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Taxpayers Should Review Their Withholding; Avoid Having Too Much or Too Little Federal Income Tax Withheld

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WASHINGTON — The Internal Revenue Service today encouraged taxpayers to consider checking their tax withholding, keeping in mind several factors that could affect potential refunds or taxes they may owe in 2018.

Reviewing the amount of taxes withheld can help taxpayers avoid having too much or too little federal income tax taken from their paychecks. Having the correct amount taken out helps to move taxpayers closer to a zero balance at the end of the year when they file their tax return, which means no taxes owed or refund due.

During the year, changes sometimes occur in a taxpayer’s life, such as in their marital status, that impacts exemptions, adjustments or credits that they will claim on their tax return. When this happens, they need to give their employer a new Form W-4, Employee’s Withholding Allowance Certificate, to change their withholding status or number of allowances.

Employers use the form to figure the amount of federal income tax to be withheld from pay. Making these changes in the late summer or early fall can give taxpayers enough time to adjust their withholdings before the tax year ends in December.

The withholding review takes on even more importance now that federal law requires the IRS to hold refunds a few weeks for some early filers claiming the Earned Income Tax Credit and the Additional Child Tax Credit. In addition, the steps the IRS and state tax administrators are now taking to strengthen protections against identity theft and refund fraud mean some tax returns could face additional review time next year.

So far in 2017, the IRS has issued more than 106 million tax refunds out of the 142 million total individual tax returns processed, with the average refund well over $2,700. Historically, refund dollar amounts have increased over time.

Making a Withholding Adjustment

In many cases, a new Form W-4, Employee’s Withholding Allowance Certificate, is all that is needed to make an adjustment. Taxpayers submit it to their employer, and the employer uses the form to figure the amount of federal income tax to be withheld from their employee’s pay.

The IRS offers several online resources to help taxpayers bring taxes paid closer to what they owe. They are available anytime on IRS.gov. They include:

Self-employed taxpayers, including those involved in the sharing economy, can use the Form 1040-ES worksheet to correctly figure their estimated tax payments. If they also work for an employer, they can often forgo making these quarterly payments by instead having more tax taken out of their pay.

Published by the IRS Tax Tips on July 20th, 2017

Reduce Certain Summertime Costs with the Child and Dependent Care Tax Credit

Many parents send their children to summer day camps while they work or look for work. The IRS urges those who do to save their paperwork for the Child and Dependent Care Tax Credit. Eligible taxpayers may be able claim it on their taxes in 2018 if they paid for day camp or for someone to care for a child, dependent or spouse during 2017.

Here are a few key facts to know about this credit:

  1. Qualifying Person. The care must have been for “qualifying persons.” A qualifying person can be a child under age 13. A qualifying person can also be a spouse or dependent who lived with the taxpayer for more than half the year and is physically or mentally incapable of self-care.
  2. Work-Related Expenses. The care must have been necessary so the taxpayer could work or look for work. For those who are married, the care also must have been necessary so a spouse could work or look for work. This rule does not apply if the spouse was disabled or a full-time student.
  3. Earned Income. The taxpayer — and their spouse if married filing jointly — must have earned income for the tax year. Special rules apply to a spouse who is a student or disabled.
  4. Credit Percentage/Expense Limits. The credit is worth between 20 and 35 percent of allowable expenses. The percentage depends on the income amount. Allowable expenses are limited to $3,000 for care of one qualifying person. The limit is $6,000 if the taxpayer paid for the care of two or more.
  5. Care Provider Information. The name, address and taxpayer identification number of the care provider must be included on the return. The childcare provider cannot be the taxpayer’s spouse, dependent or the child’s parent.
  6. IRS Interactive Tax Assistant tool. Use Am I Eligible to Claim the Child and Dependent Care Credit? tool on IRS.gov to help determine if eligible to claim the credit.
  7. Dependent Care Benefits. Special rules apply for people who get dependent care benefits from their employer. See Form 2441, Child and Dependent Care Expenses, has more on these rules. File the form with a tax return.
  8. Special Circumstances. Since every family is different, the IRS has a series of exceptions to the rules in the qualification process. These exceptions allow a greater number of families to take advantage of the credit. For more information, see IRS Publication 503, Child and Dependent Care Expenses.

