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Texas Winter Storm Victims get Tax Relief

Texas Winter Storm Victims get Tax Relief

Texas taxpayers impacted by this month’s brutal winter storms are getting some help from the Internal Revenue Service. The help includes extended deadlines and other relief measures.

The entire state of Texas is included disaster declaration issued by the Federal Emergency Management Agency (FEMA) and the IRS’ relief measures apply to all the counties in the FEMA declaration.

Any counties outside of Texas that are added to the disaster declaration will automatically qualify for the IRS relief package as well. The list of eligible counties and localities is available on the disaster relief page on IRS.gov.

Extension to file and pay

The tax relief announcement postpones various tax filing and payment deadlines that kicked in with the beginning of the filing season on Feb. 11. For Texas taxpayers, affected individuals and businesses now have until June 15, 2021, to file their returns and pay any tax originally due during the period.

The extension includes 2020 individual and business returns normally due on April 15, as well as the various 2020 business returns that would have been due on March 15. It also means affected Texas taxpayers now have until June 15 to make 2020 IRA contributions.

Also included in the relief package are quarterly estimated income tax payments normally due April 15, and quarterly payroll and excise tax returns normally due April 30. The extension also applies to tax-exempt organizations operating on a calendar-year basis, that have a 2020 return due on May 17.

Penalties on payroll and excise tax deposits due on or after Feb. 11 and before Feb. 26 will be abated as long as the deposits are made by Feb. 26.

The IRS disaster relief page has details on other return types, payments and tax-related actions qualifying for the additional time.

Tax relief is automatic

Taxpayers do not need to contact the IRS in order to qualify for the extensions and other relief. As long as the taxpayer’s address of record is in the federally declared disaster area, the extended deadlines are automatically applied.

If an affected taxpayer gets a late-filing or late-payment penalty notice from the IRS that has an original or extended filing, payment or deposit due dat that falls within the postponement period, the taxpayer should call the phone number printed on the notice to have the penalty abated.

An IRS statement says the agency is ready to help those taxpayers who may have affected by the winter storm but who live outside the current disaster area.

“The IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization,” the IRS states.

Declaring losses

Individuals or businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related can claim them on either the return for the year the loss occurred (in this case, the 2021 return normally filed next year), or the return for the prior year. Taxpayers can, if they choose, claim these losses on the 2020 return they fill out this tax season.

Be sure to write the FEMA declaration number—4586—on any return claiming a loss.

The tax relief package is part of a coordinated federal response to the damage caused by this winter storm and is based on local damage assessments by FEMA. For more information on disaster recovery, visit disasterassistance.gov.

Source: IR-2021-43

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HealthCare.gov Special Enrollment Period Can Help Clients Get Insurance

HealthCare.gov Special Enrollment Period Can Help Clients Get Insurance

Tax professionals across the country have undoubtedly served clients who lost health insurance due to layoffs, a reduction in work hours, or another issue stemming from the coronavirus pandemic. The one-two punch of reduced income and possible uninsured medical expenses can be devastating for these families.

To help address this need, the president opened a special enrollment period for the Health Insurance Marketplace on HealthCare.gov, giving uninsured and underinsured Americans another opportunity to get coverage. Unfortunately, many may not be aware that the marketplace is open or how to even use it, which is why the Centers for Medicare & Medicaid Services (CMS) is asking tax professionals to help spread the word.  

To help tax pros be better prepared for these conversations, the agency created a fact sheet on CMS.gov: “2021 Special Enrollment Period in response to the COVID-19 Emergency.”

How long is the HealthCare.gov special enrollment period open?

The HealthCare.gov special enrollment period runs from February 15, 2021 to May 15, 2021. While applications are due by May 15, the fact sheet on CMS.gov notes that “consumers will have 30 days after they submit their application to choose a plan.” Currently enrolled consumers can also use this period to adjust their current plan.  

How do eligible consumers sign up for health insurance through the Health Insurance Marketplace?

