Employers: Visit IRS.gov/AIR for Resources about Reporting Process – Software Testing Opens Nov. 7

Under the Affordable Care Act, certain organizations must report information to the IRS and individuals about health insurance coverage. The reporting requirements apply to insurance companies, self-insured companies, applicable large employers and employers that provide health insurance to their employees. ACA information returns and transmittals are electronically filed through the ACA Information Return system, also known as AIR.

The ACA Assurance Testing System opens November 7 for tax year 2016 testing. AATS is a process to test software and electronic transmissions prior to accepting software developers, transmitters, and issuers into the AIR program. Software developers – including employers and issuers – who passed AATS for tax year 2015 will not have to retest for tax year 2016; their tax year software packages will be moved into production status. New participants need to comply with test requirements for tax year 2016.

Other non-ACA information returns – such as Forms 1099 – can be electronically transmitted through the Filing Information Returns Electronically system, also known as FIRE.  Even if you previously used FIRE, if you are transmitting to AIR, you should familiarize yourself with the AIR procedures, which are different than those for FIRE.

If you are required to file 250 or more information returns, you must file them electronically. This requirement applies separately for each type of return and separately to each type of corrected return. All filers are encouraged to electronically file even if you have less than 250 returns.

IRS.gov/AIR has an array of tools and products to help you navigate the AIR system:

• Publication 5164, Test Package for Electronic Filers of Affordable Care Act Information Returns – recently updated for processing year 2017.
• Publication 5165, Guide for Electronically Filing ACA Information Returns for Software Developers and Transmitters – recently updated for processing year 2017.
• AIR webinars and presentations

New Law Sets Jan. 31 W-2 Filing Deadline; Some Refunds Delayed Until Feb. 15

A new federal law moves up the W-2 filing deadline for employers and small businesses to Jan. 31. The new law makes it easier for the IRS to find and stop refund fraud. It also delays some taxpayer refunds. Those taxpayers claiming the Earned Income Tax Credit or the Additional Child Tax Credit won’t see refunds until Feb.15, at the earliest.

Here are some key points to keep in mind:

• Protecting Americans from Tax Hikes (PATH) Act. Enacted last December, the new law means employers need to file their copies of Forms W-2  by Jan. 31. These forms also go to the Social Security Administration. The new deadline also applies to certain Forms 1099. Those reporting nonemployee compensation such as payments to independent contractors submitted to the IRS are due Jan. 31. Employers have long faced a Jan. 31 deadline in providing copies of these forms to their employees. That date won’t change.
• Different from past deadline. Employers normally had until the end of February, if filing on paper, or the end of March, if filing electronically, to send in copies of these forms. The IRS is working with the payroll community and other partners to spread the word.  
• Helps stop fraud or errors. The new Jan. 31 deadline will help the IRS to spot errors on returns filed by taxpayers. Having these W-2s and 1099s sooner will make it easier for the IRS to verify legitimate tax returns and get refunds to taxpayers eligible to receive them. The changes will allow the IRS to send some tax refunds faster.
• Some refunds delayed. Certain taxpayers will get their refunds a bit later. By law, the IRS must hold refunds for any tax return claiming either the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) until Feb. 15. This means the whole refund, not just the part related to the EITC or ACTC.
• File tax returns normally. Taxpayers should file their returns as they normally do. The IRS issues more than nine out of 10 refunds in less than 21 days. However, some returns may need further review. Whether or not claiming EITC or ACTC, the IRS cautions taxpayers not to count on getting a refund by a certain date. Consider this fact when making major purchases or paying debts.
• Use IRS.gov online tools. Starting Feb. 15, the best way to check the status of a refund is with the Where's My Refund? tool on IRS.gov or the IRS2Go Mobile App.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers may need their Adjusted Gross Income amount from a prior tax return to verify their identity. They can get a transcript of their return at www.irs.gov/transcript.