Even if the childcare provider is a sitter in the home, taxpayers may qualify for the credit. Taxpayers who pay someone to come to their home and care for their dependent or spouse may be a household employer. They may have to withhold and pay Social Security and Medicare tax and pay federal unemployment tax. Find more on that in IRS Publication 926, Household Employer’s Tax Guide.

Avoid scams. The IRS will never initiate contact using social media or text message. First contact generally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on IRS.gov to find out.

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Published by the IRS Tax Tips on July 12th, 2017

Summer Newlyweds Should Also Think About Taxes

Spring showers bring summer flowers and weddings typically aren’t far behind. Newlyweds have a lot to think about and taxes might not be on the list. However, there is good reason for a new couple to consider how the nuptials may affect their tax situation.

The IRS has some tips to help in the planning:

  • Report changes in:
    • Name. When a name changes through marriage, it is important to report that change to the Social Security Administration. The name on a person’s tax return must match what is on file at SSA. If it doesn’t, it could delay any refund. To update information, file Form SS-5, Application for a Social Security Card. It is available on SSA.gov, by calling 800-772-1213 or at a local SSA office.
    • Address. If marriage means a change of address, the IRS and U.S. Postal Service need to know. To do that, send the IRS Form 8822, Change of Address. Notify the postal service to forward mail by going online at USPS.com or at a local post office.
  • Consider changing withholding. Newly married couples must give their employers a new Form W-4, Employee’s Withholding Allowance Certificate, within 10 days. If both spouses work, they may move into a higher tax bracket or be affected by the Additional Medicare Tax. Use the IRS Withholding Calculator at IRS.gov to help complete a new Form W-4. See Publication 505, Tax Withholding and Estimated Tax, for more information.
  • Decide on a new filing status. Married people can choose to file their federal income taxes jointly or separately each year. While filing jointly is usually more beneficial, it’s best to figure the tax both ways to find out which works best. Remember, if a couple is married as of Dec. 31, the law says they’re married for the whole year for tax purposes.
  • Select the right tax form. Choosing the right income tax form can help save money. Newly married taxpayers may find they now have enough deductions to itemize them on their tax returns. Newlyweds can claim itemized deductions on Form 1040, but not on Form 1040A or Form 1040EZ.
  • Avoid scams. The IRS will never initiate contact using social media or text message. First contact generally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on IRS.gov to find out.

Additional Resources:

  • Topic 157, Change Your Address – How to Notify the IRS

Published by the IRS Tax Tips on July 19th, 2017

Identity Theft Leads List of IRS’s Roster of Dirty Dozen Tax Scams

Tax-related identity theft is the number one item on the IRS’s roster of “Dirty Dozen” tax scams, the Service has announced. The Dirty Dozen roster is compiled annually by the IRS and lists a variety of common scams taxpayers may encounter, especially during the filing season. The IRS reported that it has made significant progress over the past several years to address tax scams. Tax-related identity theft remains a top concern as the IRS works with states and the tax industry to protect taxpayers and help victims.

“Our collaborative efforts with the Security Summit have given the IRS additional tools to stop fraudulent returns at the door,” said IRS Commissioner John Koskinen. “Criminals continue to look for increasingly sophisticated ways to breach the tax system. While the IRS has improved prevention and detection efforts, we’re calling on taxpayers to protect their private information so thieves can’t steal personal data to file fraudulent returns.”

The IRS Criminal Investigation (CI) is helping to prosecute the criminals behind these scams and statistics show that in the most recent three fiscal years (FY), CI convicted around 2,000 identity thieves. In FY 2015, the IRS initiated 776 identity theft related investigations. The courts continue to impose significant jail time with the average months to serve in FY 2015 at 38 months, the longest sentencing being over 27 years, the Service added.

Top 10 Tax Tips about Filing an Amended Tax Return

The following is from a recent IRS Tax Tip regarding amended tax returns.  If you find that you need to amend, give us a call and we can take care of it for you.  Or, if you are unsure and would like to find out more, give us a call.

