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Final regulations shoot down states' SALT limitation workaround. For 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) limits an individual taxpayer's annual SALT (state and local tax) deductions to a maximum of $10,000, with no carryover for taxes paid in excess of that amount. (The SALT deduction limit doesn't apply to property taxes paid by a trade or business or in connection with the production of income.) As a result, many taxpayers won't get a full federal income tax deduction for their payments of state and local taxes. Following the TCJA's passage, some high-tax states implemented workarounds to mitigate the effect of the SALT deduction limit for their residents. One method used was to set up charitable funds to which taxpayers can contribute and receive a tax credit in exchange. The IRS has issued final regulations, which generally apply to contributions after Aug. 27, 2018, that effectively kill this workaround. The regulations provide that a taxpayer who makes payments to, or transfers property to, an entity eligible to receive tax deductible contributions must reduce his or her charitable deduction by the amount of any state or local tax credit the taxpayer receives or expects to receive.
The IRS also issued a safe harbor that allows an individual who itemizes deductions to treat, in certain circumstances, payments that are or will be disallowed as charitable contribution deductions under the final regulations, as state or local taxes for federal income tax purposes. Eligible taxpayers can use this safe harbor to determine their SALT deduction on their tax-year 2018 return. Those who have already filed may be able to claim a greater SALT deduction by filing an amended return, Form 1040-X, if they have not already claimed the $10,000 maximum amount.
Taxpayer First Act grants new protections to taxpayers. In June, Congress passed the Taxpayer First Act of 2019 (the Act), and it was signed into law by the President on July 1. The Act, among other things, provides some new safeguards to taxpayers in their interactions with the IRS, including the following.
Notice to taxpayer of IRS contact with third party. Effective for notices provided, and contacts of persons made, after Aug. 15, 2019, the Act provides that the IRS may not contact any person other than the taxpayer regarding the determination or collection of the tax liability of the taxpayer without providing the taxpayer with notice at least 45 days before the beginning of the period of the contact.
Structuring transactions and IRS seizures. Effective on July 1, 2019, the Act provides that, in the case of a suspected structuring violation (i.e., structuring transactions to avoid Bank Secrecy Act rules), the IRS may only pursue seizure or forfeiture of assets if either the property to be seized was derived from an illegal source or the transactions were structured for the purpose of concealing a violation of a criminal law or regulation other than rules against structuring.
John Doe summonses. If certain requirements are met, the IRS may issue a third-party summons that doesn't identify the taxpayer (a "John Doe" summons). Effective for summonses served after Aug. 15, 2019, the Act prevents the IRS from issuing a John Doe summons unless the information sought to be obtained is narrowly tailored and pertains to the failure (or potential failure) of a person or group or class of persons to comply with one or more provisions of the tax law which have been identified.
Seizure and sale of perishable goods. Effective for property seized after July 1, 2019, the Act limits the property that may be sold under the IRS's authority to seize and sell tangible property to satisfy unpaid taxes, to property that is liable to perish.
Misdirected tax refund deposits. The Act requires the IRS to issue regulations, by Jan. 1, 2020, to establish procedures to allow taxpayers to report instances in which a refund made by electronic funds transfer was not transferred to the account of the taxpayer, to coordinate with financial institutions to identify and recover these payments, and to deliver refunds to the correct accounts of taxpayers.
Notification of suspected identity theft. Effective for determinations made after Jan. 1, 2020, the Act requires the IRS to notify a taxpayer if it determines there has been any suspected unauthorized use of a taxpayer's identity, or that of the taxpayer's dependents, if an investigation has been initiated and its status, whether the investigation substantiated any unauthorized use of the taxpayer's identity, and whether any action has been taken (such as a referral for prosecution). Additionally, when an individual is charged with a crime, the IRS must notify the victim as soon as possible, giving such victims the ability to pursue civil action against the perpetrators.
IRS management of stolen identity cases. The Act requires that, not later than July 1, 2020, the IRS must develop and implement publicly available guidelines that reduce the burdens for identity theft tax refund fraud (IDTTRF) victims as they work with the IRS to sort out their tax affairs. The guidelines may include procedures to reduce the amount of time victims must wait to receive their tax refunds, the number of IRS employees with whom victims would need to interact, and the timeframe within which the issues related to the IDTTRF should be resolved.
For more information, see Special study on Taxpayer First Act of 2019.
