IRS, State Tax Agencies and Tax Industry Announce National Tax Security Awareness Week, Nov. 27-Dec. 1; Event Focuses on Protecting Tax, Financial Data in Advance of Holidays, Filing Season

For the second year, the Internal Revenue Service, state tax agencies and the tax industry will host National Tax Security Awareness Week to encourage both individual and business taxpayers to take additional steps to protect their tax data and identities in advance of the 2018 filing season.

Starting Monday, Nov. 27, National Tax Security Awareness Week will focus daily on one issue that poses a threat to individuals and businesses and offer steps they may take to better protect themselves from cybercriminals.

The IRS, state tax agencies and the tax industry, partners in the Security Summit, have enacted a series of defenses in recent years that have made significant inroads into tax-related identity theft. While the Summit partners continue to improve defenses, they also recognize that they need help from taxpayers, tax preparers and businesses to continue progress against identity theft.

Summit partners and other consumer, business and community groups will be hosting a series of more than 20 events across the country to raise awareness during National Tax Security Awareness Week. This is especially timely as the holiday season brings out not only online shoppers but online thieves seeking to trick people into disclosing sensitive information that could be used to help file fraudulent tax returns.

The week also comes amid continuing disclosures that more than 145 million Americans have had their names, addresses and Social Security numbers stolen from a variety of places. No one yet knows how cybercriminals will use this data or try to make money from it.

The IRS and states have put many new defenses in place to help protect taxpayers from identity theft. The new IRS protections have worked well to protect taxpayers, and some key indicators of identity theft on tax returns have dropped by around two-thirds since 2015.

These protections are especially helpful if criminals only have names, addresses and SSNs – which was the information stolen in recent incidents. However, there are continuing concerns that cybercriminals will try to build on this basic information by trying to obtain more specific financial details from taxpayers and tax professionals to help them file fraudulent tax returns.

During the upcoming 2018 filing season, the IRS urges tax professionals, businesses and others to join with the Security Summit partners in sharing the security information through organizations, customers and partners.

During National Tax Security Awareness Week, people will learn about the basic steps necessary to protect themselves and their tax data online, such as using security software, strong passwords and data encryption. They will learn what steps they should take if they are a data breach victim, such as placing a freeze on their credit accounts and the signs of tax-related identity theft.

They will learn how cybercriminals use phishing emails to bait them into disclosing information. Employers will be warned about the dangerous W-2 scam that has made identity theft victims of thousands of employees. Finally, Summit partners will remind small businesses that they, too, are subject to identity theft and should take steps to protect themselves.

There are three key steps the Summit partners urge people to take to protect tax and financial information:

• Learn to recognize and avoid phishing emails, threatening phone calls and texts from thieves posing as legitimate organizations such as banks, credit card companies and government organizations, including the IRS. Do not click on links or download attachments from unknown or suspicious emails.  

• Always use security software with firewall and anti-virus protections. Make sure the security software is always turned on and will automatically update. Encrypt sensitive files such as tax records stored on computers. Use strong passwords.

• Protect personal data. Use strong, unique passwords for each online account. Don’t routinely carry Social Security cards, and make sure tax records are secure. Treat personal information like cash; don’t leave it lying around.

The IRS, state tax agencies and the tax industry came together in 2015 to join forces in their fight against tax-related identity theft. Learn more about their efforts and their progress at Security Summit on IRS.gov.

Increasing public awareness about people’s role in protecting their own data is a critical part of the Security Summit efforts. Partners launched the “Taxes. Security. Together” awareness campaign in the fall of 2015.

The partners followed up with “Protect Your Clients; Protect Yourself” campaign aimed at tax professionals. Partners also held a 10-week “Don’t Take the Bait” awareness effort, warning tax professionals of the most common data breach scams targeting their offices and taxpayer data.

Reminder to Employers and Other Businesses: Jan. 31 Filing Deadline Now Applies to All Wage Statements and Independent Contractor Forms

The Internal Revenue Service today reminded employers and other businesses of the Jan. 31 filing deadline that now applies to filing wage statements and independent contractor forms with the government.

The Protecting Americans from Tax Hikes (PATH) Act includes a requirement for employers to file their copies of Form W-2 and Form W-3 with the Social Security Administration by Jan. 31. The Jan. 31 deadline also applies to certain Forms 1099-MISC filed with IRS to report non-employee compensation to independent contractors. Such payments are reported in box 7 of this form.

