The Internal Revenue Service today encouraged taxpayers to consider using the end of the summer to make tax withholding or payment updates to avoid a potential surprise next year at tax time.

While most taxpayers get a refund after filing their taxes, many also find they unexpectedly owe taxes. This can be due to a life or job change for which they did not make the necessary tax adjustment during the year.

Those who should be especially careful are:

• Gig economy workers.
• Those with a “side hustle.”
• Anyone earning income not subject to withholding.

These individuals should check the amount they pay, or the amount of tax they have withheld throughout the year, to bring the tax they pay closer to what is owed. The IRS has a special Tax Withholding Estimator that can help taxpayers align their tax withholding or tax payments with what they owe.

The IRS reminds taxpayers that tax planning done now can save time and frustration later. Here are some important things to keep in mind:

How refunds work

The federal tax system is pay-as-you-go. Taxpayers pay tax as they earn wages or receive income during the year. For many, taxes are withheld from their paycheck by their employer and then given over to the IRS on their behalf. Others, such as gig economy workers, make or should make quarterly estimated tax payments throughout the year to stay current. A refund normally results when too much is withheld or paid throughout the year.

Recent IRS statistics show that two-thirds of taxpayers received a refund so far in 2024. As of mid-May, nearly $270 billion in refunds went to taxpayers with the average refund just under $2,900.

Avoid an unexpected bill

On the other hand, many taxpayers end up with estimated tax penalties because they underpay throughout the year. The penalty amount varies but for some it can be several hundred dollars. Adjusting withholding on paychecks or the amount of estimated tax payments can help prevent penalties. This is especially important for self-employed people, including those in the gig economy, those with more than one job and those with major changes in their life, like a recent marriage or a new child.

With that in mind, the IRS encourages taxpayers to use the IRS Tax Withholding Estimator this summer to help better align their tax withholding or tax payments with what they owe.

Tax Withholding Estimator

This handy tool on IRS.gov helps people figure the amount of federal income tax they should pay during the year. All that’s needed for taxpayers to use it are paystubs for all their jobs or other income information, such as from side jobs, self-employment or investment income, and a copy of their 2023 tax year return.

People can use the Tax Withholding Estimator to:

• Estimate their federal income tax withholding.
• See how a refund, take-home pay or tax due are affected by withholding amounts.
• Choose an estimated withholding amount that works for them and their family.

If a withholding change is needed upon completion, taxpayers should adjust their withholding by submitting a new Form W-4to their employer or pension provider. They can also adjust quarterly estimated tax payments as appropriate.

IRS also reminds people to use the Tax Withholding Estimator if there’s a major life change such as a:

• New job or other paid work.
• Major income change.
• Marriage.
• Childbirth or adoption.
• New home purchase.

While the Tax Withholding Estimator works for most taxpayers, people with more complex tax situations should instead use the instructions in Publication 505, Tax Withholding and Estimated Tax. This includes taxpayers who owe Alternative Minimum Tax or certain other taxes, and people with long-term capital gains or qualified dividends.

Source: IRS-2024-225, Aug. 27, 2024

The IRS has made significant progress on a range of improvements, including that all taxpayers can do all of their interactions with the IRS digitally if they choose, making it possible for the IRS to uncover and address tax evasion shrouded in complexity that requires subject matter expertise and data science. And it’s making it possible for those who choose to interact with IRS in person to do so more quickly.

“Two years into the historic work made possible by the Inflation Reduction Act, the IRS has made significant progress in the 10-year journey to improve taxpayer service, upgrade technology and ensure more fairness in compliance efforts,” said IRS Commissioner Danny Werfel. “If the IRS continues on this trajectory, we will meet a generational imperative on several fronts. This work will enable all taxpayers to complete all interactions with the IRS digitally if they choose. The IRS will be better equipped to disrupt tax scams and provide immediate and comprehensive victim support when scams occur. We will complete and sustain new solutions for protecting taxpayer data from unauthorized access and disclosure. And we will put in place increasingly accurate audit selection methods that hold accountable those taxpayers who use complex financial maneuvers to shield income while avoiding burdening those taxpayers who play by the rules. While much more work remains for the IRS to get where it needs to be, there should be no doubt the agency has accomplished many things during the past two years. These efforts to serve taxpayers and improve tax administration will continue to intensify and accelerate in upcoming months and into the future.”

