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How long are you required to keep tax returns and supporting documents according to the IRS?
Record Retention for Tax Returns and Supporting Documents
According to the IRS Publication 583, you should retain any records that support an income item or deduction on a tax return until the time when the return can no longer be amended to claim a credit or refund or the IRS can assess additional tax.
Period of Limitations
IF you...
THEN the period of retention (# of years after the return is filed) is...
1. Owe additional tax and situations (2), (3), and (4), below, do not apply to you
3 years
2. Do not report income that you should report and it is more than 25% of the gross income shown on the return
6 years
3. File a fraudulent return
Keep indefinitely
4. Do not file a return
Keep indefinitely
5. File a claim for credit or refund after you filed your return
Later of: 3 years or 2 years after tax was paid
6. File a claim for a loss from worthless securities or a bad debt deduction
7 years
7.Employment tax records
4 years after tax is due or paid (whichever is later)
Above Table from IRS Publication 583 (1/2007), Starting a Business and Keeping Records & IRS Publication 552 (4/2005), Recordkeeping for Individuals
Before discarding any documents, ask yourself these questions.
1.Is this document connected to an asset?If the document does relate to property that you still have, you should keep the document for depreciation, amortization, or depletion deduction purposes as well as aiding you in figuring gain or loss on the sale or disposition of the property.If you no longer have the asset, you should keep the records for that asset until the period of limitations expires for the year in which you disposed of the asset.
2.Is this document needed for other non-tax purposes?You may be required by a creditor or insurance company to retain a document long after the IRS retention period.
Includes Standard Deductions, Personal Exemptions and Mileage Rates
Individual Capital Gains Rate
Individual capital gains rate can vary from 5% to 28% depending upon the type of capital gain property sold, the holding period, the date acquired and the regular tax bracket the taxpayer falls within.Certain dividend income is also taxed at capital gains rates.See your tax consultant.
Standard Deductions
Single
$5,000
Joint Filers
$10,000
Joint, Filing Separately
$5,000
Heads of Households
$7,300
Personal Exemptions
Exemption Amount- $3,200
The exemption amount is reduced by approximately 2% for each $2,500 by which the taxpayer’s adjusted gross income exceeds:
Single taxpayers
$145,950
Married filing jointly and qualified widows and widowers
Includes information on Corporate Rates, MACRS Percentages, Estate and Trust Income Rates, FICA, Benefit Limitations, and Social Security Retirement Wage Limits.
Corporate Federal Tax Rates
Corporate Federal Tax Rates 2005 - 2008
Taxable Income
Tax
% on Excess
0
0
15%
50,000
7,500
25%
75,000
13,750
34%
100,000
22,250
39%
335,000
113,900
34%
10,000,000
3,400,000
35%
15,000,000
5,150,000
38%
18,333,333
6,416,667
35%
MACRS Percentages
(with half year convention)
Year
5-year Property
7-year Property
1
20.00%
14.29%
2
32.00%
24.49%
3
19.20%
17.49%
4
11.52%
12.49%
5
11.52%
8.93%
6
5.76%
8.92%
7
--
8.93%
8
--
4.46%
FICA
Year
Maximum Salary
Rate
2008
Social Security
$102,000
6.20%
Medicare
No max
1.45%
2007
Social Security
$97,500
6.20%
Medicare
No max
1.45%
2006
Social Security
$94,200
6.20%
Medicare
No max
1.45%
2005
Social Security
$90,000
6.20%
Medicare
No max
1.45%
Self-employed individuals pay both the employee and employer portion
but get a deduction for the employer portion.
In 2008, total wages paid to household employees of at least $1,600 are subject to FICA taxes.
In 2007, total wages paid to household employees of at least $1,500 are subject to FICA taxes.
Benefits Limitations
Year
401(k) Contribution Limit (Below Aged 50)
401(k)
Contribution Limit (Age 50 or Higher)
Defined Contribution Plan Limit
Compensation Limit for Calculating Plan Contributions
Defined Benefit Plan Limit
2008
$ 15,500
$ 20,500
$ 46,000
$ 230,000
$ 185,000
2007
$ 15,500
$ 20,500
$ 45,000
$ 225,000
$ 180,000
2006
$ 15,000
$ 20,000
$ 44,000
$ 220,000
$ 175,000
2005
$ 14,000
$ 18,000
$ 42,000
$ 210,000
$ 170,000
Social Security Earnings Limit for 2008
When You Reach Full Retirement Age (FRA)
Amount You Can Earn
If Your Earnings Exceed The Limit
If you are under FRA for all of 2008
$13,560
$1 of benefits is withheld for every $2 you earn above $13,560.
If you attain FRA in 2008
$36,120 before the month in which you attain FRA
$1 of benefits is withheld for every $3 you earn above $36,120.
Let's Take a Look at Social Security
Presented to The Conversation
May 26, 2005
by DeWitt T. Hisle
What Would FDR Think?
by DeWitt T. Hisle
Presented to The Conversation on May 26, 2005
In 1935, 70 years ago, President Roosevelt signed the Social Security Act.Monthly payments began in 1940.He said:
“We have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against a poverty ridden old age.”
Social Security
Social Security is often described as the most popular government program, and Americans collectively have come to rely on it for their retirement years.But the long-term viability of Social Security must be addressed in the very near future.
The American Institute of Certified Public Accountants strongly urges that, before taking a position on a possible solution to the funding shortfall, policymakers and the public need to gain a clear understanding of the issues involved in reforming Social Security.The goal of my discussion is to provide some facts and analysis.
Social Security is Not Broke
Social Security Administrations best guess assumptions:
·The Trust Fund surplus will peak in 2028.
·It will decline steadily until 2042 at which time it will be exhausted.
·Inadequate funds do not mean zero benefits:
·Full benefits through 2042.
·Thereafter scheduled benefits would have to be reduced by 27%.
·In 2078 benefits would be reduced by 32%.
Although best guess assumptions are reasonable there is uncertainty about actual results.
·High cost assumptions Trust Fund peaks in 2021 completely depleted by 2031.
·Low cost assumptions Trust Fund would not be depleted and there is no long term problem.
Some Solutions
This Social Security “deficit” could be funded by:
·An immediate infusion of $3.54 trillion.
·By increasing the payroll tax from its current level of 12.4% to 14.3%.
·Reducing current scheduled benefits by 12.6%.
·Improving the rate of return on investments.
·Raise the cap on income subject to the tax.
QUESTIONS FOR EVALUATING PERSONAL ACCOUNT PROPOSALS
Among the most important issues to consider under any personal account proposal are the following:
·To what degree, and over what period, would benefits under the existing system remain in place?
·Will there be a safety net for low-income beneficiaries?
·How much choice will individuals have about:
oParticipating?
oInvestments?
oDistributions?
·Will benefit payments be subject to tax?If so, at what rate?
·What will the plan “cost” beneficiaries in lost traditional benefits as a trade-off for a personal account?
·Should the private accounts be in addition to the basic guaranteed benefits?
AT THE MERCY OF EVENTS
Say you retired in March of 2000 with $100,000 in your private account in an Index Fund.Your inflation-adjusted annuity would be about $680 a month.
