News

IRS Updates Collection Financial Standards

The IRS has updated its Collection Financial Standards as of Monday, March 27, 2017. The current standards can be found here:

https://www.irs.gov/businesses/small-businesses-self-employed/collection-financial-standards

Washington State DSHS Difficulty of Care Payments

In January, 2014, the IRS issued Notice 2014-7 establishing that certain payments received by an individual care provider under a state Medicaid Home and Community-Based Services Waiver program are “difficulty of care” payments excludable from income. In July, 2015, the Washington state legislature changed the funding source for these payments. As a result, it appeared that some care providers lost their eligibility to exclude the income and their wages were reported as taxable. For the 2015 tax year, the Washington State Department of Social and Health Services (DSHS) issued Forms W-2 to care providers with income that DSHS believed to be taxable.

However, DSHS has now received a Private Letter Ruling (PLR-131836-15) dated March 18, 2016 that clarifies that payments made through the new funding source for the provision of in-home supportive care to eligible recipients will be treated as “difficulty of care” payments and are excludable from income under Sec. 131 of the tax code. This affects payments that were made after July 1, 2015 that DSHS reported as wages on Form W-2 as well as prior payments. DSHS will notify care providers of the changes in April 2016, but WILL NOT BE ISSUING CORRECTED FORMS W-2.

For more information from DSHS, please see their website HERE

Information regarding Medicaid Waver payments can be found HERE.

If you have a caregiver client who received a Form W-2 from DSHS (showing the care recipient’s name on the first line of the Employer block on Form W-2), you need to ask the caregiver if they provided the care in their own home and cared for not more than five adults or not more than 10 children under the age of 19. If they met those criteria, then the income is excludable from income. Vacation pay remains taxable.

To exclude Medicaid Waiver payments that were incorrectly reported on From W-2, report the income on Form 1040 Line 7, then back it out with a negative number on line 21 with “Notice 2014-7” shown as a description. Be sure to check your software to verify the reduction in the modified AGI in the calculation of the Additional Child Tax Credit, calculation of the EITC, and the Form 2441 reducing income in the calculation of Child and Dependent Care Credit.

If the tax return has already been filed, an amended return may be prepared for a caregiver who previously reported “difficulty of care” payments from Form W-2 income as taxable, when it should be excluded from income based on the Private Letter Ruling. A Form 1040X can be prepared with Part III Explanation of Changes stating “Payments previously reported as wages are treated as difficulty of care payments excludable from gross income per Notice 2014-7 and PLR-131836-15.”

IRS, States, Industry Continue Progress to Protect Taxpayers from Identity Theft
The Internal Revenue Service, state tax administrators and leaders of the tax industry announced October 20, 2015 continued progress to expand and strengthen protections against identity theft refund fraud for the 2016 tax season.

The public-private sector partnership announced success in identifying and testing more than 20 new data elements on tax return submissions that will be shared with the IRS and the states to help detect and prevent identity-theft related filings. In addition, the software industry is putting in place enhanced identity requirements and validation procedures for their customers to protect accounts from identity thieves.

For more information see the full new release.

ACA Tools
The Taxpayer Advocate Service has developed three tools to assist in estimating both individual and employer health care-related credits and payments. Tax professionals are free to use these as well.
The three tools are:
Individual Shared Responsibility Payment Estimator
Premium Tax Credit Change Estimator
Small Business Health Care Tax Credit Estimator

Moving this Year? If You Receive the Premium Tax Credit, Report this Life Event
If you moved recently, you’ve probably notified several organizations – like the U.S. Postal Service and utility companies – about your new address. You may have even notified the IRS about your address change. If you get health insurance coverage through a Health Insurance Marketplace, you should add one more important notification to your list: the Marketplace.

If you are receiving advance payments of the premium tax credit, it is particularly important that you report changes in circumstances, including moving, to the Marketplace. There’s a simple reason. Reporting your move lets the Marketplace update the information used to determine your eligibility for a Marketplace plan, which may affect the appropriate amount of advance payments of the premium tax credit that the government sends to your health insurer on your behalf.

Reporting the changes will help you avoid having too much or not enough premium assistance paid to reduce your monthly health insurance premiums. Getting too much premium assistance means you may owe additional money or get a smaller refund when you file your taxes. On the other hand, getting too little could mean missing out on monthly premium assistance that you deserve.

