Tag Archives: retirement

IRS Tax Updates

Filing Season Scams Abound

The IRS has issued an alert warning taxpayers of new scams that urge people to claim false tax credits with inaccurate wage information. One scheme encourages people to use tax software to manually fill out Form W-2, Wage and Tax Statement with false income information. Scam artists instruct people to use the bogus information in their electronically-filed return with the aim of getting a large refund. A variation of the scam involves using Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals to claim a credit based on income earned as an employee. These credits are not available for 2022 tax returns. 

Another warning has been renewed, urging people to carefully review the Employee Retention Credit (ERC) guidelines before trying to claim the credit. Third parties are aggressively pushing ineligible people to use this, misleading people and businesses into thinking they can claim these credits. Penalties are wide-ranging and may include a $5000 fine or criminal prosecution. Those who have participated in such schemes can amend a previous return or consult with a trusted tax professional.

Digital Intake Ramps Up

The IRS has announced an expansion of digital scanning, having already scanned more than 120,000 paper Forms 940 since the beginning of the year. This is a 20-fold increase compared to all of 2022. The effort will expand soon to include scanning of Forms 1040 and Forms 941. The IRS has used various technologies to scan tax returns over the years, but recently took a leap forward thanks to the Inflation Reduction Act. Most tax returns are filed electronically but millions of forms are still filed by paper. With an increased capability to scan and electronically process these paper returns, the IRS will be able to shorten overall processing time.

Retiree Reminder: April 1 Deadline Approaches

The IRS reminds retirees who turned 72 during 2022 that, in most cases, Saturday, April 1, 2023 is the last day to begin receiving payments from Individual Retirement Arrangements (IRAs), 401(k)s and similar workplace retirement plans. These payments, called required minimum distributions (RMDs) are normally made by the end of the year. However, those who reached age 72 during 2022 are covered by a special rule that allows them to wait until as late as April 1, 2023 to take their first RMD. This delayed deadline only applies to the RMD for the first year. In subsequent years the RMD must be made by the year’s end. This means that those who opt for their 2022 RMD by April 1 must still receive their 2023 RMD by December 31, 2023. Both RMDs are taxable and will be reported on the 2023 tax return. Visit the RMD FAQs page for more information.

 

IRS Updates Mid- December

2020 Unemployment Exclusion FAQ Update

The IRS has updated the frequently asked questions (FAQs) for the 2020 unemployment compensation exclusion. The updates can be found in Fact Sheet 2022-39, and include questions regarding Form 1040-X; Impact to Income, Credits, and Deductions; Receiving a Refund, Letter, or Notice; and Finding the Unemployment Compensation Amount. 

New for 2023 Filing

Taxpayers are urged to note important changes to tax laws to be better prepared for filing their 2022 federal tax returns. Key changes include:

  • The reporting rules for Form 1099-K. Taxpayers should receive the form if they received third party payments (via Paypal, Venmo, CashApp, for instance) for goods and services that exceeded $600. Taxability of income has not changed, but while the Form was issued only for accounts that had a total of 200 transactions and totaled $20,000 or more for the year, the American Rescue Plan Act has significantly lowered that reporting threshold. 
  • Several Tax Credits return to 2019 levels. The Child Tax Credit of $3000 and $3600 per dependent in 2021 will be $2000; the Earned Income Tax Credit for eligible taxpayers with no children returns to $500 from $1500; the Child and Dependent Care Credit returns to a maximum of $2100 from $8000. 
  • No above-the-line charitable deductions. During COOVID, taxpayers could take up to a $600 charitable donation tax deduction, but for 2022 that is not available.
  • Eligibility rules for the clean vehicle tax credit have changed, thanks to the Inflation Reduction Act. 

More on the “Get Ready” page.

IRA, Retirement Withdrawals for Those Age 72+

The IRS reminds those born in 1950 or earlier that funds in their retirement plans and individual retirement arrangements (IRAs) have upcoming deadlines for required minimum distributions (RMDs) to avoid penalties. RMDs are minimum amounts that many plans and IRA account owners must generally withdraw after age 72. Account holders reaching age 72 in 2022 must take their first RMD by April 1, 2023 (and the second by December 31, 2023, and each year thereafter). In many workplace retirement plans the first RMD is due by April 1 of the year after they turn 72, or the participant is no longer employed. RMDs are taxable and may be subject to penalties if not taken on time. Not taking a required distribution, or not withdrawing enough, could mean a 50% excise tax on the amount not distributed.