If you retired in October 2002 with the same number of shares of the Index Fund it would be worth $60,000.Your annuity would be about $279 a month.
Saved the same – retired at different times – at the mercy of events.
We don’t save for retirement
Workers' savings
Percentage of workers by amounts
saved for retirement:
Less than $25,000
52%
52% < 25,000
$25,000-$49,000
13%
65% < 50,000
$50,000-$99,000
13%
78% < 100,000
$100,000-$249,000
12%
90% < 250,000
$250,000 or more
11%
Source: Employee Benefit Research Institute
Note:Does not add up to 100 because of rounding
Social Security was never meant to fully fund retirement.
POVERTY AND ELDERLY
Social Security is a critical component of the financial security of millions of retirees – especially for future generations of the nation’s elderly poor.
·Social Security provides more than half of the total income for almost 60% of beneficiaries.
·For almost 30%, it provides more than 90% of income.
·It also covers 4.8 million widowers, 5 million disabled workers and 3.8 million children of deceased workers.
·80% of American workers pay more Social Security taxes than federal income tax.
Reducing poverty among the elderly is Social Security’s major accomplishment to date.The poverty rate among the elderly in 2000 was approximately 10%, down from a rate of 35.2% in 1959.Without Social Security, the poverty rate among the elderly would be 48%.
Preserving Social Security matters everywhere, but particularly in Kentucky.Our population is older and poorer than most.In 2003 more than $7 billion came into Kentucky through the Social Security program.Without it 54.6% of Kentucky senior citizens would live in poverty.10.7% do.
Surveys show that many Americans want a safety net.The system they have been use to has security in its name.A lot of people like the ownership society but they want it with a warranty.
Social Security is often described as the most popular government program, and Americans collectively have come to rely on it for their retirement years. But the long-term viability of Social Security must be addressed in the very near future.
The American Institute of Certified Public Accountants strongly urges that, before taking a position on a possible solution to the funding shortfall, policymakers and the public need to gain a clear understanding of the issues involved in reforming Social Security. The goal of this report is to foster informed discussion by providing unbiased facts and analysis.
The Situation
According to the Social Security Administration’s “best guess” (intermediate) assumptions, the Social Security Trust Fund surplus will peak in 2028. Then it will decline steadily until 2042, at which time the Trust Fund will be exhausted. However, inadequate funds do not mean zero benefits. If no changes are made to Social Security, beneficiaries could receive full scheduled benefits through 2042. Thereafter, scheduled benefits would have to be reduced by 27 percent. In 2078, benefits would have to be reduced by 32 percent. This Social Security “deficit” could be funded by an immediate infusion of $3.54 trillion; by increasing the payroll tax rate from its current level of 12.4 percent to 14.3 percent; or by reducing current scheduled benefits 12.6 percent.
Although the intermediate assumptions are reasonable there is still considerable uncertainty about actual results. Under Social Security’s high-cost projections, the Trust Fund peaks in 2021 and is entirely depleted by 2031. Under low-cost projections, the Trust Fund would not be depleted and there is no long-term financing problem.
Poverty and Elderly
Social Security is a critical component of the financial security of millions of retirees – especially for future generations of the nation’s elderly poor. Social Security provides more than half of the total income for almost 60 percent of beneficiaries. For almost 30 percent, it provides more than 90 percent of income.
Reducing poverty among the elderly is Social Security’s major accomplishment to date. The poverty rate among the elderly in 2000 was approximately 10 percent, down from a rate of 35.2 percent in 1959. Without Social Security, the poverty rate among the elderly would be 48 percent.
Fairness – Economic and Otherwise
Social Security was created as a pay-as-you-go system. Most of today’s Social Security recipients are receiving – and will continue to receive – more in benefits than their actuarial “fair share” based on their contributions. Even if all promised benefits were paid, future retirees, particularly singles, two-earner couples and those with high incomes, will earn below-market rate returns on their contributions.
The rate of return earned on an individual’s Social Security contributions is affected by gender, marital status, and income level. Social policy considerations weaken the direct link between contributions made and benefits received. The Social Security benefit formula includes a declining fraction of income in the calculation. As a result, low income beneficiaries benefit from the formula, high income beneficiaries do not. Married couples benefit from spousal and survivor benefits.
Reform plans to create personal savings accounts within the Social Security system would move the program away from a pay-as-you-go social insurance program and make it more like a defined-contribution pension plan. This will result in less redistribution of income (1) from high- to low-income earners; (2) from single individuals to married couples; and (3) from two-earner couples to one-earner couples.
Impact on Labor and Savings
Although analysts do not believe that Social Security taxes have much impact on the overall labor supply, payroll taxes may affect labor supplied by individuals for whom working is not a necessity. The Social Security benefit rules also appear to affect decisions about early retirement and the amount of work retirees plan to perform during retirement.
Increased national saving is a key to increased capital formation, productivity, and long-term economic growth. The current pay-as-you-go Social Security system may have decreased workers’ overall saving rates. The anticipated shortfall in future benefits may encourage workers to save more, but the magnitude of these affects is subject to debate.
Restoring Fiscal Balance
There are four general methods of improving the financial condition of the Social Security Trust Fund: (1) reducing benefits; (2) increasing revenues; (3) improving the rate of return on Trust Fund assets; and (4) other revenue sources, such as appropriating Treasury general funds.
Benefit reductions can be accomplished through across-the-board cuts, means-testing, raising the retirement age, or changing the inflation-adjustments used to determine benefits. Revenues can be increased by raising the payroll tax rate, raising the cap on taxable income, extending the payroll tax to all government workers, raising income taxes on Social Security benefits, and diverting general tax revenues to the Trust Fund.
Investing in Private Securities
If Social Security remains a pay-as-you-go system, the average rates of return on Social Security contributions will eventually decline below rates of return historically available in financial markets. Even if Social Security became a fully funded system, its rate of return could not significantly improve unless the restriction to invest solely in U.S. government securities was lifted.
Investing Trust Fund assets, as a whole, in the stock market could improve Social Security’s financial condition, because – over long periods of time – the stock market generally outperforms the return on U.S. government securities. However, investing in private securities adds risk and increased administrative costs to the financing equation. Further, the potential for large-scale government investment in private equities could result in undue political influence on markets.
Personal Accounts
Under a system of personal accounts, a portion of payroll taxes paid by each worker under age 55 would be redirected from the Trust Fund to that worker’s own personal account. Some restrictions would be imposed on investment and payout options, but the personal account holder could generally expect to earn a higher return on their contributions.
Personal accounts would not entirely eliminate traditional Social Security retirement benefits. However, under most proposals reviewed in this report, traditional benefits would be reduced regardless of whether an individual chose to participate in the voluntary account program.
Benefit Offsets: Workers choosing to contribute to personal accounts would receive benefits from their personal account along with traditional benefits that have been reduced according to the amount redirected to an investment in a personal account. The greater this “benefit offset,” the less attractive the personal account option will be, but large benefit offsets make personal account proposals less costly for the Trust Fund.