Reminder: Employers Face New Jan. 31 W-2 Filing Deadline; Some Refunds Delayed Until Feb. 15

IR-2016-143, Oct. 28, 2016

WASHINGTON — The Internal Revenue Service today reminded employers and small businesses of a new Jan. 31 filing deadline for Forms W-2. The IRS must also hold some refunds until Feb. 15.

A new federal law, aimed at making it easier for the IRS to detect and prevent refund fraud, will accelerate the W-2 filing deadline for employers to Jan. 31. For similar reasons, the new law also requires the IRS to hold refunds involving two key refundable tax credits until at least Feb. 15. Here are details on each of these key dates.

New Jan. 31 Deadline for Employers

The Protecting Americans from Tax Hikes (PATH) Act, enacted last December, includes a new requirement for employers. They are now required to file their copies of Form W-2, submitted to the Social Security Administration, by Jan. 31. The new Jan. 31 filing deadline also applies to certain Forms 1099-MISC reporting non-employee compensation such as payments to independent contractors.

In the past, employers typically had until the end of February, if filing on paper, or the end of March, if filing electronically, to submit their copies of these forms. In addition, there are changes in requesting an extension to file the Form W-2. Only one 30-day extension to file Form W-2 is available and this extension is not automatic. If an extension is necessary, a Form 8809 Application for Extension of Time to File Information Returns must be completed as soon as you know an extension is necessary, but by January 31. Please carefully review the instructions for Form 8809, for more information.

"As tax season approaches, the IRS wants to be sure employers, especially smaller businesses, are aware of these new deadlines," said IRS Commissioner John Koskinen. "We are working with the payroll community and other partners to share this information widely."

The new accelerated deadline will help the IRS improve its efforts to spot errors on returns filed by taxpayers. Having these W-2s and 1099s earlier will make it easier for the IRS to verify the legitimacy of tax returns and properly issue refunds to taxpayers eligible to receive them. In many instances, this will enable the IRS to release tax refunds more quickly than in the past.

The Jan. 31 deadline has long applied to employers furnishing copies of these forms to their employees and that date remains unchanged.

Some Refunds Delayed Until at Least Feb. 15

Due to the PATH Act change, some people will get their refunds a little later. The new law requires the IRS to hold the refund for any tax return claiming either the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) until Feb. 15. By law, the IRS must hold the entire refund, not just the portion related to the EITC or ACTC.

Even with this change, taxpayers should file their returns as they normally do. Whether or not claiming the EITC or ACTC, the IRS cautions taxpayers not to count on getting a refund by a certain date, especially when making major purchases or paying other financial obligations. Though the IRS issues more than nine out 10 refunds in less than 21 days, some returns are held for further review.

Taxpayers Are Avoiding Billions of Dollars in Backup Withholding Because of Lack of IRS Enforcement

WASHINGTON — The Treasury Inspector General for Tax Administration (TIGTA) today publicly released its audit report of the Internal Revenue Service’s (IRS) progress with enforcing backup withholding requirements.

The purpose of backup withholding is to make sure that the Government is able to collect taxes on all appropriate income, particularly income that is not usually subject to withholding.  In September 2015, TIGTA issued a report that identified deficiencies with backup withholding and other reporting requirements related to payment cards.  TIGTA’s current audit continues an assessment of the IRS’s actions to ensure compliance with backup withholding provisions.

TIGTA found that, although payers submitted the majority of information returns with valid Taxpayer Identification Numbers (TINs), they did not withhold nearly $9 billion in backup withholding tax when they submitted Tax Year (TY) 2013 information returns with missing or incorrect TINs.  TIGTA also identified 13,647 payers who submitted 27,576 information returns with the same missing payee TIN for two years in a row (TYs 2012 and 2013).  These returns reported payments of about $14.3 billion.  Payers were required to immediately withhold nearly $4 billion from these payees, but just more than $1 million was withheld.

In addition, TIGTA identified 62,714 payers who submitted 203,751 information returns for which the payee TIN was incorrect in four consecutive years.  These returns reported payments totaling nearly $17 billion, and payers were required to withhold nearly $5 billion from these payees, but only $1 million was withheld.