Customer callback option expanded to further improve phone service, now available for up to 97% of callers seeking live assistance

Through the end of July, the IRS has offered callback options to more than 11 million taxpayers this tax season, saving taxpayers 3.3 million hours of wait time on the phone. We are also starting to roll out conversational voice technology, available in both English and Spanish, that can route calls based on what a taxpayer says.

Expanded in-person service to reach rural, underserved taxpayers

• We also improved service at Taxpayer Assistance Centers (TACs) across the country, and in 2024 the IRS added extended hours at 242 TAC locations across the nation, generating more than 11,000 extra service hours for taxpayers during the 2024 filing season. In addition to extended service hours, IRS also offered taxpayer assistance on Saturdays in more than 70 locations. These evening and Saturday hours made it more convenient for thousands of hard-working taxpayers to get help. During the filing season, IRS TACs had a 37% increase in face-to-face contacts, with the IRS working with nearly 1.3 million taxpayers for this calendar year through July 13.
• During the 2024 filing season, selected Volunteer Income Tax Assistance sites offered free tax return preparation assistance to taxpayers who participated in the “gig” or small business economies and increased the number of returns prepared by Volunteer Income Tax Assistance and Tax Counseling for the Elderly sites by 200,000.
• We began implementation of a new tool and improved workforce management processes for the call center operations that will create a more efficient future state based on improved call volume forecasting and dynamic scheduling that will be in place during calendar years 2025–2026.

Progress in scanning, electronic filing to eliminate paper, speed refunds

• The IRS built the capability for taxpayers to digitally submit online all correspondence and responses to notices and letters that do not have a filing or payment action via the Document Upload Tool. As a result, the IRS estimates more than 94% of individual taxpayers will no longer have to send mail to the IRS, potentially replacing up to 125 million paper documents per year. For anyone with a smart phone or computer, this means that replying to IRS notices is now often as easy as scanning required documents and uploading them to the tax agency. In June, the Document Upload Tool accepted its one millionth taxpayer submission.
• The IRS continues to make significant progress scanning and electronically filing paper returns. The IRS has replaced scanning equipment that is older than five years and installed automated mail-sorter machines in the six highest-volume IRS locations, streamlining the process of mail sorting, opening and scanning. As of the end of June, the IRS had scanned more than 11.8 million pieces of paper. Digitization has far-reaching implications for how the IRS can improve service and will enable the IRS to create completely digital workflows.
• The IRS has made an additional 23 forms eligible for electronic filing.
• The IRS is also enabling taxpayers to submit forms on their mobile devices. The IRS now has a total of 30 forms available for mobile use, allowing taxpayers to fill out common non-tax forms on cell phones and tablet devices and then submit them to the IRS digitally. This is an important milestone toward our goal of meeting taxpayers where they are. An estimated 15% of Americans rely solely on mobile phones for their Internet access—they do not have broadband at home—so it is important to make forms available in mobile-friendly formats.

Helping taxpayers understand and claim appropriate credits and deductions

• In November 2023, the IRS sent over 1.8 million reminder letters to individuals who received the advanced Child Tax Credit but did not file a 2021 return and could be eligible to claim the other 50% of the expanded Child Tax Credit.
• In January 2024, IRS launched a new annual Tax Professional Awareness initiative to educate tax professionals on refundable credit eligibility requirements and inform them of their due diligence requirements to help taxpayers receive credits.
• The IRS also began a data sharing program with states that enables states to inform potentially eligible taxpayers about the Earned Income Tax Credit.
• The IRS is estimating for the first time the credits gap for the Child Tax Credit, the Premium Tax Credit and others. Previously, the IRS has focused exclusively on the Earned Income Tax Credit gap.

Simplifying notices and letters sent annually to taxpayers

The IRS announced the Simple Notice Initiative in January 2024 for redesigning IRS notices so taxpayers can easily understand why we are contacting them and take action as needed. We are also working to make notices available to taxpayers online and offer a seamless way to digitally respond back to the IRS. Making notices available digitally will also help address scams by enabling taxpayers to verify that a notice they receive in the mail is from the IRS.

• We reviewed and redesigned 31 notices for the 2024 tax season that include notices to taxpayers who may be eligible for tax deferment, including those who served in combat zones, notices reminding a taxpayer they may have unfiled returns, and notices reminding a taxpayer about their balance due and where they can go for assistance.
• We are redesigning up to 200 notices for Filing Season 2025 and have completed 109 as of July 25, 2024.
• We enabled the ability for individual taxpayers to receive/view digital copies of over 170 different notice types and are working on making approximately 268 digital notices available by the end of the calendar year.