Eligible consumers can visit HealthCare.gov or call 1.800.318.2596 to sign up for health insurance through the Health Insurance Marketplace. The CMS fact sheet includes a link to the “Getting Marketplace Health Insurance” quick guide on HealthCare.gov.

How much do HealthCare.gov health insurance plans cost?

According to CMS, roughly 75 percent of those who are enrolled through the Health Insurance Marketplace received financial assistance that reduced their monthly insurance cost to $50 or less.

Source: “2021 Special Enrollment Period,” CMS.gov

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Internal Revenue Bulletin Update Provides Interest Rates, Other Guidance

Internal Revenue Bulletin Update Provides Interest Rates, Other Guidance

An upcoming issue of the IRS’ Internal Revenue Bulletin (IRB) gives tax professionals updated guidance on federal interest rates in a number of areas.

IRB 2021-10 will come out in March and spotlights Revenue Ruling 2021-05 and Notice 2021-16.

Revenue Ruling 2021-05

Revenue Ruling 2021-05 sets out the various prescribed rates for federal income tax purposes. These include applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate.

The rates are determined as set out in section 1274 of the Code and are published monthly.

RR 2021-05 lays out the various rates, using a series of five tables.

Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for the purposes of section 1274(d) of the Internal Revenue Code.

Table 2 has the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month as laid out in section 1288(b).

Table 3 sets out the adjusted federal long-term rate and the long-term tax exempt rate described in section 382(f).

Table 4 has the appropriate percentages for figuring the low-income housing credit in section 42(b)(1) for buildings placed into service during the current month. (Note that under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed into service after July 30, 2008, shall not be less than 9%.)

Finally, Table 5 contains the federal rate to determine the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest as stated in section 7520.

Notice 2021-16

Notice 2021-16 gives tax professionals guidance on the corporate bond yield curve, corresponding spot segment rates used in section 417(e)(3), and the 24-month average segment rates under section 430(h)(2) of the internal Revenue Code.

The notice also has guidance for the interest rate on 30-year Treasury securities.

The IRS says Internal Revenue Bulletin 2021-10 is due out next month and will be dated March 8, 2021.

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All First and Second Economic Impact Payments Have Been Issued

All First and Second Economic Impact Payments Have Been Issued

The Internal Revenue Service says, as required by law, it has issued all the first and second round Economic Impact Payments (EIPs) that were legally permitted. So, the IRS is now turning its full attention to the 2021 filing season.

Beginning in April of 2020, the IRS and the U.S. Department of the Treasury began delivering the first round of Economic Impact Payments just two weeks after the enabling legislation was passed.

More than 160 million EIPs were issued to taxpayers totaling over $270 billion. This was done while the IRS had to simultaneously manage an extended filing season. Since Congress enacted the COVID-related Tax Relief Act of 2020, the IRS has delivered more than 147 million second-round Economic Impact Payments totaling over $142 billion.

Terms of the legislation dictated that the second round of payments had to be issued by Jan. 15, 2021.

Some of the second-round EIPs may yet be in the mail. But the IRS says it has issued all the first- and second-round Economic Impact Payments permitted by the law, based on eligibility.

The online IRS tool, Get My Payment, was last updated on Jan. 29 to show the final payments. The agency says Get My Payment won’t be updated again for first- or second-round EIPs.

The Recovery Rebate Credit remains for those not receiving EIPs

Most people who are eligible for the Recovery Rebate Credit have already received it, in advance, through the two rounds of Economic Impact Payments.

Those who didn’t receive an EIP—or didn’t get the full amounts—may be able to qualify for the Recovery Rebate Credit, but will have to file a 2020 income tax return to get it.

Eligibility for the credit and the amount a taxpayer is entitled to are based on 2020 tax year information. Economic Impact Payments were based on 2019 tax year information.

For the first round of Economic Impact Payments, a 2018 return may have been used for qualification if the 2019 return was not filed or processed.