TIGTA also found that there is no justification for criteria used to exclude payers from receiving backup withholding notices that include missing or incorrect TINs.  For example, the IRS notified payers of the missing or incorrect TINs associated with only 10.8 million (57 percent) returns of the 18.9 million that were identified.  Finally, TIGTA’s review of TY 2013 information returns identified 2.3 million returns were submitted for 1.6 million individuals with reportable payments totaling more than $4 billion for which the payee TIN was that of a deceased individual.

“While the legal requirements for backup withholding have been in effect for over 30 years, a substantial amount of tax is not being withheld as required,” said J. Russell George, the Treasury Inspector General for Tax Administration.  “The IRS’s enforcement of backup withholding requirements is essential to help ensure that taxes are paid,” he added.

The IRS agreed with TIGTA’s audit recommendations and will use the report’s findings and recommendations when finalizing and implementing its backup withholding strategy.

Read the report.

Health Care Information Reporting: Seven Things Employers Can Think About Now

If your organization is an applicable large employer, you must report information about the health care coverage you offered to your full-time employees. As an employer, it’s not too early to start thinking about these seven facts related to your information reporting responsibilities under the health care law.

1. The health care law requires ALEs to report information about health insurance coverage offered to its full-time employees and their dependents as well as to the IRS.

2. ALEs must report information about themselves, the coverage they offered – if any – and the individuals covered under the policy.

3. ALEs are required to furnish a statement to each full-time employee that includes the same information provided to the IRS by January 31, 2017.

4. ALEs that file 250 or more information returns during the calendar year must file the returns electronically.

5. ALEs must file Form 1095-C, Employer-Provided Health Insurance Offer and Coverage with the IRS annually, no later than February 28, 2017 or March 31, 2017 if filed electronically. Forms 1095-C are filed accompanied by the transmittal form, Form 1094-C.

6. Self-insured employers that are applicable large employers, and therefore are also subject to the information reporting requirements for offers of employer-sponsored health insurance coverage, must combine reporting under both provisions by filing a single information return, Form 1095-C, and transmittal, Form 1094-C.

7. The ACA Assurance Testing System opens November 7, 2016 for tax year 2016 testing. Software developers – including employers and issuers who passed AATS for tax year 2015 – will not have to retest for tax year 2016; the Tax Year Software Packages will be moved into Production status. New participants need to comply with test requirements for tax year 2016. For more information, see Publication 5165, Guide for Electronically Filing ACA Information Returns for Software Developers and Transmitters.

Applicable large employers can find a complete list of resources and the latest news at the Applicable Large Employer Information Center.

In 2017, Some Tax Benefits Increase Slightly Due to Inflation Adjustments, Others Are Unchanged

WASHINGTON — The Internal Revenue Service today announced the tax year 2017  annual inflation adjustments for more than 50 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2016-55 provides details about these annual adjustments. The tax year 2017 adjustments generally are used on tax returns filed in 2018.   The tax items for tax year 2017 of greatest interest to most taxpayers include the following dollar amounts:

