April 2021 – Larson Accounting Group

26 de April de 2021

The Internal Revenue Service could be doing more to track unreported income flowing through increasingly popular peer-to-peer payment apps like Venmo and Zelle, according to a new report.

The report, issued Monday by the Treasury Inspector General for Tax Administration, found that the minimal reporting thresholds of $20,000 and 200 transactions that trigger the existing requirements for information return reporting presents challenges in how effectively the IRS is able to identify potential cases of tax noncompliance. The inspector general’s report recommended three ways for the IRS to crack down on unreported income, but the IRS was only willing to go along with one of them.

Congress passed a law in the midst of the financial crisis, the Housing and Recovery Act of 2008, that added Section 6050W to the Tax Code. It requires more third-party information return reporting by businesses to narrow the tax gap and identify potential noncompliance by requiring reporting of income above those de minimis thresholds. However, in the years since, P2P payment apps like Venmo and Zelle have grown in popularity, rivaling older ones like PayPal, Google Wallet and Square. But as these apps are generally used for transferring small amounts of money, they can skirt the reporting thresholds and result in income that’s not reported to the IRS.

“If the IRS is unable to effectively identify noncompliance, taxpayers may begin using P2P payment applications to conduct business, skirt third-party reporting, and avoid paying taxes on income,” said the TIGTA report.

The report pointed to the growth of P2P payment applications, which has made it easier and cheaper to send payments from one person to another. But the technology can present a tax compliance challenge because the payments are often not reported to the IRS and can be difficult to detect during an IRS examination. TIGTA selected eight of the P2P payment applications and found the companies did not appear to meet the current definition of a third-party settlement organization and therefore aren’t required to file a Form 1099-K, Payment Card and Third Party Network Transactions. However, three P2P companies filed 950,965 Forms 1099-K involving $198.6 billion of payments in tax year 2017, which included amounts below the reporting thresholds. The report doesn’t identify which companies those are, although it does mention several of the payment apps by way of context.

Even when the information reporting was available, the IRS didn’t always take action against the nonfilers of tax returns and underreporters of P2P payments. That could mean billions of dollars of income may have gone unreported. “In total, 169,711 taxpayers potentially did not report up to $29 billion of payments received per Form 1099-K documents issued to them by three P2P payment application companies,” said the report. “While the IRS can identify potential underreporting and nonfiling issues by matching information presented on a taxpayer’s income tax return with third-party information return documents filed with the IRS, such as Forms 1099-K, taxpayers using P2P payment applications may not always receive a Form 1099-K”

Even if they don’t receive a Form 1099-K, the report noted that taxpayers are still required to report any taxable income on their income tax return.

The report recommended the IRS should work with the Treasury Department’s Office of Tax Policy to consider pursuing regulatory changes that would clarify the designation of third-party settlement organizations, including defining their provisions for guarantee of payment under the Tax Code. TIGTA also recommended the IRS should consider requiring the completion of a minimum income probe of all individual business, corporate and other business taxpayers, including those designated as “limited scope,” and expand it to include their internet use and e-commerce income activity. The IRS agreed with those recommendations, but rejected another recommendation that it establish a compliance initiative project using Form 1099-K payments associated with P2P payment applications because it doesn’t believe there’s a demonstrated compliance problem that warrants such a project.

An IRS official defended the agency’s compliance efforts. “We are concerned TIGTA has not considered the results of the compliance efforts taken by the IRS, particularly in the underreport programs,” wrote De Lon Harris, commissioner of the IRS’s Small Business/Self-Employed Division, in response to the report. He pointed out that the IRS’s Business Underreporter program had pursued 3,456 Form 1099-K discrepancies in tax year 2017 covering $2.5 billion in payments, but only 22 percent of the discrepancies (representing $550 million) were found to result from underreporting of income, leading to $31 million in assessments so far. Another automated underreporter program pursued over 72,000 underreporters for tax year 2017 over $31.6 billion in 1099-K gross payments and found a discrepancy of $28.3 billion, but assessed only 6 percent (or $673 million) of the proposed tax.

Harris pointed to valid explanations such as businesses sharing terminals in processing payments, reporting of income by related businesses, or reporting of income on a different line item of the return as accounting for many of the discrepancies. Besides, proceeds reported on a Form 1099-K may not always be taxable. Given the IRS’s resource constraints and the costs of prioritizing this 1099-K issue over other issues that would likely lead to greater tax assessments, he doesn’t believe the compliance problem warrants further IRS examination resources.