Dramatically improved service in filing season 2024

Through Inflation Reduction Act funding, the IRS continued to expand taxpayer service levels not seen in more than a decade with double-digit gains occurring in critical areas. The IRS level of service on its main phone lines reached more than 88% during the 2024 filing season. That’s above the 87% level seen last year and more than a five-fold increase from the phone service levels seen during the pandemic era period, when the level of service was at just 15% in 2022. Compared to 2023, the IRS answered over 1 million more taxpayer phone calls this tax season, helped over 170,000 more people in person and saw 75 million more IRS.gov visits fueled by a new and expanded Where’s My Refund? tool. Taxpayers waited, on average, just over three minutes for help on the IRS main phone lines. This is down from four minutes in 2023 and 28 minutes in filing season 2022.

Disrupting scams

More than $1 billion was protected by IRS efforts to disrupt scammers targeting the Employee Retention Credit (ERC).

• In September 2023, the IRS announced a moratorium on processing new Employee Retention Credit (ERC) claims through at least the end of 2023. The IRS conducted enhanced compliance reviews of existing claims submitted before the moratorium to protect against fraud and also to protect businesses and organizations from facing penalties or interest payments stemming from bad claims advertised by promoters.
• The IRS also offered a withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims. Claims that were withdrawn were treated as if they were never filed, and the IRS did not impose penalties or interest.
• The IRS has also partnered with the Department of Veterans Affairs to support the disruption of tax scams and schemes that specifically target US military veterans.
• On April 16, the IRS sent 32 tax preparers L5175, Return Preparer Office Complaints Referrals, Education and Warning letter to remind preparers suspected of engaging in scamming taxpayers of their responsibilities to prepare accurate tax returns. Responses are being monitored. The IRS is issuing the letters to make preparers aware that inaccurate returns may adversely affect them and their client, and to deter engaging in this type of behavior.
• On August 16, IRS announced the formation of the Coalition Against Scam and Scheme Threats, representing IRS, state tax agencies and a broad spectrum of the nation’s tax industry. The coalition will work to expand outreach and education about emerging scams, develop new approaches to identify potentially fraudulent returns at the point of filing and create infrastructure improvements to protect taxpayers as well as federal, state and industry tax systems.

Ensuring individuals and businesses using complex arrangements pay taxes owed

The IRS is working to ensure high-income filers pay the taxes they owe. Prior to the Inflation Reduction Act, more than a decade of budget cuts prevented IRS from keeping pace with the increasingly complicated set of devices that aggressive taxpayers use to hide their income and evade paying their share. The IRS is now taking swift and aggressive action to close this gap.

• The IRS ramped up efforts to pursue high-income, high-wealth individuals who failed to pay a tax bill. These high-end collection cases are concentrated among taxpayers with more than $1 million in income and more than $250,000 in recognized tax debt. Out of a total of 1,600 of these cases, the IRS has assigned 1,500 to revenue officers, with over $1 billion collected so far.
• The IRS announced a new effort focused on high-income individuals who have failed to file federal income tax returns in more than 125,000 instances since 2017. Non-filers receive IRS compliance letters alerting them that the IRS is aware of their missing return and encouraging them to file or contact the IRS. The new initiative involves more than 25,000 people with more than $1 million in income, and over 100,000 people with incomes between $400,000 and $1 million between tax years 2017 and 2021.
• Other elements of the agency’s renewed compliance focus include:
  • Abusive use of partnerships. Last month, the IRS announced a new series of steps to combat abusive partnership transactions that allow aggressive taxpayers to avoid paying what they owe.
  • Activities involving large corporations and partnerships. These efforts include opening examinations of 76 of the largest partnerships in the U.S., representing a cross section of industries including hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and other industries. Other activities include expanding the large corporate compliance (LCC) program.
  • Aircraft use. In February, the IRS announced plans to begin dozens of audits involving personal use of business aircraft. The audits are focused on aircraft usage by large corporations, large partnerships and high-income taxpayers. The IRS are examining whether the use of jets is being properly allocated between business and personal use.

Delivering cutting-edge technology, data and analytics to operate more effectively

None of the improvements referenced would be possible without investing in the IRS’ underlying technology infrastructure and data analytics. Thanks to IRA investments, the IRS is deploying new technology to benefit taxpayers and making significant progress on modernizing the IRS’ foundational legacy IT systems. In addition to the items mentioned above, the IRS has enabled bulk filings of Forms 1099, replaced decades-old mail sorting machines, and scanned millions of paper forms.