Changes in circumstances that you should report to the Marketplace include:
• an increase or decrease in your income, including lump sum payments like a lump sum payment of Social Security benefits
• marriage or divorce
• the birth or adoption of a child
• starting a job with health insurance
• gaining or losing your eligibility for other health care coverage

Many of these changes in circumstances – including moving out of the area served by your current Marketplace plan – qualify you for a special enrollment period to change or get insurance through the Marketplace. In most cases, if you qualify for the special enrollment period, you will have sixty days to enroll following the change in circumstances. You can find information about special enrollment periods at HealthCare.gov.

Revenue Procedure provides safe harbor guidance for accrual method taxpayers to ratably expense cost of regular and routine services as the services are provided.
Revenue Procedure 2015-39 provides a safe harbor for accrual method taxpayers to treat economic performance as occurring ratably on contracts that provide services on a regular basis.  In other words, under the safe harbor, a taxpayer can ratably expense the cost of regular and routine services as the services are provided under the contract.  Contracts for regular janitorial or landscape maintenance services are typical examples of contractual services that may qualify for the safe harbor.  A service contract that provides for a single product to be delivered to the taxpayer, such as an environmental impact study, will not satisfy the definition of a Ratable Service Contract because the contract does not provide for services to be provided on a regular basis.  The revenue procedure defines a Ratable Service Contract and provides examples of contracts that will and will not satisfy the definition. The revenue procedure also includes examples of bundled service contracts, which provide for both regular and one-time services.  Whether part of a bundled service contract qualifies as a Ratable Service Contract depends on whether the parties have separately priced the services specified in the contract. Revenue Procedure 2015-39 will be published in Internal Revenue Bulletin 2015-33 on Aug. 17, 2015.

Proposed Regulations Offer Guidelines for New State-Sponsored ABLE Accounts for People with Disabilities
The IRS released proposed regulations implementing a new federal law authorizing states to offer specially-designed tax-favored ABLE accounts to people with disabilities who became disabled before age 26.

Avoid Power of Attorney Filing Errors
Form 2848, Power of Attorney and Declaration of Representative, rejections are on the rise. Avoid the most common errors and enter all required information including your enrollment card number if you are an Enrolled Agent.

Online Tool Helps Individuals and Employers Estimate Health Care Law Credits and Payments
The Taxpayer Advocate Service has developed several tools for individuals and employers to assist in estimating their ACA related credits and payments. Because these tools provide only an estimate, you should not rely upon them as an accurate calculation of the information you will report on your tax return. You should use these estimators only as a guide to assist you in making decisions regarding your tax situation.

The Premium Tax Credit Change Estimator can help you estimate how your premium tax credit will change if your income or family size changes during the year. This estimator tool does not report changes in circumstances to your Marketplace. To report changes and to adjust the amount of your advance payments of the premium tax credit you must contact your Health Insurance Marketplace. Be sure to report all changes directly to that Marketplace because they can affect both your coverage and your final credit when you file your federal tax return.

The Individual Shared Responsibility Payment Estimator can help you estimate the amount you may have to pay if you did not have minimum essential coverage during the year. This tool can only provide an estimate of your individual shared responsibility payment. To determine the payment when you file your tax return, use the Shared Responsibility Payment Worksheet in the instructions for Form 8965.

The Small Business Health Care Tax Credit Estimator can help you determine if you might be eligible for the Small Business Health Care Tax Credit and how much credit you might receive. This tool provides you with an estimate for tax year 2014 and beyond. However, some figures used in determining the credit are indexed for inflation. Because of this, for future years, the estimator cannot provide a detailed estimate.

By clicking on these links, you will enter the Taxpayer Advocate Service website.  The Taxpayer Advocate Service created, operates, and maintains this website and is solely responsible for the content.

The calculations provided by the TAS Estimator Tools are only estimates and may not match the actual credits or payments you will report on your tax return. IRS cannot validate the accuracy of the estimator calculations for your specific circumstance.

Find out how ACA affects Employers with 50 or more Employees
Some of the provisions of the Affordable Care Act, or health care law, apply only to large employers, which are generally those with 50 or more full-time equivalent employees. These employers are considered applicable large employers – also known as ALEs – and are subject to the employer shared responsibility provisions and the annual employer information return provisions. For example, in 2016 applicable large employers will have annual reporting responsibilities concerning whether and what health insurance they offered in 2015 to their full-time employees.
All employers, regardless of size, that provide self-insured health coverage must file an annual return reporting certain information for individuals they cover. The first returns are due to be filed in 2016 for the year 2015.