This deadline makes it easier for the IRS to verify income that individuals report on their tax returns and helps prevent fraud. Failure to file these forms correctly and timely may result in penalties. As always, the IRS urges employers and other businesses to take advantage of the accuracy, speed and convenience of filing these forms electronically.

Hints to help filers get ready

                                    

Employers should verify employees’ information. This includes names, addresses, Social Security or individual taxpayer identification numbers. They should also ensure their company’s account information is current and active with the Social Security Administration before January. If paper Forms W-2 are needed, they should be ordered early.

An extension of time to file Forms W-2 is no longer automatic. The IRS will only grant extensions for very specific reasons. Details can be found on the instructions for Form 8809.

For more information, read the instructions for Forms W-2 & W-3 and the Information Return Penalties page at IRS.gov.

Individual Taxpayers: Seven Things to Do When an IRS Letter Arrives

The IRS mails millions of letters to taxpayers every year for many reasons. Here are seven simple suggestions on how individuals can handle a letter or notice from the IRS:

1. Don’t panic. Simply responding will take care of most IRS letters and notices.
    
2. Read the entire letter carefully. Most letters deal with a specific issue and provide specific instructions on what to do.
3. Compare it with the tax return. If a letter indicates a changed or corrected tax return, the taxpayer should review the information and compare it with their original return. 
4. Only reply if necessary. There is usually no need to reply to a letter unless specifically instructed to do so, or to make a payment.
5. Respond timely. Taxpayers should respond to a letter with which they do not agree. They should mail a letter explaining why they disagree. They should mail their response to the address listed at the bottom of the letter. The taxpayer should include information and documents for the IRS to consider. The taxpayer should allow at least 30 days for a response.

When a specific date is listed in the letter, there are two main reasons taxpayers should respond by that date:

• To minimize additional interest and penalty charges.
• To preserve appeal rights if the taxpayers doesn’t agree.
5. Don’t call. For most letters, there is no need to call the IRS or make an appointment at a taxpayer assistance center. If a call seems necessary, the taxpayer can use the phone number in the upper right-hand corner of the letter. They should have a copy of the tax return and letter on hand when calling.  
6. Keep the letter. A taxpayer should keep copies of any IRS letters or notices received with their tax records.  

Additional IRS Resources:

• IRS.gov/forms
• Publication 594, The IRS Collection Process.
• Tax Topic 651 – Notices – What to Do
• Tax Topic 653 – IRS Notices and Bills, Penalties, and Interest Charges
• Understanding Your CP2000 Notice

Plan now to Use Health Flexible Spending Arrangements in 2018; Contribute up to $2,650; $500 Carryover Option Available to Many

The Internal Revenue Service today reminded eligible employees that now is the time to begin planning to take full advantage of their employer’s health flexible spending arrangement (FSA) during 2018.

FSAs provide employees a way to use tax-free dollars to pay medical expenses not covered by other health plans. Because eligible employees need to decide how much to contribute through payroll deductions before the plan year begins, many employers this fall are offering their employees the option to participate during the 2018 plan year.

Interested employees wishing to contribute during the new year must make this choice again for 2018, even if they contributed in 2017. Self-employed individuals are not eligible.

An employee who chooses to participate can contribute up to $2,650 during the 2018 plan year. That’s a $50 increase over 2017. Amounts contributed are not subject to federal income tax, Social Security tax or Medicare tax. If the plan allows, the employer may also contribute to an employee’s FSA.

Throughout the year, employees can then use funds to pay qualified medical expenses not covered by their health plan, including co-pays, deductibles and a variety of medical products and services ranging from dental and vision care to eyeglasses and hearing aids. Interested employees should check with their employer for details on eligible expenses and claim procedures.

Under the use-or-lose provision, participating employees often must incur eligible expenses by the end of the plan year, or forfeit any unspent amounts. But under a special rule, employers may, if they choose, offer participating employees more time through either the carryover option or the grace period option.

Under the carryover option, an employee can carry over up to $500 of unused funds to the following plan year — for example, an employee with $500 of unspent funds at the end of 2018 would still have those funds available to use in 2019. Under the grace period option, an employee has until two and a half months after the end of the plan year to incur eligible expenses — for example, March 15, 2019, for a plan year ending on Dec. 31, 2018. Employers can offer either option, but not both, or none at all.

