by | Feb 15, 2022 | Tax Tips and News
The Internal Revenue Service has come to the conclusion that the agency has more on its to-do list than it can get done at one time. Something, they found, had to be “put on the back burner.”
In order to service taxpayers filing now for the 2021 tax year, the IRS decided to suspend over a dozen additional letters to taxpayers, including automated collection notices, which are sent out when a taxpayer owes additional tax, but the IRS doesn’t have a record that they filed a return.
On the surface, it may seem as though this might not free up the manpower the IRS expects. But many of these letters—which include unfiled tax return notices and balance-due notices—are likely to generate a large workload by IRS personnel. That, when added to the several million income tax returns that the IRS has in backlog from the previous filing season, could be beyond the agency’s capabilities.
The COVID-19 pandemic led to a slowdown in processing of these backlogged returns; many of them have issues that meant the returns should be examined by an IRS specialist. The pandemic forced the agency to be even more short-staffed than normal.
IRS Commissioner Chuck Rettig says the only way to have enough staff to process the current crush of income tax returns was to shelve the letters and notices for later.
“IRS employees are committed to doing everything possible with our limited resources to help people during this period,” said Rettig.
“We are working hard, long hours pushing creative paths forward in an effort to be part of the solution, rather than the problem. Our employees continue to expend every effort to balance a confluence of multiple, unprecedented demands—including successfully starting the filing season, working our inventory of unprocessed tax returns as well as looking for additional ways to minimize burden for taxpayers, tax professionals and businesses.
“Our efforts are not limited to suspension of these additional letters and the possibility of similar actions going forward. We have redeployed and reallocated resources throughout the IRS and have implemented innovative strategies in an ongoing effort to provide a meaningful reduction in our inventories,” Rettig said.
The commissioner added that the automatic notices have been suspended until the IRS can work through the backlog of returns.
Not all notices stop
Some notices will still go out to taxpayers and tax professionals in the coming weeks. The IRS stresses, however, that there’s generally no need to call or respond to the notice; the agency is working as fast as it can to clear the backlog.
At the same time, however, the IRS recommends that if a taxpayer or tax pro gets a notice and believes it’s accurate, they should take corrective action to comply with the notice.
Taxpayers who have a balance due, for example, could have interest and penalties increase. IRS employees may also issue notices to particular taxpayers, covering specific compliance issues.
It should be noted that the IRS doesn’t have authority to stop all notices; many are required by law to be issued within a certain period.
What’s included in the suspension?
Notices to individual taxpayers:
- CP80, Unfiled Tax Return
- CP59 and CP759 (in Spanish), Unfiled Tax Return(s) – 1st Notice
- CP516 and CP616 (in Spanish), Unfiled Tax Returns – 2nd Notice
- CP518 and CP618 (in Spanish), Final Notice – Return Delinquency
- CP501, Balance Due – 1st Notice
- CP503, Balance Due – 2nd Notice
- CP504, Final Balance Due Notice – 3rd Notice, Intent to Levy
- 2802C, Withholding Compliance letter
Notices to businesses:
- CP259 and CP959 (in Spanish), Return Delinquency
- CP518 and CP618 (in Spanish), Final Notice – Return Delinquency
Source: IR-2022-31
– Story provided by TaxingSubjects.com
by | Feb 12, 2022 | Tax Tips and News
Workers have returned to the service industry lately—in droves. With the threat of coronavirus subsiding in many locations, restaurants and other establishments have sprung back to life.
With the surge in employment, we thought it appropriate to remind workers throughout the service industry there’s one phrase they should never forget: Tips are taxable income.
Anyone who works in the service industry—or has a side hustle in the gig economy—needs to keep that advice front and center come tax time. The point is taxpayers need to understand their obligations that come along with the tips they earn, so they don’t get a nasty surprise when they file.
Straight talk on tips
We’ll say it again: all tips a taxpayer receives must be reported as income. This includes tips that come directly from customers; tips that are added using credit, debit or even gift cards; and tips that come from a tip-splitting arrangement with fellow employees.
And don’t think those two tickets to the concert that your last customer gave you are not fair game—they are. Non-cash tips are income and subject to tax, just as if they were cash.
