Flexible Spending Arrangements (FSAs) can be used to pay medical expenses throughout the year, and the contribution limit for 2024 is increased by $150 to $3200. Employees who participate in an FSA can contribute through payroll deductions, and the amount is not subject to federal income tax, Social Security tax, or Medicare tax. Depending on the FSA plan, qualified medical expenses can include those not covered by a health plan, such as copays and deductibles, as well as services such as dental or vision care, and over-the-counter medicines. More information is available in Publication 969.
The IRS urges taxpayers to ready themselves for filing their 2023 federal income tax return by being prepared. Important things to be aware of include:
Find more information at the Get Ready page.
Security Summit partners have wrapped up the 8th National Tax Security Awareness Week. The focus is on protecting sensitive financial information against identity thieves and other security threats, especially around the holidays and the start of the 2024 tax season.
The IRS continues its efforts to combat dubious Employee Retention Credit (ERC) claims. More than 20,000 letters have been sent to taxpayers notifying them of disallowed ERC claims, including to entities that did not exist or did not have employees during the eligible ERC period. The special withdrawal program is still available to those with pending claims who realize their claims were inaccurate, and there will be a voluntary disclosure program unveiled soon to allow those who already received improper payments to avoid future IRS action.
The IRS will treat 2023 as an additional transition year when it comes to the American Rescue Plan (ARP) provision regarding the $600 reporting threshold for third-party payment processors. Under previous rules, third-party processors and platforms did not have to report the payments on Form 1099-K unless the taxpayer received over $20,000 and had more than 200 transactions in the year. The ARP lowered that threshold to $600. After many months of feedback from taxpayers, tax professionals, payment processors and others, the IRS temporarily delayed the new requirement last year, and is repeating the delay for 2023. A phase-in threshold of $5,000 is planned for the 2024 tax year.
The IRS reminds low- and moderate-income taxpayers that the Retirement Savings Contributions Credit (Saver’s Credit) can help them earn a special tax credit in 2024 and beyond. The deadline for contributing to a workplace plan such as a 401(k) is December 31, and savers have until April 15, 2024 to contribute to an IRA or Roth IRA. The credit is available to individuals with adjusted gross incomes (AGIs) up to $36,500; heads of household can earn up to $54,750 AGI, and married couples filing jointly can claim the credit it with AGIs up to $73,000. Use the Interactive Tax Assistant tool for the Saver’s Credit to determine eligibility or visit the Saver’s Credit page for more information.
Security Summit partners have kicked off the 8th National Tax Security Awareness Week. The focus is on protecting sensitive financial information against identity thieves and other security threats, especially around the holidays and the start of the 2024 tax season.
The IRS highlights its continued support of efforts to fight charity scams and fraud. Fake charities and scammers taking advantage of natural disasters or other situations are a drain on the resources of generous donors and deprive legitimate organizations of needed funds. Givers can use the Tax Exempt Organization Search tool to verify a charity’s status and review the Dirty Dozen tax scams for 2023.
The IRS reminds taxpayers who pay estimated taxes that the deadline for their third quarter payment is September 15, 2023. This affects those taxpayers not subject to withholding, such as gig workers, sole proprietors, retirees, partners and S corporation shareholders. Those who expect to owe at least $1000 in taxes for 2023 after subtracting their withholding and tax credits must also pay. Taxpayers who are uncertain whether they are required to pay estimated taxes can use IRS tools to find out: Tax Withholding Estimator and the IRS Interactive Tax Assistant offer clear instructions.
The IRS announces “key changes” coming to reduce burden on average taxpayers and “restore fairness” to the tax system with Inflation Reduction Act funding. The agency will shift its focus from working-class taxpayers to the wealthy, using Artificial Intelligence to identify sophisticated tax-avoidance schemes. The IRS plans to ensure audit rates do not increase for those earning less than $400,000 a year and will expand compliance efforts in high-income/high wealth and partnership categories. Additionally, protecting all taxpayers from a variety of scams and schemes by raising consumer awareness on these issues will be a priority.
