For Small Business Week: Tax credit can help employers hiring new workers; key certification requirement applies

With many businesses facing a tight job market, the Internal Revenue Service reminds employers to check out a valuable tax credit available to them for hiring long-term unemployment recipients and other categories of workers with employment barriers.

During National Small Business Week — April 29 to May 5 — the Internal Revenue Service is highlighting tax benefits and resources designed to help new and existing small businesses.

The Work Opportunity Tax Credit (WOTC) is a long-standing income tax benefit that encourages employers to hire designated categories of workers who face significant barriers to employment. For any employer considering this option, the WOTC may be able to help.

For those who haven’t claimed the WOTC in a while, the IRS noted that legislation enacted in recent years has both expanded and modified the credit. For example, legislation effective Jan. 1, 2016, added a new category for long-term unemployment recipients who had been unemployed for a period of at least 27 weeks and received state or federal unemployment benefits during part or all of that time.

Here’s how it works.

The credit, usually claimed on Form 5884, Work Opportunity Credit, is generally based on wages paid to eligible workers during the first two years of employment. To qualify for the credit, an employer must first request certification by filing IRS Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit, with the state workforce agency within 28 days after the eligible worker begins work. Other requirements and further details can be found in the instructions to Form 8850.

There are now 10 categories of WOTC-eligible workers. Besides long-term unemployment recipients, the other categories include certain veterans and recipients of various kinds of public assistance, among others.

The 10 categories are:

• Qualified IV-A Temporary Assistance for Needy Families (TANF) recipients
• Unemployed veterans, including disabled veterans
• Ex-felons
• Designated community residents living in Empowerment Zones or Rural Renewal Counties
• Vocational rehabilitation referrals
• Summer youth employees living in Empowerment Zones
• Food stamp (SNAP) recipients
• Supplemental Security Income (SSI) recipients
• Long-term family assistance recipients
• Qualified long-term unemployment recipients.

Eligible businesses claim the WOTC on their income tax return. The credit is first figured on Form 5884 and then becomes a part of the general business credit claimed on Form 3800, General Business Credit.

Though the credit is not available to tax-exempt organizations for most categories of new hires, a special rule allows them to get the WOTC for hiring qualified veterans. These organizations claim the credit on Form 5884-C, Work Opportunity Credit for Qualified Tax Exempt Organizations Hiring Qualified Veterans. Visit the WOTC page on IRS.gov for more information.

How the Employer Credit for Family and Medical Leave Benefits Employers

During National Small Business Week, the IRS focuses on educating employers about the employer credit for paid family and medical leave created by the Tax Cuts and Jobs Act passed last year. Employers may claim the credit based on wages paid to qualifying employees while they are on family and medical leave.


Here are some facts about this credit and how it benefits employers:

• To claim the credit, employers must have a written policy that meets certain requirements:
• Employers must provide at least two weeks of paid family and medical leave annually to all qualifying employees who work full time. This can be prorated for employees who work part time.
• The paid leave must be not less than 50 percent of the wages normally paid to the employee.
• A qualifying employee is any employee who:
• Has been employed for one year or more.
• For the preceding year, had compensation that did not exceed a certain amount. For 2018, the employee must not have earned more than $72,000 in 2017.
• For purposes of this credit, “family and medical leave” is leave for one or more of the following reasons:
• Birth of an employee’s child and to care for the newborn.
• Placement of a child with the employee for adoption or foster care.
• To care for the employee’s spouse, child, or parent who has a serious health condition.
• A serious health condition that makes the employee unable to perform the functions of his or her position.
• Any qualifying event due to an employee’s spouse, child, or parent being on covered active duty – or being called to duty – in the Armed Forces.
• To care for a service member who is the employee’s spouse, child, parent, or next of kin.
• The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year. 
• An employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit.  Any wages taken into account in determining any other general business credit may not be used toward this credit.
• The credit is generally effective for wages paid in taxable years of the employer beginning after December 31, 2017. It is not available for wages paid in taxable years beginning after December 31, 2019.

More Information:

Employer Credit for Family and Medical Leave FAQs

For Small Business Week, IRS offers tips to small business owners about the overlooked home office deduction

The Internal Revenue Service today reminded small business owners who work from a home office that they may be overlooking a common deduction.

The IRS encourages small business owners to explore the guidelines surrounding home office deductions so they understand the legal guidelines and options available. More details are available in Publication 587.

As part of National Small Business Week (April 29-May 5), the IRS is highlighting a series of tips and resources available for small business owners. For someone considering claiming the home office deduction, there are two options available:

Regular method

The first option for calculating the home office deduction is the regular method. This method requires computing the business use of the home by dividing the expenses of operating the home between personal and business use. Direct business expenses are fully deductible and the percentage of the home floor space used for business is assignable to indirect total expenses. Self-employed taxpayers file Schedule C, Profit or Loss From Business (Sole Proprietorship), and compute this deduction on Form 8829, Expenses for Business Use of Your Home.

