joseph castellano

With the tax filing season almost here, taxpayers should check out two IRS publications available on IRS.gov. These publications can help people get prepared and stay organized with tips for year-round tax planning.

Publication 5348, Get ready to file
Tax planning is for everyone. Taxpayers can use this publication to help them get ready to file their 2021 federal income tax return next year. Planning helps individuals file an accurate return and avoid processing delays that can slow their tax refund.

Publication 5349, Year-round tax planning is for everyone
Life changes can affect taxpayers’ expected refunds or the amount of tax they owe. These changes include things such as employment status, marital status and financial gains or losses. Publication 5349 provides tips on developing habits throughout the year that will help make tax preparation easier. This resource also includes a checklist of items taxpayers should have on hand when filing their tax return.

More information:
Steps to Take Now to Get a Jump on Next Year’s Taxes

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Businesses that make structural adaptations or other accommodations for employees or customers with disabilities may be eligible for tax credits and deductions.

Here’s an overview of the tax incentives designed to encourage employers to hire qualified people with disabilities and to off-set some of the costs of providing accommodations.

Disabled access credit 
The disabled access credit is a non-refundable credit for small businesses that have expenses for providing access to persons with disabilities. An eligible small business is one that earned $1 million or less or had no more than 30 full-time employees in the previous year. The business can claim the credit each year they incur access expenditures.

Barrier removal tax deduction 
The architectural barrier removal tax deduction encourages businesses of any size to remove architectural and transportation barriers to the mobility of people with disabilities and the elderly. Businesses may claim a deduction of up to $15,000 a year for qualified expenses on items that normally must be capitalized.

Businesses claim this deduction by listing it as a separate expense on their income tax return. Also, businesses may use the disabled tax credit and the architectural/transportation tax deduction together in the same tax year if the expenses meet the requirements of both sections. To use both, the deduction is equal to the difference between the total expenses and the amount of the credit claimed.

Work opportunity tax credit
The work opportunity tax credit is available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment. This includes people with disabilities and veterans.  The maximum amount of  tax credit for employees who worked 400 or more hours of service is:

  • $2,400 or 40% of up to $6,000 of first year wages, for qualifying individuals.
  • $9,600 or 40% of up to $24,000 of first year wages for certain qualified veterans.

A 25% rate applies to wages for individuals who work at least 120 hours but less than 400 hours for the employer.

IR-2021-242, Dec. 6, 2021

WASHINGTON – The Internal Revenue Service today issued guidance for employers regarding the retroactive termination of the Employee Retention Credit. The Infrastructure Investment and Jobs Act, which was enacted on Nov. 15, 2021, amended the law so that the Employee Retention Credit applies only to wages paid before October 1, 2021, unless the employer is a recovery startup business.

Notice 2021-65 applies to employers that paid wages after September 30, 2021, and received an advance payment of the Employee Retention Credit for those wages or reduced employment tax deposits in anticipation of the credit for the fourth quarter of 2021, but are now ineligible for the credit due to the change in the law. The notice also provides guidance regarding how the rules apply to recovery startup businesses during the fourth quarter of 2021.

Employers who Received Advance Payments

Generally, employers that are not recovery startup businesses and received advance payments for fourth quarter wages of 2021 will avoid failure to pay penalties if they repay those amounts by the due date of their applicable employment tax returns. 

Employers who Reduced Employment Tax Deposits

Employers that reduced deposits on or before Dec. 20, 2021, for wages paid during the fourth calendar quarter of 2021 in anticipation of the Employee Retention Credit and that are not recovery startup businesses will not be subject to a failure to deposit penalty with respect to the retained deposits if—

  1. The employer reduced deposits in anticipation of the Employee Retention Credit, consistent with the rules in Notice 2021-24,
  2. The employer deposits the amounts initially retained in anticipation of the Employee Retention Credit on or before the relevant due date for wages paid on December 31, 2021 (regardless of whether the employer actually pays wages on that date). Deposit due dates will vary based on the deposit schedule of the employer, and
  3. The employer reports the tax liability resulting from the termination of the employer’s Employee Retention Credit on the applicable employment tax return or schedule that includes the period from October 1, 2021, through December 31, 2021. Employers should refer to the instructions to the applicable employment tax return or schedule for additional information on how to report the tax liability.

