WASHINGTON —The Internal Revenue Service today encouraged taxpayers to take advantage of the online tools and resources available on IRS.gov as the IRS expects heavy call volume during the last two weeks of February.
This is the first in a series of 10 IRS tips called the Tax Time Guide. The guide is designed to help taxpayers navigate common tax issues as this year’s April 18 deadline approaches.
There are a variety of easy-to-use, online tools on IRS.gov. Through these tools, taxpayers can check the status of their refund, prepare and file their taxes or get answers to tax questions around the clock.
Taxpayers can use the Interactive Tax Assistant (ITA) to get information about credits, deductions and general filing topics. Taxpayers get the same answers as if they’d called and spoken with an IRS representative, and they can print out the answers for their records. IRS information and some tools also are available in Spanish.
Below are a few of the most common tax time queries and the tools to find answers:
Checking on a tax refund?
Taxpayers can easily find information about their refund by using the “Where’s My Refund?” tool. It’s available on IRS.gov and on the official IRS mobile app, IRS2Go. Refund information is normally available within 24 hours after the IRS receives a taxpayer’s e-filed return or four weeks after the IRS receives a mailed-in paper return. The system is updated daily, so there’s no need to check more often.
Taxpayers who have already filed before Feb. 15 and claimed the Earned Income Tax Credit or the Additional Child Tax Credit on their tax returns are reminded that their refunds likely won’t arrive into their financial accounts until the week of Feb. 27. By law, the IRS was required to hold refunds that contain those credits until Feb. 15.
Need help preparing a tax return?
Through the Volunteer Income Tax Assistance and Tax Counseling for the Elderly (VITA/TCE) programs, eligible taxpayers can get help filing their return for free at one of several thousand community-based tax help sites. Sites are staffed by IRS trained and certified volunteers. Low- and moderate-income taxpayers and those age 60 and above can find the nearest site on IRS.gov’s VITA/TCE Site Locator.
Want a free do-it-yourself tax option?
Taxpayers doing their own taxes can find free tax preparation help on IRS.gov. Answers to many tax questions are in a user-friendly format. Taxpayers can start by clicking on the Filing tab on IRS.gov. It’s the place to find important updates and information regarding return preparation and electronic filing options.
The IRS Free File program, available at IRS.gov, offers 12 brand-name tax preparation software packages for free to the 70 percent of taxpayers who earned $64,000 or less in 2016. By answering questions in an interview format, the software does the work of finding deductions, credits and exemptions for which the taxpayer qualifies. For those earning more than $64,000 who are comfortable preparing their own taxes, IRS.gov offers Free File Fillable Forms. These are the electronic versions of paper IRS tax forms.
Taxpayers can also use Free File to deposit all or part of their refunds into myRA, a retirement savings account from the Treasury Department. Just use Form 8888 or follow the software product’s instructions.
Looking for a tax professional for help?
Taxpayers may also use the searchable directory on IRS.gov to find a tax professional. Taxpayers can sort the list of preparers by credentials and qualifications. Taxpayers should choose their return preparer wisely as the taxpayer is ultimately responsible for the accuracy of their return.
Need a tax return transcript?
For those who need a copy of their tax return, the IRS has an online tool to help. Transcripts are free and available for the most current tax year after the IRS has processed the return. Get Transcript provides online access to transcripts. Taxpayers can view, print or download their transcripts
Need an answer right now to tax law questions?
Have questions about who can be claimed as a dependent, what filing status to choose, or whether to file a tax return? Besides the Interactive Tax Assistant, Publication 17 offers a comprehensive tax guide for individuals. The IRS Tax Map can also be searched by topic or keyword for single-point access to tax law information.
Need to make a payment?
IRS Direct Pay offers taxpayers the fastest and easiest way to pay what they owe. Available through the Pay Your Tax Bill icon on IRS.gov, this free online system allows individuals to securely pay their tax bills or make quarterly estimated tax payments directly from checking or savings accounts without fees or pre-registration. See IRS.gov/Payments for information on this and other payment options.