The Internal Revenue Service says three good habits can keep taxpayers out of hot water with their tips.
First, keep a daily record of tips received. This gives taxpayers hard numbers they can report to the IRS and avoid guessing later.
Second, report all tips to the employer. Simple enough.
Third, report all tips on the taxpayer’s tip record on their income tax return.
If taxpayers have questions about whether their tips really are taxable, they can consult the Interactive Tax Assistant on the IRS website for help.
Employers should remember that any employee who receives more than $20 in tips in any month has to report that month’s tips to the employer. The report has to be made by the 10th day of the following month.
For example, if a waiter gets $25 in tips during November, he has to report his total tips for that month by December 10.
Since the employer is required to withhold federal income, Social Security and Medicare taxes on the reported tips, it’s vital that the employee makes the monthly report on time.
For more information on tips and how to report them, see these resources from the IRS:
Source: IRS Tax Tip 2022-23
– Story provided by TaxingSubjects.com
by | Feb 11, 2022 | Tax Tips and News
It’s a new year and a new filing season. That means the Internal Revenue Service is hard at work fighting some long-running scams aimed at tricking taxpayers out of their hard-earned money.
Many times, the thieves impersonate IRS officials and may use text message scams, email or phone scams. This year, the IRS cautions that the thieves may even use unemployment fraud for their illegal purposes. And it’s a racket that extends beyond filing season.
“With filing season underway, this is a prime period for identity thieves to hit people with realistic-looking emails and texts about their tax returns and refunds,” said IRS Commissioner Chuck Rettig. “Watching out for these common scams can keep people from becoming victims of identity theft and protect their sensitive personal information that can be used to file tax returns and steal refunds.”
Known as the Security Summit, the Internal Revenue Service’s partnership with state tax agencies and national tax industry leaders has warned the nation’s taxpayers to watch out for common scams this tax season—but to also remain vigilant all year long.
To help taxpayers guard against these schemes, here’s how the most common examples work.
Text Message Scams
Text messages that falsely purport to come from the IRS were on the increase last year. These scam message show up unannounced on taxpayers’ smartphones and usually mention COVID-19 or “stimulus payments”—or both.
The bogus text messages also contain fake links to nonexistent IRS websites or online tools, that, once they’re clicked, instead can install malware on the recipient’s computer, or trick the recipient into divulging personal identifying information.
The IRS says the defense against these text messages is simple: NEVER click links or open attachments in unsolicited, suspicious or unexpected text messages, no matter if they claim to come from the IRS, state tax agencies or some company within the tax community.
While the IRS has its Secure Access authentication tool, the agency does not use text messaging to communicate personal tax issues such as bills or refunds. The IRS also stresses that it doesn’t send messages to taxpayers using social media.
If a taxpayer gets an SMS or text that they suspect to be a scam, the taxpayer should take a screenshot of the message and send the screenshot in an email to phishing@IRS.gov. Include the date, time and timezone the taxpayer got the message as well as the telephone number that received it.
Phone Scams
While the IRS says it will never leave prerecorded, urgent or threatening messages on taxpayer’s phones, the scammers sure will.
Most of the variations on the phone scam theme feature threats that the IRS can’t and won’t make. The threats made are a common thread among all IRS-spoofed phone scams, including messages that if the recipient doesn’t call back, a warrant will be issued for their arrest, intervention by law enforcement, deportation or revoking the recipient’s licenses.
Here’s a list of things the IRS—and its authorized private collection agencies—will never do:
- Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS does not use these methods for tax payments.
- Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
- Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
- Ask for credit or debit card numbers over the phone.
Generally, the IRS will first mail a bill to any taxpayer who owes taxes. All tax payments should only be made payable to the U.S. Treasury. Checks should never be made payable to third parties.
If one of these scam calls is received by a taxpayer who doesn’t owe taxes and has no reason to think they do, the first line of defense is evasion: don’t give out any information and hang up immediately.
Second, report the call to the Treasury Inspector General for Tax Administration (TIGTA) at IRS Impersonation Scam Reporting.