Due to the termination of the Employee Retention Credit for wages paid in the fourth quarter of 2021 for employers that are not recovery startup businesses, failure to deposit penalties are not waived for these employers if they reduce deposits after Dec. 20, 2021.

If an employer does not qualify for relief under this Notice, it may reply to a notice about a penalty with an explanation and the IRS will consider reasonable cause relief.

More information for businesses seeking coronavirus- related tax relief can be found at IRS.gov.

WASHINGTON — During National Small Business Week, the Internal Revenue Service reminds business owners that it’s critical to correctly determine whether the individuals providing services are employees or independent contractors.

An employee is generally considered to be anyone who performs services, if the business can control what will be done and how it will be done. What matters is that the business has the right to control the details of how the worker’s services are performed. Independent contractors are normally people in an independent trade, business or profession in which they offer their services to the public. Doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers or auctioneers are generally independent contractors.

Independent contractor vs. employee
Whether a worker is an independent contractor or an employee depends on the relationship between the worker and the business. Generally, there are three categories to examine:

  • Behavioral Control − does the company control or have the right to control what the worker does and how the worker does the job?
  • Financial Control − does the business direct or control the financial and business aspects of the worker’s job. Are the business aspects of the worker’s job controlled by the payer? (Things like how the worker is paid, are expenses reimbursed, who provides tools/supplies, etc.)
  • Relationship of the Parties − are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Misclassified worker
Misclassifying workers as independent contractors adversely affects employees because the employer’s share of taxes is not paid, and the employee’s share is not withheld. If a business misclassified an employee without a reasonable basis, it could be held liable for employment taxes for that worker. Generally, an employer must withhold and pay income taxes, Social Security and Medicare taxes, as well as unemployment taxes. Workers who believe they have been improperly classified as independent contractors can use IRS Form 8919, Uncollected Social Security and Medicare Tax on Wages (.pdf) to figure and report their share of uncollected Social Security and Medicare taxes due on their compensation.

Voluntary Classification Settlement Program
The Voluntary Classification Settlement Program (VCSP) is an optional program that provides taxpayers with an opportunity to reclassify their workers as employees for future tax periods for employment tax purposes with partial relief from federal employment taxes for eligible taxpayers that agree to prospectively treat their workers (or a class or group of workers) as employees. Taxpayers must meet certain eligibility requirements, apply by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS.

Who is self-employed?
Generally, someone is self-employed if any of the following apply to them.

Self-employed individuals generally are required to file an annual tax return and pay estimated tax quarterly. They generally must pay self-employment tax (Social Security and Medicare tax) as well as income tax. Self-employed taxpayers may be able to claim the home office deductionif they use part of a home for business.

What about the gig economy?
The gig economy − also called sharing economy or access economy−is activity where people earn income providing on-demand work, services or goods. Gig economy income must be reported on a tax return, even if the income is: from part-time, temporary or side work; not reported on a Form 1099-K, 1099-MISC, W-2 or other income statement; or paid in any form, including cash, property, goods or virtual currency.

Help spread the word – Advance Child Tax Credit
The IRS  encourages employers to help get the word out about the advanced payments of the Child Tax Credit during Small Business Week. Employers have direct access to many  who may receive this credit. More information on the Advanced Child Tax Credit is available on IRS.gov. The website has tools employers can use to deliver this information, including e-posters, drop-in articles (for paycheck stuffers, newsletters) and social media posts to share.

For more information and help
The Self-Employed Individuals Tax Center has information for those who are in an independent trade, business or profession in which they offer their services to the general public.