Risk Shifting: Personal accounts expose account holders to uncertainty about their future benefit levels because of market performance risks. Although some of this risk can be eliminated through diversification; the rest may be transferred to the federal government in the form of minimum benefit guarantees.
Administrative Costs: The costs to administer private accounts have a large impact on the benefits ultimately available to retirees. For an individual with average earnings of $30,000, contributing 2 percent of earnings to an individual account, administrative costs of 0.1 percent of assets could allow an accumulated balance of $125,430 by retirement. However, if administrative costs were 1.0 percent, the accumulated balance would be approximately $98,000 – a 22 percent reduction.
Funding Transition Costs
Over the 75-year horizon used to score Social Security reforms, the creation of personal accounts by themselves worsen the financial condition of the Social Security Trust Funds. During the long transition to a personal account system, fewer funds would be available to pay traditional benefits to current retirees and near-retirees, because contributions diverted to the personal accounts of younger workers would result in lower contribution levels into the Trust Fund.
Therefore, extra funds from outside the program or cost savings from inside the program would be needed to fund the transition. All personal account proposals considered in this report include transfers from the Treasury general fund to the Social Security Trust Fund.
QUESTIONS FOR EVALUATING PERSONAL ACCOUNT PROPOSALS
Among the most important issues to consider under any personal account proposal are the following:
·To what degree, and over what period, would benefits under the existing system remain in place?
·Will there be a safety net for low-income beneficiaries?
·How much choice will individuals have about:
oParticipating?
oInvestments?
oDistributions?
·Will benefit payments be subject to tax? If so, at what rate?
·What will the plan “cost” beneficiaries in lost traditional benefits as a trade-off for a personal account?
Tips for payroll and human resource record retention, including information on how long to keep OSHA,IRS/SSA/FUTA, FLSA/INRCA, Family Medical Leave and Supplemental records.
OSHA Documents – 5 years
·Log of all occupational illnesses/accidents
·Other OSHA records
IRS/SSA/FUTA documents – 4 years
·Duplicate copies of tax returns/tax deposits
·Returned copies of Form W-2
·Canceled/voided checks
·Employee’s name/address/occupation/social security number
·Amount/date of payments for wages, annuities, pensions, tips; fair market value of wages-in-kind
·Record of allocated tips
·Amount of wages subject to withholding
·Taxes withheld (and date if different from pay date)
·Copies of Form W-4 (for at least four years after the date the last return was filed using the information on the Form W-4)
·Agreements to withhold additional amounts
·Dates when employee was absent due to injury and received payments; amount/rate of such payments (by employer or third party)
·Copies of Forms 941, 940, W-2, W-3, Schedule A, Schedule B, and other returns filed on magnetic media
FLSA/INRCA Record Retention – 3 years
·Name of employee/address/occupation/birth date/sex
·Hours worked each day/week
·Amount and date of payment
·Amounts earned for straight time and overtime/additions to and deductions from wages
·Collective bargaining agreements
·Sales and purchase records
·Immigration Reform and Control Act, Form I-9-three years after date of hire or one year after date of termination (whichever is later)
FAMILY AND MEDICAL LEAVE Record-Keeping Requirements - 3 years
The following records must be kept for at least three years, in any format, and made available no more frequently than once every 12 months for Department of Labor inspection.
·Name, address, occupation rate of pay, daily and weekly hours worked per pay period
·Additions to and deductions from wages, total compensation
·Dates of FMLA leave (or hours if taken in increments of less than one day)
·Copies of written notices of intention to take FMLA leave provided by employee
·Copies of general and specific notices provided to employees
·Plan descriptions/policies and procedures dealing with unpaid and paid leaves
The Internal Revenue Service is still working on the details of how it is going to help taxpayers that may have fallen for deceptive marketing that led them to improperly receive employee retention tax credits.
The Internal Revenue Service is still working on the details of how it is going to help taxpayers that may have fallen for deceptive marketing that led them to improperly receiveemployee retention tax credits.
Internal Revenue Service Commissioner DanielWerfelsaid that the agency is still working to figure out theprocessof how to help those who have already received theirERC"and now realize they believe they received it inappropriately,"including how to come forward preemptively before the IRS takes collection action against them, as well as"on settlement terms for paying back in a way we hope works out for those companies economically."
He also noted the agency is working on updating its procedures"for how we review credits, how we communicate with stakeholders to make sure there’s exact clarity, and we’re even stronger in our outreach in terms of what are the issues that we see companies in thinking they’re eligible when they are not."Werfelmade his comments November 14, 2023, at the AICPA & CIMA National Tax & Sophisticated Tax Conference.
The IRS already has issued procedures on how taxpayers can withdraw claims for theemployee retention creditif the claim has not been processed, as well as placed a moratorium on processing claims until at least the end of year.
Werfelalso used his speech to reiterate previously highlighted improvements in customer service and compliance and enforcement following the supplemental funding provided by the Inflation Reduction Act.
National Taxpayer Advocate Erin Collins also acknowledged the improvement in the wake of the issues that arose during the COVID-19 pandemic.
"The good news is the IRS is in a much better place than it was over the last three years,"Collins said during the conference."The not-so-good news is we still have a long way to go."
In particular, she targeted the continued filing of paper returns as a key contributor to delays in processing returns and other correspondence. The IRS has been working to improve the abilities to filing tax returns and other correspondence electronically as a means of speeding up the processing, and she noted that what has been accomplished thus far"is a good thing."
However, she noted that another challenge is that even if they are electronically filed, they are still manually processed and more work needs to be done to improve the technology to help get them electronically processed.
The IRS has announced that calendar year 2023 would continue to be regarded as a transition period for enforcement and administration of the de minimis exception for reporting by third party settlement organizations (TPSO) under Code Sec. 6050W(e).
TheIRShas announced that calendar year2023would continue to be regarded as a transition period for enforcement and administration of the de minimis exception forreportingby third party settlement organizations (TPSO) underCode Sec. 6050W(e). TheIRShas also planned for athresholdof $5,000 for tax year 2024 to phase in implementation. Previously, inNotice2023-10, theIRSannounced that 2022 would be regarded as a transition period for the same issue. Specifically, the transition period focuses on the implementation of the amendment toCode Sec. 6050W(e)by the American Rescue Plan Act of 2021 (P.L. 117-2) that lowered the de minimis exception forTPSOsto $600.
Background
Code Sec. 6050Wrequires a TPSO to file an information return (Form 1099-K) each calendar year toreportthe annual gross amount of reportable payment transactions to theIRSand provide a copy of the return to the participating payee. A de minimis exception to thisreportingrequirement is provided inCode Sec. 6050W(e). Prior to the amendment by the American Rescue Plan Act, a TPSO was exempt from thereportingrequirement if the gross amount that would otherwise bereporteddid not exceed $20,000 and the number of such transactions with that participating payee did not exceed 200. Section 9674(a) of the American Rescue Plan Act amended the de minimis exception to require a TPSO to file an information return if the gross amount of total reportable payment transactions exceeds $600, effective for tax years beginning after December 31, 2021.
