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More Help From the Tax Collector

August 30, 1996|KATHY M. KRISTOF

Child support assistance

Ex-spouse is more than 30 days late sending child support? California tax authorities may be able to help you collect.

The Franchise Tax Board started to test a child support collection program in 1993. It was highly successful and is now available in 32 counties, including Los Angeles, San Bernardino, Ventura, Santa Clara and San Francisco. The counties of Riverside, San Diego and Kern have not joined the program, according to an FTB spokeswoman.

Officials with the state tax agency proudly note that the FTB recently surpassed $100 million in delinquent child support collections.

The way the program works is this: The custodial spouse goes to their local district attorney to report the nonpayment of child support. The district attorney investigates, and if the allegations are true, sends the information on to state tax authorities.

The state tax officials then send a notice to the delinquent parent, called a "demand for payment." If the delinquent parent doesn't pay up within 10 days of receiving this notice, the FTB can collect the debt by tapping tax refunds, bank accounts and wages.

If the custodial parent is on welfare, the money is first used to pay back the government. The remainder passes to the custodial parent. If the custodial parent isn't on public assistance, it's forwarded to that parent in total.

Mandatory IRA distribution rules

Figuring out when to take money out of your IRA--and how much to take to avoid staggering tax penalties when retired--is difficult. The Internal Revenue Service rules on this topic are complex and many retirees simply don't understand them, according to representatives of the AARP Investment Program, offered by Scudder Stevens & Clark.

Scudder's July "Financial Focus" newsletter is dedicated to answering commonly asked questions about IRA rights, rules and responsibilities. For instance: "When do IRA distributions become mandatory?" and "How is the annual required minimum distribution calculated?" The newsletter also clearly explains what penalties are imposed on those who take money out too early--or too late. And it goes into the many options retirees can elect when withdrawing money from a retirement account.

This guide is free. You can get one by calling (800) 322-2282, Ext. 8835.

Study tax glitch

When President Clinton signed the minimum wage law earlier this month, many students, whose employers subsidize their tuition payments, breathed a sigh of relief. The bill contained a provision retroactively extending so-called Section 127 exclusions that allow certain tuition reimbursements to be nontaxable. About 800,000 students are expected to benefit as a result.

However, a typographical error has thrown payroll workers into "a frenzy," according to Rita Zeidner, a spokeswoman for the American Payroll Assn. in Washington, D.C.

According to Zeidner, lawmakers had intended for this exclusion to expire for undergraduate courses beginning after May 31, 1997. But the signed bill says the exclusion expires a month later--July 1, 1997. To get back to the intended date, lawmakers will have to pass yet another bill. Payroll employees, who are charged with getting the right income figure on employee forms, don't know the right cutoff date.

In the meantime, students who got tuition assistance last year are likely to be due refunds of income, Social Security and Medicare taxes that were overpaid in 1995. The tuition assistance exemptions expired at the end of 1994, so companies that paid this assistance in 1995 had to declare it as income to their employees on W-2 forms. As a result, employees paid more employment and income taxes than would be due when tuition assistance wasn't considered taxable income. Since the minimum wage law reinstated the exemption retroactively to the beginning of 1995, these students will get new W-2s, with lower total wage amounts. That also means they are likely to qualify for tax refunds.

The IRS is trying to make getting income tax refunds quicker by issuing guidance on how to get them. Specifically: Employees must get a form W-2c from their employer with the corrected wage amount. Then they need to file an amended tax return--form 1040X. If the only change on your tax return is for the tuition assistance, you need only fill in your name, address, Social Security number and the tax year, attach a copy of the W-2c, and write "IRC 127" in the top margin. The IRS says it will compute the refund and process the returns "as quickly as possible."

Refunds of overpaid Social Security and Medicare taxes must be obtained through your employer.

For more information or forms, call the IRS at (800) 829-1040 or visit the agency's Internet site at

Consumer Checklist is a weekly feature that covers a range of pocketbook issues of interest to Californians. To contribute information about new legislation, products, services or surveys, write to Kathy M. Kristof, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053; or e-mail

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