Simplified method

The second option, the simplified method, reduces the paperwork and recordkeeping burden. The simplified method has a prescribed rate of $5 a square foot for business use of the home. There is a maximum allowable deduction available based on up to 300 square feet. Choosing this option requires taxpayers to complete a short worksheet in the tax instructions and enter the result on the tax return. There is a special calculation for daycare providers. Self-employed individuals claim the home office deduction on Schedule C, Line 30, and farmers claim it on Schedule F, Profits or Loss from Farming, Line 32.

Regardless of the method used to compute the deduction, business expenses in excess of the gross income limitation are not deductible. Deductible expenses for business use of a home include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance and repairs. In general, expenses for the parts of the home not used for business are not deductible.

Deductions for business storage are allowed when the home is the only fixed location of the business, or for regular use of a residence for daycare services; exclusive use isn't required in these cases.
Further details on the home office deduction and the simplified method can be found in Publication 587, Business Use of Your Home, on IRS.gov.

IRS urges small businesses: Protect IT systems from identity theft

The IRS, state tax agencies and the nation’s tax industry are warning small businesses to be on-guard against a growing wave of identity theft attempts against employers.

Small business identity theft is big business for identity thieves. When businesses and their employees have their identities stolen, their sensitive information can be used to open credit card accounts or file fraudulent tax returns for bogus refunds.

The Internal Revenue Service, state tax agencies and the private-sector tax community -- partners in the Security Summit -- are marking “Small Business Week” with a series of reminders to taxpayers and tax professionals. The week concludes with warnings about small business identity theft.

In the past two years, the Internal Revenue Service has noted a sharp increase in the number of fraudulent filings of Forms 1120, 1120S and 1041 as well as Schedule K-1. The fraudulent filings apply to partnerships as well as estate and trust forms.

Identity thieves are displaying a sophisticated knowledge of the tax code and tax industry filing practices as they attempt to obtain valuable data to help file fraudulent returns. To help counter this, Security Summit partners have expanded efforts to better protect business filers and identify suspected identity theft returns.

Identity thieves have long made use of stolen Employer Identification Numbers (EINs) to create fake Forms W-2 that they would file with fraudulent individual tax returns. Fraudsters also used EINs to open new lines of credit or obtain credit cards. Now they are using company names and EINs to file fraudulent returns.

As with fraudulent individual returns, there are certain signs that may indicate identity theft. Business, partnerships and estate and trust filers should be alert to potential identity theft and contact the IRS if they experience any of these issues:

• Extension to file requests are rejected because a return with the Employer Identification Number or Social Security number is already on file;
• An e-filed return is rejected because a duplicate EIN/SSN is already on file with the IRS;
• Received 5263C or 6042C Letters;
• An unexpected receipt of a tax transcript or IRS notice that doesn’t correspond to anything submitted by the filer;
• Failure to receive expected and routine correspondence from the IRS because the thief has changed the address.

Steps to protect businesses

The IRS, state tax agencies and software providers also share certain data points from tax returns, including business returns, that help identify a suspicious filing. The IRS and states ask that business and tax practitioners provide additional information that will help verify the legitimacy of the tax return.

Respond to the “know your customer” questions when prompted by software:

• Who signed the return – including name and SSN
• Tax payment history of the company
• Parent company information
• Additional information based on deductions claimed
• Tax filing history of the company

Sole proprietorships that file Schedule C and partnerships filing Schedule K-1 with Form 1040 also will be asked to provide additional information items, such as a driver’s license number. Providing this information will help the IRS and states identify suspicious business-related tax returns.

For small businesses looking to enhance their security, the National Institute of Standards and Technology (NIST) produced Small Business Information Security: The Fundamentals. NIST is the branch of the U.S. Commerce Department that sets information security frameworks followed by federal agencies.

The United States Computer Emergency Readiness Team (US-CERT) has Resources for Small and Midsize Businesses. Many secretaries of state also provide resources on business-related identity theft as well.

The IRS, state tax agencies and the tax industry continue to work together to fight against tax-related identity theft and to protect business and individual taxpayers. Everyone can help. Take steps recommended by cyber experts and visit the Identity Protection: Prevention, Detection and Victim Assistance for information about business-related identity theft.

Tax Reform: Changes to Depreciation Affect Businesses Now

As employers across the country celebrate National Small Business Week, the IRS reminds businesses that the passage of the Tax Cuts and Jobs Act may affect their depreciation deductions and taxes.

Business taxpayers can generally depreciate tangible property except land, including buildings, machinery, vehicles, furniture and equipment.

Changes to depreciation and how they will affect businesses may include:

• Businesses can immediately expense more under the new law; taxpayers may elect to expense the cost of any property and deduct it in the year the property is placed in service.
• Maximum deduction increased from $500,000 to $1 million.
• The phase-out threshold increased from $2 million to $2.5 million.
• The new law allows taxpayers to elect to include improvements made to nonresidential property. The improvements must have been made after the date the property was first placed in service.

These improvements include: 

• Any improvement to a building’s interior
• Roofs
• Heating and air conditioning systems
• Fire protection systems
• Alarm and security systems

Improvements that do not qualify:

• Enlargement of the building
• Service to elevators or escalators
• Internal structural framework of the building

These changes apply to property placed in service in taxable years beginning after December 31, 2017.