Small Business Taxes: The Virtual Workshop is composed of nine interactive lessons designed to help new small business owners learn their tax rights and responsibilities.

The IRS Video Portal contains video and audio presentations on topics of interest to small businesses, individuals and tax professionals.

The Internal Revenue Service joins the Small Business Administration in support of its National Small Business Week. The IRS will issue numerous online materials that focus on getting small business owners the information they need to comply with filing and paying requirements.

This year, as part of its ongoing effort to help eligible people access Advance Child Tax Credit payments, the IRS will be encouraging employers to help spread the word about these payments during Small Business Week. The IRS knows that employers have direct access to many people who may be eligible for the credit. The IRS has materials for employers and others who can help spread the word available on the IRS website at 2021 Child Tax Credit and Advance Child Tax Credit Payments: Resources and Guidance.

Other IRS Small Business Week highlights include:

  • IRS news releases beginning September 13 on the following topics:
    • Employer responsibilities
    • Employee vs. independent contractor
    • Work Opportunity Tax Credit
    • Employment tax compliance
    • Expanded tax benefits
  • A special Small Business Week page on the IRS Video Portal featuring videos and recorded webinars of interest to small businesses and the self-employed.
  • A new Publication 5557, A Guide to Starting a Small Business.
  • IRS’s increased multilingual outreach – the IRS offers tax information in multiple languages. IRS.gov pages have links to any available translations on the right side, just below the title. Languages currently available include Spanish, Chinese simplified and traditional, Korean, Russian, Vietnamese and Haitian-Creole.
  • An IRS virtual booth at the Small Business Administration’s Virtual Summit conference.

The Small Business Administration will hold a Virtual Summit conference on September 13-15. The event’s schedule is posted, and there’s still time to register for it. Participants can learn new business strategies, meet other business owners, and chat with industry experts. This free online event will include educational webinars, updates on resources for small businesses, and a networking chat room for business owners and aspiring entrepreneurs.

Helpful IRS resources for small businesses and the self-employed:

Taxpayers have the right to challenge the IRS’s position and be heard. This is part of the Taxpayer Bill of Rights, which clearly outlines the fundamental rights every taxpayer has when working with the IRS.

Taxpayers have the right to:

• Raise objections.
• Provide additional documentation in response to formal or proposed IRS actions.
• Expect the IRS to consider their timely objections.
• Have the IRS consider any supporting documentation promptly and fairly.
• Receive a response if the IRS does not agree with their position.

Here are some specific things this right affords taxpayers.

• In some cases, the IRS will notify a taxpayer that their tax return has a math or clerical error. If this happens, the taxpayer:

o Has 60 days to tell the IRS that they disagree.
o Should provide copies of any records that may help correct the error.
o May call the number listed on the letter or bill for assistance.
o Can expect the agency to make the necessary adjustment to their account and send a correction if the IRS upholds the taxpayer’s position.

• Here’s what will happen if the IRS does not agree with the taxpayer’s position:

o The agency will issue a notice proposing a tax adjustment. This is a letter that comes in the mail.
o This notice provides the taxpayer with a right to challenge the proposed adjustment.
o The taxpayer makes this challenge by filing a petition in U.S. Tax Court. The taxpayer must generally file the petition within 90 days of the date of the notice, or 150 days if it is addressed outside the United States.

• Taxpayers can submit documentation and raise objections during an audit. If the IRS does not agree with the taxpayer’s position, the agency issues a notice explaining why it is increasing the tax. Prior to paying the tax, the taxpayer has the right to petition the U.S. Tax Court and challenge the agency’s decision.

• In some circumstances, the IRS must provide a taxpayer with an opportunity for a hearing before an independent Office of Appeals. The agency must do this:

o Before taking enforcement actions to collect a tax debt. These actions include levying the taxpayer’s bank account. Immediately after filing a notice of federal tax lien in the appropriate state filing location. If the taxpayer disagrees with the decision of the Appeals Office, they can petition the U.S. Tax Court.