The IRS reminds taxpayers that September is National Preparedness Month. With peak hurricane season just ahead, an updated emergency preparedness plan is key.
Recommendations include the following:
The IRS has finished its annual education effort regarding online security for tax professionals and taxpayers. This year includes a five-part “Protect Your Clients; Protect Yourself” series to help tax pros, especially smaller practices, protect against tax-related identity theft and fraud. The final installment of the series urges tax professionals to take critical steps to protect data and security:
The IRS reminds teachers and other educators that they’ll be able to deduct up to $300 of out-of-pocket classroom expenses for 2023 when they file their tax return next year. Even educators who take the standard deduction may claim this deduction, and if married to another educator, filing jointly, up to $600 may be claimed. Qualified costs include those incurred in the purchase of books, supplies, classroom materials, computer and software equipment and services, and COVID-19 protective items. Qualified expenses do not include costs associated with home education or nonathletic supplies for health or physical education. The IRS urges educators to keep good records and documentation.
The IRS has announced expansive tax relief for victims of Hawaii wildfires in Maui and Hawaii counties. These taxpayers now have until February 15, 2024 to file various federal individual and business tax returns and make tax payments. Any households or businesses located in Federal Emergency Management Agency (FEMA)-designated disaster areas qualify for this relief. This relief postpones various filing and payment deadlines that occur from August 8, 2023 through February 15, 2024. Any returns and taxes originally due during this period have until the February deadline. This is automatically provided, and taxpayers do not have to take action to get this relief. However, if a taxpayer does receive a late filing or payment penalty notice, they should call the number on the notice to have it abated. More information is always available at the IRS’ disaster relief page.
The IRS reminds employers and employees that under federal law, employers who provide educational assistance programs can use them to help pay student loan obligations for their employees. In an effort to promote this benefit, the IRS has a free webinar on September 14 to help people better understand this provision. Traditionally such programs have been used to pay for books, equipment, supplies, fees, and tuition; under current law, this feature will be available until December 31, 2025.
The IRS reminds those who haven’t filed their 2019 tax return that the window for claiming potential refunds is closing. The deadline for filing and claiming any refund for 2019 is July 17, 2023. The law allows 3 years to file and claim refunds (although that deadline was extended for 2019 due to COVID-19), and requires taxpayers to properly address, mail, and ensure the tax return is postmarked by July 17, 2023. Over 18,000 South Carolina residents are presumed to be among those who haven’t filed. Unclaimed refunds become the property of the US Treasury. Refund checks may also be held if tax returns for 2020 and 2021 have not been filed. Prior year tax forms are available online, and key documents must be obtained from employers or the IRS.
The IRS is sending a “special follow-up mailing” to taxpayers in several states to let them know that they have additional time to pay their taxes. An initial mailing of a CP14 notice told taxpayers who have a balance due that they needed to pay within 21 days. These taxpayers actually have until later this year to pay, under the disaster declaration and relief. These new mailings, CP14CL, aim to mitigate confusion caused by the earlier CP14 notice and to help reassure people. The IRS Commissioner Danny Werfel says, “this mailing reflects how we’re trying to be more taxpayer-focused given the additional resources that we’ve been given under the Inflation Reduction Act.”
The IRS is warning taxpayers to be on the lookout for a new scam mailing intended to mislead people into believing they are owed a tax refund. This new scheme involves a cardboard mailer from a delivery service and an enclosed letter with wording that the notice is “in relation to your unclaimed refund.” Naturally the contact information and phone number on the document do not belong to the IRS, but the notice seeks sensitive personal information from taxpayers – including detailed photos of drivers’ licenses – that can be used by identity thieves. The requests are often as follows:
“A Clear Phone of Your Driver’s License That Clearly Displays All Four (4) Angles, Taken in a Place with Good Lighting.”
And:
“You’ll Need to Get This to Get Your Refunds After Filing. These Must Be Given to a Filing Agent Who Will Help You Submit Your Unclaimed Property Claim. Once You Send All The Information Please Try to Be Checking Your Email for Response From The Agents Thanks”
The IRS urges taxpayers to note the multitude of warning signs, including odd punctuation, a mixture of fonts, and inaccuracies. Other known scams can be reviewed on the IRS Dirty Dozen list.