Effective for calendar year 2015, ALEs with 100 or more full-time or full-time equivalent employees will be subject to the employer shared responsibility provision and therefore may have to make a shared responsibility payment. This applies to employers that do not offer adequate, affordable coverage to their full-time employees and one or more of those employees get a premium tax credit. The employer shared responsibility provisions will be phased in for smaller ALEs from 2015 to 2016.
Calculating the number of employees is especially important for employers that have close to 50 employees or whose workforce fluctuates throughout the year. To determine its workforce size for a year an employer adds its total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each calendar month of the prior calendar year and divides that total number by 12.

Employers with more than 50 cannot purchase health insurance coverage for its employees through the Small Business Health Options Program – better known as the SHOP Marketplace. However, Employers that have exactly 50 employees can purchase coverage for their employees through the SHOP.
For more information, visit our Determining if an Employer is an Applicable Large Employer page on IRS.gov/aca.

ACA Information for Employers Counting Full-time and Full-time Equivalent Employees
For the purposes of the Affordable Care Act, employers average their number of employees across the months in the year to see whether they will be an applicable large employer. To determine if your organization is an applicable large employer for a year, count your organization’s full-time employees and full-time equivalent employees for each month of the prior year. If you are a member of an aggregated group, count the full-time employees and full-time equivalent employees of all members of the group for each month of the prior year. Then average the numbers for the year. Employers with 50 or more full-time equivalent employees are applicable large employers and will need to file an annual information return reporting whether and what health insurance they offered employees. In addition, they are subject to the Employer Shared Responsibility provisions.

In general:

  • A full-time employee is an employee who is employed on average, per month, at least 30 hours of service per week, or at least 130 hours of service in a calendar month.
  • A full-time equivalent employee is a combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee.
  • An aggregated group is commonly owned or otherwise related or affiliated employers, which must combine their employees to determine their workforce size.

There are many additional rules on determining who is a full-time employee, including what counts as hours of service. For more information on these rules, see the employer shared responsibility final regulations and related questions and answers on IRS.gov.

For more information, see the Determining if an Employer is an Applicable Large Employer page on IRS.gov/aca.

Health Care Tax Tips

IRS, industry, states take new steps together to fight identity theft, protect taxpayers
The IRS joined recently with representatives of tax preparation and software firms, payroll and tax financial product processors and state tax administrators to announce a sweeping new collaborative effort to combat identity theft refund fraud and protect the nation’s taxpayers.  Read news release.

Whistleblower Office Releases FY 2014 Annual Report to Congress
The latest Whistleblower Report to Congress is now available on IRS.gov. The report provides statistics and outlines the successes and challenges of the past year.

Questions and Answers: “Get Transcript”
After discovering unauthorized access to taxpayer information through its “Get Transcript” application, the IRS is taking steps to protect taxpayers against identity theft if someone else tries to file a tax return in their name, both right now and in 2016. The agency is also sending letters to affected taxpayers with additional information, and offering credit monitoring to those whose transcript information was accessed.

Taxpayers can learn more about the situation and what the IRS is doing to protect them in a set of Questions and Answers posted to the IRS.gov website.

For more information, see the official IRS statement.

Year Round Tax Help in Six Languages
The IRS reminds tax professionals that a wide range of publications and online resources are available year-round in six languages on IRS.gov.

Exempt Organization Help
If you have a technical or procedural question relating to Exempt Organizations, visit the Charities and Nonprofits homepage on the IRS.gov Web site.

Other important resources:

If you have a specific question about exempt organizations, call EO Customer Account Services at 1-877-829-5500.

Recent Exempt Organization Revocations
For the latest list, go to Revocations of 501(c)(3) Determinations.

Small Businesses Can Get IRS Penalty Relief for Unfiled Retirement Plan Returns
The IRS encourages eligible small businesses that did not file certain retirement plan returns to take advantage of a low-cost penalty relief program enabling them to come back into compliance.

Dual Notice of Address Change
As of January 2015, the IRS is legally required to issue both Notices CP148A and CP148B, confirmation of address change, to employers at the previous and new address on record. The IRS is sending a high volume of notices due to simple mistakes when preparing employment tax returns, such as interchanging “Street” for “St.” or “Ave.” instead of “Avenue”.

For more information: Understanding Your CP148A Notice, Understanding Your CP148B Notice and Form 8822-B – Change of Address or Responsible Party – Business.

Office of Professional Responsibility Announces Disciplinary Sanctions
The Office of Professional Responsibility publishes all disciplinary actions, including censure, suspension and disbarment from practice before the IRS, in the Internal Revenue Bulletin (IRB). The latest disciplinary actions are listed in the June 1 IRB.   To view this and previous announcements, visit the Disciplinary Sanctions – IRB page on IRS.gov.

