by | May 25, 2021 | Tax Tips and News
The loss of health insurance is a major concern for the millions of Americans who have filed for unemployment throughout the pandemic. While COBRA continuation coverage can help bridge the gap between jobs, former employers generally are not required to pay part of the premiums—meaning some beneficiaries have to foot the entire bill for their insurance.
Congress sought to address this issue with a provision in the American Rescue Plan Act of 2021 (ARP) that provides COBRA premium assistance and provider-related tax credits. As with any other major legislation affecting taxes, that meant the Internal Revenue Service had to determine the best way to administer those provisions.
Last week, the agency announced the publication of Notice 2021-31, which includes “guidance for employers, plan administrators, and health insurers regarding the new credit available to them for providing continuation health coverage to certain individuals under COBRA.”
How does the American Rescue Plan Act affect COBRA continuation coverage?
“The American Rescue Plan provides a temporary 100 percent reduction in the premium that individuals would have to pay when they elect COBRA continuation health coverage following a reduction in hours or an involuntary termination of employment,” the IRS explains. “The new law provides a corresponding tax credit for the entities that maintain group health plans, such as employers, multiemployer plans, and insurers.”
While COBRA is a federal plan that affects most employers with 20 or more full-time employees, the IRS notes that some states have their own version of continuation coverage. Employees receiving benefits from what the IRS calls “state ‘mini-COBRA’” plans are also eligible to receive premium assistance.
How long will the COBRA premium assistance last?
The IRS says ARP will provide COBRA premium assistance for “Assistance Eligible [Individuals]” from April 1, 2021 to September 30, 2021 (1). However, “premium assistance is not available if an individual is eligible for coverage under any other group health plan or for Medicare” (2).
What else is included in Notice 2021-31?
Notice 2021-31 includes a nearly 40-page question-and-answer section that covers the following COBRA premium assistance topics:
- Eligibility for COBRA Premium Assistance
- Reduction in Hours
- Involuntary Termination of Employment
- Coverage Eligible for COBRA Premium Assistance
- Beginning of COBRA Premium Assistance Period
- End of COBRA Premium Assistance Period
- Extended Election Period
- Extensions Under the Emergency Relief Notices
- Payments to Insurers Under Federal COBRA
- Comparable State Continuation Coverage
- Calculation of COBRA Premium Assistance Credit
- Claiming the COBRA Premium Assistance Credit
To learn more, check out the links below.
Sources: IR-2021-115; Notice 2021-31
– Story provided by TaxingSubjects.com
by | May 22, 2021 | Tax Tips and News
The deadline for filing income taxes came and went on May 17, but that’s no reason to think the filing door is completely shut.
Taxpayers who owe tax due but didn’t request an extension should file now to keep their penalties and interest to a minimum. Even if taxpayers don’t owe tax due, it’s still in their best interests to file sooner rather than later.
No file, no refund …
Taxpayers don’t face a penalty for filing after the deadline if they’re due a refund. But they can’t get their refund if they don’t file. For those who missed the filing deadline, it’s best to file as soon after the deadline as possible.
E-filing through a trusted tax professional is a fast, efficient way to get it done.
If a taxpayer expects to owe tax due, another set of considerations come into play.
In a perfect world, taxpayers should file a tax return or ask for an extension, and pay any tax they owe by the deadline, avoiding penalties and interest.
Getting an extension to file, of course, has no bearing on any tax due; that’s still due by the tax deadline. In this case, it was May 17. So, penalties and interest now apply, and only get more expensive as more time goes by.
So, by filing now, those taxpayers will wind up paying less in penalties and interest. the IRS has helpful information for taxpayers who owe the IRS, but can’t afford to pay.
Time is money
The IRS ordinarily charges 5 percent of the tax owed for each month—or part of a month—that a tax return is late. This formula is used for filing up to five months after the due date. The total penalty, the IRS says, will be reduced by the amount of the failure-to-pay penalty for any month where failure-to-file and failure-to-pay penalties both apply.
Wait more than 60 days to file and pay, though, and things go from bad to worse. The minimum penalty is either $435 or 100 percent of the unpaid tax, whichever is less.
The penalties stack up quickly so it’s important to file and pay as much as possible—as soon as possible—even if the taxpayer can’t pay the entire tax bill at once.
The government’s penalty rate for failure to pay is generally 0.5percent of the unpaid tax that’s owed for each month or part of a month until the tax is fully paid or until the taxpayer has paid 25percent of the tax due.
Interest is charged on tax and penalties until the balance is paid in full.
The interest rate is updated regularly, so it’s subject to change.
IRS.gov/penalties has more information about how penalties are assessed.
A taxpayer’s history can make a difference when it comes to penalties. The IRS says those who have a history of filing and paying on time often qualify for penalty relief. Usually, taxpayers can qualify if they’ve filed and paid on time for the previous three years and met other requirements.
The first-time penalty abatement page on IRS.gov has more information on how to qualify.
