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.
Expanded Voice Bot Assistance
To help improve taxpayers’ experiences with the department, the IRS has expanded the voice bot capabilities of their customer service phone lines. Now, in addition to general and procedural answers to Economic Impact Payment (EIP) or Advance Child Tax Credit queries and other toll-free lines, voice bots will be able to help eligible taxpayers verify their identity to set up or modify a payment plan – without the long wait times. More functions are planned to be rolled out this year, including the ability to get account and return transcripts, payment history and current balance information.
Processing Backlog Progresses
The IRS is finally wrapping up the last of the paper individual tax returns (Form 1040, error-free) filed in 2021. Due to the pandemic and staffing limits, there are about twice as many returns awaiting processing at this point compared to a typical year. Steps have been taken to address this backlog and keep up with returns filed this year. Business paper returns filed in 2021 are next, while the IRS continues to work on the remaining individual returns that need corrections or additional information. Taxpayers are encouraged to file their returns electronically to avoid future processing delays.
Electronic Corrections, Amendments Expanded
The IRS has announced that more forms can now be amended electronically, including Form 1040-NR (US Nonresident Alien Income Tax Return), Forms 1040-SS (US Self-Employment Tax Return) and Forms 1040-PR (Self-Employment Tax Return – Puerto Rico). This development will assist the IRS in avoiding continued processing backlogs. Forms 1040-X and other corrected forms have had electronic filing options in place in recent years, and paper versions of the forms may still be submitted.
Reinstated Superfund Chemical Tax FAQ
The IRS issued frequently asked questions (FAQs) regarding the reinstated Superfund chemical excise tax. Thanks to the Infrastructure Investment and Jobs Act (IIJA), beginning July 1, 2022, excise taxes on certain chemicals and imported chemical substances will be reinstated. The FAQs detail what the Superfund chemical excise tax is, how the tax is computed, and who may be liable for the tax. Currently 151 substances are listed as taxable, though that number will likely change.
Here are your updates from the IRS this week.
Second Quarter Interest Rates Increase
For the first time in more than three years, interest rates are being increased. For the quarter beginning April 1, 2022, the rates will be:
- 4% for overpayments (3% for corporations)
- 1.5% for the portion of a corporate overpayment exceeding $10,000
- 4% for underpayments
- 6% for large corporate underpayments
Rates are determined for each category based on the federal short-term rate, and adjusted (or not) on a quarterly basis.
Checking Refund Status
The IRS wants those expecting refunds to know that the fastest and easiest way to check on their refund status is by using the “Where’s my Refund” tool on IRS.gov. The mobile app, IRS2Go is also an efficient option. Filing electronically and using direct deposit is the fastest way to file and receive a refund, often within 21 days, though some situations may require more time. These situations include claiming the Earned Income Tax Credit or Additional Child Tax Credit, returns that need additional review or have errors, or those affected by identity theft or fraud. The IRS urges recipients to ignore refund myths; refunds cannot be expedited by ordering a tax transcript, calling the IRS, or calling their tax preparer.
Resource Page Launched
The IRS has launched a special new page to provide the most updated details and information affecting the 2022 tax filing season. The “special tax season alerts” page will address critical tax law changes related to the pandemic, as well as provide quick information regarding filing returns. Information affecting those whose previous year returns are backlogged and awaiting processing will also be provided.
Want to Improve the IRS?
The IRS is seeking “civic minded volunteers” to serve on the Taxpayer Advisory Panel (TAP). The TAP submits dozens of recommendations to the IRS each year; 193 were made in 2021 alone. Many recent suggestions have already been implemented. Applicants must be US citizens current with federal tax obligations who are able commit to the expected volunteer hours. They must also pass a background check and not be registered lobbyists or Treasury or IRS employees. Applications are due April 8.