Source: Accounting Today
The IRS headquarters in Washington, D.C.
Andrew Harrer/Bloomberg

by Larson Accounting

26 de April de 2021

WASHINGTON — The Internal Revenue Service and the Treasury Department announced today further details of tax credits available under the American Rescue Plan to help small businesses, including providing paid leave for employees receiving COVID-19 vaccinations.

The additional details, provided in a fact sheet released today, spell out some basic facts about the employers eligible for the tax credits. It also provides information on how these employers may claim the credit for leave paid to employees related to COVID-19 vaccinations

Eligible employers, such as businesses and tax-exempt organizations with fewer than 500 employees and certain governmental employers, can receive a tax credit for providing paid time off for each employee receiving the vaccine and for any time needed to recover from the vaccine. For example, if an eligible employer offers employees a paid day off in order to get vaccinated, the employer can receive a tax credit equal to the wages paid to employees for that day (up to certain limits).

“This new information is a shot in the arm for struggling small employers who are working hard to keep their businesses going while also watching out for the health of their employees,” said IRS Commissioner Chuck Rettig. “Our work on this issue is part of a larger effort by the IRS to assist the nation recover from the pandemic.”

The American Rescue Plan Act of 2021 (ARP) allows small and midsize employers, and certain governmental employers, to claim refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees due to COVID-19, including leave taken by employees to receive or recover from COVID-19 vaccinations. Self-employed individuals are eligible for similar tax credits.

The ARP tax credits are available to eligible employers that pay sick and family leave for leave from April 1, 2021, through Sept. 30, 2021.

The paid leave credits under the ARP are tax credits against the employer’s share of the Medicare tax. The tax credits are refundable, which means that the employer is entitled to payment of the full amount of the credits if it exceeds the employer’s share of the Medicare tax.

In anticipation of claiming the credits on the Form 941, Employer’s Quarterly Federal Tax Return PDF, eligible employers can keep the federal employment taxes that they otherwise would have deposited, including federal income tax withheld from employees, the employees’ share of social security and Medicare taxes and the eligible employer’s share of social security and Medicare taxes with respect to all employees up to the amount of credit for which they are eligible. If the eligible employer does not have enough federal employment taxes on deposit to cover the amount of the anticipated credits, the eligible employer may request an advance by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Self-employed individuals may claim comparable credits on the Form 1040, U.S. Individual Income Tax Return PDF.

More details are available on this fact sheet.

Source: IRS

by Larson Accounting

26 de April de 2021

WASHINGTON — Today, the Internal Revenue Service, the U.S. Department of the Treasury, and the Bureau of the Fiscal Service announced they are disbursing nearly two million payments in the sixth batch of Economic Impact Payments from the American Rescue Plan.

Today’s announcement brings the total disbursed so far to approximately 161 million payments, with a total value of more than $379 billion, since these payments began rolling out to Americans in batches as announced on March 12.

The sixth batch of payments began processing on Friday, April 16, with an official payment date of April 21, with some people receiving direct payments in their accounts earlier as provisional or pending deposits. Here is additional information on this batch of payments:

In total, this batch includes nearly 2 million payments with a value of nearly $3.4 billion.
Nearly 700,000 payments, with a value of more than $1.3 billion, went to eligible individuals for whom the IRS previously did not have information to issue an Economic Impact Payment but who recently filed a tax return.
This batch also includes additional ongoing supplemental payments for people who earlier this year received payments based on their 2019 tax returns but are eligible for a new or larger payment based on their recently processed 2020 tax returns. This batch included nearly 700,000 of these “plus-up” payments, with a value of nearly $1.2 billion.
Another 600,000 payments went to Social Security beneficiaries and Supplemental Security Income recipients, including those with foreign addresses.
Overall, this sixth batch of payments contains about 900,000 direct deposit payments (with a total value of $1.5 billion) and nearly 1.1 million paper check payments (with a total value of nearly $1.8 billion).

Additional information is available on the first five batches of Economic Impact Payments from the American Rescue Plan, which began processing on April 9, April 2, March 26, March 19 and March 12.

The IRS will continue to make Economic Impact Payments on a weekly basis. Ongoing payments will be sent to eligible individuals for whom the IRS previously did not have information to issue a payment but who recently filed a tax return, as well to people who qualify for “plus-up” payments.