• The standard deduction for married filing jointly rises to $12,700 for tax year 2017, up $100 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $6,350 in 2017, up from $6,300 in 2016, and for heads of households, the standard deduction will be $9,350 for tax year 2017, up from $9,300 for tax year 2016.
• The personal exemption for tax year 2017 remains as it was for 2016: $4,050.  However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $261,500 ($313,800 for married couples filing jointly). It phases out completely at $384,000 ($436,300 for married couples filing jointly.)
• For tax year 2017, the 39.6 percent tax rate affects single taxpayers whose income exceeds $418,400 ($470,700 for married taxpayers filing jointly), up from $415,050 and $466,950, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2017 are described in the revenue procedure.
• The limitation for itemized deductions to be claimed on tax year 2017 returns of individuals begins with incomes of $287,650 or more ($313,800 for married couples filing jointly).
• The Alternative Minimum Tax exemption amount for tax year 2017 is $54,300 and begins to phase out at $120,700 ($84,500, for married couples filing jointly for whom the exemption begins to phase out at $160,900). The 2016 exemption amount was $53,900 ($83,800 for married couples filing jointly).  For tax year 2017, the 28 percent tax rate applies to taxpayers with taxable incomes above $187,800 ($93,900 for married individuals filing separately).
• The tax year 2017 maximum Earned Income Credit amount is $6,318 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,269 for tax year 2016. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
• For tax year 2017, the monthly limitation for the qualified transportation fringe benefit is $255, as is the monthly limitation for qualified parking,
• For calendar year 2017, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage is $695.
• For tax year 2017 participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,250 but not more than $3,350; these amounts remain unchanged from 2016. For self-only coverage the maximum out of pocket expense amount  is $4,500, up $50 from 2016. For tax year 2017 participants with family coverage, the floor for the annual deductible is $4,500, up from $4,450 in 2016, however the deductible cannot be more than $6,750, up $50 from the limit for tax year 2016. For family coverage, the out of pocket expense limit is $8,250 for tax year 2017, an increase of $100 from  tax year 2016.
• For tax year 2017, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $112,000, up from $111,000 for tax year 2016.
• For tax year 2017, the foreign earned income exclusion is $102,100, up from $101,300 for tax year 2016.
• Estates of decedents who die during 2017 have a basic exclusion amount of $5,490,000, up from a total of $5,450,000 for estates of decedents who died in 2016.

Roll over your retirement plan or IRA to a new plan or IRA

Did you know that most pre-retirement payments you receive from a retirement plan or IRA can be “rolled over” by depositing the payment in another retirement plan or IRA within 60 days? You can also have your financial institution or plan directly transfer the payment to another plan or IRA.

Why roll over?

When you roll over a retirement plan distribution, you generally don’t pay tax on it until you withdraw it from the new plan. If you don’t roll over your payment, it will be taxable (other than qualified Roth distributions and any amounts already taxed). You may also be subject to additional tax, unless you’re eligible for one of the exceptions to the 10 percent additional tax on early distributions.

How do I complete a rollover?

1. Direct rollover – If you’re getting a distribution from a retirement plan, you can ask your plan administrator to make the payment directly to another retirement plan or to an IRA. Contact your plan administrator for instructions. The administrator may issue your distribution in the form of a check made payable to your new account. No taxes will be withheld from your transfer amount.
2. Trustee-to-trustee transfer – If you’re getting a distribution from an IRA, you can ask the financial institution holding your IRA to make the payment directly to another IRA or to a retirement plan. No taxes will be withheld from your transfer amount.
3. 60-day rollover – If a distribution from an IRA or a retirement plan is paid directly to you, you can deposit all or a portion of it into an IRA or a retirement plan within 60 days. In certain situations, the 60-day rollover requirement may be waived if you missed the deadline because of circumstances beyond your control. Taxes will be withheld from a distribution from a retirement plan, so you’ll have to use other funds to roll over the full amount of the distribution. Otherwise, you:

• must include the withheld amount in your gross income in the year the distribution was made, and
• may owe an additional early distribution tax on the withheld amount.

If your distribution includes property, you can either roll over the property to the new plan or IRA, or sell the property and roll over the proceeds. In either case, you must deposit into the new plan or IRA within 60 days of receiving the distribution or qualify for a waiver of the 60-day requirement.

By rolling over your pre-retirement distributions to another retirement plan or IRA, you’re saving for your future, and your money continues to grow tax-deferred.

To maintain your eligibility for 2017 advance payments of the premium tax credit, you must file a tax return

The IRS is sending letters to taxpayers who received advance payments of the premium tax credit in 2015, but who have not yet filed their tax return. You must file a tax return to reconcile any advance credit payments you received in 2015 and to maintain your eligibility for future premium assistance. If you do not file, you will not be eligible for advance payments of the premium tax credit in 2017.