Some still have time
The IRS also points that some taxpayers still have time to file, even if they didn’t file an extension:
Taxpayers who filed paper returns may have delays in seeing their returns processed, since the IRS processes paper returns in the order they are receive—and the agency says COVID-19 is still causing delays. That said, those who already filed a paper return should not file a second return or call the IRS to try to skip the line.
As for just how long it takes to get the refund, ninety percent are sent within 21 days. But returns that need “additional review” obviously take longer.
Pay as soon as possible to avoid penalties and interest
Taxpayers who owe tax due should consider paying what they can now. The fastest way to pay is through IRS Direct Pay, with a debit or credit card, or to apply online for an IRS payment plan (including an installment agreement).
Source: With the May 17 deadline in the past, file taxes now to get refund or cut penalties and interest
– Story provided by TaxingSubjects.com
by | May 20, 2021 | Tax Tips and News
A provision of the American Rescue Plan is being readied for action, targeting nearly 90 percent of American households with children to receive monthly payments of the Child Tax Credit.
The Internal Revenue Service and the Department of the Treasury expect to send out the first monthly payments of the expanded Child Tax Credit (CTC) on July 19.
Payments are targeted to some 39 million households, which would cover 88% of the children in the U.S.
How will it work?
Monthly payouts for the Child Tax Credit were made possible by the American Rescue Plan that was passed into law in March of this year. The law increased the maximum cap to $3,600 for children under age 6 and up to $3,000 per child for those between age 6 and 17.
The ARP also made the credit advanceable, enabling regular payments to qualified families.
The recurring CTC payments will be made on the 15th of each month, unless the 15th is a weekend or holiday. Those families who get the credit via direct deposit will be able to plan around the regular receipt of the payment.
Qualifying families receive a payment of up to $300 per month for each child under age 6 and up to $250 per month for each child age 6 and up.
Projections suggest the plans for the CTC could cut child poverty by more than half.
Direct deposit is the way to go
The monthly payments will go out to families – benefiting more than 65 million children—by way of direct deposit, paper check or debit cards.
The IRS says it’s committed to making the most of the direct deposit delivery option for fast, secure delivery.
Most taxpayers won’t have to take any action to get advance CTC payments. However, the IRS and Treasury say they’ll continue to work with partner groups to make even more families aware of the benefit.
An IRS press release on the CTC payouts credits the project to teamwork among four governmental bodies: the IRS, the Department of the Treasury, the Bureau of the Fiscal Service and the White House American Rescue Plan Implementation Team.
More information on how taxpayers can access the Child Tax Credit will be available soon at IRS.gov/childtaxcredit2021.
– Story provided by TaxingSubjects.com
by | May 18, 2021 | Tax Tips and News
Some individual taxpayers and businesses in certain Tennessee counties have gotten some good news for a change: They have until August 2 to file their various tax returns with the IRS.
These taxpayers have had their share of bad news lately, mostly due to spring storms, flooding and tornadoes that ravaged the state on March 25 and again on April 3.
Who gets relief?
The Internal Revenue Service granted the relief package based on the counties that have been declared federal disaster areas in Tennessee by the Federal Emergency Management Agency (FEMA). This makes the relief benefits available to individuals and businesses with addresses on record in the following counties:
- Campbell
- Cannon
- Cheatham
- Claiborne
- Clay
- Davidson
- Decatur
- Fentress
- Grainger
- Hardeman
- Henderson
- Hickman
- Jackson
- Madison
- Maury
- McNairy
- Moore
- Overton
- Scott
- Smith
- Wayne
- Williamson
- Wilson
This list may expand over time, as new counties and communities are declared federal disaster areas. For a current list of eligible locations, check out the disaster relief page on IRS.gov.
What’s included?
The relief package takes various tax filing and payment deadlines that would have occurred any time since March 25 and pushes them back, giving affected individuals and businesses until August 2 to file their taxes and pay any tax due.
Deadlines that fall under the postponement include 2020 individual income tax returns normally due May 17, various 2020 business returns normally due April 15, and the deadline for 2020 IRA contributions.
Also delayed: quarterly estimated income tax payments due April 15 and June 15, quarterly payroll and excise tax returns due on April 30, and tax-exempt calendar-year returns normally due May 17.
The IRS says it will abate any penalties on payroll and excise tax deposits due on or after March 25 and before April 9, as long as the deposits are made by April 9.
Remember, relief measures are granted automatically; there’s no need to contact the IRS to apply. Whenever an affected taxpayer files, the IRS checks the address of record during processing and applies the relief.
Those who live outside a disaster area but have records needed for filing located within the disaster area should call the IRS at 866.562.5227. Workers helping with disaster relief efforts in the affected counties who are affiliated with a recognized government or philanthropic organization should also call the number.