Employers are not required to offer FSAs. Accordingly, interested employees should check with their employer to see if they offer an FSA. More information about FSAs can be found in Publication 969, available on IRS.gov. 

Five Facts about Charitable Contributions

With the holidays around the corner, many people will be making donations to benefit charitable organizations. However, come tax time, the person who made the donation might also benefit. That’s because taxpayers who donate to a charity may be able to claim a deduction for the donation on their federal tax return.

Here are five facts about charitable donations:

Qualified Charities. A taxpayer must donate to a qualified charity to deduct their contributions. Gifts to individuals, political organizations, or candidates are not deductible. To check the status of a charity, taxpayers can use Exempt Organizations Select Check on IRS.gov.

Itemize Deductions. To deduct charitable contributions, taxpayers must file Form 1040 and itemize their deductions. To do this, taxpayers complete Schedule A, Itemized Deductions. They file this form with their tax return.

Getting Something in Return. Taxpayers may receive something in return for their donation. This includes things such as merchandise, meals, and event tickets. Taxpayers can only deduct the amount of the donation that’s more than the fair market value of the item they received. To figure their deduction, a taxpayer would subtract the value of the item received from the amount of their donation.

Type of Donation. For donations of property instead of cash, a taxpayer can only deduct the fair market value of the donated item. Fair market value is generally the price they would get if they sold the item on the open market. If they donate used clothing and household items, those items generally must be in good condition. Special rules apply to certain types of property donations, such as cars and boats.

Donations of $250 or More. If a taxpayer donates $250 or more in cash or goods, they must have a written receipt from the charity. The statement must show: • The amount of the donation. • A description of any property given. • Whether the taxpayer received any goods or services in exchange for their gift, and, if so, must provide a description and good faith estimate of the value of those goods or services.

Taxpayers can also use the Interactive Tax Assistant, Can I Deduct my Charitable Contributions? This tool helps determine if charitable contribution is deductible.

More Information

• Tax Topic No. 506 – Charitable Contributions

Taxpayers Should do an End-of-Year Withholding Check-up

As the end of the year approaches, the IRS encourages taxpayers to consider a tax withholding checkup. When taxpayers take a close look to make sure the right amount of tax is withheld now, they can avoid an unexpected tax bill next year.

Here are five examples of taxpayers who would benefit from a withholding check-up:

• Taxpayers who received large tax refunds in past years

When a taxpayer has too much tax withheld from their paycheck, they pay too much tax during the year. They can change their withholding to have money upfront rather than waiting for a bigger refund.

• Taxpayers who owed taxes in years past

Taxpayers with too little tax withheld might owe money. Under-withholding can lead to both a tax bill and an additional penalty.

• People with a second job

This includes people who work in the sharing or ‘gig’ economy. Taxpayers who work more than one job should check the total amount of taxes they have withheld and make adjustments as necessary. This will ensure their withholding covers the total amount of the taxes they owe, based on their combined income from all their jobs.

• Taxpayers who make estimated tax payments

Some taxpayers make quarterly estimated tax payments throughout the year. This includes self-employed individuals, partners, and S corporation shareholders.  If these taxpayers also work for an employer, they can often forgo making these quarterly payments by instead having more tax taken out of their pay.

• People with a new job

Taxpayers who start a new job should check their withholding to make sure they are having enough taxes withheld. Their total withholding should cover the income tax owed from their new and old jobs combined.

To make sure their employer withholds the right amount of tax, employees can adjust their Form W-4, Employee’s Withholding Allowance Certificate. In many cases, this is all they need to do. The employer uses the form to figure the amount of federal income tax to be withheld from pay. This takes time, so taxpayers should make adjustments as soon as possible so the changes can take affect during the final pay periods of 2017.

The IRS has several resources that help taxpayers determine if they are having the right amount of tax withheld from their pay.

• IRS Withholding Calculator – Online tool that helps determine the correct amount of tax to withhold.
• IRS Publication 505, Tax Withholding and Estimated Tax
• Tax Withholding – Find FAQs and complete information on withholding and estimated taxes.

More Information:

• Pay As You Go, So You Won’t Owe

IRS has Resources for Veterans, Current Members of the Military

As the nation prepares to celebrate Veterans Day, the IRS reminds them that they may be eligible for certain tax benefits. There are also tax benefits that can affect current members of the military.