Taxpayers should also email the IRS at phishing@IRS.gov, giving them the caller ID or callback number. Remember to put “IRS Phone Scam” in the Subject line. Lastly, taxpayers can report the scam call to the Federal Trade Commission on its FTC.gov website. Add “IRS Telephone Scam” in the notes.
If a taxpayer gets a call and owes tax—or thinks they do—they should go online to view their account information at IRS.gov to see the official amount that they owe. They can also look over their actual payment options.
Next, call the number on the billing notice that arrived in the mail or call the IRS at 800.829.1040 for help from a REAL IRS employee.
Unemployment Fraud
Unemployment fraud becomes apparent when workers are sent unemployment claims or other benefit payments for which they never applied.
Indeed, states have seen an increase in fraudulent unemployment claims, filed by organized crime using stolen identities to fraudulently collect benefits.
These benefits are taxable, so states issue Form 1099-G, Certain Government Payments, both to the recipient and to the IRS. The form reveals any taxable compensation received and the tax withheld.
A worker who gets a fraudulent or incorrect 1099-G should contact the issuing state agency immediately to request a corrected 1099-G.
For more on how to report unemployment fraud, getting a corrected Form 1099-G, and other steps, visit the U.S. Department of Labor’s site at DOL.gov.
Employees may be targets of unemployment identity theft if they received:
- Mail from a government agency about an unemployment claim or payment for which they did not file. This includes unexpected payments or debit cards and could be from any state.
- An IRS Form 1099-G reflecting unemployment benefits they weren’t expecting or didn’t receive. Box 1 on this form may show unemployment benefits they did not receive or an amount that exceeds their records for benefits they did receive. The form itself may be from a state in which they did not file for benefits.
- A notice from their employer indicating the employer received a request for information about an unemployment claim.
Email Phishing Scams
Let’s get to the bottom line up front: When the IRS has to reach out to an individual taxpayer, it does so through the U.S. Postal Service—the regular mail. The IRS does NOT use email to request personal or financial information.
Taxpayers should be very suspicious of any unsolicited email that claims to be from the IRS or another program closely linked to the agency. If a taxpayer gets one of these suspect emails, they should send the email as an attachment to phishing@IRS.gov. The IRS’ Report Phishing and Online Scams page has more information.
Taxpayers are being warned to pay special attention to how the IRS website is used in suspicious emails and other scam documents. The official IRS website is IRS.gov. If a purported IRS website ends in “.com,” it’s a scam. All the official IRS webpages, forms and online tools all end in “.gov.”
For more information on scams, see Tax Scams and Consumer Alerts on IRS.gov.
Source: IR-2022-25
– Story provided by TaxingSubjects.com
by | Feb 10, 2022 | Tax Tips and News
The Internal Revenue Service wants to see a 2021 income tax return from all Americans—including those who haven’t filed in years. The reason is recent legislation—including the American Rescue Plan and other new laws—has put some significant tax benefits in play for those who qualify.
Taxpayers and families can get these expanded tax benefits even if they have little or no income from a job, business or some other source. Claiming the benefits could mean tax refunds for many who file.
The IRS says people can’t claim the benefits if they don’t file a return, so they need to electronically file an accurate return and choose direct deposit for the fastest refund.
Expanded tax credits are available
Most of the expanded tax credits and other benefits are outlined in Fact Sheet 2022-10, which is now available on the IRS website, IRS.gov. But Americans can only reap the rewards if they file a return. The benefits include:
- An expanded Child Tax Credit: Families can claim this credit, even if they received monthly advance payments during the last half of 2021.
- An increased Child and Dependent Care Credit: Families who pay for daycare so they can work or look for work can get a tax credit worth up to $4,000 for one qualifying person and $8,000 for two or more qualifying persons.
- A more generous Earned Income Tax Credit: The American Rescue Plan boosted the EITC for childless workers. There are also changes that can help low- and moderate-income families with children.
- The Recovery Rebate Credit: Those who missed out on last year’s third-round of Economic Impact Payments (EIP3), also known as stimulus payments, may be eligible to claim the RRC. This credit can also help eligible people whose EIP3 was less than the full amount, including those who welcomed a child in 2021.