We all make mistakes so don’t panic if you made one on your tax return.  You can file an amended return if you need to fix an error.  You can also amend your tax return if you forgot to claim a tax credit or deduction.  Here are ten tips from the IRS if you need to amend your federal tax return.

  1. When to amend.  You should amend your tax return if you need to correct your filing status, the number of dependents you claimed, or your total income. You should also amend your return to claim tax deductions or tax credits that you did not claim when you filed your original return.  The instructions for Form 1040X, Amended U.S. Individual Income Tax Return, list more reasons to amend a return.

Note: If, as allowed by recent legislation, you plan to amend your tax year 2014 return to retroactively claim the Health Coverage Tax Credit, see IRS.Gov/HCTC first for more information.

  1. When NOT to amend.  In some cases, you don’t need to amend your tax return. The IRS usually corrects math errors when processing your original return.  If you didn’t include a required form or schedule, the IRS will send you a notice via U.S. mail about the missing item.
  2. Form 1040X.  Use Form 1040X to amend a federal income tax return that you filed before. Make sure you check the box at the top of the form that shows which year you are amending.  Since you can’t e-file an amended return, you’ll need to file your Form 1040X on paper and mail it to the IRS.

Form 1040X has three columns.  Column A shows amounts from the original return.  Column B shows the net increase or decrease for the amounts you are changing.  Column C shows the corrected amounts.  You should explain what you are changing and the reasons why on the back of the form.

  1. More than one year.  If you file an amended return for more than one year, use a separate 1040X for each tax year. Mail them in separate envelopes to the IRS.
  2. Other forms or schedules.  If your changes have to do with other tax forms or schedules, make sure you attach them to Form 1040X when you file the form. If you don’t, this will cause a delay in processing.
  3. Amending to claim an additional refund.  If you are waiting for a refund from your original tax return, don’t file your amended return until after you receive the refund. You may cash the refund check from your original return.  Amended returns take up to 16 weeks to process.  You will receive any additional refund you are owed.
  4. Amending to pay additional tax.  If you’re filing an amended tax return because you owe more tax, you should file Form 1040X and pay the tax as soon as possible. This will limit interest and penalty charges.
  5. Corrected Forms 1095-A.  If you or anyone on your return enrolled in qualifying health care coverage through the Health Insurance Marketplace, you should have received a Form 1095-A, Health Insurance Marketplace Statement. You may have also received a corrected Form 1095-A.  If you filed your tax return based on the original Form 1095-A, you do not need to file an amended return based on a corrected Form 1095-A.  This is true even if you would owe additional taxes based on the new information.  However, you may choose to file an amended return.

In some cases, the information on the new Form 1095-A may lower the amount of taxes you owe or increase your refund.  You may also want to file an amended return if:

  • You filed and incorrectly claimed a premium tax credit, or
  • You filed an income tax return and failed to file Form 8962, Premium Tax Credit, to reconcile your advance payments of the premium tax credit.

Before amending your return, if you received a letter regarding your premium tax credit or Form 8962 you should follow the instructions in the letter.

  1. When to file.  To claim a refund file Form 1040X no more than three years from the date you filed your original tax return. You can also file it no more than two years from the date you paid the tax, if that date is later than the three-year rule.
  2. Track your return.  You can track the status of your amended tax return three weeks after you file with “Where’s My Amended Return?”  This tool is available on IRS.gov or by phone at 866-464-2050.

Job Search Expenses May be Deductible

The following is from a recent IRS Tax Tip on possible tax benefits of changing jobs.  If you have any questions about these or other tax issues, please give us call; we’re always here to help.