The IRS has resources for both these groups. The following tools will help military members and veterans navigate tax issues:

Resources for veterans

• Frequently asked questions about veteran employment and retirement plan benefits. These include information about the re-employment of veterans and the restoration of retirement plan benefits.
• The Resources for Disabled Veterans page features links to resources geared to this audience: ◦Where to get free help in preparing income tax returns.
• Access to IRS forms and publications in formats accessible for people with disabilities.

Resources for current members of the military

• The Tax Information for Members of the Military page on IRS.gov includes resources geared to several groups: ◦Current and former military personnel.
• Those serving in a combat zone.
• Disabled veterans.
• Publication 3, Armed Forces Tax Guide covers special situations of active members of the Armed Forces, including: ◦Travel expenses of Armed Forces Reservists.
• IRA contribution rules for members of the military serving in combat zones.
• Rules for members of the Armed Forces deducting moving expenses.
• The Tax Exclusion for Combat Service page highlights information for members of the military who serve in a combat zone.
• The Notifying the IRS by E-mail about Combat Zone Service page includes information about the steps that someone serving in a combat zone follows to notify the IRS about their service.

Participating in the Sharing Economy Can Affect Taxes

In 2017, many taxpayers use their phones and computers to provide services and sell goods. This includes the use of sites and apps to rent a home to travelers, sell crafts, or to provide car rides. Taxpayers who do this may be involved in the sharing economy. Participating in the sharing economy may affect a person’s taxes. These taxpayers can visit the Sharing Economy Tax Center on the IRS website to find resources that can help them meet their tax obligations.

Here are six things taxpayers should know about how the sharing economy might affect their taxes:

Taxes. Sharing economy activity is generally taxable. This includes:

• Part-time work.
• A side business.
• Cash payments received.
• Income stated on a Form 1099 or Form W-2.  

Deductions. Some taxpayers can deduct their business expenses. For example, a taxpayer who uses a car for business use often qualifies to claim the standard mileage rate.

Rentals. Special rules apply to a taxpayer who rents out a home or apartment, but who also lives in it during the year. Publication 527, Residential Rental Property (Including Rental of Vacation Homes), has more information about these rules. Taxpayers can also use the Interactive Tax Assistant Tool. This tool is titled Is My Residential Rental Income Taxable and/or Are My Expenses Deductible? It walks a taxpayers through a series of questions to determine if their rental income is taxable.

Estimated Payments. Taxpayers can pay as they go, so they don’t owe. One way that taxpayers can cover the tax they owe is to make estimated tax payments during the year. These payments can help cover their tax obligation. Taxpayers use Form 1040-ES to figure these payments.

Payment Options. The fastest and easiest way to make estimated tax payments is through IRS Direct Pay. Taxpayers can also use the Treasury Department’s Electronic Federal Tax Payment System.

Withholding. Taxpayers involved in the sharing economy as an employee might want to review their withholding from that job and any other jobs they might have. They can often avoid making estimated tax payments by having more tax withheld from their regular paychecks. These taxpayers can file Form W-4 with their employer to request additional withholding. They can also use the Withholding Calculator on IRS.gov. This tool helps determine if they are having too much or too little tax withheld from their income.

Get Ready for Taxes: Plan Ahead for 2018 Filing Season to Avoid Refund Delays

The Internal Revenue Service today advised taxpayers about steps they can take now to ensure smooth processing of their 2017 tax return and avoid a delay in getting their refund next year. This is the first in a series of reminders to help taxpayers get ready for the upcoming tax filing season. Additionally, the IRS has a special page on its website with steps to take now for the 2018 tax filing season.

Gather Documents

The IRS urges all taxpayers to file a complete and accurate tax return by making sure they have all the documents before they file their return, including their 2016 tax return. This includes Forms W-2 from employers, Forms 1099 from banks and other payers, and Forms 1095-A from the Marketplace for those claiming the Premium Tax Credit. Doing so will help avoid refund delays and the need to file an amended return later. Confirm that each employer, bank or other payer has a current mailing address.

Typically, these forms start arriving by mail in January. Check them over carefully, and if any of the information shown is inaccurate, contact the payer right away for a correction.

Taxpayers should keep a copy of their 2016 tax return and all supporting documents for a minimum of three years. Doing so will make it easier to fill out a 2017 return next year. In addition, taxpayers using a software product for the first time may need the Adjusted Gross Income (AGI) amount from their 2016 return to properly e-file their 2017 return. Learn more about verifying identity and electronically signing a return at Validating Your Electronically Filed Tax Return.