Per Diem Allowance for Meals and Incidental Expenses (M&IE) Only

A per diem allowance for meal and incidental expenses (M&IE) only may be used to substantiate an employee's or other payee's M&IEs for purposes of the employer's return (Rev. Proc. 2011-47). The amount that is deemed substantiated is equal to the lesser of the per diem allowance or the amount computed at the federal M"&IE rate for the locality of travel for the period that the employee is away from home. If M&IEs are substantiated using a per diem allowance, the entire amount is treated as a food and beverage expense subject to the 50-percent limitation on meal and entertainment expenses.

The M&IE rate must be prorated for partial days of travel away from home. If an employee's meals are provided by the employer, even though the employee may be working from home, the employee is entitled to deduct only the incidental expense portion of the applicable federal per deim M&IE rates (R.J. Zbylut, Dec. 57,348(M), 95 TCM 1172 (2008)).

Self-Employed Persons and Employees. Self-employed individuals and employees whose expenses are not reimbursed may also use the M&IE-only rate to substantiate M&IEs while traveling away from home. The taxpayer must actually prove through adequate records or sufficient corroborative evidence the time, place, and business purpose of the travel, and lodging costs.

Optional Method for Incidental-Expense-Only Deduction. Taxpayers may use an optional method to deduct only incidental expenses in lieu of using actual expenses. Taxpayers who do not incur any meal expenses may deduct $5 per calendar day (or partial day) as ordinary and necessary incidental expenses, paid or incurred, while traveling to any localities within the continental United States (CONUS) or outside the continental United States (OCONUS) (Notice 2017-54, Notice 2016-58). The optional method is subject to the proration rules for partial days and substantiation requirements for taxpayers who use the per diem method for substantiation (Rev. Proc. 2011-47). The optional method for incidental expenses only cannot also be used by taxpayers who use the lodging plus M&IE per diem method, the M&IE-only method, or the high-low method and the optional M&IE-only mnethod

Transportation Workers. The M&IE rates for travel awy from home on or after October 1, 2017, for both self-employed persons and employees in the transportation industry are $63 for CONUS localities and $68 for OCONUS localities. The M&IE rates for travel away from home on or after October 1, 2016, for both self-employed persons and employees in the transpotation industry are $63 for CONUS localities and $68 for OCONUS localities (Notice 2017-54, Notice 2016-58). An individual is in the transportation industry only if the individual's work: (1) directly involves moving people or goods by airplane, barge, bus, ship, train, or truck; and (2) regularly requires travel away from home that involves travel to localities with differing federal M&IE rates during a single trip.

Under a calendar-year convention for the transportation industry, taxpayers who used the federal M&IE rates during the first nine months of calendar year2017 to substantiate an individual's travel expenses may not use the special transportation industry rates for that individual until January 1, 2018 (Rev. Proc. 2011-47). Likewise, taxpayers who used the special transportation industry rates for the first nine months of calendar year 2017 to substantiate an individual's travel expenses may not use the federal M&IE rates for that individual until January 1, 2018.

Per Diem Allowances for Lodging Plus Meals and Incidental Expenses (M&IE)

Under the lodging plus meals and incidental expenses (M&IE) per diem method, the amount of an employee's (or other payor's_ reimbursed expenses that is deemed substantiated (for purposes of the employer's return) is equal to the lesser of the employee's per diem allowance or the federal per diem amount for the locality of travel for the period in which the employee is awy from home (Rev. Proc. 2011-47). The employer is not required to provide lodging receipts if per diem allowances are used to substantiate such expenses. The locality of travel is the place where the employee stops for sleep or rest. Employees and self-employed individuals may determine their allowable deductions for reimbursed M&IE while away from home by using the applicable federal M&IE rate. However, unreimbursed lodging costs must be substantiated by required records.

Per Diem Rates. The federal per diem rate for lodging plus M&IE depends upon the locality or travel. For various geographic areas within the continental United States (the 48 contiguous states plus the District of Columbia) (CONUS), the federal per diem rate for a given locality is equal to the sum of a maximum lodging amount and the M&IE rate for that locality. There are also federal per diem rates for nonforeign localities outside of the continental United States (OCONUS), such as Alaska, Hawaii, Puerto Rico, and U.S. possessions. Rates are also established for foreign travel (foreign OCONUS).

Rates for CONUS, OCONUS, and foreign travel are published under the Federal Travel Regulations for government travel and are updated periodically (Rev. Proc. 2011-47). The travel rates are issued to coincide with the government's fiscal year of October to September.

High-Low Method. Instead of using the maximum per diem rates from the CONUS table, taxpayers can compute per diem allowances for travel within the continental United States under the high-low method, which is a simplified method for determining a lodging plus M&IE per diem. This ethod divides all CONUS localities into two categories: low-cost or high-cost localitiesa (Rev. Proc. 2011-47).