Be prepared before filing

To claim the Recovery Rebate Credit, individuals need to know the amounts of any Economic Impact Payments they received. People who do not have their Economic Impact Payment notices can get the numbers of their first- and second-round EIPs through their individual online account.

Each spouse of married couples who file jointly will have to log into their own account.

The IRS urges taxpayers to file a complete and accurate tax return to avoid delays in refunds. Using a trusted tax professional can ensure that the taxpayer is claiming the credits and deductions they are qualified for and that the return will be e-filed securely. Using direct deposit further speeds up the process.

Direct deposit options go beyond just bank accounts. Many prepaid debit cards and several mobile apps can also be used to receive direct deposits when a routing and account number is provided on the return.

For more information, check out Publication 5486, Claiming the Recovery Rebate Credit on a 2020 Tax Return; and the Instructions for Forms 1040 and 1040-SR.

Source: IR-2021-38

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Want Faster Filing and Rapid Refunds? Go Digital

Want Faster Filing and Rapid Refunds? Go Digital

Filing season is finally here and for many tax professionals, the watchwords are speed and accuracy. The Internal Revenue Service says it can help with both.

The IRS is urging tax pros—and taxpayers—to take the simple steps needed to help ensure their returns are accurate, to speed up refunds and so avoid a number of pandemic-related pitfalls.

Their appeal isn’t new; every year the IRS encourages taxpayers to e-file their returns and to use direct deposit to get their refunds. But this year it’s extra-important to avoid delays.

By using their tax professional of choice, taxpayers can file electronically, safely and accurately. The IRS adds that paper-filed returns and paper checks will take even longer to process this year for a variety of reasons.

Now that filing has begun, taxpayers have until Thursday, April 15 to file their 2020 tax return and pay any tax due. The IRS expects to receive more than 160 million individual tax returns this year with nine out of 10 returns filed electronically. At least eight out of 10 taxpayers will get their refunds by direct deposit.

“The pandemic has created a variety of tax law changes and has created some unique circumstances for this filing season,” said IRS Commissioner Chuck Rettig. “To avoid issues, the IRS urges taxpayers to take some simple steps to help ensure they get their refund as quickly as possible, starting with filing electronically and using direct deposit.”

“Following months of hard work, we are ready to start this year’s tax season,” Rettig added. “Getting to this point is always a year-round effort for the IRS and the nation’s tax community. Doing it in a continuing COVID-19 environment while simultaneously delivering stimulus payments for the nation is an unprecedented accomplishment by IRS employees. I also want to thank all our tax partners and tax professionals for their hard work that makes tax time smoother for the nation. All of us stand ready to serve America’s taxpayers during this important filing season.”

Review tax changes to be tax-ready

Last year’s sweeping tax changes affected individual taxpayers and their families. But they also affect the tax returns they’re filing this year. A new IRS fact sheet explains what taxpayers need to know to file a complete and accurate tax return.

The IRS says it recognizes that filing this year could be challenging for some taxpayers, so it’s important to understand how to claim credits and deductions, to get a refund in a timely fashion and to meet all tax responsibilities.

Recovery Rebate Credit for those still eligible for Economic Impact Payments. Most people received Economic Impact Payments (EIPs) automatically, and anyone who got the maximum amount doesn’t need to include any information about the payments when they file.

However, those who didn’t get a payment—or only received a partial payment—may be eligible to claim the Recovery Rebate Credit when they file their 2020 tax return. Check out the guidelines for the credit for more information.

More language options available. This year marks the first time Forms 1040 and 1040-SR are available in Spanish. The IRS also now has a new form that allows taxpayers to request that they receive information from the agency in their preferred language. The Schedule LEP, Request for Change in Language Preference, allows taxpayers to request information in some 20 different languages besides English.

Don’t forget any retirement-plan distributions. Because of the pandemic, some taxpayers found it necessary to take early distributions from 401(k) plans and traditional IRAs in 2020.