Can’t pay a tax bill?
For taxpayers concerned about a tax bill they can’t pay, the Online Payment Agreement tool can help determine if they qualify for a payment plan with the IRS. The Offer in Compromise Pre-Qualifier can help determine if a taxpayer qualifies for an offer in compromise. An Offer in Compromise is an agreement with the IRS that settles a person’s tax liability for less than the full amount owed.
Questions about an amended return?
The “Where’s My Amended Return?” tool provides the status of an amended tax return, Form 1040X. Taxpayers can check on the current year 1040X and up to three prior years. Allow up to three weeks after filing to check on the initial status, and up to 16 weeks for processing.
What about tax withholding?
The IRS Withholding Calculator helps employees make sure the amount of income tax taken out of their pay is neither too high nor too low. This tool can be particularly useful to taxpayers who, after filling out their tax returns, find that the refund or balance due was not what they expected.
The 2016 tax return preparation season is finally upon us! We can now electronically file your tax returns as soon as you have all of your 2016 tax documents. W-2's, 1099's and most 1098's are required to be mailed to the taxpayers by January 31, 2017. If you do not receive your tax documents by the first few days of February, we suggest that you contact your employers and financial institutes to request a copy. Feel free to contact us with any questions at all.
As tax season begins, the Internal Revenue Service, the states and the tax industry remind taxpayers to be on the lookout for an array of evolving tax scams related to identity theft and refund fraud.
Every tax season, there is an increase in schemes that target innocent taxpayers like yourself by email, by phone and on-line. The IRS and Security Summit partners remind taxpayers and tax professionals to be on the lookout for these deceptive schemes.
If you receive an unexpected call, unsolicited email, letter or text message from someone claiming to be from the IRS, here are some of the tell-tale signs to help protect yourself.
The IRS Will Never:
Dividends paid to you out of a corporation’s earnings and profits are taxable as ordinary income. The corporation will report dividends on Form 1099-DIV (or equivalent statement). Mutual-fund dividends and distributions are also reported on Form 1099-DIV (or similar form). Corporate dividends and mutual-fund distributions of $10 or more are reported on Form 1099-DIV (or equivalent) whether you receive them in cash or they have been reinvested at your request.
Form 1099-DIV for 2015 gives you a breakdown of the dividends and distributions paid to you during the year. You do not have to attach the Form 1099-DIV (or similar statement) to your tax return.
Ordinary dividends taxed to you are shown in Box 1. These are the most common type of distribution, payable out of a corporation’s earnings and profits. Your share of a mutual fund’s ordinary dividends is also shown on Form 1099-DIV; short-term capital gain distributions are included in the Box 1a total.
Part of the Box 1a amount may be qualified dividends. Qualified dividends reported in Box 1b are generally taxed at the same favorable rates (zero, 15% or 20%) as net capital gains.
Capital gain distributions (long term) from a mutual fund are shown in Box 2a. Box 2b shows the portion of the Box 2a amount, if any, that is unrecaptured Section 1250 gain from the sale of depreciable real estate. Box 2c shows the part of Box 2a that is Section 1202 gain from small business stock eligible for a 50% exclusion, or a 60% exclusion in the case of qualified empowerment zone business stock. Box 2d shows the amount from Box 2a that is 28% rate gain from the sale of collectibles. If any amount is reported in Box 2b, 2c, or 2d, you must file Schedule D with Form 1040 .
Nontaxable distributions that are a return of your investment are shown in Box 3.
If you did not give your taxpayer identification number to the payer, backup withholding at a 28% rate is shown in Box 4.
Your share of expenses from a non– publicly offered mutual fund is shown in Box 5 and may be deductible as a miscellaneous itemized deduction subject to the 2% floor. This amount is included in Box 1a.