Special reminder for those who don’t normally file a tax return

Although payments are automatic for most people, the IRS continues to urge people who don’t normally file a tax return and haven’t received Economic Impact Payments to file a 2020 tax return to get all the benefits they’re entitled to under the law, including tax credits such as the 2020 Recovery Rebate Credit, the Child Tax Credit, and the Earned Income Tax Credit. Filing a 2020 tax return will also assist the IRS in determining whether someone is eligible for an advance payment of the 2021 Child Tax Credit, which will begin to be disbursed this summer.

For example, some federal benefits recipients may need to file a 2020 tax return – even if they don’t usually file – to provide information the IRS needs to send payments for a qualifying dependent. Eligible individuals in this group should file a 2020 tax return as quickly as possible to be considered for an additional payment for their qualifying dependents.

People who don’t normally file a tax return and don’t receive federal benefits may qualify for these Economic Impact Payments. This includes those experiencing homelessness, the rural poor and others. Individuals who didn’t get a first or second round Economic Impact Payment or got less than the full amounts may be eligible for the 2020 Recovery Rebate Credit, but they’ll need to file a 2020 tax return. See the special section on IRS.gov: Claiming the 2020 Recovery Rebate Credit if you aren’t required to file a tax return.

Free tax return preparation is available for qualifying people.

The IRS reminds taxpayers that the income levels in this new round of Economic Impact Payments have changed. This means that some people won’t be eligible for the third payment even if they received a first or second Economic Impact Payment or claimed a 2020 Recovery Rebate Credit. Payments will begin to be reduced for individuals making $75,000 or above in Adjusted Gross Income ($150,000 for married filing jointly). The payments end at $80,000 for individuals ($160,000 for married filing jointly); people with Adjusted Gross Incomes above these levels are ineligible for a payment.

Individuals can check the Get My Payment tool on IRS.gov to see the payment status of these payments. Additional information on Economic Impact Payments is available on IRS.gov.

Source: IRS

by Larson Accounting

16 de April de 2021

IR-2021-87, April 15, 2021

WASHINGTON — The Internal Revenue Service today continued an ongoing effort to help those experiencing homelessness during the pandemic by reminding people who don’t have a permanent address or a bank account that they may still qualify for Economic Impact Payments and other tax benefits.

While Economic Impact Payments continue to be made automatically to most people, the IRS can’t issue a payment to eligible Americans when information about them isn’t available in the tax agency’s systems.

To help people experiencing homelessness, the rural poor and other historically under-served groups, the IRS urges community groups, employers and others to share information about Economic Impact Payments and help more eligible people file a tax return so they can receive everything they’re entitled to. IRS.gov has a variety of information and tools to help people receive the Economic Impact Payments.

“The IRS has been continuing to work directly with groups inside and outside the tax community to get information directly to people experiencing homelessness and other groups to help them receive Economic Impact Payments,” said IRS Commissioner Chuck Rettig. “The IRS is working hard on this effort, enabling millions of people who don’t normally file a tax return to receive these payments. But we need to do more, and we appreciate all the help we’ve been receiving from national and local groups to assist in this effort to reach the people who desperately need this help.”

Economic Impact Payments, also known as stimulus payments, are different from most other tax benefits; people can get the payments even if they have little or no income and even if they don’t usually file a tax return. This is true as long as they have a Social Security number and are not being supported by someone else who can claim them as a dependent.

The IRS needs information from people who don’t usually file a tax return – even if they did not have any income last year or their income was not large enough to require them to file. The only way for the agency to have that information is for people to file a basic 2020 tax return with the IRS. Once that return is processed, the IRS can quickly send stimulus payments to an address selected by the eligible individual. People do not need a permanent address or a bank account. They don’t need to have a job. For eligible individuals, the IRS will still issue the payment even if they haven’t filed a tax return in years.

People in this group can still qualify for the first two Economic Impact Payments when they file their 2020 return by claiming the Recovery Rebate Credit. There’s a special section on IRS.gov that can help: Claiming the 2020 Recovery Rebate Credit if you aren’t required to file a tax return. For the current third round of payments, people who are experiencing homelessness usually qualify to receive $1,400 for themselves. If they are married or have dependents, they can get an additional $1,400 for each of their family members.

Filing a 2020 federal income tax return that provides very basic information about the person is something that can be done electronically using a smartphone or a computer. When the IRS receives the return, it will automatically calculate and issue the Economic Impact Payments to eligible individuals.