Under the CARES Act, those distributions—up to $100,000—are not subject to the 10% additional tax that otherwise generally applies to distributions made before an individual reaches age 59 ½.

In addition, a coronavirus-related distribution can be included in income in equal installments over a three-year period, and an individual has three years to repay a coronavirus-related distribution to a plan or IRA and undo the tax consequences of the distribution.

Taxpayers should also note that they can make contributions to traditional IRAs until April 15, 2021, and still deduct that amount on their 2020 tax return, if eligible.

Deduction now allowed for charitable cash contributions. During a previous round of tax reform, deductions for contributions to charitable organizations went away for non-itemizers. That’s changed now, thanks to the CARES Act.

Taxpayers who don’t itemize can take a charitable deduction of up to $300 for cash contributions made in 2020 to qualified organizations. For this deduction, the qualifying organizations are limited to religious, charitable, educational, scientific or literary purposes.

As always, e-file is best. We’ve said it before: the safest and best way to file a complete and accurate tax return is to file electronically and use direct deposit. Both of these steps are where tax pros shine.

Most refunds are issued in less than 21 days, but some may take longer.

Refunds can be tracked by using Where’s My Refund? on IRS.gov or by downloading the IRS2Go mobile app. The app allows connected taxpayers to get a personalized refund date as soon as 24 hours after the return is submitted electronically.

For filers claiming the Earned Income Tax Credit or Additional Child Tax Credit, an update to Where’s My Refund? should show up by Feb. 22. Remember that the IRS cannot answer refund status questions unless it’s been 21 days since the return was e-filed.

Need more help?

IRS tax help is available 24 hours a day on IRS.gov, where people can find answers to tax questions and resolve tax issues online from the safety of their home. The Let Us Help You page helps answer most tax questions, and the IRS Services Guide links to other important IRS services.

For an in-depth perspective on how the IRS is preparing for a successful filing season, join Wage and Investment Commissioner and Chief Taxpayer Experience Officer Ken Corbin in his column, A Closer Look.

Source: IR-2021-35

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IRS Highlights Info About the Credit for Other Dependents

IRS Highlights Info About the Credit for Other Dependents

Today marks the official start of filing season, meaning millions of taxpayers across the country are starting to gather tax-related documents ahead of a visit with their tax preparer. For their part, the Internal Revenue Service is hard at work providing helpful tips about necessary forms and tax credits.

One of the latest IRS reminders focuses on the credit for other dependents. In the press release, the agency notes that taxpayers with dependents who no longer qualify for the child tax credit may still be able to claim the credit for other dependents.

Worth up to $500, the credit for other dependents—like the child tax credit—begins to phaseout when individual filers make more than $200,000 and married couples filing jointly make more than $400,000. Provided the filing taxpayer’s income does not enter the phaseout threshold and their dependent is in one of the following categories, the IRS says they may be able to claim the full credit:

  • Dependents who are age 17 or older.
  • Dependents who have individual taxpayer identification numbers.
  • Dependent parents or other qualifying relatives supported by the taxpayer.
  • Dependents living with the taxpayer who aren’t related to the taxpayer.

When claiming a qualifying dependent on their return, the IRS also reminds taxpayers to make sure that the dependent is “a U.S. citizen, national, or resident alien” and cannot also be used “to claim the child tax credit or additional child tax credit.” However, the agency notes there are two other dependent-related credits that are still available for taxpayers who claim the credit for other dependents.

“Taxpayers can claim the credit for other dependents in addition to the child and dependent care credit and the earned income credit,” explains the IRS. “They can use the IRS Interactive Tax Assistant, Does My Child/Dependent Qualify for the Child Tax Credit or the Credit for Other Dependents?, to help determine if they are eligible to claim the credit.”

The IRS also recommends reviewing Publication 972, Child Tax Credit and Credit for Other Dependents and Publication 501, Dependents, Standard Deduction and Filing Information for more information.

Source: Tax Tip 2021-18

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