The foreign tax shown in Box 6 (imposed by the country shown in Box 7) may be claimed as a tax credit on Form 1116 or as an itemized deduction on Schedule A.
Cash and non-cash liquidation distributions are shown in these boxes are shown in Boxes 8 and 9.
A distribution that is not paid out of earnings is a nontaxable return of capital, that is, a partial payback of your investment. The company will report the distribution in Box 3 of Form 1099-DIV as a nontaxable distribution. You must reduce the cost basis of your stock by the nontaxable distribution. If your basis is reduced to zero by a return of capital distributions, any further distributions are taxable as capital gains, which you report on Schedule D of Form 1040.
A flexible spending arrangement (FSA) allows employees to get reimbursed for medical or dependent care expenses from an account they set up with pre-tax dollars. Under a typical FSA, you agree to a salary reduction that is deducted from each paycheck and deposited in a separate account. The salary-reduction contributions are not included in your taxable wages reported on Form W-2. As expenses are incurred, you are reimbursed from the account. Reimbursements used to pay qualified medical expenses are excluded from your income even though the contributions to your account were also not taxed to you.
The tax advantage of an FSA is that your salary-reduction contributions are not subject to federal income tax or Social Security taxes, allowing your medical or dependent care expenses to be paid with pre-tax rather than after-tax income. The salary deferrals are also exempt from most state and local taxes; check with the administrator of your employer’s plan.
In the case of a health FSA, paying medical expenses with pre-tax dollars allows you to avoid the adjusted gross income (AGI) floor that limits itemized deductions for medical costs.
However, to get these tax advantages, you must assume some risk. Under a “use-it-or-lose-it” rule, if your qualifying out-of-pocket expenses for the year are less than your contributions, the balance of the contributions will be forfeited unless your employer allows a carryover or gives you an additional 2 ½ months to spend the funds, as discussed below.
An election to set up an FSA for a given year must be made before the start of that year. You elect how much you want to contribute during the coming year and that amount will be withheld from your pay in monthly installments.
Once the election for a particular year takes effect, you may not discontinue contributions to your account or increase or decrease a coverage election unless there is a change in family or work status that qualifies under IRS regulations.
The use-it-or-lose-it rule in IRS regulations discourages employees from making “excessive” salary-reduction contributions. Generally, salary-reduction contributions made in one year cannot be used to pay expenses incurred after the end of that year. Any unused account balance as of the end of the year must be forfeited to the employer.
However, the use-it-or-lose-it rule has been strongly criticized over the years, and in response to pressure from Congress, the IRS has given employers some options that can ease the impact of the use-it-or-lose-it rule. Depending on the type of plan, a limited carryover or a grace period for unused contributions may be offered. Keep in mind that the law does not provide for a carryover or grace period. There are options that the IRS allows an employer to offer after amending the plan document.
The end-of-year balance of health FSA funds may only be applied to health expenses incurred during the grace period and not to dependent care or other expenses. Similarly, unused dependent care FSA amounts may be used only for dependent care expenses incurred during the grace period. During the grace period, unused amounts may not be cashed out or converted to any other benefit (taxable or nontaxable). The employer may allow additional time following the end of the grace period to submit reimbursement claims for qualified expenses paid during the plan year and the grace period. For example, many calendar-year plans allow up to March 31 for submitting reimbursement claims.
The maximum salary-reduction contribution that could be made to a health FSA for 2015 was $2,550. A plan must apply the dollar limit to remain a qualified cafeteria plan; otherwise, all plan benefits are includible in the employees’ gross income. The $ 2,550 limit is the maximum salary-reduction contribution that the plan can allow, but employers may set a lower limit.
The annual limit applies per person and not per household. If you and your spouse each work and both of you are offered health FSA coverage, you may each elect to make salary-reduction contributions up to the annual limit. This is true even if you and your spouse work for the same employer.