Final regulations permit integrating HRAs with individual health insurance plans or Medicare. Final regulations have been issued allowing health reimbursement arrangements (HRAs) and other account-based group health plans to be integrated with individual health insurance coverage or Medicare, if certain conditions are satisfied (an individual coverage HRA). An account-based group health plan is an employer-provided group health plan that reimburses medical care expenses, subject to a maximum fixed-dollar amount of reimbursements for a period (e.g., a calendar year). An HRA is a type of account-based group health plan funded solely by employer contributions that reimburses employees solely for medical care expenses of employees or qualifying family members, up to a maximum dollar amount for a coverage period. The reimbursements are not taxed to employees.
Under the new regulations, an employer-funded individual coverage HRA reimburses employees for their (and eligible family members') medical care expenses. The employer can allow unused amounts in any year to roll over from year to year. Employees must enroll in individual health insurance (or Medicare) for each month the employee (or the employee's family member) is covered by the Individual coverage HRA. But the individual health insurance cannot be short-term, limited-duration insurance (STLDI) or coverage consisting solely of dental, vision, or similar "excepted benefits". There are other important requirements as well.
The new regulations also increase flexibility in employer-sponsored insurance by creating another, limited kind of HRA that can be offered in addition to a traditional group health plan. These "excepted benefit HRAs" permit employers to finance additional medical care (for example to help cover the cost of copays, deductibles, or other expenses not covered by the primary plan) even if the employee declines enrollment in the traditional group health plan.
Employers can start offering individual coverage HRAs and excepted benefit HRAs on Jan. 1, 2020.
For more information, see Regs for health reimbursement arrangements finalized.
Next year's inflation adjustments for health savings accounts. The IRS has provided the annual inflation-adjusted contribution, deductible, and out-of-pocket expense limits for 2020 for health savings accounts (HSAs). Eligible individuals may, subject to statutory limits, make deductible contributions to an HSA. Employers as well as other persons (e.g., family members) also may contribute on behalf of an eligible individual. Employer contributions generally are treated as employer-provided coverage for medical expenses under an accident or health plan and are excludable from income. In general, a person is an "eligible individual" if he is covered under a high deductible health plan (HDHP) and is not covered under any other health plan that is not a high deductible plan, unless the other coverage is permitted insurance (e.g., for worker's compensation, a specified disease or illness, or providing a fixed payment for hospitalization).
For calendar year 2020, the limitation on deductions is $3,550 (up from $3,500 for 2019) for an individual with self-only coverage. It's $7,100 (up from $7,000 for 2019) for an individual with family coverage under a HDHP. Each of these amounts is increased by $1,000 if the eligible individual is age 55 or older. For calendar year 2020, an HDHP is a health plan with an annual deductible that is not less than $1,400 (up from $1,350 for 2019) for self-only coverage or $2,800 (up from $2,700 for 2019) for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, not including premiums) do not exceed $6,900 (up from $6,750 for 2019) for self-only coverage or $13,800 (up from $13,500 for 2019) for family coverage.
For more information, see IRS issues 2020 inflation-adjusted amounts for health savings accounts.
2019 luxury auto depreciation dollar limits and lease income add-backs released. Annual depreciation and expensing deductions for so-called luxury autos are limited to specific dollar amounts. The dollar limits amounts are inflation-adjusted each year. The IRS has announced that for autos (which includes trucks or vans) acquired and first placed in service during 2019, the dollar limit for the first year an auto is in service is $18,100 ($10,100 if the bonus first-year depreciation allowance does not apply, for example, because the taxpayer elects out of bonus first-year depreciation); for the second tax year, $16,100; for the third tax year, $9,700; and for each succeeding year, $5,760. These dollar limits are $100 higher than the dollar limits that applied for 2018 (except for the post-third tax year figure, which remains the same).
A taxpayer that leases a business auto may deduct the part of the lease payment representing its business/investment use. So that auto lessees can't avoid the effect of the luxury auto limits, however, taxpayers must include a certain amount in income during each year of the lease to partially offset the lease deduction. The amount varies with the initial fair market value of the leased auto and the year of the lease, and is adjusted for inflation each year. The IRS has released a new inclusion amount table for autos first leased during 2019.
For more information, see IRS issues 2019 depreciation dollar limits for passenger automobiles.