People often change their job in the summer.  If you look for a job in the same line of work, you may be able to deduct some of your job search costs.  Here are some key tax facts you should know about if you search for a new job:

  • Same Occupation.  Your expenses must be for a job search in your current line of work.  You can’t deduct expenses for a job search in a new occupation.
  • Résumé Costs.  You can deduct the cost of preparing and mailing your résumé.
  • Travel Expenses.  If you travel to look for a new job, you may be able to deduct the cost of the trip.  To deduct the cost of the travel to and from the area, the trip must be mainly to look for a new job.  You may still be able to deduct some costs if looking for a job is not the main purpose of the trip.
  • Placement Agency.  You can deduct some job placement agency fees you pay to look for a job.
  • First Job.  You can’t deduct job search expenses if you’re looking for a job for the first time.
  • Substantial Job Break.  You can’t deduct job search expenses if there was a long break between the end of your last job and the time you began looking for a new one.
  • Reimbursed Costs.  Reimbursed expenses are not deductible.
  • Schedule A.  You usually deduct your job search expenses on Schedule A, Itemized Deductions.  You’ll claim them as a miscellaneous deduction.  You can deduct the total miscellaneous deductions that are more than two percent of your adjusted gross income.
  • Premium Tax Credit.  If you receive advance payments of the premium tax credit it is important that you report changes in circumstances, such as changes in your income or eligibility for other coverage, to your Health Insurance Marketplace.  Other changes that you should report include changes in your family size or address.  Advance payments of the premium tax credit provide financial assistance to help you pay for the insurance you buy through the Health Insurance Marketplace.  Reporting changes will help you get the proper type and amount of financial assistance so you can avoid getting too much or too little in advance.

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Key Tax Tips on the Tax Effects of Divorce or Separation

The following is from a recent IRS Tax Tip regarding the tax impact of a divorce or separation.  Please let us know if you may be facing one of these and we can help you navigate the issues.

Income tax may be the last thing on your mind after a divorce or separation.  However, these events can have a big impact on your taxes.  Alimony and a name change are just a few items you may need to consider.  Here are some key tax tips to keep in mind if you get divorced or separated.

  • Child Support.  If you pay child support, you can’t deduct it on your tax return.  If you receive child support, the amount you receive is not taxable.
  • Alimony Paid.  If you make payments under a divorce or separate maintenance decree or written separation agreement you may be able to deduct them as alimony.  This applies only if the payments qualify as alimony for federal tax purposes.  If the decree or agreement does not require the payments, they do not qualify as alimony.
  • Alimony Received.  If you get alimony from your spouse or former spouse, it is taxable in the year you get it.  Alimony is not subject to tax withholding so you may need to increase the tax you pay during the year to avoid a penalty.  To do this, you can make estimated tax payments or increase the amount of tax withheld from your wages.
  • Spousal IRA.  If you get a final decree of divorce or separate maintenance by the end of your tax year, you can’t deduct contributions you make to your former spouse’s traditional IRA.  You may be able to deduct contributions you make to your own traditional IRA.
  • Name Changes.  If you change your name after your divorce, notify the Social Security Administration of the change.  File Form SS-5, Application for a Social Security Card.  You can get the form on SSA.gov or call 800-772-1213 to order it.  The name on your tax return must match SSA records.  A name mismatch can delay your refund.

Health Care Law Considerations

  • Special Marketplace Enrollment Period.  If you lose your health insurance coverage due to divorce, you are still required to have coverage for every month of the year for yourself and the dependents you can claim on your tax return.  Losing coverage through a divorce is considered a qualifying life event that allows you to enroll in health coverage through the Health Insurance Marketplace during a Special Enrollment Period.
  • Changes in Circumstances.  If you purchase health insurance coverage through the Health Insurance Marketplace, you may get advance payments of the premium tax credit in 2015.  If you do, you should report changes in circumstances to your Marketplace throughout the year.  Changes to report include a change in marital status, a name change, and a change in your income or family size.  By reporting changes, you will help make sure that you get the proper type and amount of financial assistance.  This will also help you avoid getting too much or too little credit in advance.
  • Shared Policy Allocation.  If you divorced or are legally separated during the tax year and are enrolled in the same qualified health plan, you and your former spouse must allocate policy amounts on your separate tax returns to figure your premium tax credit and reconcile any advance payments made on your behalf.  Publication 974, Premium Tax Credit, has more information about the Shared Policy Allocation.