- A deduction for gifts to charity: The majority of taxpayers who take the standard deduction can deduct eligible cash contributions they made during 2021. Married couples filing jointly can deduct up to $600 in cash donations and individual taxpayers can deduct up to $300 in donations. In addition, itemizers who make large cash donations often qualify to deduct the full amount in 2021.
The IRS wants taxpayers to know that some refunds will be delayed by law. The IRS is prohibited from issuing refunds for the EITC before mid-February, a deadline shift shared by the Additional Child Tax Credit (ACTC).
This year, the ACTC is most often claimed by taxpayers who live overseas and did not have a main home in the U.S. for more than half of the tax year.
The mid-February restriction doesn’t normally apply to the Refundable Child Tax Credit (RCTC), claimed by taxpayers who had a main home in the U.S.—unless they claim the EITC as well.
Taxpayers need to gather all their documents before filing
Taxpayers should have all their year-end tax documents at hand before they file a 2021 return. Besides the obvious W-2s and 1099s, two statements from the IRS—Letter 6419 and Letter 6475—also need to be handy.
Letter 6419 shows the taxpayer’s total advance payments of the Child Tax Credit; Letter 6475 outlines the taxpayer’s total EIP3 payments. This information can also be determined from the taxpayer’s IRS Online Account.
Married couples who received joint payments must each sign into their individual accounts separately to get their respective amounts.
And finally, don’t forget this year’s filing and paying deadline is April 18. For those taxpayers living in Massachusetts and Maine, that deadline is April 19. Taxpayers who live and work outside the U.S. have a June 15 deadline; and if filers ask for an extension of time, they’ll have until October 17 to file.
Remember, however, that payment is not covered by an extension, so any tax due will have to be paid by the regular April 18 deadline.
For more information on filing deadlines or the expanded credits, visit the Tax Time Guide on IRS.gov, or Publication 17, Your Federal Income Tax.
Source: Tax Time Guide: American Rescue Plan changes can boost refunds for many families; people should file even if they haven’t for years
– Story provided by TaxingSubjects.com
by | Feb 9, 2022 | Tax Tips and News
Protecting taxpayer data from scammers and preventing identity theft tax refund fraud has long been a chief concern for the Internal Revenue Service, and pursuing this mission lead the agency to form the Security Summit. While the agency has worked tirelessly alongside state officials and private members of the tax industry to spread awareness of data-security issues and provide guidance on best practices, recently planned efforts to better secure IRS.gov accounts have been abandoned following criticism.
Last week, it was reported that the IRS would begin requiring third-party facial recognition verification to access certain tax information via online accounts this summer. This news caused some members of Congress to raise concerns about taxpayer privacy, ultimately resulting in today’s announcement by the agency that they will be abandoning the program. Despite this setback, the IRS notes that they will look into other methods for securing these accounts that will not affect filing season.
“The transition will occur over the coming weeks in order to prevent larger disruptions to taxpayers during filing season,” the IRS explains. “During the transition, the IRS will quickly develop and bring online an additional authentication process that does not involve facial recognition. The IRS will also continue to work with its cross-government partners to develop authentication methods that protect taxpayer data and ensure broad access to online tools.”
The IRS closes the release by assuring that this process will not affect filing season, encouraging taxpayers to “continue to file their taxes as they normally would.” Once the agency announces their chosen alternative verification method, we will provide an update on Taxing Subjects.
Sources: IR-2022-27; “The IRS plan to require face scans raises concerns about privacy and security,” WBUR.org; “Want information from the IRS? For some, the agency wants a selfie,” NPR.org
– Story provided by TaxingSubjects.com
by | Feb 5, 2022 | Tax Tips and News
The wait is over; the filing season for 2021 income tax returns has been opened by the IRS. But before taxpayers start sharpening pencils, cranking up the calculator and putting on a pot of coffee, they need to know they’ve got everything together to get the job done right.
The IRS has put together its annual Tax Time Guide that helps taxpayers navigate the trials of taxes and file an accurate return. Here are some tips that can make anyone’s income tax season a lot less daunting.