Cents-per-mile & fleet average FMV maximums for 2019. IRS has announced that the 2019 inflation-adjusted maximum fair market values (FMVs) for employer-provided vehicles, the personal use of which can be valued for fringe benefit purposes at the mileage allowance rate (58¢ per mile for 2019). For 2019, the FMV can't exceed $50,400 (was $50,000 for 2018). In addition, the 2019 maximum fleet-average vehicle FMV for vehicles, for purposes of the use of the annual lease value fringe benefit valuation method for an employer with a fleet of 20 or more vehicles, also is $50,400 (was $50,000 for 2018). The IRS also announced that certain employers may switch to the cents-per-mile valuation method or the fleet-average FMV maximum for the 2018 or 2019 tax year.
For more information, see IRS sets out 2019 $ amounts, other rules regarding personal use of employer-provided vehicles.
IRS accepting ITIN renewal applications for next year. Individual Taxpayer Identification Numbers (ITINs) are used by people who have tax filing requirements under U.S. law but are not eligible for a Social Security number. The IRS has announced that it is now accepting renewal applications for the ITINs set to expire at the end of 2019. ITINs that have not been used on a federal tax return at least once in the last three consecutive years will expire on Dec. 31, 2019. In addition, ITINs with middle digits 83, 84, 85, 86 or 87 that have not already been renewed will also expire at the end of this year. IRS urged taxpayers affected by changes to the ITIN program to submit their renewal applications as soon as possible to avoid an anticipated rush.
For more information, see IRS is accepting renewal applications for ITINs expiring by the end of 2019
IRS Tax Tip 2019-66, May 28, 2019
Small business owners may qualify for a home office deduction that will help them save money on their taxes, and benefit their bottom line. Taxpayers can take this deduction if they use a portion of their home exclusively, and on a regular basis, for any of the following:
As the taxpayer’s main place of business.
As a place of business where the taxpayer meets patients, clients or customers. The taxpayer must meet these people in the normal course of business.
If it is a separate structure that is not attached to the taxpayer’s home. The taxpayer must use this structure in connection with their business
A place where the taxpayer stores inventory or samples. This place must be the sole, fixed location of their business.
Under certain circumstances, the structure where the taxpayer provides day care services.
Deductible expenses for business use of a home include:
Real estate taxes
Repairs and Maintenance
Certain expenses are limited to the net income of the business. These are known as allocable expenses. They include things such as utilities, insurance, and depreciation. While allocable expenses cannot create a business loss, they can be carried forward to the next year. If the taxpayer carries them forward, the expenses are subject to the same limitation rules.
There are two options for figuring and claiming the home office deduction.
The simplified method reduces the paperwork and recordkeeping for small businesses. The simplified method has a set rate of $5 a square foot for business use of the home. The maximum deduction allowed is based on up to 300 square feet.
There are special rules for certain business owners:
IR-2019-38, March 13, 2019
WASHINGTON ― Unclaimed income tax refunds totaling almost $1.4 billion may be waiting for an estimated 1.2 million taxpayers who did not file a 2015 Form 1040 federal income tax return, according to the Internal Revenue Service.
To collect the money, these taxpayers must file their 2015 tax returns with the IRS no later than this year's tax deadline, Monday, April 15, except for taxpayers in Maine and Massachusetts, who have until April 17.
"We’re trying to connect over a million people with their share of $1.4 billion in potentially unclaimed refunds for 2015,” said IRS Commissioner Charles Rettig. “Students, part-time workers and many others may have overlooked filing for 2015. And there’s no penalty for filing a late return if you’re due a refund.”
The IRS estimates the midpoint for the potential refunds for 2015 to be $879 — that is, half of the refunds are more than $879 and half are less.
In cases where a federal income tax return was not filed, the law provides most taxpayers with a three-year window of opportunity to claim a tax refund. If they do not file a tax return within three years, the money becomes the property of the U.S. Treasury. For 2015 tax returns, the window closes April 15, 2019, for most taxpayers. The law requires taxpayers to properly address, mail and ensure the tax return is postmarked by that date.
The IRS reminds taxpayers seeking a 2015 tax refund that their checks may be held if they have not filed tax returns for 2016 and 2017. In addition, the refund will be applied to any amounts still owed to the IRS or a state tax agency and may be used to offset unpaid child support or past due federal debts, such as student loans.
By failing to file a tax return, people stand to lose more than just their refund of taxes withheld or paid during 2015. Many low- and moderate-income workers may be eligible for the Earned Income Tax Credit (EITC). For 2015, the credit was worth as much as $6,242. The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2015 were:
$47,747 ($53,267 if married filing jointly) for those with three or more qualifying children;
$44,454 ($49,974 if married filing jointly) for people with two qualifying children;
$39,131 ($44,651 if married filing jointly) for those with one qualifying child, and;
$14,820 ($20,330 if married filing jointly) for people without qualifying children.