Taxpayer Advocate Releases FY2016 Objectives Report to Congress
The National Taxpayer Advocate, Nina Olsen, identifies specific tax administration priority areas and challenges in the FY2016 Objectives Report to Congress. The report includes information related to IRS long-term strategic planning, tax-related identity theft and administration of the Patient Protection and Affordable Care Act (ACA). It also presents highlights of the recently concluded filing season.

IRS Tax Stats
2014 IRS Research Bulletin: The 2014 IRS Research Bulletin is now available on Tax Stats. This Bulletin features selected papers from the latest IRS-TPC Research Conference, held at the Urban Institute in Washington, DC, on June 19, 2014. The conference highlighted research on tax compliance and administration, and facilitated dialogue among IRS researchers, tax experts from other countries, academic researchers, Federal agencies, and private sector experts.

Spring 2015 Statistics of Income Bulletin Now Available
The Internal Revenue Service today announced the availability of the spring 2015 issue of the Statistics of Income Bulletin, which features preliminary data for individual income tax returns filed for Tax Year 2013. The Statistics of Income (SOI) Division produces the SOI Bulletin on a quarterly basis. Articles included in the publication provide the most recent data available from various tax and information returns filed by U.S. taxpayers.

Employee Plans
In this edition of the Employee Plans News:

ETAAC 2015 Report to Congress
The Electronic Tax Administration Advisory Committee (ETAAC) held  its annual public meeting today and released its annual report to Congress. The report features recommendations on a wide range of electronic tax administration issues.

New Forms on IRS.gov
 
Final Version Forms

  • 2015 pub 5078, Modernized e-File (MeF) Test Package 2015 pub 515,  Withholding of Tax on Nonresident Aliens and Foreign Entities
  • 2014 Form 5884, Work Opportunity Credit
  • 2015 Inst. 941-X (PR) , Instructions for Form 941-X (PR), Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund (Puerto Rico Version)
  • 2015 Form 941-X (PR) , Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund (Puerto Rico Version)
  • 2015 Form 4419, Application for Filing Information Returns Electronically (FIRE)

Draft Forms

  • 2015 Form 940 (PR), Planilla Para La Declaracion Federal Anual Del Patrono de la Contribcion Federal Para El Desempleo (FUTA)
  • 2015 Inst. 943 (PR),  Instrucciones para el Formulario 943-PR, Planilla para la Declaracion Anual de la Contribucion Federal del Patrono de Empleados Agricolas
  • 2016 Form W-4, Employee’s Withholding Allowance Certificate
  • 2015 Form W-3C, Transmittal of Corrected Wage and Tax Statements (Info Copy Only)
  • 2016 Form W-3, Transmittal of Wage and Tax Statements (Info Copy Only)
  • 2015 Inst. 944,  Instructions for Form 944, Employer’s Annual Federal Tax Return
  • 2015 Inst. 940, Instructions for Form 940, Employer’s Annual Federal
  • 2015 Form 944 (SP),  Declaracion Federal ANUAL de Impuestos del Patrono o Empleador
  • 2015 Inst. 941-X (PR), Instructions for Form 941-X (PR), Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund (Puerto Rico Version)
  • 2016 Form 941, Employer’s Quarterly Federal Tax Return
  • 2016 Form 941-SS, Employer’s Quarterly Federal Tax Return – American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands
  • 2015 Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return
  • 2015 Form 1095-A, Health Insurance Marketplace Statement
  • 2015 Form 1095-B, Health Coverage
  • 2015 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage
  • 2015 Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns
  • 2015 Form 944, Employer’s Annual Federal Tax Return
  • 2015 Form 943 (PR), Planilla para la Declaracion Anual de la Contribucion Federal del Patrono de Empleados Agricolas
  • 2015 Inst. 943, Instructions for Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees
  • 2015 Inst. 945,  Instructions for Form 945, Annual Return of Withheld Federal Income Tax

Technical Guidance

Notice 2015-10 announces that the Department of the Treasury and the IRS intend to issue regulations applicable to claims for refund or credit for amounts withheld under chapter 3 or 4. Chapter 3 deals with withholding under sections 1441 through 1443 And Chapter 4 deals with sections 1471 and 1472. I think that it does have some payroll application in the nonresident alien situation, and it certainly impacts AP professionals, so I would take a look at this notice.

Revenue Procedure 2015-30 provides the 2016 inflation adjusted deduction limitations for annual contributions made to a health savings account (HSA) under section 223. These deduction limitations are updated annually pursuant to section 223(g) to reflect the cost-of-living adjustments.