Transition Period
Notice2023-74extends the transition period issued underNotice2023-10to the2023calendar tax year. Under the transition period, a TPSO would not be required to fileForm 1099-Ktoreportpayments in settlement of third-party network transactions unless the gross amount of aggregate payments to bereportedexceeds $20,000 and the number of such transactions with that participating payee exceeds 200. Further, a TPSO exempt fromreportingdue to the transition period would not be subject to penalties underCode Secs. 6721or6722for the failure to file or furnishForm 1099-K.
The transition period is limited to the amendments made by the American Rescue Plan Act toCode Sec. 6050W(e)and does not apply to other requirements underCode Sec. 6050W. In addition, the transition period does not apply to backup withholdings underCode Sec. 3406(a).TPSOsthat have performed backup withholding for a payee during calendar year2023must file a Form 945 and aForm 1099-Kwith theIRSprovide copies to the participating payee if total reportable payments to the payee exceeded $600.
The IRS has released the annual inflation adjustments for 2024 for the income tax rate tables, plus more than 60 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.
TheIRShas released the annualinflation adjustmentsfor2024for the incometaxratetables, plus more than 60 othertaxprovisions. TheIRSmakes thesecost-of-living adjustments(COLAs) each year to reflect inflation.
2024IncomeTaxBrackets
For2024, the highest incometaxbracket of 37 percent applies when taxable income hits:
$731,200 for married individuals filing jointly and surviving spouses,
$609,350 for single individuals and heads of households,
$365,600 for married individuals filing separately, and
$15,200 for estates and trusts.
2024Standard Deduction
Thestandard deductionfor2024is:
$29,200 for married individuals filing jointly and surviving spouses,
$21,900 for heads of households, and
$14,600 for single individuals and married individuals filing separately.
Thestandard deductionfor a dependent is limited to the greater of:
$1,300 or
the sum of $450, plus the dependent’s earned income.
Individuals who are blind or at least 65 years old get an additionalstandard deductionof:
$1,550 for married taxpayers and surviving spouses, or
$1,950 for other taxpayers.
Alternative Minimum Tax(AMT) Exemption for2024
TheAMTexemption for2024is:
$133,300 for married individuals filing jointly and surviving spouses,
$85,700 for single individuals and heads of households,
$66,650 for married individuals filing separately, and
$29,900 for estates and trusts.
The exemptionamountsphase out in2024when AMTI exceeds:
$1,218,700 for married individuals filing jointly and surviving spouses,
$609,350 for single individuals, heads of households, and married individuals filing separately, and
$99,700 for estates and trusts.
Expensing Code Sec. 179 Property in2024
Fortaxyears beginning in2024, taxpayers can expense up to $1,220,000 in section 179 property. However, this dollar limit is reduced when the cost of section 179 property placed in service during the year exceeds $3,050,000.
Estate and GiftTaxAdjustments for2024
The followinginflation adjustmentsapply to federal estate and gifttaxesin2024:
the gifttaxexclusion is $18,000 per donee, or $185,000 for gifts to spouses who are not U.S. citizens;
the federal estatetaxexclusion is $13,610,000; and
the maximum reduction for real property under the special valuation method is $1,390,000.
2024Inflation Adjustmentsfor OtherTaxItems
The maximum foreign earned income exclusionamountin2024is $126,500.
excludable interest on U.S. savings bonds used for education,
various penalties, and
many other provisions.
Effective Date of2024Adjustments
Theseinflation adjustmentsgenerally apply totaxyears beginning in2024, so they affect most returns that will be filed in 2025. However, some specified figures apply to transactions or events in calendar year2024.
The 2024cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS. In general, many of the pension plan limitations will change for 2023 because the increase in the cost-of-living index due to inflation met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged.
The2024cost-of-living adjustments(COLAs) that affectpension plandollar limitations and otherretirement-related provisions have beenreleasedby the IRS. In general, many of thepension planlimitations will change for 2023 because the increase in the cost-of-living index due to inflation met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged.
The SECURE 2.0 Act (P.L. 117-328) made someretirement-related amounts adjustable for inflation beginning in2024. These amounts, as adjusted for2024, include:
The catch up contribution amount for IRA owners who are 50 or older remains $1,000.
The amount of qualified charitable distributions from IRAs that are not includible in gross income is increased from $100,000 to $105,000.
The limit on one-time qualified charitable distributions made directly to a split-interest entity is increased from $50,000 to $53,000.
The dollar limit on premiums paid for a qualifying longevity annuity contract (QLAC) remains $200,000
Highlights of Changes for2024
The contribution limit has increased from $22,500 to $23,000 for employees who take part in:
-401(k),
-403(b),
-most 457 plans, and
-the federal government’s Thrift Savings Plan
The annual limit on contributions to an IRA increased from $6,500 to $7,000.
The catch-up contribution limit for individuals aged 50 and over is subject to an annualcost-of-living adjustmentbeginning in2024but remains $1,000.
The income ranges increased for determining eligibility to make deductible contributions to:
-IRAs,
-Roth IRAs, and
-to claim the Saver's Credit.
Phase-Out Ranges
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. The deduction phases out if the taxpayer or their spouse takes part in aretirementplan at work. The phase out depends on the taxpayer's filing status and income.
-For single taxpayers covered by a workplaceretirementplan, the phase-out range is $77,000 to $87,000, up from between $73,000 and $83,000.
-For joint filers, when the spouse making the contribution takes part in a workplaceretirementplan, the phase-out range is $123,000 to $143,000, up from between $116,000 and $136,000.
-For an IRA contributor, who is not covered by a workplaceretirementplan but their spouse is, the phase out is between $230,000 and $240,000, up from between $218,000 and $228,000.
-For a married individual covered by a workplace plan filing a separate return, the phase-out range remains between $0 and $10,000.
The phase-out ranges for Roth IRA contributions are:
-$146,000 and $161,000, for singles and heads of household,
-$230,000 and $240,000, for joint filers, and
-$0 to $10,000 for married separate filers.
Finally, the income limit for the Saver' Credit is:
The IRS reminded taxpayers who may be entitled to claimRecovery Rebate Credit (RRC) to file a tax return to claim their credit before the April-May, 2024 deadlines. It has been estimated that certain individuals are still eligible to claim RRC for years 2020 and 2021. The deadlines to file a return and claim the 2020 and 2021 credits are May 17, 2024, and April 15, 2025, respectively. Additionally, the IRS reminded that taxpayers must first file a tax return to make their RRC claims irrespective of income slab and source of income.
TheIRSreminded taxpayers who may be entitled toclaimRecovery Rebate Credit(RRC) to file a tax return toclaimtheir credit before the April-May, 2024 deadlines. It has been estimated that certain individuals are stilleligibletoclaimRRC foryears2020 and 2021. The deadlines to file a return andclaimthe 2020 and 2021 credits are May 17, 2024, and April 15, 2025, respectively. Additionally, theIRSreminded that taxpayers must first file a tax return to make their RRCclaimsirrespective of income slab and source of income.