Current and prior year tax forms (such as the tax year 2015 Form 1040, 1040-A and 1040-EZ) and instructions are available on the IRS.gov Forms and Publications page or by calling toll-free 800-TAX-FORM (800-829-3676).
Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for the years 2015, 2016 or 2017 should request copies from their employer, bank or other payer. Taxpayers who are unable to get missing forms from their employer or other payer can order a free wage and income transcript at IRS.gov using the Get Transcript Online tool. Alternatively, they can file Form 4506-T to request a wage and income transcript. A wage and income transcript shows data from information returns received by the IRS, such as Forms W-2, 1099, 1098, Form 5498 and IRA contribution information. Taxpayers can use the information from the transcript to file their tax return.
IRS YouTube Videos:
IR-2019-26, March 4, 2019
WASHINGTON — Kicking off the annual “Dirty Dozen” list of tax scams, the Internal Revenue Service today warned taxpayers of the ongoing threat of internet phishing scams that lead to tax-related fraud and identity theft.
The IRS warns taxpayers, businesses and tax professionals to be alert for a continuing surge of fake emails, text messages, websites and social media attempts to steal personal information. These attacks tend to increase during tax season and remain a major danger of identity theft.
To help protect taxpayers against these and other threats, the IRS highlights one scam on 12 consecutive week days to help raise awareness. Phishing schemes are the first of the 2019 “Dirty Dozen” scams.
“Taxpayers should be on constant guard for these phishing schemes, which can be tricky and cleverly disguised to look like it’s the IRS,” said IRS Commissioner Chuck Rettig. “Watch out for emails and other scams posing as the IRS, promising a big refund or personally threatening people. Don’t open attachments and click on links in emails. Don’t fall victim to phishing or other common scams.”
The IRS also urges taxpayers to learn how to protect themselves by reviewing safety tips prepared by the Security Summit, a collaborative effort between the IRS, state revenue departments and the private-sector tax community.
“Taking some basic security steps and being cautious can help protect people and their sensitive tax and financial data,” Rettig said.
New variations on phishing schemes
The IRS continues to see a steady stream of new and evolving phishing schemes as criminals work to victimize taxpayers throughout the year. Whether through legitimate-looking emails with fake, but convincing website landing pages, or social media approaches, perhaps using a shortened URL, the end goal is the same for these con artists: stealing personal information.
In one variation, taxpayers are victimized by a creative scheme that involves their own bank account. After stealing personal data and filing fraudulent tax returns, criminals use taxpayers' bank accounts to direct deposit tax refunds. Thieves then use various tactics to reclaim the refund from the taxpayer, including falsely claiming to be from a collection agency or the IRS. The IRS encourages taxpayers to review some basic tips if they see an unexpected deposit in their bank account.
Schemes aimed at tax pros, payroll offices, human resources personnel
The IRS has also seen more advanced phishing schemes targeting the personal or financial information available in the files of tax professionals, payroll professionals, human resources personnel, schools and organizations such as Form W-2 information. These targeted scams are known as business email compromise (BEC) or business email spoofing (BES) scams.
Depending on the variation of the scam (and there are several), criminals will pose as:
a business asking the recipient to pay a fake invoice
as an employee seeking to re-route a direct deposit
or as someone the taxpayer trusts or recognizes, such as an executive, to initiate a wire transfer.
The IRS warned of the direct deposit variation of the BEC/BES scam in December 2018, and continues to receive reports of direct deposit scams reported to firstname.lastname@example.org. The Direct Deposit and other BEC/BES variations should be forwarded to the Internet Crime Complaint Center (IC3). The IRS requests that Form W-2 scams be reported to: email@example.com (Subject: W-2 Scam).
Criminals may use the email credentials from a successful phishing attack, known as an email account compromise, to send phishing emails to the victim’s email contacts. Tax preparers should be wary of unsolicited email from personal or business contacts especially the more commonly observed scams, like new client solicitations.
Malicious emails and websites can infect a taxpayer’s computer with malware without the user knowing it. The malware downloads in the background, giving the criminal access to the device, enabling them to access any sensitive files or even track keyboard strokes, exposing login victim’s information.