More Information:
Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund
Publication 1,Your Rights as a Taxpayer

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Organizations that want to apply for recognition of tax-exempt status under Section 501(c)(3) of the tax code use a Form 1023-series application. Here are some tips to help them understand the process.

• The application process on IRS.gov includes a step-by-step guide explaining how to apply for tax exempt status.

• Form 1023-series applications for recognition of exemption must be submitted electronically online at www.pay.gov. The application must be complete and include the user fee.

• Some types of organizations don’t need to apply for Section 501(c)(3) status to be tax-exempt. These include churches and their integrated auxiliaries, and public charities with annual gross receipts normally no more than $5,000.

• An employer identification number is a nine-digit number that IRS assigns to identify a business’ tax accounts. Every tax-exempt organization should have an EIN, even if they don’t have any employees. Their EIN must be included on the application. Organizations can get an EIN by calling 800-829-4933 or apply online.

• The effective date of an organization’s tax exempt status depends on their approved Form 1023. If they submit this form within 27 months after the month they legally formed, the effective date of their organization’s exempt status is the legal date of its formation. If an organization doesn’t submit this form within those 27 months, the effective date of its exempt status is the date it files Form 1023

• Once the IRS determines an organization qualifies for tax exempt status under the law, it will also be classified as a private foundation unless the organization meets the requirements to be treated as a public charity.

• A charitable organization must make certain documents available to the public. These include its approved application for recognition of exemption with all supporting documents and its last three annual information returns. See Publication 557, Tax Exempt Status For Your Organization for additional information on public inspection requirements.

The arrival of summer is also the start of wedding season. Marriage changes many things and taxes is one of them. Newlyweds should know how tying the knot can affect their tax situation.

Here’s a tax checklist for newly married couples:

Name and address changes

  • Name. When a name changes through marriage, it is important to report that change to the Social Security Administration. The name on a person’s tax return must match what is on file at the SSA. If it doesn’t, it could delay any tax refund. To update information, taxpayers should file Form SS-5, Application for a Social Security Card. It is available on SSA.gov, by calling 800-772-1213 or at a local SSA office.
  • Address. If marriage means a change of address, the IRS and U.S. Postal Service need to know. To do that, people should send the IRS Form 8822,Change of Address. Taxpayers should also notify the postal service to forward their mail by going online at USPS.com or their local post office.

Withholding

  • After getting married, couples should consider changing their withholding. Newly married couples must give their employers a new Form W-4, Employee’s Withholding Allowance within 10 days. If both spouses work, they may move into a higher tax bracket or be affected by the additional Medicare tax. They can use the Tax Withholding Estimator on IRS.gov to help complete a new Form W-4. Taxpayers should review Publication 505,Tax Withholding and Estimated Tax for more information.

Filing status

  • Married people can choose to file their federal income taxes jointly or separately each year. While filing jointly is usually more beneficial, it’s best to figure the tax both ways to find out which works best. Remember, if a couple is married as of December 31, the law says they’re married for the whole year for tax purposes.

Scams

  • All taxpayers should be aware of and avoid tax scams. The IRS will never initiate contact using email, phone calls, social media or text messages. First contact generally comes in the mail. Those wondering if they owe money to the IRS can view their tax accountinformation on IRS.gov to find out.

More Information:
Topic 157, Change Your Address – How to Notify the IRS

IRS issued guidance for employers claiming the employee retention credit under the Coronavirus Aid, Relief, and Economic Security Act modified by the Taxpayer Certainty and Disaster Tax Relief Act of 2020.

Notice 2021-23 explains the changes for the first and second calendar quarters of 2021, including:

  • the increase in the maximum credit amount
  • the expansion of the category of employers that may be eligible to claim the credit
  • modifications to the gross receipts test
  • revisions to the definition of qualified wages
  • new restrictions on the ability of eligible employers to request an advance payment of the credit

Eligible employers can now claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after December 31, 2020, through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. The maximum employee retention credit available is $7,000 per employee per calendar quarter, for a total of $14,000 for the first two calendar quarters of 2021.