Tax Updates October 27

FAQ Updates and Clarification

Due to concerns around transparency and impact on taxpayers, the IRS is updating its process for certain frequently asked questions (FAQs). The IRS is also addressing concerns regarding the application of penalties to taxpayers who rely on FAQs in making business and tax decisions. FAQs on newly enacted tax legislation will now be announced in a news release and posted in a Fact Sheet, which will confirm to taxpayers the date at which changes are enacted. Prior versions of Fact Sheet FAQs will be maintained on IRS.gov. A statement is also being released clarifying that if a taxpayer relies on any FAQ in good faith and that reliance is reasonable, the taxpayer will have a “reasonable cause” defense against any penalty if it turns out the FAQ was inaccurate.

Research Credit Claim Changes

The IRS aims to improve tax administration with clearer instructions for those seeking to claim a research and experimentation credit. Each year thousands of claims are submitted from corporations, businesses, and individuals. Currently those claims consume significant IRS resources. It is proposed that taxpayers provide information at the time the refund claim is filed, including all business components to which the claim relates that year; identifying all research activities and the names of the individuals doing the research; and the total qualified wage, supply, and contract expenses. By requiring this information, it is hoped the IRS will be able to determine immediately whether a credit refund should be paid, or if further review is needed. There is a grace period until January 10, 2022 before this information will be required and further comments are welcomed.

More COVID Relief – Hiring Retirees

The IRS is reminding employers that they generally won’t put the tax status of their pension plans at risk if they rehire retirees or permit distributions of retirement benefits to current employees who have reached age 59 1/2 or the plan’s normal retirement age. Retaining experienced workers and encouraging retirees to return to the workforce may help address COVID-related labor shortages. There are two new FAQ pages designed to guide public and private employers who sponsor pension plans.

Timely E-Filing of Payroll Tax Returns

The IRS is reminding employers that the next quarterly payroll tax return is due November 1, 2021, and urges them to file electronically. E-filing is the most accurate and efficient method to file returns, and reduces processing time and errors. There are two options available for filing: Self-file (purchase IRS-approved software, pay a fee, apply for an online signature PIN or attach the required form), or hire a qualified tax professional who can file on behalf of the business.

Tax Updates for the End of June

It’s that time again, where we summarize all the goings on from the IRS. Here is your end of June tax updates.

Multiple Payments Due July 15

The IRS is reminding taxpayers that tax liabilities from 2019 are due July 15, 2020, as well as estimated tax payments from 2020 typically due April 15 and June 15. These extensions were part of the coronavirus tax relief. Additionally, taxpayers who live and work abroad have had their usual June 15 filing date extended to July 15. Payment options and instructions are available. All coronavirus affected payment and filing deadlines can be found here.

Tax Relief For Southern Storm Victims

The due date for filing tax returns and making estimated payments has been extended to October 15, 2020 for taxpayers and businesses affected by storms last April. These FEMA-designated disaster areas include parts of Mississippi, Tennessee, and South Carolina who experienced storms, flooding, and/or tornadoes. Affected taxpayers will also have until October 15 to make 2019 IRA contributions, and the same deadline also applies to estimated tax payments for the first two quarters of 2020 that were due on July 15, and the third quarter estimated tax payment normally due on September 15. More information can be found on the IRS’ disaster relief page. 

Economic Impact Payments Belong To Recipients

Following concerns that people and businesses may be taking advantage of vulnerable populations, the IRS has issued a reminder that economic impact payments belong to the recipients of the payments, and not a nursing home or other organization providing care to the recipients. Also, these payments generally do not count as a resource or income for purposes of determining eligibility for Medicaid and other federal programs. The Social Security Administration has further information on how these payments may be handled.

COVID-19 Tax Relief For Retirement Distributions

The IRS has expanded the definition of “qualified individuals” who may take advantage of CARES Act provisions regarding retirement plan distributions and loans. For instance, a coronavirus-related distribution is not subject to the 10% additional tax that otherwise generally applies to distributions made before an individual reaches age 59 ½. Qualified individuals are those affected by COVID-19, whether due to contracting the virus or its effect on their employment. Notice 2020-50 provides the details.