For those participating in these schemes, such activity can lead to significant penalties and possible criminal prosecution. Both the Treasury Inspector General for Tax Administration (TIGTA), which handles scams involving IRS impersonation, and the IRS Criminal Investigation Division work closely with the Department of Justice to shut down scams and prosecute the criminals behind them.
Tax professional alert
Numerous data breaches across the country mean the tax preparation community must be on high alert to unusual activity, particularly during the tax filing season. Criminals increasingly target tax professionals, deploying various types of phishing emails in an attempt to access client data. Thieves may use this data to impersonate taxpayers and file fraudulent tax returns for refunds.
As part of the Security Summit initiative, the IRS has joined with representatives of the software industry, tax preparation firms, payroll and tax financial product processors and state tax administrators to combat identity theft refund fraud to protect the nation's taxpayers.
The Security Summit partners encourage tax practitioners to be wary of communicating solely by email with potential or existing clients, especially if unusual requests are made. Data breach thefts have given thieves millions of identity data points including names, addresses, Social Security numbers and email addresses. If in doubt, tax practitioners should call to confirm a client’s identity.
Reporting phishing attempts
If a taxpayer receives an unsolicited email or social media attempt that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), they should report it by sending it to firstname.lastname@example.org. Learn more by going to the Report Phishing and Online Scams page on IRS.gov.
Tax professionals who receive unsolicited and suspicious emails that appear to be from the IRS and/or are tax-related (like those related to the e-Services program) also should report it to: email@example.com.
The IRS generally does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.
IRS Tax Tip 2019-12, February 21, 2019
Taxpayers should protect their personal and financial data from criminals who continue to steal large amounts of information. Thieves use the data to file bogus tax returns and commit crimes while impersonating the victim.
All taxpayers should follow these steps to protect themselves and their data.
Keep a secure computer. Taxpayers should:
Use security software that updates automatically. Essential tools for keeping a secure computer include a firewall, virus and malware protection, and file encryption for sensitive data.
Treat personal information like cash; don’t leave it lying around.
Give personal information only over encrypted and trusted websites.
Use strong passwords and protect them.
Avoid Phishing and Malware. Taxpayers should:
Not respond to emails, texts or calls that appear to be from the IRS, tax companies and other well-known businesses. Instead, verify contact information about companies or agencies by going directly to their website.
Be cautious of email attachments. Think twice before opening them.
Turn off the option to automatically download attachments.
Download and install software only from known and trusted websites.
Protect personal information. Taxpayers should:
Not routinely carry a Social Security card or other documents showing a Social Security number.
Not overshare personal information on social media. This includes information about past addresses, a new car, a new home and children.
Keep old tax returns and tax records under lock and key.
Safeguard electronic files by encrypting and properly disposing them.
Shred tax documents before trashing.
Publication 4524, Security Awareness for Taxpayers
IRS Tax Tip 2019-07, February 12, 2019
The IRS offers several payment options where taxpayers can pay immediately or arrange to pay in installments. Taxpayers can pay online, by phone, or with their mobile device and the IRS2Go app. Taxpayers should pay in full whenever possible to avoid interest and penalty charges.
Here are some electronic payment options for taxpayers:
Electronic Funds Withdrawal. Taxpayers can pay using their bank account when they e-file their tax return. EFW is free and only available through e-File.
Direct Pay. Taxpayers can pay directly from a checking or savings account for free with IRS Direct Pay. Taxpayers receive instant confirmation after they submit a payment. With Direct Pay, taxpayers can schedule payments up to 30 days in advance. They can change or cancel their payment two business days before the scheduled payment date. Taxpayers can choose to receive email notifications each time they make a payment.
Credit or debit cards. Taxpayers can also pay their taxes by debit or credit card online, by phone, or with a mobile device. Card payment processing fees vary by service provider and no part of the service fee goes to the IRS. Telephone numbers for service providers are at IRS.gov/payments.
Pay with cash. Taxpayers can make a cash payment at a participating retail partner. Taxpayers can do this at more than 7,000 locations nationwide. Taxpayers can visit IRS.gov/paywithcash for instructions on how to pay with cash.
Installment agreement. Taxpayers who are unable to pay their tax debt immediately may be able to make monthly payments. Before applying for any payment agreement, taxpayers must file all required tax returns. They can apply for an installment agreement with the Online Payment Agreement tool, which also has more information about who’s eligible to apply for a monthly installment agreement.
Anyone wishing to use a mobile device should remember they can access the IRS2Go app to pay with either Direct Pay or by debit or credit card. IRS2Go is the official mobile app of the IRS and is available for download from Google Play, the Apple App Store or the Amazon App Store.