TheRecovery Rebate Credit, is a refundable credit for those who missed out on one or moreEconomic Impact Paymentssuch asstimulus paymentswhich were issued in 2020 and 2021. The personseligibletoclaimthe 2020 and 2021 RRC must:
have been a U.S citizen or U.S resident alien in the respectiveyear;
not have been a dependent of another taxpayer for the respectiveyear;
have a social security number issued before the due date of the tax return which is valid for employment in the U.S;
for 2021 RRC- have a valid social security number as above orclaima dependent who has a Social Security number issued by the due date of the tax return, orclaima dependent with an Adoption Taxpayer Identification Number.
For qualified taxpayers who require one-on-one tax preparation help, they can avail the same through theFree tax return preparation assistanceavailable on theIRSwebsite. TheIRSurges people to look into possible benefits available to them under the tax law. People can make use of theirIRSOnline Accountalso to keep track of payments due to them.
The Internal Revenue Service is looking to improve its customer service metrics as well as improve its technology offerings in the coming tax filingseason.
The Internal Revenue Service is looking to improve its customer service metrics as well as improve its technology offerings in the coming taxfilingseason.
Building on the supplemental funding from the Inflation Reduction Act, the IRS has already seen improvements to its phone service and is now looking to improve on it.
"Massive investments in customer service mean taxpayers will get the information and support they deserve,"Department of the Treasury Secretary Janet Yellen said November 7, 2023, during an event at IRS headquarters.
For the2024taxfilingseason, the IRS is committed to maintaining the 85 percent level of service it achieved in the 2023filingseasonon the agency’s main taxpayer help line. It also is targeting a hold time of five minutes or less while offering 95 percent call back availability when projected wait times are expected to exceed 15 minutes.
IRS Commissioner Daniel Werfel, speaking at the event, also highlighted a trust target.
"This pastfilingseason, 84 percent of taxpayers who interacted with our phone assisters stated that this interaction increased their trust in the IRS,"Werfel said."That’s up from 70 percent two years ago. In the comingfilingseason, we want to continue to again [the Office of Management and Budget’s] trustgoalof 75 percent."
Yellen also highlighted how the"Where’s My Refund?"tool will be improved for the comingseason, including incorporating"conversational voice-bot technology to help taxpayers get answers more quickly, and it will provide clearer and more detailed information so taxpayers can address barriers to processing their returns and receive their refunds quickly."
She also said that Taxpayer Assistance Centers increase the hours of face-to-face assistance provided by more than 8,000 hours compared to what was provided in the 2023filingseason.
Yellen also stated that the IRS has met a technologygoaland in the2024filingseason, taxpayers will be able to"digitally upload all correspondence and responses to notices instead of mailing them. … The impact will be significant and far reaching. Taxpayers will save time and effort. The IRS will reduce errors and storage costs and will speed up processing time for the system as a whole."
Additionally, there will be 20 more forms that taxpayers can electronically file in the2024filingseason.
Yellen and Werfel also reiterated recent announcements on compliance and enforcement efforts and committed to continuing to ensure everyone is paying their fair share of taxes owed.
The Internal Revenue Service announced the launch of the first phase of rolling out businesstaxpayeraccounts, as well as enable taxpayers to respond to notices online.
TheInternal Revenue Serviceannounced thelaunchof the first phase of rolling outbusinesstaxpayeraccounts, as well as enabletaxpayersto respond to notices online.
In an October 20, 2023,statement, the agency announced that the first phase will allow"unincorporated sole proprietors who have an active Employer Identification Number to set up abusinesstaxaccount, where they can view theirbusinessprofits and manage authorized users."
TheIRSnoted that thebusinesstaxaccountswill expand to allowtaxpayers"to view letters or notices, request transcripts, add third parties for power of attorney or tax information authorizations, schedule or cancel tax payments, and store bankaccountinformation."
Thebusinesstaxaccountswere enabled by the agency’s receiving of supplemental funding from the Inflation Reduction Act.
Another technology improvement announced allowingtaxpayersto respond online to notices, something that previously required responses via mail.
"During the filing season 2023,taxpayerswere able to respond to 10 of the most common notices for credits like the Earned Income and Health Insurance Tax Credits online, saving them time and money,"the agency reported, adding that as of September 29, 2023, it has received more than 32,000 responses to notices via the online tool.
Additionally, theIRSwill now accept electronic submissions for three forms via a mobile device-friendly forms. Those forms include:
Form 15109, Request for Tax Deferment;
Form 14039, Identity Theft Affidavit; and
Form 14242, Reporting Abusive Tax Promotions and/or Preparers
The next form expected to have a mobile-friendly option later this fall is Form 13909, Tax-Exempt Organization Complaint, and at least 20 more of the most-used tax forms will have mobile device availability in early 2024, theIRSstated.
"An estimated 15 percent of Americans rely solely on mobile phones for their internet access – they do not have broadband at home – so it is important to make forms available in mobile-friendly formats,"the agency sad.
For tax professionals, their onlineaccountsalso received enhancements, including helping practitioners manage their active client authorizations on file with the Centralized Authorization File database as well as the ability to view their client’s tax information, including balance due.
The Affordable Care Act—enacted nearly five years ago—phased in many new requirements affecting individuals and employers. One of the most far-reaching requirements, the individual mandate, took effect this year and will be reported on 2014 income tax returns filed in 2015. The IRS is bracing for an avalanche of questions about taxpayer reporting on 2014 returns and, if liable, any shared responsibility payment. For many taxpayers, the best approach is to be familiar with the basics before beginning to prepare and file their returns.
The Affordable Care Act—enacted nearly five years ago—phased in many new requirements affecting individuals and employers. One of the most far-reaching requirements, the individual mandate, took effect this year and will be reported on 2014 income tax returns filed in 2015. The IRS is bracing for an avalanche of questions about taxpayer reporting on 2014 returns and, if liable, any shared responsibility payment. For many taxpayers, the best approach is to be familiar with the basics before beginning to prepare and file their returns.
Individual mandate
Beginning January 1, 2014, the Affordable Care Act requires individuals (and their dependents) to have minimum essential health care coverage or make a shared responsibility payment, unless exempt. This is commonly called the "individual mandate."
Employer reporting
Nearly all employer-provided health coverage is treated as minimum essential coverage. This includes self-insured plans, COBRA coverage, and retiree coverage. Large employers will provide employees with new Form 1095-C, Employer-Provided Health Insurance Coverage and Offer, which will report the type of coverage provided. The IRS has encouraged employers to voluntarily report starting in 2015 for the 2014 plan year. Mandatory reporting begins in 2016 for the 2015 plan year.
Marketplace coverage
Coverage obtained through the Affordable Care Act Marketplace is also treated as minimum essential coverage. Marketplace enrollees should expect to receive new Form 1095-A, Health Insurance Marketplace Statement, from the Marketplace. Individuals with Marketplace coverage will indicate on their returns that they have minimum essential coverage. Because so many individuals with Marketplace coverage also qualify for a special tax credit, they will also likely need to complete new Form 8962, Premium Tax Credit (discussed below).
Medicare, Medicaid and other government coverage
Medicare, TRICARE, CHIP, Medicaid, and other government health programs are treated as minimum essential coverage. There are some very narrow exceptions but overall, most government-sponsored coverage is minimum essential coverage.