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Reminder: Highway Use Tax Return is due Aug. 31

WASHINGTON — The Internal Revenue Service recently reminded truckers and other owners of heavy highway vehicles that in most cases their next federal highway use tax return is due Monday, Aug. 31, 2015.

The deadline generally applies to Form 2290 and the accompanying tax payment for the tax year that begins July 1, 2015, and ends June 30, 2016. Returns must be filed and tax payments made by Aug. 31 for vehicles used on the road during July.  For vehicles first used after July, the deadline is the last day of the month following the month of first use.

Though some taxpayers have the option of filing Form 2290 on paper, the IRS encourages all taxpayers to take advantage of the speed and convenience of filing this form electronically and paying any tax due electronically.  Taxpayers reporting 25 or more vehicles must e-file.

The highway use tax applies to highway motor vehicles with a taxable gross weight of 55,000 pounds or more.  This generally includes trucks, truck tractors, and buses.  Ordinarily, vans, pick-ups, and panel trucks are not taxable because they fall below the 55,000-pound threshold.  The tax of up to $550 per vehicle is based on weight, and a variety of special rules apply, explained in the instructions to Form 2290.

Additional IRS Statement on the “Get Transcript” Incident

Following an incident involving the IRS’s “Get Transcript” web application discovered in May, the IRS conducted an extensive review covering the 2015 filing season to assess whether other suspicious activity occurred. Following this review, the IRS has identified more questionable attempts to obtain transcripts using sensitive information already in the hands of criminals. As a result, the IRS is moving immediately to notify and help protect these taxpayers.

As it did in May, the IRS is moving aggressively to protect taxpayers whose account information may have been accessed. The IRS will begin mailing letters in the next few days to about 220,000 taxpayers where there were instances of possible or potential access to “Get Transcript” taxpayer account information. As an additional protective step, the IRS will also be mailing letters to approximately 170,000 other households alerting them that their personal information could be at risk even though identity thieves failed in efforts to access the IRS system.

A wide variety of actions to protect taxpayers are being taken beyond the mailings, including offering taxpayers free credit protection as well as Identity Protection PINs. The IRS takes the security of taxpayer data extremely seriously, and we are working to continue to strengthen security for “Get Transcript,” including by enhancing taxpayer-identity authentication protocols.

Additional Information

In May, the IRS determined unauthorized third parties already had sufficient information from a source outside the tax agency before accessing the “Get Transcript” application. This allowed them to clear a multi-step authentication process, including several personal verification questions that typically are only known by the taxpayer.

When the IRS first identified the problem in May, it determined that these third parties with taxpayer-specific sensitive data from non-IRS sources cleared the Get Transcript verification process on about 114,000 total attempts. In addition, third parties made another 111,000 attempts that failed to pass the final verification step, meaning they were unable to have access to account information through the Get Transcript service.

Since then, as part of the IRS’s continued efforts to protect taxpayer data, the IRS conducted a deeper analysis over a wider time period covering the 2015 filing season, analyzing more than 23 million uses of the Get Transcript system.

The new review identified an estimated additional 220,000 attempts where individuals with taxpayer-specific sensitive data cleared the Get Transcript verification process. The review also identified an additional 170,000 suspected attempts that failed to clear the authentication processes.

The IRS will begin mailing letters in the next few days to the taxpayers whose accounts may have been accessed.  Given the uncertainty in many of these cases — where a tax return was filed before the Get Transcript access occurred for example — the IRS notices will advise taxpayers that they can disregard the letter if they were actually the ones seeking a copy of their tax return information.

The IRS believes some of this information may have been gathered for potentially filing fraudulent tax returns during the upcoming 2016 filing season so anyone receiving a letter should take steps to protect themselves by taking advantage of the free credit monitoring and IP PIN which can be used to verify the authenticity of next year’s tax return.

The “Get Transcript” application was shut down in May, and the IRS continues to work on strengthening the system. In the meantime, taxpayers have several other options to obtain transcripts.

The IRS takes the security of taxpayer data extremely seriously, and we are working aggressively to protect affected taxpayers and continue to strengthen our systems.

The matter remains under review by the Treasury Inspector General for Tax Administration as well as IRS Criminal Investigation.