Employers can get the employee retention credit for the first two calendar quarters of 2021 before filing their employment tax returns by reducing employment tax deposits. Small employers may request advance payment of the credit on Form 7200, Advance of Employer Credits Due to COVID-19, after reducing deposits. Some limits and eligibility requirements apply. In 2021, advances are not available for large employers. Instructions on how to calculate and claim the employee retention credit for the first two calendar quarters of 2021 are available in Notice 2021-23.

Under the American Rescue Plan Act of 2021, the employee retention credit is available to eligible employers for wages paid during the third and fourth quarters of 2021. The Department of the Treasury and the IRS will provide further guidance on this later.

More coronavirus relief information for businesses is available on IRS.gov.

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WASHINGTON — The American Rescue Plan Act of 2021 suspends the requirement that taxpayers increase their tax liability by all or a portion of their excess advance payments of thePremium Tax Credit (excess APTC) for tax year 2020. A taxpayer’s excess APTC is the amount by which the taxpayer’s advance payments of the Premium Tax Credit (APTC) exceed his or her Premium Tax Credit (PTC).     

The Internal Revenue Service announced today that taxpayers with excess APTC for 2020 are not required to file Form 8962, Premium Tax Credit, or report an excess advance Premium Tax Credit repayment on their 2020 Form 1040 or Form 1040-SR, Schedule 2, Line 2, when they file.

Eligible taxpayers may claim a PTC for health insurance coverage in a qualified health plan purchased through a Health Insurance Marketplace. Taxpayers use Form 8962, Premium Tax Credit to figure the amount of their PTC and reconcile it with their APTC. This computation lets taxpayers know whether they must increase their tax liability by all or a portion of their excess APTC, called an excess advance Premium Tax Credit repayment, or may claim a net PTC.

Taxpayers can check with their tax professional or use tax software to figure the amount of allowable PTC and reconcile it with APTC received using the information from Form 1095-A, Health Insurance Marketplace Statement.

The process remains unchanged for taxpayers claiming a net PTC for 2020. They must file Form 8962 when they file their 2020 tax return. See the Instructions for Form 8962 for more information. Taxpayers claiming a net PTC should respond to an IRS notice asking for more information to finish processing their tax return.

Taxpayers who have already filed their 2020 tax return and who have excess APTC for 2020 do not need to file an amended tax return or contact the IRS. The IRS will reduce the excess APTC repayment amount to zero with no further action needed by the taxpayer. The IRS will reimburse people who have already repaid any excess advance Premium Tax Credit on their 2020 tax return. Taxpayers who received a letter about a missing Form 8962 should disregard the letter if they have excess APTC for 2020. The IRS will process tax returns without Form 8962 for tax year 2020 by reducing the excess advance premium tax credit repayment amount to zero.

Again, IRS is taking steps to reimburse people who filed Form 8962, reported, and paid an excess advance Premium Tax Credit repayment amount with their 2020 tax return before the recent legislative changes were made. Taxpayers in this situation should not file an amended return solely to get a refund of this amount. The IRS will provide more details on IRS.gov. There is no need to file an amended tax return or contact the IRS. 

As a reminder, this change applies only to reconciling tax year 2020 APTC. Taxpayers who received the benefit of APTC prior to 2020 must file Form 8962 to reconcile their APTC and PTC for the pre-2020 year when they file their federal income tax return even if they otherwise are not required to file a tax return for that year.  The IRS continues to process prior year tax returns and correspond for missing information.  If the IRS sends a letter about a 2019 Form 8962, we need more information from the taxpayer to finish processing their tax return. Taxpayers should respond to the letter so that the IRS can finish processing the tax return and, if applicable, issue any refund the taxpayer may be due.

See the  Form 8962, Premium Tax Credit, and IRS Fact Sheet for more details about the changes related to the PTC for tax year 2020.

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