Exemptions
Some individuals are expressly exempt under the Affordable Care Act from making a shared responsibility payment. There are multiple categories of exemptions. They include:
Short coverage gap
Religious conscience
Federally-recognized Native American nation
Income below income tax return filing requirement
The short coverage gap applies to individuals who lacked minimum essential coverage for less than three consecutive months during 2014. They will not be responsible for making a shared responsibility payment. Individuals who are members of a religious organization recognized as conscientiously opposed to accepting insurance benefits also are exempt from the individual mandate. Similarly, members of a federally-recognized Native American nation are exempt. If a taxpayer’s income is below the minimum threshold for filing a return, he or she is exempt from making a shared responsibility payment.
The IRS has developed new Form 8965, Health Coverage Exemptions. Taxpayers exempt from the individual mandate will file Form 8965 with their federal income tax return.
Shared responsibility payment
All other individuals - individuals without minimum essential coverage and who are not exempt - must make a shared responsibility payment when they file their 2014 return. For 2014, the payment amount is the greater of: One percent of the person’s household income that is above the tax return threshold for their filing status; or a flat dollar amount, which is $95 per adult and $47.50 per child, limited to a maximum of $285. The individual shared responsibility payment is capped at the cost of the national average premium for the bronze level health plan available through the Marketplace in 2014. Taxpayers will report the amount of their individual shared responsibility payment on their 2014 Form 1040.
The IRS has cautioned that it will offset a taxpayer’s refund if he or she fails to make a shared responsibility payment if required. However, the Affordable Care Act prevents the IRS from using its lien and levy authority to collect an unpaid shared responsibility payment.
Code Sec. 36B credit
Only individuals who obtain coverage through the Marketplace are eligible for the Code Sec. 36B premium assistance tax credit. The U.S. Department of Health and Human Services (HHS) has reported that more than two-thirds of Marketplace enrollees are eligible for the credit and many enrollees have received advance payment of the credit.
All advance payments of the credit must be reconciled on new Form 8962, which will be filed with the taxpayer’s income tax return. Taxpayers will calculate the actual credit they qualified for based on their actual 2014 income. If the actual premium tax credit is larger than the sum of advance payments made during the year, the individual will be entitled to an additional credit amount. If the actual credit is smaller than the sum of the advance payments, the individual’s refund will be reduced or the amount of tax owed will be increased, subject to a sliding scale of income-based repayment caps.
A change in circumstance, such as marriage or the birth/adoption of a child, could increase or decrease the amount of the credit. Individuals who are receiving an advance payment of the credit should notify the Marketplace of any life changes so the amount of the advance payment can be adjusted if necessary. Please contact our office if you have any questions about the Code Sec. 36B credit.
IRS officials have told Congress that the agency is ready for the new filings and reporting requirements. Our office will keep you posted of developments.
Lawmakers are scheduled to return to work after the November elections for the so-called "lame-duck" Congress. Despite what is expected to be a short session, there is likely to be movement on important tax bills.
Lawmakers are scheduled to return to work after the November elections for the so-called "lame-duck" Congress. Despite what is expected to be a short session, there is likely to be movement on important tax bills.
Tax extenders
Every two years, like clockwork, the same scenario seems to play-out in Congress. Many popular but temporary tax incentives expire and lawmakers debate whether to extend them, make them permanent or abolish them. This year is no exception. The new filing season is fast approaching and many tax breaks are, at this time, unavailable because they expired after 2013.
The expired tax breaks are known as "tax extenders." Included within this catch-call category are a variety of tax incentives for individuals and businesses. Some are widely-claimed and are often inadvertently believed by taxpayers to be permanent...they are not. Individuals who claimed the state and local sales tax deduction, higher education tuition deduction, residential energy property credit, and others, in past years cannot claim them on their 2014 returns, unless the incentives are extended. The same is true for many business tax breaks, such as bonus depreciation, enhanced Code Sec. 179 small business expensing and the research tax credit. All of these incentives expired after 2013.
Congressional logjam
The last extension of the extenders was in the American Taxpayer Relief Act of 2012. At that time, many lawmakers wanted to discontinue the practice of renewing the extenders every two years and make some permanent while eliminating others. However, the House and Senate have taken different approaches. The Senate Finance Committee approved the EXPIRE Act (S. 2260) earlier this year. The bill extends the expired tax breaks two years. The House, on the other hand, has voted to make permanent only some of the extenders, such as bonus depreciation and Code Sec. 179 expensing.
It is unclear how lawmakers will proceed before year-end. The EXPIRE Act, while approved by committee, has yet to get a vote on the Senate floor. House GOP leaders, who endorsed the piece-meal approach to making permanent some of the extenders, have not said if they will support another comprehensive temporary extension like the EXPIRE Act. It is possible that lawmakers will punt the extenders to the new Congress that meets in January. In that case, a delayed start to the filing season is almost guaranteed. Our office will keep you posted of developments.
More tax bills
Some stand-alone tax-related bills could be passed before year-end. The ABLE Act (S. 313) enjoys bipartisan support. The ABLE Act would create new tax-free savings accounts for individuals with disabilities. Funds in the accounts could be used for qualified medical, transportation, housing, and education expenses. The Don’t Forget Our Fallen Public Safety Heroes Act (S. 2912) passed the Senate in September and could be approved by the House before year-end. The bill would exclude from income certain benefits paid to the family of a public safety officer who dies in the line of duty.
IRS funding
The federal government, including the IRS, is currently operating under a stop-gap spending bill. The temporary spending bill is scheduled to expire in December. The lame-duck Congress is expected to approve an omnibus spending bill to keep the government open. Earlier this year, appropriators in the House and Senate reached very different conclusions on funding for the IRS in 2015. House appropriators voted to cut funding; Senate appropriators voted to increase funding. The IRS has been operating under tight budgetary restraints for several years and that pattern is expected to continue into 2015.
Tax technical corrections
Congress may also take up a package of tax technical corrections. These bills are not new tax laws but are corrections to language in existing laws. For example, lawmakers may have intended that a certain language be included in a final bill and that language was left out. Frequently, these corrections are clerical. These corrections are intended to facilitate the administration of law.
If you have any questions about the extenders or year-end tax legislation, please contact our office.
In certain cases, moving expenses may be tax deductible by individuals. Three key criteria must be satisfied: the move must closely-related to the start of work; a distance test must be satisfied and a time test also must be met.
In certain cases, moving expenses may be tax deductible by individuals. Three key criteria must be satisfied: the move must closely-related to the start of work; a distance test must be satisfied and a time test also must be met.
Closely-related to the start of work
The move must be closely-related to the start of work at a new location. Moving for non-work related reasons is not relevant. The closely-related requirement encompasses both a time threshold and a place threshold. The IRS has explained that closely-related in time generally means an individual can consider moving expenses incurred within one year from the date he or she first reported to work at the new location as closely related in time to the start of work. Closely-related in place generally means that the distance from the individual's new home to the new job location is not more than the distance from his or her former home to the new job location.