Tax Help FAQs
Tax filing this year is a bit more complicated, with the American Rescue Plan Act (ARPA) of 2021 which expanded the Child Tax Credit for last year only. Advance payments mean more paperwork for those who received them, and potentially repaying excess amounts, or claiming credit for remaining unpaid amounts. The IRS urges recipients to save Letter 6419 so their 2021 tax return can be properly prepared. A qualified tax preparer can help with this process, and several FAQs on the topic are available.
Be Ready to File
The IRS reminds taxpayers to be prepared to file their tax return, and to that end are providing a roundup of relevant information. Readiness topics include their Tax Time Guide, dealing with advance Child Tax Credit payments or Recovery Rebate Credit, a tax document checklist, filing tips and how to find help if needed.
IRS Backtracks Third-Party Facial Recognition
In response to concerns, the IRS has announced it will transition away from using a third-party service for facial recognition. This was intended to help authenticate people creating new online accounts. The IRS pledges to find authentication processes that do not involve facial recognition and which protect taxpayer data. This is not expected to interfere with filing returns or paying taxes owed, and people should continue to file their tax returns as they normally would.
IRS Suspends Automatic Notices
The IRS is suspending the mailing of several letters to individuals and businesses. These automated notices include Balance Due notices, Notices of Unfiled Tax Returns, and Withholding Compliance letters. This suspension is intended to allow the IRS to catch up with the backlog of several million original and amended tax returns that have not been processed due to the pandemic and pandemic response. Other letters are legally required to be issued within a certain timeframe and cannot be stopped by the authority of the IRS.
2021 Recovery Rebate Credit FAQ
The IRS has issued frequently asked questions (FAQs) for the 2021 Recovery Rebate Credit. This credit may apply to those who didn’t receive the full amount of their third Economic Impact Payment. To claim the credit, which can reduce taxes owed or provide a refund, eligible people must file a 2021 tax return. The FAQ covers eligibility, claiming the credit, calculating the credit, and finding the relevant information in order to claim the credit.
January 31 Wage Statement Deadline
The IRS is reminding employers to be aware of the January 31 deadline to file Forms W-2 and other wage statements. Filing accurate forms by this date helps the IRS more easily detect refund fraud and helps employers avoid penalties. Applications for extension may also be submitted to provide more time to file with the IRS. A separate extension application may extend the due date for furnishing wage statements to employees.
Some Filing Reminders
The IRS reminds taxpayers to keep a few things in mind when filing federal income tax returns this year. Their checklist encourages individuals to:
- Use e-file and direct deposit, even if using a trusted tax professional
- Collect all documents, including letters regarding the Advance Child Tax Credit and third Economic Impact Payment
- Use online tools and resources to save time over calling the IRS
2022 Tax Season Begins
The IRS has kicked off the 2022 tax filing season admonishing taxpayers to take extra precautions when filing. Electronic filing, with direct deposit, is the fastest way to avoid any refund delay. Tax software, a trusted tax professional, or Free File for those who qualify, is recommended. Recipients of the advance Child Tax Credit payments or Economic Impact Payments should ensure those amounts are entered correctly as inaccuracies in this area will result in extensive delays. Most taxpayers have a filing due date of April 18, thanks to the Washington, DC Emancipation Day holiday observance. Those in Massachusetts and Maine have until April 19 due to Patriots Day, and as always, some disaster victims have later filing deadlines.
New FAQs For Families And Small Businesses
The IRS has posted two new frequently asked questions (FAQs) to help families and small- and mid-sized employers in claiming credits under the American Rescue Plan (ARP) Act. For families, the child and dependent care credit was increased and expanded under the ARP, and made fully refundable. The paid sick and family leave credits reimburse eligible employers for the paid sick leave provided to employees for COVID-19 related reasons.
Economic Impact Payments Continue
The IRS and Treasury continue to disburse millions of Economic Impact Payments (EIPs). As of June 9, the value of the payments was approximately $395 billion since payments began in March. More than 169 million payments have been made thus far, with plans to continue payments on a weekly basis to those who were previously unknown to the IRS but who have recently filed a tax return.