For travel on or after October 1, 2017, through September 30, 2018, the following per diem rates for lodging expenses and M&IE are used for high-cost and low-cost localities (Noltice 2017-54):

High-cost locality -- Lodging Expense Rate = $216; M&IE Rate = $68; Maximum per diem rate = $284

Low-cost locality -- Lodging Expense Rate = $134; M&IE Rate = $57; Maximum per diem rate = $191

For travel on or after October 1, 2016, through September 30, 2017, the following per diem rates for lodging expenses and M&IE are used for high-cost and lkow-cost localities (Notice 2016-58):

High-cost locality -- Lodging Expense Rate = $214; M&IE Rate = $68; Maximum per diem rate = $282

Low-cost locality -- Lodging Expense Rate = $132; M&IE Rate = $57; Maximum per diem rate = $189

Some areas are treated as high-cost during certain periods of the year (e.g., peak tourist season) and as low-cost during other periods. Thus, employers who use the high-low method must determine whether the employee traveled in a high-cost area and if the area was classified as high-cost during the actual period of travel.

If the high-low method is used for an employee, then the payor may not use the actual federal maximum per diem rates for that employee during the calendar year for travel within CONUS. For travel outside CONUS, the employer may use the applicable federal OCONUS rates, the M&IE-only rate, or reimbursement of actual expoenses.

Proration of M&IE Allwance. If an individual is traveling away from home for only a portion of the day, these are two alternative methods that may be used to prorate the per diem rate or the M&IE rate. Under the first method, 75 percent of the M&"IE rate (or the M&IE portion of the per diem rate) is allowed for each partial day during which an employee or self-employed individual is traveling on business. Under the second method, referred to as the reasonable business practice method, the M&IE rate may be prorated using any method that is consistently applied and in accordance with reasonable business practice. For example, if an employee travels from 9:00 a.m. one day until 5:00 p.m. the next day, a proration method that gives an amount equal to two times the M&IE rate is treated in accordance with reasonable business practice (Rev. Proc. 2011-47).

Transition Rates. Taxpayers may continue to use the per diem rates effective prior to October 1, 2017, for the remainder of 2017, or they may begin to use the new per diem rates for reimbursement for travel, as long as they use either the pre-October 1 rates or the updated rates for the October 1 through December 31 period consistently. Taxpayers who used the per diem method or the high-low substantiation method to reimburse travel expenses during the first nine months of calendar year 2017 must continue to use that method for the remainder of the calendar-year 2017. Taxpayers who use the high-low method during the first nine months of calendar-year 2017 may either continue to use the rates and localities in effect before October 1, 2017, or use the updated rates and localities in effect for travel on and after October 1, 2017, as long as they use the same rates and locations consistently for all employees reimbursed under the high-low method.

Per Diem Methods for Substantiating Meals and Lodging Expenses

A taxpayer must substantiate the amount, time, place, and business purpose of expenses paid or incurred in traveling away from home. Although the taxpayer has the option of keeping the actual records or travel expenses, the IRS has provided per diem allowances under which the amount of meals and incidental expenses (M&IE) may be deemed to be substantiated. The per diem allowances eliminate the need for substantiating actual costs (Rev. Proc. 2011-47). A taxpayer who uses per diem allowances to calculate the deductible amount must still substantiate the time, place, and business purpose of the travel by adequate records or other evidence.

Although most frequently used in the exployer-employee relationship, per diem allowances may be used in arrangements between any payor and payee, such as between independent contractors and those contracting with them. However, employees related to the payor under the related party rules of Code Sec. 267(b) (using a 10-percent common ownership standard) cannot use per diem substantiation methods.

Employees. The per diem method can be used to substantiate an employee's reimbursed expenses (for purposes of the employer's return) only if the reimbursement arrangement is an accountable plan and the allowance:

• is paid with respect to ordinary and necessary expenses incurred or that the employer reasonably expects to be incurred by an employee for lodging and/or M&IE while traveling away from home in connection with the performance of services as an employee;
• is reasonably calculated not to exceed the amount of the expense or the anticipated expenses; and
• is paid at the applicable federal per diem rate, a flat rate, or stated schedule.

Types of Per Diem Allownaces. There are three types of per diem allowances:

• lodging plus M&IE, which provides a per diem allowance to cover lodging as well as meals and incidental expenses;
• M&IE only, which provides a per diem allowance for meals and incidental expenses only; and
• incidental expenses only, to be used when no meal or lodging expenses are incurred (Rev. Proc. 2011-47).

Incidental expenses has the same meaning as in the Federal Travel Regulations (41 C.F.R. 300-3.1). Under those regulations, incidental expenses include only fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. Transportation between places of lodging or business  and places where meals are taken, and the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings, are not incidental expenses. Taxpayers using per diem rates may separately deduct or be reimbursed for such transportation and mailing expenses (Notice 2017-54; Notice 2016-58).

Expenses of laundry, lodging taxes, and telephone calls are not incidental expenses (IRS Pub. 463). Lodging taxes for travel within the continental United States and for nonforeign travel outside the continental United States are reimbursable miscellaneous expenses. However, lodging taxes have not been removed from the foreign per diem rates set by the U.S. State Department (41 C.F.R. 301-11.27).

Allowances Exceeding Federal Rates. If expenses are substantiated using a per diem amount, regardless of whether it covers lodging plus M&IE or only M&"IE, any reimbursement that exceeds the relevant federal per diem rates for that type of allowance must be included in the employee's (or independent contractor's) gross income. The excess portion is treated as paid under a nonaccountable plan, thus it must be reported on the employee's Form W-2 and is subject to withholding (Rev. § 1.62-2(h)(2)(i)(B)(1)).