IRS Updates June 29 2023 by Paul Davis
The IRS has issued proposed regulations and FAQs (frequently asked questions) on rules for entities that earn certain clean energy credits and choose to make an elective payment election, and rules for those that elect to transfer certain credits to unrelated parties. As part of the Inflation Reduction Act, applicable entities (generally tax-exempt organizations, state, local, or tribal governments) can choose to make an elective payment election, which will treat certain credits as a payment against their federal tax due, with any excess refunded. Certain eligible taxpayers (generally not the applicable entities above) can opt to transfer all or a portion of an eligible credit to unrelated taxpayers for cash payments. The unrelated taxpayers may then claim the credits on their tax return. The cash payments are not counted as gross income of the taxpayer and are not deductible by the unrelated taxpayers.
The IRS has issued proposed regulations providing guidance regarding the implementation of the elective payment provisions of the Advanced Manufacturing Investment Credit, established by the Creating Helpful Incentives to Produce Semiconductors Act of 2022 (CHIPS Act). This credit will incentivize the manufacture of semiconductors and manufacturing equipment within the US. The proposed regulations describe how an entity can receive the credit as an elective payment, offsetting their tax liability. Special rules apply to partnerships and S corporations, basis reduction and recapture. Public comments are being sought.
The IRS has issued Notice 2023-45, updating Notice 2023-29, describing forthcoming proposed regulations for determining what constitutes an energy community for the production and investment tax credits. FAQs have been posted relating to the credit increase, qualifications, how to determine whether a project is in an energy community, and more. Notice 2023-47 has been released, publishing information that may be used to determine whether taxpayers meet certain requirements under the Statistical Area Category or the Coal Closure Category in Notice 2023-29 for purposes of qualifying for energy community bonus credit. More information can be found on the Inflation Reduction Act of 2022 page.
The mandated National Taxpayer Advocate midyear report to congress has been released. The report states that this year’s filing season generally ran smoothly but urges the IRS to prioritize a broad array of technology upgrades. The backlog of paper-filed returns was reduced, refunds issued quickly, and phone call wait times were shorter. Key objectives set forth for the future include protecting taxpayer rights, improving correspondence audit processes, and providing first-time penalty abatement to more qualified taxpayers.
IRS Updates June 2023 by Paul Davis
July 17 Deadline for 2019 Refunds
The IRS estimates that nearly 1.5 million people in the nation could be due refunds for tax year 2019, if they submit a tax return by the July 17 deadline. The usual deadline for submitting a tax return and getting a refund is 3 years from the initial deadline, but under the COVID-19 emergency, the deadline for 2019 was postponed. Taxpayers can still request key documents from their employers or banks, or request a wage and income transcript from the IRS, online or by filing Form 4506-T, Request for Transcript of Tax Return.
Advance Energy Project Guidance
The IRS has issued Notice 2023-44, providing further details for applicants seeking section 48C credit allocations in the qualifying advanced energy project credit allocation program under the Inflation Reduction Act. Notice 2023-18 earlier this year established the section 48C(3) program to allocate $10 billion in credits, at least $4 billion of which will be allocated to projects located in certain energy communities census tracts. This guidance is mainly of interest to owners of clean energy manufacturing and recycling projects, greenhouse gas emission reduction projects, and critical material projects. Notice 2023-44 updates the earlier guidance, defining qualifying advance energy projects and the Department of Energy (DOE) application process, in Appendices A and B, respectively. Appendix C has also been added, containing a list of the energy communities census tracts.
Penalty Relief for Corporations
The IRS and Treasury have issued Notice 2023-42, which will grant penalty relief for corporations that did not pay estimated tax in connection with the new corporate alternative minimum tax (CAMT). The Inflation Reduction Act created the CAMT, which imposes a 25% minimum tax on the adjusted financial statement income of large corporations for taxable years beginning after December 31, 2022. Due to the challenges associated with determining the amount of a corporation’s CAMT liability and whether a corporation is subject to the CAMT, the IRS will waive the penalty for failure to pay estimated income tax with respect to its CAMT for a taxable year that falls within specific dates.