Distance
An individual's move satisfies the distance test if his or her new main location is at least 50 miles farther from his or her former home than the old main job location was from the former home. Note that the distance test takes into account only the location of the individual's former home. An individual's main job location is the location where he or she spends most of his or her working hours. Individuals may have more than one job. In that case, the IRS has explained that an individual's main job location depends on the facts in each case. Among the factors to take into account are the total time the individual spends at each place; the amount of work performed at each place and the amount of wages earned at each place. If an individual previously had no employment, or had experienced a period of unemployment, the new job location must be at least 50 miles from the individual's old home.
Time
Time for purposes of the moving deduction looks at an individual's hours of work and where that work is performed. An individual who is a wage earner (employed by another) must work full-time for at least 39 weeks during the first 12 months immediately following his or her arrival in the general area of the new job location. Self-employed individuals must work full time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months immediately following their arrival in the general area of the new work location.
Special rules apply to members of the U.S. Armed Forces as well as employees who are seasonal workers, individuals who have temporary absences from work, and others.
If you have any questions about the moving deduction, please contact our office.
The IRS continues to ramp-up its work to fight identity theft/refund fraud and recently announced new rules allowing the use of abbreviated (truncated) personal identification numbers and employer identification numbers. Instead of showing a taxpayer's full Social Security number (SSN) or other identification number on certain forms, asterisks or Xs replace the first five digits and only the last four digits appear. The final rules, however, do impose some important limits on the use of truncated taxpayer identification numbers (known as "TTINs").
The IRS continues to ramp-up its work to fight identity theft/refund fraud and recently announced new rules allowing the use of abbreviated (truncated) personal identification numbers and employer identification numbers. Instead of showing a taxpayer's full Social Security number (SSN) or other identification number on certain forms, asterisks or Xs replace the first five digits and only the last four digits appear. The final rules, however, do impose some important limits on the use of truncated taxpayer identification numbers (known as "TTINs").
Note. A TTIN typically appears as XXX-XX-1234 or ***-**-1234.
Identity theft/refund fraud
The IRS has more than 3,000 employees working identity-theft related issues. They are investigating refund fraud and assisting taxpayers - both individuals and businesses - that have been victims of identity theft. The IRS has also upgraded its filters that screen tax returns for indications of refund fraud. Between 2011 and 2014, the IRS reported that it prevented more than $50 billion in fraudulent refunds.
Protecting personal information from disclosure is one important tool in the IRS's toolshed to fight identity theft. IRS data systems contain personal information, such as SSNs, EINs, individual taxpayer identification numbers (ITINs) and adoption taxpayer identification numbers (ATINs) on millions of taxpayers. To thwart potential identity thieves, the agency launched a pilot program in 2009 to allow the use of TTINs. The goal of the pilot program was to reduce the risk of identity theft that could result from the inclusion of a taxpayer's entire identifying number on a payee statement or other document.
Proposed regulations
The IRS viewed the pilot program as a success and issued proposed regulations in 2013. Under the proposed regulations, TTINs would be available as an alternative to using a taxpayer's SSN, ITIN, or ATIN. The proposed regulations also permitted the use of TTINs to electronic payee statements as well as paper payee statements.
Expanded use
In July, the IRS announced that it was finalizing the proposed TTIN rules. The final rules also expand the use of TTINs to:
Employer identification numbers. The final rules allow the use of abbreviated employer identification numbers (EINs) in certain cases.
More documents. The final regulations permit the use of TTINs on any federal tax-related payee statement or other document required to be furnished to another person unless specifically prohibited.
Voluntary
The IRS encourages the use of TTINs but did not make use of TTINs mandatory. The IRS also explained that use of a TTIN will not result in any penalty for failure to include a correct taxpayer identifying number on any payee statement or other document.
Limitations
The final regulations (officially known as TD 9765) place some limits on TTINs. A TTIN may not be used on a return filed with the IRS. This includes Form 1040, U.S. Individual Income Tax Return. A TTIN also may not be used if a statute or regulation specifically requires use of an SSN, ITIN, ATIN, or EIN. Additionally, employers cannot use a TTIN on an employee's Form W-2, Wage and Tax Statement.
If you have any questions about TTINs or identity theft/refund fraud, please contact our office.
U.S. taxpayers with foreign financial accounts must file an FBAR (Report of Foreign Bank and Financial Accounts) if the aggregate value of their accounts exceeds $10,000 at any time during the calendar year. The FBAR must be filed by June 30 of the current year to report the taxpayer's financial accounts for the prior year.
U.S. taxpayers with foreign financial accounts must file an FBAR (Report of Foreign Bank and Financial Accounts) if the aggregate value of their accounts exceeds $10,000 at any time during the calendar year. The FBAR must be filed by June 30 of the current year to report the taxpayer's financial accounts for the prior year.
A U.S. taxpayer must report the account not only if the taxpayer has a financial interest in the account, but also if the taxpayer has signature authority over the account. The account must be reported even if it produces no income, and whether or not the taxpayer receives any distributions from the account.
FinCEN
Reporting is required by the Bank Secrecy Act (BSA), not by the Internal Revenue Code. Taxpayers submit the proper form to Treasury's Financial Crimes Enforcement Network (FinCEN), not the IRS. The form is not submitted with a tax return. However, FinCEN has delegated FBAR enforcement authority to the IRS.
New Form 114
In the past, taxpayers reported their accounts on Form TD F 90-22.1. However, effective for 2014 and subsequent years, taxpayers must report their accounts on new FinCEN Form 114. The June 30 deadline is firm; there is no extension for filing the form late. However, persons who belatedly discover the need to file an FBAR for a previous year can file on Form 114.
In the past, too, taxpayers reported their accounts on a paper form, but Form 114 is only available online, through the BSA E-Filing System website. Paper Form TD F 90-22.1 has been discontinued. This BSA E-Filing System allows the taxpayer to designate the year being reported, so taxpayers may use the same form to file late reports for a prior year. In addition, persons can now authorize a tax professional, such as an attorney, CPA, or enrolled agent, to file on their behalf, by designating an agent on BSA Form 114a.
If two persons jointly maintain an account, each must file an FBAR. However, spouses now qualify for an exception, and can file only one FBAR, provided the nonfiling spouse only owns accounts jointly with the filing spouse. The couple can complete a Form 114a, to authorize one spouse to file for the other, because the electronic system only accepts one signature for an FBAR.
Signature authority
Signature authority is authority to control the disposition of assets held in a foreign financial account. A person with a power of attorney over a foreign account must file an FBAR, even if the person never exercises the power of attorney.
FinCEN has considered amending the rules regarding signature authority. In the meantime, because there is some uncertainty about the meaning of signature authority, FinCEN has deferred FBAR filing by certain individuals that only have signature authority over, but no financial interest in, foreign financial accounts of their employer or a closely related entity. FinCEN Notice 2011-1 first provided an extension for these persons. In Notice 2013-1, FinCEN extended the due date for these persons to file, to June 30, 2015, while FinCEN further considers changes to the rules.
