a school that has a regular teaching staff, course of study, and a regularly enrolled student body at the school; or
A student taking a full-time, on-farm training course given by a school described in the prior bullet, or by a state, county, or local government agency.
The 5 calendar months don’t have to be consecutive, and a full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance.
If your older child isn’t a student under this definition, you might still qualify to claim the child as a dependent, but not as a qualifying child. The term for this type of dependent is “qualifying relative,” even though some individuals can qualify without being related to you. Three tests must be met before you can claim someone as your dependent if they aren’t a qualifying child:
A. Member of Household or Relationship Test – To meet the member of the household test, an individual would have to live with you all year in your household. But under the “or relationship” part of the test, your child would satisfy this test just by being your child, foster child, or stepchild, even if not living with you. Other relatives, such as your siblings, parents, grandparents, and others, could also meet this test.
B. Gross Income Test – To satisfy this test, your child (or other individual who might be a qualifying relative) can have no more than $4,400 (2022) of gross income for the year.
C. Support Test – You would need to provide more than half of the cost of the individual’s support. So, for example, if you wanted to figure whether you provided more than half of your 19-year-old non-student child’s support, compare the amount you contributed to your child’s support with the entire amount of support he or she received from all sources, including the support the child provided from their own funds.
24 – In the year that your child who is a student (as defined above) reaches age 24, the child is no longer a qualifying child for tax purposes and for you to be able to claim the child as a dependent on your tax return, tests A, B and C described above for a qualifying relative will need to be met. Losing the child as a dependent means that you would no longer be eligible to claim the higher-education credits (American Opportunity Tax Credit and Lifetime Learning Credit) based on the education expenses of that child.
24 – If you purchase U.S. Savings Bonds after reaching age 24, when you redeem the bonds and use the proceeds to pay qualified higher education expenses, such as tuition and fees, or contribute the funds to a Section 529 plan, you may be able to exclude the interest on the bonds from your gross income. However, the amount excludable may be reduced depending on your income when the bonds are redeemed.
25 – An ABLE (Achieving a Better Life Experience) account may be established by an individual if their blindness or disability occurred before age 26. Thus, only those who become blind or disabled no later than age 25 qualify for an ABLE account. Those eligible for an ABLE account are termed ABLE beneficiaries. Often the ABLE account is funded by the beneficiary’s parents or others. The total annual contributions to an ABLE account are limited to the annual gift tax exclusion amount ($16,000 for 2022), plus certain employed ABLE account beneficiaries may make an additional contribution. The contributions are not tax deductible but if the employed beneficiary contributes to the account, that individual may qualify to claim the so-called Saver’s Credit.
The idea behind ABLE accounts is to provide a way of supporting the account beneficiary in maintaining their health, independence, and quality of life. ABLE accounts shelter assets from means testing required by some government benefit programs. Distributions to the beneficiary are tax free if the funds are used for qualified expenses of the disabled individual.
25 – The youngest age at which a taxpayer with no qualifying children can qualify for the earned income credit is 25. If married and filing a joint return, only one of the spouses needs to be least age 25 at the close of the tax year. For 2021 only, the minimum age was dropped to 19 for most taxpayers.
50 – Once you reach age 50 you can make additional annual “catch-up” contributions to salary reduction plans, including 401(k) plans, provided the plan permits catch-up contributions. The allowable “catch-up” amount is indexed for inflation in $500 increments, and for 2022 is $6,500. If you contribute to an IRA, the catch-up amount for IRA owners is $1,000, and is not inflation-adjusted. Thus, the maximum contribution by a worker aged 50 or older to a 401(k) or similar plan for 2022 is $27,000 or to an IRA is $7,000.
50 – A special rule applies for public safety employees aged 50 or older: If you withdraw funds from a government defined benefit pension plan and you are a qualified public safety employee who separates from the job after age 50, the 10% early withdrawal penalty (see “59½” below) does not apply to the original distribution from the plan. However, if the funds are rolled into an IRA or a defined contribution plan, any subsequent distribution (until you reach age 59½) is subject to the 10% penalty. A public safety employee is defined for this purpose as:
Any employee of a State or political subdivision of a State who provides police protection, firefighting services, or emergency medical services for any area within the jurisdiction of that State or political subdivision, or
Any Federal law enforcement officer, Federal customs and border protection officer, Federal firefighter, or any air traffic controller.