The IRS has completed their Dirty Dozen tax scam series, warning individuals and businesses about popular schemes and scams targeting taxpayers. Information to help recognize a scam, and steps to take for those who have been targeted or have fallen prey to such predators. The final scams to be aware of are:
The IRS reminds taxpayers that Tax Day, April 18, is also the deadline for first quarter estimated tax payments for tax year 2023. These payments are usually due from those who do not have taxes withheld from their paychecks throughout the year, such as the self-employed, retirees, investors, businesses and corporations. Income not subject to withholding includes interest, dividends, capital gains, alimony and rental income. Paying estimated taxes in a timely fashion will lessen and even eliminate any penalties. Eligible taxpayers in recent disaster areas in California, Alabama, Georgia and now Tennessee have several deadlines extended to make their estimated payments. A current list of areas qualifying for disaster relief can be found at Tax Relief in Disaster Situations.
“I don’t need to report income since I didn’t receive a Form 1099-K.” “If I file an extension, I don’t have to pay anything until October.” Find the truth about these and other myths before Tax Day.
The IRS has released guidance addressing improper forgiveness of Paycheck Protection Program (PPP) loans. When a PPP loan is forgiven based upon misrepresentations or omissions, the taxpayer is not eligible to exclude the forgiven loan proceeds from taxable income. Taxpayers who inappropriately received PPP loan forgiveness are encouraged to file amended returns and come into compliance.
The IRS reminds struggling individuals and businesses affected by the pandemic that they may qualify for late-filing penalty relief if they file their 2019 and 2020 returns by September 30, 2022. This aims to help not only taxpayers but to allow the IRS to focus resources on processing backlogged tax returns in an effort to return to normal operations for the 2023 filing season. The relief applies to the failure-to-file penalty, usually assessed at a rate of 5% per month, up to 25% of the unpaid tax, when a return is filed late.
Reconstructing records after a disaster may be required for tax or insurance purposes or getting federal assistance. For more information, visit National Preparedness Month.
Five-Year Plan Issued
The IRS has released a new five-year Strategic Plan. This Plan will serve to help guide the agency’s programs and operations, and meet the needs of taxpayers and others in the tax community. Their four goals include providing quality service, fostering a diverse and inclusive workforce, enforcement, and transformation of operations to be more resilient, agile, and responsive.
Flood Victims Eligible for Relief
Storm victims in parts of Kentucky and Missouri now have until November 15, 2022, to file various tax returns and make payments. Those who had extensions to file their returns by October 17, 2022, will now have until November 15 to file. This also applies to quarterly estimated payments due on September 15, and payroll and excise taxes due October 31. More information is available on the Disaster Assistance and Emergency Relief for Individuals and Businesses page, and an updated list of localities eligible for relief is always available on the disaster relief page.
Educator Expense Deduction Increased
The IRS is reminding teachers and other educators that they may be able to deduct up to $300 of out-of-pocket classroom expenses for 2022 when they file their tax return next year. This is the first increase since the deduction was enacted in 2002. The limit will continue to rise in $50 increments in future years based on inflation adjustments. The deduction is available to K-12 educators, instructors, counselors, principals and aides who work at least 900 hours in a public or private school during the school year. Books, supplies, classroom materials, computer equipment, software and services, professional development courses, and COVID-19 protective items all qualify for the deduction.
Trucker Filing Date Approaches
The IRS is reminding those who register large trucks and buses that it’s time to file Form 2290, Heavy Highway Vehicle Use Tax Return. The IRS encourages using e-file and filing before the deadline of August 31, 2022, for vehicles first used in July of this year. Operators of vehicles with a taxable gross weight of 55,000 pounds or more are subject to paying the tax and filing the form, although those operating vehicles that travel below a certain number of miles are not subject to the tax (they are still required to file the form however). More information is available at the Trucking Tax Center.