One of the most complex, if not the most complex, provisions of the Patient Protection and Affordable Care Act is the employer shared responsibility requirement (the so-called "employer mandate") and related reporting of health insurance coverage. Since passage of the Affordable Care Act in 2010, the Obama administration has twice delayed the employer mandate and reporting. The employer mandate and reporting will generally apply to applicable large employers (ALE) starting in 2015 and to mid-size employers starting in 2016. Employers with fewer than 50 employees, have never been required, and continue to be exempt, from the employer mandate and reporting.
One of the most complex, if not the most complex, provisions of the Patient Protection and Affordable Care Act is the employer shared responsibility requirement (the so-called "employer mandate") and related reporting of health insurance coverage. Since passage of the Affordable Care Act in 2010, the Obama administration has twice delayed the employer mandate and reporting. The employer mandate and reporting will generally apply to applicable large employers (ALE) starting in 2015 and to mid-size employers starting in 2016. Employers with fewer than 50 employees, have never been required, and continue to be exempt, from the employer mandate and reporting.
Employer mandate
The employer mandate under Code Sec. 4980H and employer reporting under Code Sec. 6056 are very connected. Code Sec. 4980H generally provides that an ALE is required to pay a penalty if it fails to offer minimum essential coverage and any full-time employee receives cost-sharing or the Code Sec. 36B premium assistance tax credit. An ALE would also pay a penalty if it offers coverage and any full-time employee receives cost-sharing or the Code Sec. 36B credit.
To receive the Code Sec. 36B credit, an individual must have obtained coverage through an Affordable Care Act Marketplace. The Marketplaces will report the names of individuals who receive the credit to the IRS. ALEs must report the terms and conditions of health care coverage provided to employees (This is known as Code Sec. 6056 reporting). The IRS will use all of this information to determine if the ALE must pay a penalty.
ALEs
Only ALEs are subject to the employer mandate and must report health insurance coverage under Code Sec. 6056. Employers with fewer than 50 employees are never subject to the employer mandate and do not have to report coverage under Code Sec. 6056.
In February, the Obama administration announced important transition rules for the employer mandate that affects Code Sec. 6056 reporting. The Obama administration limited the employer mandate in 2015 to employers with 100 or more full-time employees. ALEs with fewer than 100 full-time employees will be subject to the employer mandate starting in 2016. At all times, employers with fewer than 50 full-time employees are exempt from the employer mandate and Code Sec. 6056 reporting.
Reporting
The IRS has issued regulations describing how ALEs will report health insurance coverage. The IRS has not yet issued any of the forms that ALEs will use but has advised that ALEs generally will report the requisite information to the agency electronically.
ALEs also must provide statements to employees. The statements will describe, among other things, the coverage provided to the employee.
30-Hour Threshold
A fundamental question for the employer mandate and Code Sec. 6056 reporting is who is a full-time employee. Since passage of the Affordable Care Act, the IRS and other federal agencies have issued much guidance to answer this question. The answer is extremely technical and there are many exceptions but generally a full-time employee means, with respect to any month, an employee who is employed on average at least 30 hours of service per week. The IRS has designed two methods for determining full-time employee status: the monthly measurement method and the look-back measurement method. However, special rules apply to seasonal workers, student employees, volunteers, individuals who work on-call, and many more. If you have any questions about who is a full-time employee, please contact our office.
Form W-2 reporting
The Affordable Care Act also requires employers to disclose the aggregate cost of employer-provided health coverage on an employee's Form W-2. This requirement is separate from the employer mandate and Code Sec. 6056 reporting. The reporting of health insurance costs on Form W-2 is for informational purposes only. It does not affect an employee's tax liability or an employer's liability for the employer mandate.
Shortly after the Affordable Care Act was passed, the IRS provided transition relief to small employers that remains in effect today. An employer is not subject the reporting requirement for any calendar year if the employer was required to file fewer than 250 Forms W-2 for the preceding calendar year. Special rules apply to multiemployer plans, health reimbursement arrangements, and many more.
Please contact our office if you have any questions about ALEs, the employer mandate or Code Sec. 6056 reporting.
The IRS's final "repair" regulations became effective January 1, 2014. The regulations provide a massive revision to the rules on capitalizing and deducting costs incurred with respect to tangible property. The regulations apply to amounts paid to acquire, produce or improve tangible property; every business is affected, especially those with significant fixed assets.
The IRS's final "repair" regulations became effective January 1, 2014. The regulations provide a massive revision to the rules on capitalizing and deducting costs incurred with respect to tangible property. The regulations apply to amounts paid to acquire, produce or improve tangible property; every business is affected, especially those with significant fixed assets.
Required and elective changes
There is a lot of work ahead for most taxpayers to comply with the new rules. There are three categories of changes under the regulations:
Changes that are required and are retroactive, with full adjustments under Code Sec. 481(a), in effect applying the regulations to previous years;
Required changes with modified or prospective Code Sec. 481(a) adjustment beginning in 2014; and
Elective changes that do not require any adjustments under Code Sec. 481.
Required changes with full adjustments include unit of property changes, deducting repairs (including the routine maintenance safe harbor), deducting dealer expenses that facilitate the sale of property, the optional method for rotable spare parts, capitalizing improvements and capitalizing certain acquisition or production costs. Elective changes can include capitalizing repair and maintenance costs of they are capitalized for financial accounting purposes.
Rev. Proc. 2014-16
The IRS issued Rev. Proc. 2014-16, granting automatic consent to taxpayers to change their accounting methods to comply with the final regulations. Rev. Proc. 2014-16 applies to all the significant provisions in the final regulations, such as repairs and improvements; materials and supplies, including rotable and temporary spare parts; and costs that have to be capitalized as improvements. Rev. Proc. 2014-16 supersedes Rev. Proc. 2012-19, which applied to changes made under the temporary and proposed repair regulations issued at the end of 2011.
There are 14 automatic method changes provided by Rev. Proc. 2014-16 for the repair regulations. Taxpayers may file for automatic consent on a single Form 3115, even if they are making changes in more than area. The normal scope limitations on changing accounting methods do not apply to a taxpayer making one or more changes for any tax year beginning before January 1, 2015. Scope changes would normally apply if the taxpayer is under examination, is in the final year of a trade or business, or is changing the same accounting method it changed in the previous five years.
Filing deadlines
For past years, taxpayers can apply the 2011 proposed and temporary (TD 9564) regulations or the 2013 final regulations to either 2012 or 2013, and can do this on a section-by-section basis. Taxpayers that decide to apply the final or temporary regulations to 2013 must file for an automatic change of accounting method (Form 3115) by September 15, 2014. Taxpayers applying the regulations to 2014 must file for an automatic change by September 15, 2015. (Both dates apply to calendar-year taxpayers.) The government has indicated it is unlikely to postpone the effective date of the regulations.
Dispositions
Rev. Proc. 2014-16 does not apply to dispositions of tangible property. The government issued reproposed regulations in this area (NPRM REG-110732-13). Although these regulations may not be finalized until later in 2014, the IRS expects to issue Rev. Proc. 2014-17 before then to allow taxpayers to make automatic accounting method changes under the proposed regulations. The procedure will provide some relief by allowing taxpayers to revoke general asset account elections that they made under the temporary regulations. No comments were submitted on these proposed regulations; it is likely the final regulations will not have any significant changes.