Permanent address not required

People can claim an Economic Impact Payment or other credits even if they don’t have a permanent address. For example, someone experiencing homelessness may list the address of a friend, relative or trusted service provider, such as a shelter, drop-in day center or transitional housing program, on the return filed with the IRS. If they are unable to choose direct deposit, a check or debit card for the tax refund and the third Economic Impact Payment can then be mailed to this address.

Individuals experiencing homelessness can receive the EITC

A worker experiencing homelessness can get an Earned Income Tax Credit (EITC). To get the credit, federal law requires that a worker live in the U.S. for more than half of the year and meet other requirements. This means living in a home in any of the 50 states or the District of Columbia. Therefore, individuals experiencing homelessness, including those who reside at one or more homeless shelters, can meet that requirement.

No bank account? No problem

Many financial institutions will help a person lacking an account to open a low-cost or no-cost bank account. Individuals who open accounts will then have an account and routing number available when they file and claim a direct deposit of the Economic Impact Payment.

Visit the Federal Deposit Insurance Corporation (FDIC) website for details, in both English and Spanish, on opening an account online. Among other things, people can also use the FDIC’s BankFind tool to locate a nearby FDIC-insured bank. In addition, BankOn, American Bankers Association, Independent Community Bankers of America, and National Credit Union Administration have all compiled lists of banks and credit union that can open an account online.

For veterans, see the Veterans Benefits Banking Program (VBBP) for access to financial services at participating banks.

For those with a prepaid debit card, they may be able to have their refund applied to the card. Many reloadable prepaid cards or mobile payment apps have account and routing numbers that can be provided to the IRS. Individuals would need to check with the financial institution to ensure the card can be used and to obtain the routing number and account number, which may be different from the card number.

File for free

The fastest and easiest way to claim the 2020 Recovery Rebate Credit and Earned Income Tax Credit (EITC) or to get the third Economic Impact Payment is to file a return electronically using IRS Free File. People can use a smartphone or computer to visit IRS.gov and click the File Your Taxes for Free link.

Through the Free File system, anyone who qualifies for the EITC also qualifies to use brand-name software to prepare and electronically file their return for free. The IRS urges anyone experiencing homelessness who has a smartphone or access to a computer to take advantage of this service.

Get free help from IRS partners

Alternatively, anyone who qualifies for the EITC or does not have a filing requirement but is filing to get an Economic Impact Payment also qualifies for free tax help from a trained community volunteer tax preparer. Through VITA (Volunteer Income Tax Assistance) and TCE (Tax Counselling for the Elderly), volunteers prepare basic tax returns at thousands of tax help sites nationwide.

Please note that some VITA/TCE sites are not operating at full capacity and others are not opening this year. To find the nearest location, visit the Free Tax Return Preparation site on IRS.gov, or call 800-906-9887. VITA/TCE site availability is updated throughout the filing season, so check back if there aren’t any sites listed nearby.

The IRS also continues to work extensively with community groups across the country to get people to file tax returns and receive all the Economic Impact Payments and credits they’re entitled to. These efforts helped lead to more than 8 million people last year to submit tax returns who normally don’t file.

Direct deposit speeds payments

Direct deposit is the safest and fastest way to receive a refund and Economic Impact Payments. People will need to include direct deposit information on their 2020 tax return to get their payment directly deposited.

Anyone with a savings, checking, or brokerage account can choose to have their refund electronically deposited in that account. Direct deposit is available even for people who file a paper tax return, but processing of paper returns takes longer.

More details on the Earned Income Tax Credit

For people experiencing homelessness who have a job, filing a return often carries an added bonus—getting a refund based on various tax benefits, especially the EITC for low-and moderate-income workers and working families.

Like many other workers, some workers experiencing homelessness still qualify for the credit even if they earned too little income during 2020 to owe tax. For 2020, the income limit is $15,820 for singles with no children ($21,710 for couples with no children). The income limit is higher for people with children. For example, the limit is $50,594 for singles with three or more children ($56,844 for couples with three or more children). Those who make less than this amount must also meet other eligibility requirements.

Because it’s a refundable credit, those who qualify and claim the credit could pay less federal tax, pay no tax, or even get a tax refund. The EITC can put up to $6,660 into a worker’s pocket. The amount varies depending upon the worker’s income, marital status, and other factors.

The IRS recognizes that eligible workers experiencing homelessness often encounter unique challenges not faced by other people.

To find out if they’re eligible, people can use the EITC Assistant on IRS.gov. It’s available in both English and Spanish.