Funds from a health FSA may generally be used to reimburse you for expenses that you could claim as a medical expense deduction, such as the annual deductible under your employer’s regular health plan, co-payments you must make to physicians or for prescriptions, and any other expenses that your health plan does not cover. These may include eye examinations, eyeglasses, routine physicals, and orthodontia work for you and your dependents. Over-the-counter medications such as cold remedies, pain relievers, and allergy medications can be reimbursed tax free from an FSA only if a physician provides a prescription for the medication; this restriction does not apply to insulin.
In addition, a health FSA may not be used to reimburse you for premiums paid for other health plan coverage, including premiums for coverage under a plan of your spouse or dependent. Also, expenses for long-term care services cannot be reimbursed under a health FSA. You may not receive tax-free reimbursements for cosmetic surgery expenses unless the surgery is necessary to correct a deformity existing since birth or resulting from a disease or from injury caused by an accident. Non-qualifying reimbursements are taxable.
At any time during the year, you may receive reimbursements up to your designated limit, even though your payments into the FSA account up to that point may add up to less. For example, if you elect to make salary-reduction contributions of $100 per month to a health-care FSA and you incur $500 of qualifying medical expenses in January, you may get the full $500 reimbursement even though you have paid only $100 into the plan. Your employer may not require you to accelerate contributions to match reimbursement claims.
Dependent Care FSA
You may contribute to a dependent care FSA if you expect to have expenses qualifying for the dependent care tax credit, but if you contribute to a dependent care FSA, any tax-free reimbursement from the account reduces the expenses eligible for the credit. If you are married, both you and your spouse must work in order for you to receive tax-free reimbursements from an FSA, unless your spouse is disabled or a full-time student.
The maximum tax-free reimbursement under the FSA is $ 5,000, but if either you or your spouse earns less than $ 5,000, the tax-free limit is the lesser earnings. If your spouse’s employer offers a dependent care FSA, total tax-free reimbursements for both of you are limited to $ 5,000. Furthermore, if you are considered a highly compensated employee, your employer may have to lower your contribution ceiling below $5,000 to comply with nondiscrimination rules.
You must use Part III of Form 2441 to figure how much of your reimbursement is tax free and how much must be included in your income. Unlike health FSAs, an employer may limit reimbursements from a dependent care FSA to your account balance. For example, if you contribute $400 a month to the FSA and in January you pay $1,500 to a day-care center for your child, your employer may choose to reimburse you $400 a month as contributions are made to your account.
“Cafeteria plans” is a nickname for plans that give an employee a choice of selecting either cash or at least one qualifying nontaxable benefit. You are not taxed when you elect qualifying nontaxable benefits, although cash could have been chosen instead. A cafeteria plan may offer tax-free benefits such as group health insurance or life insurance coverage, long-term disability coverage, dependent care or adoption assistance, medical expense reimbursements, or group legal services. Long-term care insurance may not be offered through a cafeteria plan under current law.
Employees may be offered a premium-only plan (POP), which allows them to purchase group health insurance coverage or life insurance on a pre-tax basis using salary-reduction contributions. Health savings accounts (HSAs) and their related high-deductible health plans (HDHPs) may be offered as options by a cafeteria plan. If so, employees may elect to have contributions made to an HSA and an HDHP on a pre-tax salary-reduction basis.
A cafeteria plan may also offer benefits that are nontaxable because they are attributable to after-tax employee contributions. For example, employees may be offered the opportunity to purchase disability benefits (short term or long term) with after-tax contributions. If a covered employee subsequently receives disability benefits that are attributable to after-tax contributions, the benefits will be tax-free. On the other hand, the plan may allow employees to elect paying for disability coverage on a pre-tax basis and, in this case, any benefits from the plan attributable to the pre-tax contributions will be taxable when received.
Under a flexible spending arrangement (FSA), employees may be allowed to make tax-free salary-reduction contributions to a medical or dependent care reimbursement plan.