Letters Begin Re: Advance Child Tax Credits
Letters have been sent to more than 36 million American families who may be eligible to receive monthly Child Tax Credit payments. Families have been identified based on information they included in their recent tax return, or who registered for an Economic Impact Payment. The credit was increased and expanded under the ARP, and eligible families can expect monthly direct deposits or paper checks around the 15th of each month from July through December. A tool will be provided soon which will enable families to unenroll from receiving the advance payments and instead receive the full credit amount when they file their 2021 return next year.
Security Awareness Week Wraps Up
The National Tax Security Awareness Week has finished its focused campaign to help tax professionals and taxpayers protect themselves from security risks. Issues for the week included basic steps that should be taken to avoid scams and identity theft schemes taking advantage of holiday shopping, the approaching tax season and coronavirus concerns; the multi-factor authentication that will be available on all 2021 online tax preparation products; the expanded Identity Protection PIN Opt-In Program for all taxpayers who can properly verify their identities; security advice for businesses; and more security advice for tax professionals.
Interest Rates To Remain The Same
The IRS has announced that interest rates for under- and overpayments will remain the
same for the calendar quarter beginning January 1, 2021. The rates will continue at three (3) percent for overpayments (two (2) percent in the case of a corporation); one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000; three (3) percent for underpayments; and
five (5) percent for large corporate underpayments.
Wage Statements Due February 1, 2021
The IRS reminds employers that Forms W-2 and other wage statements must be filed with the Social Security Administration no later than February 1, 2021, to avoid penalties and reduce fraud. Normally, such statements are due January 31, but since that date falls on a Sunday, the deadline has been pushed to the next business day. Copies to employees are also due by then, as well as Forms 1099-MISC and 1099-NEC.
Final QTF Regulations Issued
The IRS and Treasury have issued final regulations on the deduction for qualified transportation fringe (QTF) and commuting expenses following changes made by the Tax Cuts and Jobs Act (TCJA). These final regulations address expenses related to QTFs, including providing guidance on determining the amount of QTF parking expenses that is nondeductible, and the disallowance of the deduction for expenses of transportation between an employee’s home and workplace.
Natural Disaster Relief
Victims of recent disasters have had many deadlines extended to December 15, 2020. This includes many individual and business tax returns and tax payments normally due in September, October, and November. The extensions have been granted to those living in FEMA-designated disaster zones, including parts of Iowa affected by the August 10 derecho storm, and those affected by wildfires in California. Hurricane affected areas are being added; the IRS’ disaster relief page provides a current list of designated areas. No action is needed for qualified taxpayers to take advantage of this relief.
Economic Impact Payment Catchup
Some 50,000 spouses will receive their economic impact payment in the form of a check. In some cases, an individual’s payment was redirected to pay their husband’s or wife’s child support debt. Those who filed Form 8379, Injured Spouse Allocation with a recent tax return will receive their check in early- to mid-September. Those who have not filed Form 8379 will still receive their EIP check, but it is not yet known when to expect it. No action is required in either case.
Interest To Be Paid To Millions of Taxpayers
Individual taxpayers who filed their return by July 15 and were due a refund will receive an interest payment along with it. This applies to those who have received refunds in the past three months, or who are still waiting on their refunds. The interest is calculated from the original filing due date of April 15, and will be direct-deposited with the refund for those who use direct-deposit. Paper checks will be issued to others. Additionally, the interest is considered taxable income and recipients will receive a Form 1099-INT early next year.
Guidance For Presidential Payroll Tax Memorandum
The IRS and Treasury Department have issued guidance implementing the August 8 Presidential Memorandum allowing employers to defer withholding and payment of an employee’s share of Social Security tax. The deferral generally applies to wages paid from September 1, 2020 through December 31, 2020, and only if the wages total less than $4,000 during a bi-weekly pay period.