Taxpayers can also visit IRS.gov/account and log in to their account. From here, they can view their taxes owed, payment history, federal tax records, and key information from their most recent tax return as originally filed.
WASHINGTON — Offering time-saving alternatives to a telephone call, the Internal Revenue Service reminds taxpayers they can get fast answers to their refund questions by using the “Where’s My Refund?” tool available on IRS.gov and through the IRS2Go app.
The IRS issues nine out of 10 refunds in less than 21 days, and the fastest way to get a refund is to use IRS e-file and direct deposit. Taxpayers claiming the Earned Income Tax Credit or the Additional ChildTax Credit will see their refunds, which by law must be held until mid-February, after Feb. 27.
The time around Presidents Day is a peak period for telephone calls to the IRS, resulting in longer than normal hold times for callers. Questions about tax refunds are the most frequent reason people call the IRS. People are encouraged to first check “Where’s My Refund?” or review the IRS Services Guide which links to many IRS online services.
Please note: Ordering a tax transcript will not speed delivery of tax refunds nor does the posting of a tax transcript to a taxpayer’s account determine the timing of a refund delivery. Calls to request transcripts for this purpose are unnecessary. Transcripts are available online and by mail at Get Transcript.
IRS telephone assistors can only research a refund’s status if it has been 21 days or more since the taxpayer filed electronically, six weeks since they mailed a paper return or if “Where’s My Refund?” directs a taxpayer to call.
Taxpayers can avoid the Presidents Day rush by using the "Where’s My Refund?" tool. All that is needed is the taxpayer’s Social Security number, tax filing status (single, married, head of household) and exact amount of the tax refund claimed on the return. Alternatively, taxpayers may call 800-829-1954 for the same information.
Within 24 hours of filing a tax return electronically, the tool can tell taxpayers that their returns have been received. That time extends to four weeks if a paper return is mailed to the IRS, which is another reason to use IRS e-file and direct deposit.
Once the tax return is processed, “Where’s My Refund?” will tell a taxpayer when their refund is approved and provide a date when they can expect to receive it. “Where’s My Refund?” is updated no more than once every 24 hours, usually overnight, so there’s no need to check the status more often.
By law, the IRS cannot release tax refunds for Earned Income Tax Credit or the Additional Child Tax Credit related tax returns before mid-February. “Where’s My Refund?” will be updated by Feb. 23 for most early filers who claimed the EITC or ACTC. These taxpayers will not see a refund date on “Where's My Refund?” or through their software packages until then. The earliest EITC and ACTC related refunds should be available in taxpayer bank accounts and debit cards starting Feb. 27, if taxpayers used direct deposit and there are no other issues with their tax returns.
While the IRS still expects to issue more than nine out of 10 tax refunds in less than 21 days, it’s possible a particular tax return may require additional review and a refund could take longer. Many different factors can affect the timing of a refund. Also, it is important to take into consideration the time it takes for a financial institution to post the refund to an account or for it to be delivered by mail.
Most taxpayers will receive a refund, but many also may owe additional tax if they did not withhold enough during 2018. Taxpayers who owe additional tax should use digital payment options. Taxpayers who owe should do a Paycheck Check Up to ensure enough tax is withheld during 2019 to avoid an unexpected tax bill.
IRS waives penalty for many whose tax withholding and estimated tax payments fell short in 2018
IR-2019-03, January 16, 2019
WASHINGTON — The Internal Revenue Service announced today that it is waiving the estimated tax penalty for many taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year.
The IRS is generally waiving the penalty for any taxpayer who paid at least 85 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. The usual percentage threshold is 90 percent to avoid a penalty.
The waiver computation announced today will be integrated into commercially-available tax software and reflected in the forthcoming revision of Form 2210 and instructions.
This relief is designed to help taxpayers who were unable to properly adjust their withholding and estimated tax payments to reflect an array of changes under the Tax Cuts and Jobs Act (TCJA), the far-reaching tax reform law enacted in December 2017.
“We realize there were many changes that affected people last year, and this penalty waiver will help taxpayers who inadvertently didn’t have enough tax withheld,” said IRS Commissioner Chuck Rettig. “We urge people to check their withholding again this year to make sure they are having the right amount of tax withheld for 2019.”
The updated federal tax withholding tables, released in early 2018, largely reflected the lower tax rates and the increased standard deduction brought about by the new law. This generally meant taxpayers had less tax withheld in 2018 and saw more in their paychecks.