Per Diem Allowances Subject to Withholding

If the amount of an employee's business expenses are substantiated through the use of an IRS-approved per diem allowance, any amounts paid by the employer to the employee exceeding the amounts deemed substantiated are treated as  paid under a nonaccountable plan and subject to income tax withholding and other employment taxes (Reg. §§ 1.62-2(h)(2)(i)(B) and 31.3401(a)-4(b)(1)(ii)).

For per diem or mileage allowances paid in advance, withholding on any excess must occur no later than the first payroll period following the payroll period in which the expenses paid (i.e., the days or miles of travel) are substantiated by the employee. For a per diem or mileage allowance paid as a reimbursement, the excess amounts reimbursed are subject to withholding when paid.

Tax Cuts & Jobs Act of 2017: What You Need to Know

The Tax Cuts and Jobs Act is a United States Congressional bill to amend the Internal Revenue Code of 1986, effectively altering the rate of taxation for individuals and businesses. Major components of the Act include:

• Reducing tax rates for individuals and businesses;
• Increasing the standard deduction and family tax credits;
• Limiting the mortgage interest deduction;
• Limiting the Alternative Minimum Tax for individuals and eliminating it for corporations;
• Reducing the number of estates impacted by the estate tax; and
• Reducing the penalty for the individual mandate of the Affordable Care Act (ACA).

There are items in the Act that will affect employers and employees alike. Regardless of the extent of changes employers and employees are faced with due to legislative changes, you can rest assured that MasterType Accounting & Business Services, P.C. is staying up-to-date and ensuring your business is ready to comply with any and all new requirements.

Withholding Tables / Tax Rates

What You Need to Know as an Individual Taxpayer

• Tax rates will reduce for all tax brackets for married & single taxpayers with the highest tax bracket dropping to 37 percent.
• The Supplemental Tax Rate will be set to 22 percent for payments up to $1 million and 37 percent for bonus payments in excess of $1 million paid after January 1, 2018.
• The number of income tax brackets remain at seven, but the income ranges in several brackets have been updated.

What You Need to Know as an Employer

• The IRS has posted the updated tax withholding tables to IRS.gov, showing the new rates for employers to use during 2018.
• Employers should begin using the 2018 withholding tables as soon as possible, but no later han February 15, 2018.

Exemptions

What You Need to Know as an Employer

• Since personal exemptions were eliminated, this required changes to Federal Forms W-4, Employee's Withholding Allowance Certificate.
• The IRS has stated that a new form may not be released until March 2018.
• Until the new form is available, employers must use the prior versions.
• Any exemptions claimed on Form W-4s completed before the new form is released will be null.
• The removal of personal exemptions will happen concurrently with the release of the new withholding tables.

Fringe Benefits

What You Need to Know as an Employer

Several items that previously were not subject to Federal Employment tax are now required to be added to gross wages and subject to Federal Income, Social Security, Medicare, and FUTA taxes.

• These items include: Moving Expense Reimbursements, Exclusion for Bicycle Commuting Reimbursements, and Employee Achievement Awards.
• Employers will need to update any deductions used for these reimbursements to include them as wages, subject to Federal Income Tax Withholding, Social Security, Medicare, and SUTA taxes.

Busines Income Tax Deductions Eliminated

What You Need to Know as an Employer

The Act also contains repeals of deductions from business income tax such as:

• Eating facilities (meals furnished for convenience of employer)
• Entertainment Expenses
• Settlements - Sexual Harassment
• Transportation Fringe Benefits

Family and Medical Paid Leave

What You Need to Know as an Employer

• A business tax credit is now available if certain requirements are met.
• Qualified paid leave does not include paid family leave benefits provided under a state plan.
• Employers may need to track leave in order to determine eligibility of the credit.
• For MasterType Accounting & Business Services, P.C. (MABS) clients, MABS will monitor the requirements and determine any required changes to reports or analytics to aid in determining eligibility.

A Final Note

Many provisions of this Act are set to expire on December 31, 2025. If no legislation is passed to extend the tax changes beyond that date, tax rates and exemption rules will revert to 2017 law.

Tax Scams — How to Report Them

The IRS would like your help in identifying promoters of “too good to be true” abusive tax schemes, and tax preparers using illegal schemes to avoid paying taxes.

Use the Report Suspected Abusive Tax Promotions or Preparers form to make a referral to the IRS. Learn more about the role of the IRS Lead Development Center and its efforts to stop abusive tax schemes at IRS.gov/scams.

These Tax Credits Can Mean a Refund for Individual Taxpayers

Taxpayers who are not required to file a tax return may want to do so. They might be eligible for a tax refund and don’t even know it. Some taxpayers might qualify for a tax credit that can result in money in their pocket. Taxpayers need to file a 2017 tax return to claim these credits.