55 – Starting in the year you turn age 55, you may be able to take a distribution from a qualified retirement plan (not an IRA) and avoid an early withdrawal penalty. This exception applies only where you separate from employment (i.e., stop working for the employer that is sponsoring the plan) after reaching age 55, and won’t apply if you retire from your job before turning 55 but wait until after your 55th birthday to take the distribution from the plan. Said another way: You must be age 55 or older, and then separate from employment, for an early distribution to be excepted from the 10% penalty.
59½ – A 10% tax (penalty) applies to premature (also termed early) distributions from traditional IRAs and qualified retirement plans, such as 401(k)s and others. This penalty applies to distributions made before you reach age 59½ (but see “55” above for an exception) and is 10% of the part of the distribution that you would be required to include in your income for the year of the distribution. There are several exceptions to the penalty – some available only for IRAs or only for employer plans, some for both types of retirement vehicles – that aren’t covered in this article. If you plan to make a traditional IRA or retirement plan distribution between your 59th and 60th birthdays, be sure to do it after you reach 59½. If you take the distribution too soon, you could owe the early distribution penalty.
62 – When you reach age 62 you may be eligible to receive Social Security benefits. Once you start claiming your benefits, whether at 62 or a later age, you should be aware that up to 85% of those benefits could be taxed. You may want to have the Social Security Administration withhold income tax from your monthly benefit payment or you may need to make estimated tax payments.
65 – In the year you turn 65 and each year thereafter, and if you do not itemize your deductions on your tax return, you will be entitled to an additional standard deduction amount. This amount is indexed for inflation. For 2022, this extra amount is $1,400 if you are married, whether you use the joint, married separate or qualifying widow(er) filing status, or $1,750 if you file as single or head of household. If married, and your spouse is also age 65 or older, each of you qualifies for the extra amount. There’s no need to prorate the additional amount for the year of your 65th birthday.
65 – An individual with no qualifying children cannot claim the earned income credit starting with the tax year in which they have their 65th birthday. For 2021 only, the maximum age limitation was waived.
70½ - This half-birthday marks the point from which you can make a nontaxable qualified charitable distribution (QCD) from your traditional IRA of up to $100,000 per year. This distribution needs to be made directly by the IRA trustee to an eligible charitable organization for the distribution to be tax free. However, you won’t be able to claim a charitable deduction for the amount that is a QCD.
Distributions to a private foundation or a donor-advised fund aren’t eligible. If filing a joint return and both you and your spouse have an IRA, the $100,000 limitation applies to each of you. Caution: be careful on the timing since a distribution from an IRA made to a charitable organization in the year you turn 70½, but prior to the date you reach age 70½, is not a qualified charitable distribution and would therefore be taxable.
72 – To prevent an individual from investing in tax-deferred retirement plans, including a traditional IRA, but never withdrawing from the plan, the account owner is REQUIRED to take a MINIMUM (as calculated per IRS regulations) DISTRIBUTION (RMD) beginning in the year the IRA owner reaches the mandatory beginning age, which is currently 72. For the first distribution year, you are allowed to put off the distribution to as late as April 1 of the following year.
Example: Say you turn 72 in 2022 and have a traditional IRA. You have until April 1, 2023, to take the 2022 RMD from your IRA. You will also need to take the 2023 RMD by the end of 2023. So, if you delay the first distribution into the first quarter of 2023, you’ll end up with a double RMD on which to pay tax in 2023.
Distributions from your IRA don’t count toward the RMD you must take from your 401(k) or another employer plan, and vice versa.
72 – Legislation enacted in the last few years permits taxpayers with earned income to continue contributing to their IRAs regardless of their age. Previously, contributions couldn’t be made once the IRA owner became 70½, which for decades was also the age that RMDs had to begin. Even though you may make a traditional IRA contribution at age 72 or older, you will still be required to take an RMD.
So now we have a complication when you can make a traditional IRA contribution and a qualified charitable distribution (QCD) after reaching age 70½. In this scenario if you make a QCD you are required to reduce the amount of the QCD that is nontaxable by any traditional IRA contribution you made and deducted after reaching 70½, even if the IRA contribution and QCD are not in the same year.
85 – If you want to stretch out your retirement funds, you are allowed to use up to the lesser of 25% or $145,000 (2022 limit) of your retirement account to purchase a qualified longevity annuity contract (QLAC) within the account. The amount used to purchase the QLAC is subtracted from the account balance and would thus reduce the RMD from the retirement account each year until a specified time in the future, but no later than age 85, when distributions must begin from the annuity.
There isn’t space in this article to include all the details related to the numerous tax benefits and rules that apply for the birthdays listed. If you have questions or would like more information about any of them, please contact this office.
Sign up for our newsletter.