However, the withholding tables couldn’t fully factor in other changes, such as the suspension of dependency exemptions and reduced itemized deductions. As a result, some taxpayers could have paid too little tax during the year, if they did not submit a properly-revised W-4 withholding form to their employer or increase their estimated tax payments. The IRS and partner groups conducted an extensive outreach and education campaign throughout 2018 to encourage taxpayers to do a “Paycheck Checkup” to avoid a situation where they had too much or too little tax withheld when they file their tax returns.
Although most 2018 tax filers are still expected to get refunds, some taxpayers will unexpectedly owe additional tax when they file their returns.
Because the U.S. tax system is pay-as-you-go, taxpayers are required, by law, to pay most of their tax obligation during the year, rather than at the end of the year. This can be done by either having tax withheld from paychecks or pension payments, or by making estimated tax payments.
Usually, a penalty applies at tax filing if too little is paid during the year. Normally, the penalty would not apply for 2018 if tax payments during the year met one of the following tests:
The person’s tax payments were at least 90 percent of the tax liability for 2018 or
The person’s tax payments were at least 100 percent of the prior year’s tax liability, in this case from 2017. However, the 100 percent threshold is increased to 110 percent if a taxpayer’s adjusted gross income is more than $150,000, or $75,000 if married and filing a separate return.
For waiver purposes only, today’s relief lowers the 90 percent threshold to 85 percent. This means that a taxpayer will not owe a penalty if they paid at least 85 percent of their total 2018 tax liability. If the taxpayer paid less than 85 percent, then they are not eligible for the waiver and the penalty will be calculated as it normally would be, using the 90 percent threshold. For further details, see Notice 2019-11, posted today on IRS.gov.
Like last year, the IRS urges everyone to check their withholding for 2019. This is especially important for anyone now facing an unexpected tax bill when they file. This is also an important step for those who made withholding adjustments in 2018 or had a major life change to ensure the right tax is still being withheld. Those most at risk of having too little tax withheld from their pay include taxpayers who itemized in the past but now take the increased standard deduction, as well as two-wage-earner households, employees with nonwage sources of income and those with complex tax situations.
To help taxpayers get their withholding right in 2019, an updated version of the agency’s online Withholding Calculator is now available on IRS.gov.With tax season starting Jan. 28, the IRS reminds taxpayers it’s never too early to get ready for the tax-filing season ahead. While it’s a good idea any year, starting early in 2019 is particularly important as most tax filers adjust to the revised tax rates, deductions and credits.
Although the IRS won’t begin processing 2018 returns until Jan. 28, software companies and tax professionals will be accepting and preparing returns before that date. Free File is also now available.
The IRS also reminds taxpayers there are two useful resources for anyone interested in learning more about tax reform. They are Publication 5307, Tax Reform: Basics for Individuals and Families, and Publication 5318, Tax Reform What’s New for Your Business. For other tips and resources, visit IRS.gov/taxreform or check out the Get Ready page on IRS.gov .
IRS confirms tax filing season to begin January 28
WASHINGTON ― Despite the government shutdown, the Internal Revenue Service today confirmed that it will process tax returns beginning January 28, 2019 and provide refunds to taxpayers as scheduled.
“We are committed to ensuring that taxpayers receive their refunds notwithstanding the government shutdown. I appreciate the hard work of the employees and their commitment to the taxpayers during this period,” said IRS Commissioner Chuck Rettig.
Congress directed the payment of all tax refunds through a permanent, indefinite appropriation (31 U.S.C. 1324), and the IRS has consistently been of the view that it has authority to pay refunds despite a lapse in annual appropriations. Although in 2011 the Office of Management and Budget (OMB) directed the IRS not to pay refunds during a lapse, OMB has reviewed the relevant law at Treasury’s request and concluded that IRS may pay tax refunds during a lapse.
The IRS will be recalling a significant portion of its workforce, currently furloughed as part of the government shutdown, to work. Additional details for the IRS filing season will be included in an updated FY2019 Lapsed Appropriations Contingency Plan to be released publicly in the coming days.
“IRS employees have been hard at work over the past year to implement the biggest tax law changes the nation has seen in more than 30 years,” said Rettig.
As in past years, the IRS will begin accepting and processing individual tax returns once the filing season begins. For taxpayers who usually file early in the year and have all of the needed documentation, there is no need to wait to file. They should file when they are ready to submit a complete and accurate tax return.