Here is information about four tax credits that can mean a refund for eligible taxpayers:

• Earned Income Tax Credit. A taxpayer who worked and earned less than $53,930 last year could receive the EITC as a tax refund. They must qualify for the credit, and may do so with or without a qualifying child. They may be eligible for up to $6,318. Taxpayers can use the 2017 EITC Assistant tool to find out if they qualify.
• Premium Tax Credit.Taxpayers who chose to have advance payments of the premium tax credit sent directly to their insurer during 2017 must file a federal tax return to reconcile any advance payments with the allowable premium tax credit. In addition, taxpayers who enrolled in health insurance through the Health Insurance Marketplace in 2017 and did not receive the benefit of advance credit payments may be eligible to claim the premium tax credit when they file. They can use the Interactive Tax Assistant to see if they qualify for this credit.
• Additional Child Tax Credit. If a taxpayer has at least one child that qualifies for the Child Tax Credit, they might be eligible for the ACTC. This credit is for certain individuals who get less than the full amount of the child tax credit.
• American Opportunity Tax Credit. To claim the AOTC, the taxpayer, their spouse or their dependent must have been a student who was enrolled at least half time for one academic period. The credit is available for four years of post-secondary education. It can be worth up to $2,500 per eligible student. Even if the taxpayer doesn’t owe any taxes, they may still qualify. They are required to have Form 1098-T, Tuition Statement, to be eligible for an education benefit. Students receive this form from the school they attended. There are exceptions for some students. Taxpayers should complete Form 8863, Education Credits, and file it with their tax return.

By law, the IRS is required to hold EITC and Additional Child Tax Credit refunds until mid-February — even the portion not associated with the EITC or ACTC.  The IRS expects the earliest of these refunds to be available in taxpayer bank accounts or debit cards starting February 27, 2018, if these taxpayers choose direct deposit and there are no other issues with their tax return.

Instructions for Forms 1040, 1040A or 1040EZ list income tax filing requirements. Taxpayers can also use the Interactive Tax Assistant tool on IRS.gov to answer many tax questions. They should look for “Do I need to file a return?” under general topics.

This tax tip covers information for tax year 2017 and is not affected by the Tax Cuts and Jobs Act of 2017. Most of the changes in this legislation take effect in 2018 and will affect the tax returns filed in 2019.

More Information:

• Publication 596, Earned Income Credit
• Schedule 8812 (Form 1040A or 1040), Child Tax Credit
• Publication 972, Child Tax Credit
• Publication 970, Tax Benefits for Education
• Education Credits

Bookkeeper: The NEW Definition

Bookkeeper: A management accounting professional, often specializing in financial compliance, business strategy, technology setup, execution, and maintenance.

If you look up the definition of a Bookkeeper in Webster's Dictionary, or online, most of the time, the definition of a Bookkeeper is extremely outdated, and no longer applies to the bookkeeping profession. The above definition of a Bookkeeper is more up-to-date, and a much more accurate description of what a Bookkeeper does today.

Tax Issues for Alaska Native American Corporations and Alaska Native Settlement Trusts

The Internal Revenue Service today reminds Alaska Native Corporations and Alaska Native Settlement Trusts that they may be able to take advantage of certain benefits in the recently enacted tax reform legislation. The new law also requires that certain contributions made by Native Corporations to Settlement Trusts in 2017 be reported to the Settlement Trusts by January 31, 2018.

Assignment of Payments to a Settlement Trust

The new law allows a Native Corporation to assign certain payments to a Settlement Trust without treating the payments as income for federal tax purposes.

The assignments must be in writing and the Native Corporations must not have received the payments prior to the assignment to the trust. The Settlement Trust must include the payments in its gross income in the taxable year received, for taxable years beginning in 2017.

If a Native Corporation assigns payments to a Settlement Trust, they are not allowed to deduct those same payments.

Deduction for Contributions by a Native Corporation to a Settlement Trust

Native Corporations may also choose to deduct contributions made to a Settlement Trust. The deduction is limited to the amount of the Native Corporation’s taxable income for that year. Any unused deduction may be carried forward 15 additional years.

A Native Corporation makes the election to deduct contributions to a Settlement Trust for a specific taxable year by including a statement with its original or amended income tax return. The election is effective only for the taxable year for which the return is filed. Additionally, the election may be revoked on a timely filed amendment or supplement to that income tax return.

A Native Corporation may make this election for any taxable year for which the statute of limitations period has not expired. If the refund statute of limitations period expires before December 22, 2018, the Native Corporation has until December 21, 2018 to make a claim for credit or refund.

Reporting Requirements for Electing Native Corporations

Native Corporations that choose to deduct contributions made to a Settlement Trust are under a new reporting requirement. They must furnish a statement to the Settlement Trust providing information about the contributed property by January 31 of the year after the contribution was made.

The statement must include:

• the total amount of contributions to which the election applies,
• for each contribution, whether the contribution was in cash,
• for each contribution of other than cash, the date the contributed property was acquired by the Native Corporation, the adjusted tax basis and fair market value of the property at the time of its contribution; and
• the date of each contribution.

Deferral of Income Recognition by Settlement Trusts

Generally, the Settlement Trust must include income equal to the deduction by the Native Corporation. However, under the new law, Settlement Trusts may choose to defer recognizing contributions of property other than cash as income until the Settlement Trust sells or disposes of the property. The new law allows a Settlement Trust to amend the terms of its agreement to allow this choice up to December 21, 2018, with certain restrictions.