Wait for it…
As much as some taxpayers want to get started on their taxes early in the game, it’s a better bet not to file prematurely. Unless a taxpayer knows they have all the right documents at hand, they risk making mistakes that could delay or even cost them their refund.
January is usually the month when year-end forms start showing up in taxpayers’ mailboxes, or are sent via email. No matter how they arrive, taxpayers need to carefully look over their forms and contact the payer immediately if a correction is needed or an updated mailing or email address.
Some forms—like some Forms 1099, for example—don’t have to be issued until later in the tax filing season.
Here’s a quick list of important forms taxpayers may need to file, but should wait until they have these in hand before they do:
- Forms W-2 from employer(s)
- Forms 1099 from banks, issuing agencies and other payers including unemployment compensation, dividends and distributions from a pension, annuity or retirement plan
- Form 1099-K, 1099-MISC, W-2, or other income statement if they worked in the gig economy
- Form 1099-INT if they received interest payments
- Other income documents and records reporting virtual or crypto currency transactions
- Form 1095-A, Health Insurance Marketplace Statement, to reconcile advance Premium Tax Credits for Marketplace coverage
- Letter 6419, 2021 Total advance Child Tax Credit Payments to reconcile advance Child Tax Credit payments
- Letter 6475, 2021 Economic Impact Payment, to determine eligibility to claim the Recovery Rebate Credit
Report advance payments
This year, there’s a new wrinkle in the form of Letter 6419, Advance Child Tax Credit Reconciliation, which was sent out in January by the IRS. Taxpayers need to use the letter to compare the amount of the Child Tax Credit they received in advance payments in 2021 with the total amount of the credit they should get. If there’s any remaining credit they can claim, they can receive it in the form of a tax refund.
If they were paid more in advance than they qualify for, however, those taxpayers may have to pay extra tax due to make up the difference.
As with all pertinent tax documents, the IRS urges taxpayers to check this information carefully.
Taxpayers who were issued a third Economic Impact Payment won’t have to include anything about it on their income tax return. Those who didn’t qualify for a third payment—or didn’t get the full amount—may be eligible for some of it in the form of the 2021 Recovery Rebate Credit.
To claim the credit, taxpayers need the total amount of their third Economic Impact Payment for inclusion on their return. Taxpayers can get the amount from their Online Account on IRS.gov, or they can wait to receive Letter 6475 in the mail.
The Online Account can be a very powerful tool for filers, providing their tax information securely and quickly.
Using the Online Account when filing returns, taxpayers can see:
- The total amounts of Economic Impact Payments issued for tax year 2021
- The total amount of advance Child Tax Credit payments
- Their adjusted gross income from their last tax return
- The total of any estimated tax payments they made, and refunds applied as a credit
Taxpayers can do more than that, of course. After logging in, taxpayers can make and track their tax payments and manage their communication preferences. They’ll also have the option to go paperless and request email notification for certain notices available online.
Taxpayers who would like to get their IRS tax notices in Braille, large print, audio or electronic formats can download Form 9000, Alternative Media Preference from the IRS website.
Once completed, the form can be mailed in by itself, included along with the taxpayer’s tax return, or taxpayers can call the IRS at 800-829-1040 to choose their preferred format.
Similarly, Spanish speakers—or those who speak one of 20 other languages—can use Schedule LEP, Request for Change in Language Preferences, to get communications in their particular language. Forms 1040 and 1040-SR are now available in Spanish.
e-File and direct deposit are encouraged
Lastly, the IRS strongly encourages taxpayers to file their income tax returns by electronic means, avoiding paper returns, and to choose direct deposit for any refunds. That, they stress, will speed up processing and keep refunds moving quickly – 21 days in most cases.
In addition, taxpayers should take extra steps to ensure they’re filing an accurate return. Mistakes in copying figures, math errors and other lapses can lead to a return being reviewed by an IRS employee, and that takes time. Paper, whether in the form of a paper return or a paper check will take even longer to process this tax season.
Need additional help? See Publication 17, Your Federal Income Tax (For Individuals) on IRS.gov.
Source: IR-2022-23
– Story provided by TaxingSubjects.com
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