The filing deadline to submit 2018 tax returns is Monday, April 15, 2019 for most taxpayers. Because of the Patriots’ Day holiday on April 15 in Maine and Massachusetts and the Emancipation Day holiday on April 16 in the District of Columbia, taxpayers who live in Maine or Massachusetts have until April 17, 2019 to file their returns.
Software companies and tax professionals will be accepting and preparing tax returns before Jan. 28 and then will submit the returns when the IRS systems open later this month. The IRS strongly encourages people to file their tax returns electronically to minimize errors and for faster refunds.
From the IRS Newswire:
WASHINGTON — The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2019. The IRS today issued technical guidance detailing these items in Notice 2018-83.
Highlights of Changes for 2019
The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,500 to $19,000.
The limit on annual contributions to an IRA, which last increased in 2013, is increased from $5,500 to $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2019.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2019:
For single taxpayers covered by a workplace retirement plan, the phase-out range is $64,000 to $74,000, up from $63,000 to $73,000.
For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $103,000 to $123,000, up from $101,000 to $121,000.
For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $193,000 and $203,000, up from $189,000 and $199,000.
For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income phase-out range for taxpayers making contributions to a Roth IRA is $122,000 to $137,000 for singles and heads of household, up from $120,000 to $135,000. For married
couples filing jointly, the income phase-out range is $193,000 to $203,000, up from $189,000 to $199,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $64,000 for married couples filing jointly, up from $63,000; $48,000 for heads of household, up from $47,250; and $32,000 for singles and married individuals filing separately, up from $31,500.
Highlights of Limitations that Remain Unchanged from 2018
The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.
Detailed Description of Adjusted and Unchanged Limitations
Section 415 of the Internal Revenue Code (Code) provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415. Under Section 415(d), the adjustments are to be made following adjustment procedures similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.
Effective Jan. 1, 2019, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $220,000 to $225,000. For a participant who separated from service before Jan. 1, 2019, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2018, by 1.0264.
The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2019 from $55,000 to $56,000.
The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2019 are as follows:
The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $18,500 to $19,000.
The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $275,000 to $280,000.
The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $175,000 to $180,000.
The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a five year distribution period is increased from
$1,105,000 to $1,130,000, while the dollar amount used to determine the lengthening of the five year distribution period is increased from $220,000 to $225,000.
The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $120,000 to $125,000.
The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $6,000. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $3,000.
The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $405,000 to $415,000.
The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600.
The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $12,500 to $13,000.
The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $18,500 to $19,000.
The limitation under Section 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan remains unchanged at $50,000.
The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation remains unchanged at $110,000. The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $220,000 to $225,000.
The dollar limitation on premiums paid with respect to a qualifying longevity annuity contract under Section 1.401(a)(9)-6, A-17(b)(2)(i) of the Income Tax Regulations remains unchanged at $130,000.
The Code provides that the $1,000,000,000 threshold used to determine whether a multiemployer plan is a systemically important plan under Section 432(e)(9)(H)(v)(III)(aa) is adjusted using the cost-of-living adjustment provided under Section 432(e)(9)(H)(v)(III)(bb). After taking the applicable rounding rule into account, the threshold used to determine whether a multiemployer plan is a systemically important plan under Section 432(e)(9)(H)(v)(III)(aa) is increased for 2019 from $1,087,000,000 to $1,097,000,000.
The Code also provides that several retirement-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3). After taking the applicable rounding rules into account, the amounts for 2019 are as follows:
The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $38,000 to $38,500; the limitation under Section 25B(b)(1)(B) is increased from $41,000 to $41,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $63,000 to $64,000.
The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the Retirement Savings Contribution Credit for taxpayers filing as head of household is increased from $28,500 to $28,875; the limitation under Section 25B(b)(1)(B) is increased from $30,750 to $31,125; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $47,250 to $48,000.
The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the Retirement Savings Contribution Credit for all other taxpayers is increased from $19,000 to $19,250; the limitation under Section 25B(b)(1)(B) is increased from $20,500 to $20,750; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $31,500 to $32,000.
The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions is increased from $5,500 to $6,000.
The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) increased from $101,000 to $103,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers who are active participants (other than married taxpayers filing separate returns) increased from $63,000 to $64,000. If an individual or the individual’s spouse is an active participant, the applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $189,000 to $193,000.
The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $189,000 to $193,000. The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $120,000 to $122,000. The applicable dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.