To defer recognition of income related to any property contributed to it by a Native Corporation, the Settlement Trust must identify and describe the property on a statement attached to its original or amended income tax return for the year in which the contribution was made. A Settlement Trust may make this election for any taxable year for which the statute of limitations period has not expired.  If the refund statute of limitations period expires before December 22, 2018, the Settlement Trust has until December 21, 2018 to make a claim for credit or refund.

IRS Encourages Native Americans to Check Eligibility for Earned Income Tax Credit

The IRS urges Native American taxpayers to check if they qualify for the earned income tax credit since many workers in Tribal communities often overlook this credit.

EITC benefits Native Americans who meet basic rules. Taxpayers must have income from a job, be self-employed, or run their own business. This includes home-based businesses and work in the service industry, construction and farming.

Income Limits and Maximum Credit Amounts

For tax year 2017, the income limits for all taxpayers’ earned income and adjusted gross income must each be less than:

Filing Status	Qualifying Children Claimed
	Zero	One	Two	Three or More
Single	$15,010	$39,617	$45,007	$48,340
Head of Household	$15,010	$39,617	$45,007	$48,340
Qualifying Widow(er) with Dependent Child	$15,010	$39,617	$45,007	$48,340
Married Filing Jointly	$20,600	$45,207	$50,957	$53,930

The maximum credit for Tax Year 2017 is:

• $6,318 with three or more qualifying children
• $5,616 with two qualifying children
• $3,400 with one qualifying child
• $510 with no qualifying children

By law, the IRS cannot issue refunds before mid-February for tax returns that claim the EITC or the additional child tax credit. The law requires the IRS to hold the entire refund — even the portion not associated with the EITC or ACTC. The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards starting Feb. 27, 2018, if these taxpayers choose direct deposit and there are no other issues with their tax return.

More Information:

• Filing for Individuals
• EITC Assistant

IRS Reminds Employers: Forms W-2, W-3 Some Forms 1099-MISC Due Jan. 31

The Internal Revenue Service is reminding employers that the deadline for filing employee Forms W-2, Wage and Tax Statement, for calendar year 2017 is Jan. 31, 2018. This includes Forms W-3, Transmittal of Wage and Tax Statements.

In addition, reporting payments to contract workers on Form 1099-MISC (box 7, nonemployee compensation) must also be filed by Jan. 31.

Employers must file Form W-2 showing the wages paid and taxes withheld for the year for each employee with the Social Security Administration. The due date applies to both e-filed and paper filed W-2s. The Jan. 31 deadline began last year as part of the Protecting Americans Against Tax Hikes (PATH) Act legislation to combat identity theft and refund fraud.

The Social Security Administration encourages all employers to e-file their Forms W-2 by using its Business Services Online. The online filing checklist provides a step-by-step process for employers to file W-2s quickly and securely. Employers are required to use e-file if they file 250 or more Forms W-2 or W-2c, and failing to do so may incur a penalty. The IRS projects that employers will file more than 250 million Forms W-2 this year and that the vast majority will be e-filed. E-filing can save time and effort and helps ensure accuracy.

Employers that file Forms 1097, 1098, 1099 (except a Form 1099-MISC reporting nonemployee compensation), 3921, 3922 or W-2G electronically, have an extended filing due date with the IRS of April 2, 2018. However, the due date for giving the recipient these forms generally remains Jan. 31.

IRS Announces 2018 Tax Filing Season Opens with April 17 Deadline; 155 Million Tax Returns Projected, 70 Percent Expect Refunds

Marking the beginning of the nation’s tax season, the Internal Revenue Service said today that it successfully started accepting and processing 2017 federal individual income tax returns. More than 155 million returns are expected to be filed this year.

People have until Tuesday, April 17, 2018, to file their 2017 returns and pay any taxes due. The filing tax deadline is later this year due to several factors. The usual April 15 deadline falls on Sunday this year, which would normally give taxpayers until at least the following Monday. However, Emancipation Day, a Washington, D.C., holiday, is observed on Monday, April 16, giving taxpayers nationwide an additional day to file. By law, Washington holidays impact tax deadlines for everyone in the same way federal holidays do. Taxpayers requesting an extension will have until Monday, Oct. 15, 2018, to file.

The IRS expects more than 70 percent of taxpayers to get tax refunds this year. Last year, nearly 112 million refunds were issued, with an average refund of $2,895.

“The IRS has a number of ways to help taxpayers this filing season, and we encourage people to look into the many options available,” said Acting IRS Commissioner David Kautter. “The nation’s tax professionals and software community work with the IRS and help make the tax filing process easier for Americans. Today’s filing season kick-off reflects many months of hard work by the nation’s tax community and IRS employees. And we also appreciate the time and attention taxpayers take as they prepare and file their taxes."

Use e-File and Free File

The IRS expects about 90 percent of returns to be filed electronically. Choosing e-file and direct deposit remains the fastest and safest way to file an accurate income tax return and receive a refund.