The tax relief covers six states
The relief measures for Tennessee counties is the latest package set in motion by the IRS. It joins previously announced measures in five other southern states:
- Individuals and businesses in Texas, Oklahoma, and Louisiana have until June 15 to file and pay. All taxpayers in these three states qualify for relief.
- Individuals and businesses in parts of Kentucky have until June 30 to file and pay.
- Individuals and businesses in parts of Alabama have until August 2 to file and pay.
Filers, whether individual taxpayers or businesses, have the option to claim their uninsured or unreimbursed disaster losses either on the return for the year the loss occurred (such as the 2021 return to be filed next year), or the return for the prior year.
For any return that claims a loss, write the FEMA disaster declaration number – in this case, 4601DR – on the return before it’s filed. Publication 547 has more information on the process.
If affected taxpayers in the disaster areas need an extra extension beyond the relief given, they can submit a request for an automatic extension, pushing their filing deadline back to October 15. The IRS reminds, however, that an additional extension applies only to filing; payment will be due on the date specified in the relief measures.
Source: IRS extends May 17, other tax deadlines for victims of Tennessee storms
– Story provided by TaxingSubjects.com
by | May 15, 2021 | Tax Tips and News
With restaurants beginning to open more fully due to a break in the coronavirus pandemic, employees in the food and beverage industry are soon likely to have a lot more to report on their taxes: Tips.
That’s why the Internal Revenue Service is reminding taxpayers that that tips should be included in gross income when filing their tax return ahead of the May 17 deadline. The agency identifies three specific examples:
- Tips directly from customers.
- Tips added using credit cards.
- Tips from a tip-splitting arrangement with other employees.
Reporting, however, doesn’t stop there. Tips that are made with something other than cash—tickets or free passes for example—have value and, as such, must be included in income.
The Big 3 for tipped employees
If a worker regularly gets tips, there are three things the IRS expects them to do. All are aimed at keeping track and reporting tip income to the IRS.
Write it Down – The first thing employees should do is keep a daily record of their tips. One way to do that is to use Form 4070A, Employee’s Daily record of Tips, which is included in Publication 1244.
Besides the information on the Form 4070A, workers need to keep a record of any non-cash tips they get, including the date and value of the non-cash tip. Remember that a non-cash tip can be any item of value that’s offered as a tip.
While non-cash tips don’t have to be reported to the employer, they do have to be reported to the IRS.
Report Tips to the Employer – All cash tips a worker receives in any month have to be reported to the employer; they’re subject to Social Security and Medicare taxes. If the employee has less than $20 in tips for the month and a single employer, the tips don’t have to be reported and no taxes have to be withheld.
Employees have to notify their employer of their cash tips (which include those made on credit card statements) in writing. No particular form has to be used, but the report has to include some standard information:
- Employee signature,
- Employee’s name, address, and social security number,
- Employer’s name and address (establishment name if different),
- Month or period the report covers, and
- Total of tips received during the month or period.
The IRS says both directly tipped employees and those who are tipped indirectly must report tips to their employer.
To find out if tip income is taxable, visit the Interactive Tax Assistant on the IRS website.
Other resources include Tip Record-Keeping and Reporting; Publication 1244, Employee’s Daily Record of Tips and Report to Employer; and Publication 531, Reporting Tip Income.
Sources: Here’s what taxpayers need to know about reporting tip income on their tax return; Tip Recordkeeping & Reporting
– Story provided by TaxingSubjects.com
by | May 14, 2021 | Tax Tips and News
If you live in the Southeast, long lines and questionable containers are a sad reality at many local gas stations. The temporary Colonial Pipeline disruption caused a rush on fuel this week, leading many in the region to hoard gasoline.
Luckily, our post-apocalyptic future will have to wait.
In addition to the pipeline resuming operations, the IRS today announced that—from May 7 to May 21—they will provide relief for the dyed diesel fuel penalty. The relief applies if the fuel “is sold for use or used on the highway” and someone (whether the seller or vehicle operator) pays the motor fuel excise tax for diesel (24.4 cents per gallon).
The IRS explains that “ordinarily, dyed diesel fuel is not taxed, because it is sold for uses exempt from excise tax, such as to farmers for farming purposes, for home heating use, and to local governments.” And the penalty for non-approved use is the greater of $10 per gallon or $1,000 plus the excise fuel tax.
Further, the agency notes that it “will not impose penalties for failure to make semimonthly deposits of this tax,” pointing taxpayers to Publication 510, Excise Taxes, for more information.
Which states get the dyed diesel fuel penalty relief?
The IRS says that, currently, twelve states and the District of Columbia will benefit from the retroactive dyed diesel fuel penalty relief, including:
- Alabama
- Delaware
- Georgia
- Florida
- Louisiana
- Maryland
- Mississippi
- North Carolina
- Pennsylvania
- South Carolina
- Tennessee
- Virginia
Finally, the IRS says it “is closely monitoring the situation and will provide additional relief as needed.”
Source: IR-2021-108
– Story provided by TaxingSubjects.com
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