Katrina Emergency Tax Relief Act of 2005 Provides Significant Tax Benefits to Victims

President Bush Signs In Law That Provides Special Tax Breaks for Casualty Loss Claims, Certain Child-Related Tax Credits, Personal Debt and Retirement Accounts

PARSIPPANY, NJ (Monday, September 26, 2005) - Jackson Hewitt Tax Service(r) (NYSE: JTX) provides clarity and details around the new legislation that President Bush has officially signed into law. The Katrina Emergency Tax Relief Act of 2005 (KETRA) provides considerable tax benefits to the victims of Hurricane Katrina. The new law provides tax breaks for casualty loss claims, taxable personal debt, calculating certain child-related tax credits and retirement account distributions.

"This new tax act provides a number of valuable benefits to those affected by Hurricane Katrina," said Mark Steber, Vice President of Tax Resources at Jackson Hewitt Tax Service. "In the aftermath of Hurricane Rita, this new tax law may also provide an indication of the types of tax benefits that may be considered for taxpayers displaced by that storm as well."

Highlights of the new act include:

Casualty Loss
Personal casualty loss claims related to the designated Hurricane Katrina disaster area are not subject to the $100 per casualty reduction and the 10 percent of adjusted gross income (AGI) subtraction.
For example, Mary is a single taxpayer with an annual AGI of $15,000 who rents a home in the Hurricane Katrina disaster area. Her car and household belongings were destroyed by Hurricane Katrina, and they were not covered by insurance. Mary paid $10,000 for the car and $10,000 for the household belongings, but before Hurricane Katrina, the fair market value (FMV) of the car was $6,000 and $2,500 for her belongings. Under the regular casualty rules, Mary would have been allowed a deduction of $6,900. Under the KETRA, she is allowed a casualty deduction of $8,500.
Taxpayers whose personal or business property has been destroyed or damaged will have up to five years to replace the property. However, the destroyed or damaged property and the replacement property must be located in the Hurricane Katrina disaster area.
For example, Joe is a displaced taxpayer from the Hurricane Katrina disaster area whose home was destroyed. He purchased the home for $50,000, and it had a FMV of $400,000 before Hurricane Katrina. Joe received an insurance reimbursement of $380,000 on December 15, 2005. Joe has a potentially taxable gain of $330,000. Prior to the KETRA, Joe had until December 15, 2009 to replace his home. He now has until December 15, 2010 to replace it.
Earned Income Tax Credit (EITC) and Additional Child Tax Credit
Qualified individuals (taxpayers whose main residences were in the Hurricane Katrina disaster area as of August 25, 2005) will be eligible to elect to use their 2004 earned income to calculate the EITC and the Additional Child Tax Credit. Taxpayers' 2005 earned income must be lower than their 2004 earned income, and the election to use the 2004 income is uniformly applied to both the EITC and the Additional Child Tax Credit.
Personal Debt
Cancellation of personal debt after August 25, 2005 and before January 1, 2007 for qualified individuals (taxpayers who cannot repay debt due to the devastating effects of Hurricane Katrina) will not be taxable.
Pensions and Individual Retirement Accounts (IRAs)
Qualified individuals (taxpayers who suffered an economic loss as a result of Hurricane Katrina and whose principal residences were in the Hurricane Katrina disaster area) can receive a qualified distribution from their IRA or a qualified pension plan without being subject to the 10 percent additional tax.
KETRA also allows the distribution to be re-contributed in a three-year period following the date of the distribution. If the taxpayer cannot repay the distribution, KETRA allows the taxpayer to pay the taxes equally over three years. Taxpayers may elect to include the total distribution in income in one year.
For example, Bob is 58 years old and a displaced taxpayer from the Hurricane Katrina disaster area. He withdraws $30,000 from this IRA to help cover necessary expenses during the aftermath of Hurricane Katrina. Generally, a taxpayer would pay $3,000 in additional taxes and include the $30,000 in income on the tax return. Under KETRA, Bob will not pay the $3,000 in additional taxes and may also re-contribute the $30,000 over the next three years. If he does not re-contribute the $30,000, he may include in income $10,000 per year for three years.
"Understanding all of the details of the new law can be overwhelming, but help is available," adds Steber. "Jackson Hewitt tax professionals nationwide are available to assist taxpayers with accurately assessing casualty loss, determining if they are qualified to receive these new tax benefits and amending 2004 tax returns to include current disaster losses."

About Jackson Hewitt Tax Service Inc.
Jackson Hewitt Tax Service Inc. (NYSE: JTX) is the second largest tax preparation service company in the United States, with over 5,400 franchised and company-owned offices in 49 states and the District of Columbia. Specializing in electronic filing (IRS e-file), the Company provides full service, individual federal and state income tax preparation and facilitates related financial products. Most Jackson Hewitt offices are independently owned and operated. Jackson Hewitt is based in Parsippany, New Jersey. More information about the Company may be obtained by visiting the Company's Web site at www.jacksonhewitt.com

For More Infromation Please contact:
Sheila Cort, Vice President
Jackson Hewitt Tax Service Inc.
Phone: (973) 496-2702
Email: Sheila.cort@jtax.com

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