TAX TALK

The Baltimore Sun

Editor's note: Every Sunday through the end of tax season, The Sun will run an edited transcript of Baltimoresun.com's weekly tax advice column featuring experts from the Sparks accounting firm SC&H; Group who will answer reader questions.

Submit questions at www.baltimoresun.com/ taxtalk

To be eligible to convert IRA contributions to Roth contributions, income must be below $100,000. Should the conversion be removed from Form 1040, Lines 22 and 37 in order to remain below the $100,000 threshold? This subject has never been clearly explained in any of the tax forms.

-- Lorraine, Brooklyn Park

Amounts in a traditional IRA can be converted into a Roth IRA if the taxpayer's adjusted gross income for the year does not exceed $100,000 and the taxpayer is not filing separately from their spouse. The conversion amounts are not taken into account when determining the AGI limitation.

When I worked for my employer, taxable income on my W2 forms was reduced by the amounts deducted for health, dental and prescription insurance. Now that I am retired and receive a 1099-R, the full retirement pay is shown as taxable income and not reduced by the health insurance deductions. Why is there a difference?

-- Mary, Centreville

Pension plan distributions that are used to purchase the cafeteria plan benefits noted in your question are not afforded pre-tax treatment for retired employees. The IRS issued a revenue ruling on this issue in 2003. There is one narrow exception to this general rule for retired public safety officers.

We are a married couple who files jointly with one child under 16 years old. With earnings a little over $50,000 last year, our federal tax liability was only about $700. Will we still get a $1,500 rebate?

-- John, Tafton, Pa.

Your federal stimulus payment will be limited to your 2007 tax liability of about $700, plus $300 for your dependent child.

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