Help spread the word

Employers can help by making their employees aware of the third Economic Impact Payment, 2020 Recovery Rebate Credit and Earned Income Tax and Child Tax Credit, and by encouraging them to file for these benefits based on tax year 2020 rules. In addition, the American Rescue Plan, enacted in March 2021, expands EITC and the Child Tax Credit benefits for the 2021 tax year.

Some people will be able to get advance payments of the Child Tax Credit later this year. There is nothing those who qualify need to do at this point other than file a 2020 tax return.

Employers can also help by making it easy for employees to obtain or access their 2020 W-2 forms. For more information, check out the outreach material, available on IRS.gov.

Source: IRS – IR-2021-87, April 15, 2021

by Larson Accounting

16 de April de 2021

WASHINGTON — Today, the Internal Revenue Service, the U.S. Department of the Treasury and the Bureau of the Fiscal Service announced they are disbursing nearly 2 million payments in the fifth batch of Economic Impact Payments from the American Rescue Plan.

Today’s announcement brings the total disbursed so far to approximately 159 million payments, with a total value of more than $376 billion, since these payments began rolling out to Americans in batches as announced on March 12.

The fifth batch of payments began processing on Friday, April 9, with an official payment date of April 14, with some people receiving direct payments in their accounts earlier as provisional or pending deposits. Here is additional information on this batch of payments:

In total, this batch includes nearly 2 million payments with a value of more than $3.4 billion.
More than 320,000 payments, with a total value of $450 million, went to Veterans Affairs (VA) beneficiaries who receive Compensation and Pension (C&P) benefit payments but who don’t normally file a tax return and didn’t use the Non-Filers tool last year.
Nearly 850,000 payments, with a total value of nearly $1.6 billion, went to eligible individuals for whom the IRS previously did not have information to issue an Economic Impact Payment but who recently filed a tax return.
This batch also includes additional ongoing supplemental payments for people who earlier this year received payments based on their 2019 tax returns but are eligible for a new or larger payment based on their recently processed 2020 tax returns. This batch included more than 700,000 of these “plus-up” payments, with a total value of more than $1.2 billion.
Another 72,000 payments went to Social Security beneficiaries who didn’t file a 2020 or 2019 tax return and didn’t use the Non-Filers tool last year.
Overall, this fifth batch of payments contains nearly 1.2 million direct deposit payments (with a total value of just under $2 billion) and nearly 800,000 paper check payments (with a total value of over $1.4 billion).

Additional information is available on the first four batches of Economic Impact Payments from the American Rescue Plan, which began processing on April 2, March 26, March 19 and March 12.

A larger percentage of payments was made electronically during this round of payments than during previous rounds. This accelerated the delivery of payments to millions of American families whose payments would otherwise have been sent by mail. Over 95% of all Social Security beneficiaries have been paid electronically during this round of payments, compared to 70% in the first round and 72% in the second round.

Special reminder for those who don’t normally file a tax return

People who don’t normally file a tax return and don’t receive federal benefits may qualify for these Economic Impact Payments. This includes those experiencing homelessness, the rural poor, and others. Individuals who didn’t get a first or second round Economic Impact Payment or got less than the full amounts may be eligible for the 2020 Recovery Rebate Credit, but they’ll need to file a 2020 tax return. See the special section on IRS.gov: Claiming the 2020 Recovery Rebate Credit if you aren’t required to file a tax return.

Free tax return preparation is available for qualifying people.

Individuals can check the Get My Payment tool on IRS.gov to see the payment status of these payments. Additional information on Economic Impact Payments is available on IRS.gov.

Source: IRS – IR-2021-86, April 14, 2021

IRS pushed to crack down on P2P payment apps

American Rescue Plan tax credits available to small employers to provide paid leave to employees receiving COVID-19 vaccines; new fact sheet outlines details

Two million more Economic Impact Payments disbursed under the American Rescue Plan; total reaches approximately 161 million as payments continue

Special reminder for those who don’t normally file a tax return

Those experiencing homelessness can get Economic Impact Payments and other tax benefits; permanent address not required

Permanent address not required

Individuals experiencing homelessness can receive the EITC

No bank account? No problem

File for free

Get free help from IRS partners

Direct deposit speeds payments

More details on the Earned Income Tax Credit

Help spread the word

IRS, Treasury disburse 2 million more Economic Impact Payments under the American Rescue Plan; VA beneficiaries bring total to approximately 159 million as payments continue

Special reminder for those who don’t normally file a tax return