Simplified Small Business Accounting Regulations Proposed
The IRS has released proposed regulations to adopt the simplified tax accounting rules for small businesses under the Tax Cuts and Jobs Act (TCJA). For tax years beginning in 2019 and 2020, these simplified tax accounting rules apply to taxpayers having average annual gross receipts of $26 million or less (known as the gross receipts test), and exempted these taxpayers from the uniform capitalization rules. Accounting and inventory methods are addressed, as well as long-term construction contracts. Taxpayers classified as tax shelters may not use the simplified rules.
Rehabilitation Credit Deadlines Extended
Additional pandemic relief has been provided by the IRS for rehabilitation credits. These are projects that satisfy the “substantial rehabilitation test” within a 24- or 60-month period. Any qualified project whose deadline was on or after April 1, 2020 but before March 31, 2021, now has until March 31, 2021 to satisfy the test. Projects usually have to claim the credit over five years, but under a transition rule, some projects may be able to claim the credit in a single year.
Guidance For Business Interest Expense Deduction Limitation
The IRS has issued final regulations regarding TCJA provisions that limit the deduction for business interest expense, including the changes made by basic statutory amendments to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). In addition to these final regulations, proposed regulations have been issued for other situations not addressed, including more complex issues related to CARES Act amendments. Written and electronic comments in response to the proposed regulations are encouraged.
Retirement Account Rules Loosened
The IRS reminds taxpayers that CARES Act provisions allow for easier access to retirement funds, for those who qualify. Early distribution of some retirement funds may be made without the usual penalties. Those eligible for coronavirus-related relief may be able to withdraw up to $100,000 before December 31, 2020, from IRAs, 401(k) plans, 403(b) plans, profit-sharing plans and others. Relief includes delayed loan repayments, an increase in loan limits, a waiver of the 10% tax on early distributions, and more.
Guidance Issued re: Retirement, Annuity Withholding
The IRS and Treasury have issued a proposed regulation impacting federal income tax withholding rules for periodic retirement and annuity payments made after December 31, 2020. Prior to the Tax Cuts and Jobs Act (TCJA), if there was no W-4 in effect for periodic payments, the withholding was determined by treating the taxpayer as a married individual claiming three withholding exemptions. That will continue for year 2020. Beginning in 2021, when there is no W-4 in effect, the IRS and Treasury Department will provide the rules and procedures to determine the withholding with
various forms, instructions, publications and other guidance.
Plain Envelopes Deliver Economic Impact Payments
The IRS reminds taxpayers that their economic impact payment may arrive in the form of a prepaid debit card in a plain white envelope from "Money Network Cardholder Services.” Not every recipient will receive their payment in the form of a prepaid debit card, but for those who do, it may be used to make purchases online or in person anywhere a Visa credit card is accepted, get cash from an ATM, and transfer money to a bank account. More information can be found at EIPcard.com.
Safe Harbor For Renewable Energy Projects
Because Covid-19 has impacted the supply chain for many renewable energy projects eligible for tax credits , the IRS and Treasury have issued a notice for tax relief. Projects include those that produce electricity from wind, biomass, geothermal, landfill gas, trash, and hydropower, and use technologies such as solar panels, fuel cells, microturbines, and combined heat and power systems. Some projects begun in 2016 or 2017 have had a fifth year added to the four-year "Continuity Safe Harbor,” and those paid for by the taxpayer on or after September 16, 2019 and received by October 15 of this year have 3½ months safe harbor added. This aims to allow the taxpayers to remain eligible for certain tax credits.
Qualified Opportunity Funds Tax Relief
The Internal Revenue Service has provided guidance for Qualified Opportunity Funds (QOFs) and their investors in response to the ongoing COVID-19 pandemic. Taxpayers looking to invest in a QOF to defer gain may have additional time. Certain statutory penalties and working capital safe harbor rules have been eased and timelines extended. The QOF FAQ has also been updated.