A qualified cafeteria plan must be written and not discriminate in favor of highly compensated employees and stockholders. If the plan provides for health benefits, a special rule applies to determine whether the plan is discriminatory. If a plan is held to be discriminatory, the highly compensated participants are taxed to the extent they could have elected cash. Furthermore, if key employees receive more than 25% of the “tax-free” benefits under the plan, they are taxed on the benefits. Employers averaging 100 or fewer employees who agree to contribute a fixed amount towards benefits are treated as meeting the nondiscrimination tests.C
The value of employer-provided meals is not taxable if furnished on your employer’s business premises for the employer’s convenience. The value of lodging is not taxable if, as a condition of your employment, you must accept the lodging on the employer’s business premises for the employer’s convenience.
The IRS generally defines business premises as the place of employment, such as a company cafeteria in a factory for a cook or an employer’s home for a household employee. The Tax Court has a more liberal view, extending the area of business premises beyond the actual place of business.
Lodging in certain foreign “camps” is considered to be provided on the business premises of the employer. To qualify, lodging must be provided to employees working in remote foreign areas where satisfactory housing is not available on the open market, it must be located as near as practicable to where they work, and it must be in a common area or enclave that is not available to the public and which normally accommodates at least 10 employees.
The employer convenience test requires proof that an employer provides the free meals or lodging for a business purpose other than providing extra pay. In the case of meals, the employer convenience test is deemed to be satisfied for all meals provided on employer premises if a qualifying business purpose is shown for more than 50% of the meals. If meals and lodging are described in a contract as extra pay, this does not bar tax-free treatment provided they are also provided for other substantial, non-compensatory business reasons.
Your company may charge for meals on company premises and give you an option to accept or decline the meals. However, by law, the IRS must disregard the charge and option factors in determining whether meals that you buy are furnished for noncompensatory business reasons. If such business reasons exist, the convenience-of-employer test is satisfied. If such reasons do not exist, the value of the meals may be tax free as a de minimis benefit; otherwise, the value of the meal subsidy provided by the employer is taxable.
Where your employer provides meals on business premises at a fixed charge that is subtracted from your pay whether you accept the meals or not, the amount of the charge is excluded from your taxable pay. If the meal is provided for the employer’s convenience, the value of the meals received is also tax free. If it is not provided for the employer’s convenience, the value is taxable whether it exceeds or is less than the amount charged.
Lodging is necessary for you to perform your job properly, as where you are required to be available for duty at all times. The IRS may question the claim that you are required to be on 24-hour duty. For example, at one college, rent-free lodgings were provided to teaching and administrative staff members, maintenance workers, dormitory parents who supervised and resided with students, and an evening nurse. The IRS ruled that only the lodgings provided to the dorm parents and the nurse met the tax-free lodging tests because, for the convenience of the college, they had to be available after regular school hours to respond to emergencies.
If you are given the choice of free lodging at your place of employment or a cash allowance, the lodging is not considered to be a condition of employment, and its value is taxable.
If the lodging qualifies as tax free, so does the value of employer-paid utilities such as heat, electricity, gas, water, sewerage, and other utilities. Where these services are furnished by the employer and their value is deducted from your salary, the amount deducted is excluded from taxable wages on Form W-2. But if you pay for the utilities yourself, you may not exclude their cost from your income.
An employer may furnish unprepared food, such as groceries, rather than prepared meals. Courts are divided on whether the value of the groceries is excludable from income. One court allowed an exclusion for the value of nonfood items, such as napkins and soap– as well as for groceries– furnished to a doctor who ate at his home on the hospital grounds so that he would be available for emergencies.
Teachers and other employees (and their spouses and dependents) of an educational institution, including a state university system or academic health center, do not have to pay tax on the value of school-provided lodging if they pay a minimal rent. The lodging must be on or near the campus. The minimal required rent is the smaller of: (1) 5% of the appraised value of the lodging; or (2) the average rental paid for comparable school housing by persons who are neither employees nor students. Appraised value must be determined by an independent appraiser and the appraisal must be reviewed annually.