The IRS Free File program, available at IRS.gov, gives eligible taxpayers a dozen options for brand-name products. Free File is a partnership with commercial partners offering free brand-name software to about 100 million individuals and families with incomes of $66,000 or less. About 70 percent of the nation’s taxpayers are eligible for IRS Free File. People who earned more than $66,000 may use Free File Fillable Forms, the electronic version of IRS paper forms.

Refunds in 2018: More than 90 Percent in Less than 21 days; EITC/ACTC Refunds Starting Feb. 27

The IRS issues more than nine out of 10 refunds in less than 21 days. However, it’s possible a tax return may require additional review and take longer. “Where’s My Refund?” has the most up to date information available about refunds. The tool is updated no more than once a day, so taxpayers don’t need to check more often.

The IRS also notes that refunds cannot be issued before mid-February for tax returns that claim the Earned Income Tax Credit or the Additional Child Tax Credit. This applies to the entire refund — even the portion not associated with the EITC and ACTC. While the IRS will process the EITC and ACTC returns when received, these refunds cannot be issued before mid-February. The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards starting on Feb. 27, 2018, if they chose direct deposit and there are no other issues with the tax return.

“Where's My Refund?” ‎on IRS.gov and the IRS2Go mobile app remain the best way to check the status of a refund. “Where’s My Refund?” will be updated with projected deposit dates for most early EITC and ACTC refund filers Feb. 17, so those filers will not see a refund date on “Where's My Refund?” ‎or through their software packages until then. The IRS, tax preparers and tax software will not have additional information on refund dates, so these filers should not contact or call about refunds before the end of February.

This law change gives the IRS more time to detect and prevent fraud. Even with the EITC and ACTC refunds and the additional security safeguards, the IRS still expects to issue more than nine out of 10 refunds in less than 21 days. However, it’s possible a particular tax return may require additional review and take longer. Taxpayers are reminded that state tax agencies have their own refund processing timeframes that vary, and some states may make additional reviews to ensure their refunds are being issued properly. Even so, taxpayers and tax return preparers should file when they’re ready. For those who usually file early in the year and are ready to file a complete and accurate return, there is no need to wait to file.

Free Tax Help

Low- and moderate-income taxpayers can get help filing their tax return for free. More than 90,000 volunteers around the country can help people correctly complete their return.

To get this help, taxpayers can visit one of the more than 12,000 community-based tax help sites that participate in the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs. To find the nearest site, use the VITA/TCE Site Locator on IRS.gov or the IRS2Go mobile app.

Filing Assistance

No matter who prepares a federal tax return, by signing the return, the taxpayer becomes legally responsible for the accuracy of all information included. IRS.gov offers a number of tips about selecting a preparer and information about national tax professional groups.

The IRS urges all taxpayers to make sure they have all their year-end statements in hand before filing. This includes Forms W-2 from employers and Forms 1099 from banks and other payers. Doing so will help avoid refund delays and the need to file an amended return.

Online tools

The IRS reminds taxpayers they have a variety of options to get help filing and preparing their tax return on IRS.gov, the official IRS website. Taxpayers can find answers to their tax questions and resolve tax issues online. The Let Us Help You page helps answer most tax questions, and the IRS Services Guide links to these and other IRS services.

Taxpayers can go to IRS.gov/account to securely access information about their federal tax account. They can view the amount they owe, pay online or set up an online payment agreement; access their tax records online; review the past 18 months of payment history; and view key tax return information for the current year as filed. Visit IRS.gov/secureaccess to review the required identity authentication process.

The IRS urges taxpayers to take advantage of the many tools and other resources available on IRS.gov. IRS phone lines will be busy again this year, so to save time, people should first visit the IRS website for tax assistance.

The IRS continues to work with state tax authorities and the tax industry to address tax-related identity theft and refund fraud. As part of the Security Summit effort, stronger protections for taxpayers and the nation’s tax system are in effect for the 2018 tax filing season.

The new measures attack tax-related identity theft from multiple sides. Many changes will be invisible to taxpayers but will help the IRS, states and the tax industry provide new protections. New security requirements will better protect tax software accounts and personal information. 

Renew ITIN to Avoid Refund Delays

Many Individual Taxpayer Identification Numbers (ITINs) expired on Dec. 31, 2017. This includes any ITIN not used on a tax return at least once in the past three years. Also, any ITIN with middle digits of 70, 71, 72 or 80 (Example: 9NN-70-NNNN or 9NN-80-NNNN) is now expired. ITINs that have middle digits 78 or 79 expired Dec. 31, 2016, but taxpayers can still renew them. Affected taxpayers should act soon to avoid refund delays and possible loss of eligibility for some key tax benefits until the ITIN is renewed. An ITIN is used by anyone who has tax-filing or payment obligations under U.S. tax law but is not eligible for a Social Security number.

It can take up to 11 weeks to process a complete and accurate ITIN renewal application. For that reason, the IRS urges anyone with an expired ITIN needing to file a tax return this tax season to submit their ITIN renewal application soon.

Sign and Validate Electronically Filed Tax Returns

All taxpayers should keep a copy of their tax return. Some taxpayers using a tax filing software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity.

Taxpayers using the same tax software they used last year will not need to enter their prior year information to electronically sign their 2017 tax return. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.