If you receive Letter 5858 or 5862, you are being reminded to file your 2015 federal tax return along with Form 8962, Premium Tax Credit. The letter encourages you to file within 30 days of the date of the letter to substantially increase your chances of avoiding a gap in receiving assistance with paying Marketplace health insurance coverage in 2017.

Here’s what you need to do if you received a 5858 letter:

• Read your letter carefully.
• Review the situation to see if you agree with the information in the letter.
• Use the Form 1095-A that you received from your Marketplace to complete your return. If you need a copy of your Form 1095-A, log in to your HealthCare.gov or state Marketplace account or call your Marketplace call center.
• File your 2015 tax return with Form 8962 as soon as possible, even if you don’t normally have to file.
• If you have already filed your 2015 tax return with Form 8962, you can disregard the letter.

Here’s what you need to do if you received a 5862 letter:

• Read your letter carefully.
• Review the situation to see if you agree with the information in the letter.
• Use the Form 1095-A that you received from your Marketplace to complete Form 8962. If you need a copy of your Form 1095-A, log in to your HealthCare.gov or state Marketplace account or call your Marketplace call center.
• File your 2015 tax return with Form 8962 as soon as possible, even though you have an extension until Oct. 17, 2016, to file.
• If you have already filed your 2015 tax return with Form 8962, please disregard this letter.

Filing electronically is the easiest way to file a complete and accurate tax return. Electronic filing options include free volunteer assistance, IRS Free File, commercial software and professional assistance.

The tax effects of divorce and separation

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

• Child Support — If you are making child support payments, they are not deductible. If you receive child support, the amount you receive is not taxable.
• Alimony Paid — If you make payments under a divorce or separate maintenance decree or written separation agreement, you may be able to deduct them as alimony. This applies only if the payments qualify as alimony for federal tax purposes. Voluntary payments made outside a divorce or separation decree are not deductible. You must enter your spouse's Social Security Number or Individual Taxpayer Identification Number on your Form 1040, Individual Tax Return, when you file.
• Alimony Received — If you get alimony from your spouse or former spouse, it’s taxable in the year you get it. Alimony is not subject to tax withholding so you may need to increase the tax you pay during the year to avoid a penalty. To do this, you can make estimated tax payments or increase the amount of tax withheld from your wages.
• Name Changes — If you legally change your name after your divorce, notify the Social Security Administration of the change. File Form SS-5, Application for a Social Security Card. You can get the form on SSA.gov or call 800-772-1213 to order it. The name on your tax return must match SSA records. A name mismatch can delay your refund. You cannot apply for a card online. There is no charge for a Social Security card. This service is free.

Health Care Law Considerations

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

For more on this topic, see Publication 504, Divorced or Separated Individuals. You can get it on IRS.gov/forms at any time.

The IRS must hold refunds for tax returns claiming EITC or ACTC until February 15

Beginning in 2017, if you claim the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) on your tax return, the IRS must hold your refund until at least February 15.

This new law, approved by Congress, requires the IRS to hold the entire refund — even the portion not associated with EITC or ACTC. This change helps ensure that you receive the refund you are owed by giving the agency more time to help detect and prevent fraud.

As in past years, the IRS will begin accepting and processing tax returns once the filing season begins. You can file as you normally do. Even though the IRS cannot issue refunds for some early filers until at least February 15, most refunds will still be issued within the normal timeframe: in less than 21 days, after being accepted for processing by the IRS.

Be careful when planning any financial obligations that are based on any specific refund date when claiming these credits. This includes being cautious of loan and preparer fee agreements where repayment is dependent upon the refund. Be especially aware of any stated repayment dates that are earlier than February 15. You don’t want to incur more costs by committing to any re-payment schedule that requires a full payment before the refund will actually become available.

You can check the status of your refund with the Where's My Refund? tool on IRS.gov or the IRS2Go Mobile App. Where’s My Refund? remains the best way to check the status of your refund after February 15.