Renew Expiring ITINs

Some people with an Individual Taxpayer Identification Number (ITIN) may need to renew it before the end of the year. Doing so promptly will avoid a refund delay and possible loss of key tax benefits.

Any ITIN not used on a tax return in the past three years will expire on Dec. 31, 2017. Similarly, any ITIN with middle digits 70, 71, 72 or 80 will also expire at the end of the year. Anyone with an expiring ITIN who plans to file a return in 2018 will need to renew it using Form W-7.

Once a completed form is filed, it typically takes about seven weeks to receive an ITIN assignment letter from the IRS. But it can take longer — nine to 11 weeks -- if an applicant waits until the peak of the filing season to submit this form or sends it from overseas. Taxpayers should take action now to avoid delays.

Taxpayers who fail to renew an ITIN before filing a tax return next year could face a delayed refund and may be ineligible for certain tax credits. For more information, visit the ITIN information page on IRS.gov.

Refunds Held for Those Claiming EITC or ACTC Until Mid-Feb

By law, the IRS cannot issue refunds for people claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) before mid-February. The law requires the IRS to hold the entire refund — even the portion not associated with EITC or ACTC. The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or debit cards starting on Feb. 27, 2018, if direct deposit was used and there are no other issues with the tax return. This additional period is due to several factors, including the Presidents Day holiday and banking and financial systems needing time to process deposits. This law change, which took effect at the beginning of 2017, helps ensure that taxpayers receive the refund they’re due by giving the IRS more time to detect and prevent fraud.

As always, the IRS cautions taxpayers not to rely on getting a refund by a certain date, especially when making major purchases or paying bills. Though the IRS issues more than nine out of 10 refunds in less than 21 days, some returns require further review.

For a Faster Refund, Choose e-file

Electronically filing a tax return is the most accurate way to prepare and file. Errors delay refunds and the easiest way to avoid them is to e-file. Nearly 90 percent of all returns are electronically filed. There are several e-file options:

• IRS Free File,
• Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs,
• Commercial tax preparation software, or
• Tax professional.

Use Direct Deposit.

Combining direct deposit with electronic filing is the fastest way for a taxpayer to get their refund. With direct deposit, a refund goes directly into a taxpayer’s bank account. There’s no reason to worry about a lost, stolen or undeliverable refund check. This is the same electronic transfer system now used to deposit nearly 98 percent of all Social Security and Veterans Affairs benefits. Nearly four out of five federal tax refunds are direct deposited.

Direct deposit saves taxpayer dollars. It costs the nation’s taxpayers more than $1 for every paper refund check issued but only a dime for each direct deposit.

Taxpayers Can Explore Payment Options Any Time of the Year

The IRS understands that taxpayers who owe money need choices on how they can make payments to the agency. IRS offers three easy ways to pay taxes. Taxpayers can pay online, by phone or with their mobile device using the IRS2Go app. Any time of the year is a good time for taxpayers to explore these payment options.

Additionally, some taxpayers must make quarterly estimated tax payments throughout the year. This includes sole proprietors, partners, and S corporation shareholders who expect to owe $1,000 or more when they file. Individuals who participate in the sharing economy might also have to make estimated payments.

Here are four options for taxpayers who need to pay their taxes. They can:

• Pay when they e-file using their bank account, at no charge from the IRS, using electronic funds withdrawal.
• Use IRS Direct Pay to pay their taxes, including estimated taxes. Direct Pay allows taxpayers to pay electronically directly from their checking or savings account for free. Taxpayers can choose to receive email notifications about their payments. The IRS remind taxpayers to watch out for email schemes. IRS Direct Pay sends emails only to users who requested the service.
• Pay by credit or debit card through a card processor for a fee. Taxpayers can make these payments online, by phone, or using their mobile device with the IRS2Go app.
• Make a cash payment at a participating 7-Eleven store. Taxpayers can do this at more than 7,000 locations nationwide. To pay with cash, visit IRS.gov/paywithcash and follow the instructions.
• Pay over time by applying for an online payment agreement. Once the IRS accepts an agreement, the taxpayers can make their payment in monthly installments.

For a full menu of payment options, taxpayers can visit IRS.gov/payments.

Additional IRS Resources:

• Electronic payment options
• Tax Payment Options, Topic No. 202