Employee achievement awards are taxable unless they meet special rules for awards of tangible personal property (such as a watch, television, or golf clubs) given to you in recognition of length of service or safety achievement. Cash awards, gift certificates, and similar items are taxable.
As a general rule, if your employer is allowed to deduct the cost of a tangible personal property award, you are not taxed. Your employer’s deduction limit, and therefore the excludable limit for you, is $400 for awards from nonqualified plans and $1,600 for awards from qualified plans. If your employer’s deduction is less than the item’s cost, you are taxed on the greater of: (1) the difference between the cost and your employer’s deduction, or (2) the difference between the item’s fair market value and your employer’s deduction. Your employer must tell you beforehand if the award qualifies for full or partial tax-free treatment.
An award will not be treated as a tax-free safety achievement award if employee safety achievement awards during the year have already been granted to more than 10% of eligible employees. An award given to an ineligible employee, such as a manager, administrator, clerical employee, or other professional employee, for safety achievement does not qualify for tax-free treatment. If the value of an achievement award item is disproportionately high compared to the employer’s cost, the IRS may conclude that the award is disguised compensation and the entire value would be taxable.
Tax-free treatment also does not apply when you receive an award for length of service during the first five years of employment or when you previously received an award for length of service during the last five years.
Small benefits given to employees that would be administratively impractical to tax are considered tax-free de minimis (minor) fringe benefits. Some examples are:
If your employer gives you a cell phone for substantial business reasons, the value of the cell phone is a tax-free working condition fringe benefit. In such a case, your personal use of the phone is tax free as a de minimis benefit.
The value of meals provided to employees on workdays at a subsidized eating facility is a tax-free de minimis fringe benefit if the facility is located on or near the business premises and the annual revenue from meal charges equals or exceeds the facility’s direct operating costs. Highly compensated employees or owners with special access to executive dining rooms may not exclude the value of their meals as a de minimis fringe benefit. However, the meals may be tax free if they must be taken on company premises for business reasons.
If employees are asked to work outside their normal working hours and due to unsafe conditions their employer provides transportation such as taxi fare, the first $1.50 per one-way commute is taxable but the excess over $1.50 is a tax-free de minimis benefit. This exclusion is not available to certain highly compensated employees and officers, corporate directors, or owners who own 1% or more of the company. These rules can apply to day-shift employees who work overtime as well as night-shift employees working regular hours.
The use of a company car is tax free to the extent you use the car for business. If you use the car for personal driving, your company has the responsibility of calculating taxable income, which generally is based on IRS tables that specify the annual lease value of various priced cars. You are also required to keep for your employer a mileage log or similar record to substantiate your business use. Your employer should tell you what types of records are required.
Regardless of personal use, you are not subject to tax for a company vehicle that the IRS considers to be of limited personal value. Some example of these types of vehicles are: ambulances, flatbed trucks, dump trucks, garbage trucks, delivery trucks, tractors, and forklifts. Also not taxable is personal use of school buses, passenger buses with more than 20 seats, and moving vans where personal use is restricted. Exclusions are also allowed for commuting use of a clearly marked police, fire, or public safety officer vehicle by officers required to be on call at all times, and for officially authorized uses of unmarked vehicles by law enforcement officers.
The value of a demonstration car used by a full-time auto salesperson is tax free if the use of the car facilitates job performance and if there are substantial personal-use restrictions, including a restriction on use by family members and for vacation trips. Mileage outside of normal working hours must be limited and personal driving must be restricted to a 75-mile radius around the dealer’s sales office.
Social Security and Medicare taxes must be withheld for taxable company car benefits. No income tax withholding is required, but your employer may choose to withhold it. The taxable value of company car benefits is reported on Form W-2 in Box 14.