Source: IRS-2024-223, Aug. 23, 2024

The Internal Revenue Service, state tax agencies and groups in the tax industry hope there’s strength in numbers, and in coordination, when fighting scams.

The new task force, called the Coalition Against Scam and Scheme Threats, will be a joint effort to combat the growth of scams and schemes threatening taxpayers and tax systems.

Convened at the request of IRS Commissioner Danny Werfel, the coalition of federal and state tax agencies, software and financial companies and national tax pro associations will work to expand outreach and education about emerging scams, develop new approaches to identify potentially fraudulent returns at the point of filing and improve infrastructure.

“We will do more to work closely together, share information faster, respond quickly to threats and quickly alert the public to new and emerging threats,” Werfel said. “Our goal is to have a mass effect on this expanding problem that’s spread on social media and through bad actors.”

Other participants include state tax agencies represented by the Federation of Tax Administrators, the Council for Electronic Revenue Communication Advancement, the National Association of Computerized Tax Processors and the American Coalition for Taxpayer Rights. More than 60 groups from the private sector have signed on.

During the past tax season, increased scams leveraged the Fuel Tax Credit, household employment taxes and the Sick and Family Leave Credit. Other schemes continue circulating on social media.

CASST will work to put in place new protections by filing season 2025 and improve the ability to identify and stop scams, including improving EFIN and PTIN validation and new steps to combat ghost preparers.

Source: Accounting Today

The Internal Revenue Service today issued interim guidance for sponsors of 401(k) and similar retirement plans that provide, or wish to provide, matching contributions based on eligible student loan payments made by their participating employees.

Notice 2024-63 PDF, posted today on IRS.gov, implements section 110 of the SECURE 2.0 Act of 2022, which for the first time permits employers to provide matching contributions for employees based on their payments on student loans.

The 2022 legislation permits employers with a 401(k) plan, 403(b) plan, governmental 457(b) plan or SIMPLE IRA plan to provide matching contributions based on student loan payments, rather than based only on elective contributions to retirement plans, in plan years beginning after Dec. 31, 2023.

Using a question-and-answer format that includes several illustrative examples, the notice addresses a variety of plan-administration issues. Among other issues, the notice addresses:

• General student loan matching contribution eligibility rules (including dollar and timing limitations).
• What is required for an employee certification that student loan matching contribution requirements have been met.
• Reasonable student loan matching contribution procedures that a plan may adopt.
• Special nondiscrimination testing relief for 401(k) plans that include student loan matching contributions.

The notice applies for plan years beginning after Dec. 31, 2024. In the notice, the IRS said it plans to issue proposed regulations providing further guidance on section 110, but that plan sponsors may rely on the notice until the proposed regulations are issued.

The IRS welcomes public comments on this notice, which provides details on how to submit comments.

Source: IRS-2024-217, Aug. 19, 2024

A coalition representing the Internal Revenue Service, state tax agencies and the spectrum of the nation’s tax industry today announced a new joint effort to combat the growth of scams and schemes threatening taxpayers and tax systems.

The new combined effort follows a variety of increased scams and schemes that intensified during the past filing season that aimed to exploit vulnerable taxpayers while enriching fraudsters and promoters.

Convened at the request of IRS Commissioner Danny Werfel, the coalition of federal and state tax agencies along with software and financial companies as well as key national tax professional associations agreed to a three-pronged approach. They will work to expand outreach and education about emerging scams, develop new approaches to identify potentially fraudulent returns at the point of filing and create infrastructure improvements to protect taxpayers as well as federal, state and industry tax systems.

The new task force will be called the Coalition Against Scam and Scheme Threats (CASST).

“Across the spectrum of the tax system, we’ve seen a rising tide of scams and schemes that try to exploit taxpayers and find gaps in government and industry defenses,” Werfel said. “This new collaborative approach will allow the private and public sectors to throw our combined weight against this threat. We will do more to work closely together, share information faster, respond quickly to threats and quickly alert the public to new and emerging threats. Our goal is to have a mass effect on this expanding problem that’s spread on social media and through bad actors.”

The new CASST project has wide support across the nation’s tax community. In addition to the IRS, other participants include state tax agencies represented by the Federation of Tax Administrators as well as the leading software and financial industries working in the tax space and key national tax professional organizations. The Council for Electronic Revenue Communication Advancement, the National Association of Computerized Tax Processors and the American Coalition for Taxpayer Rights are among those that have signed on to support the initiative. In all, more than 60 different groups from the private sector have signed on to the initiative, either individually or as part of a group.

“The FTA membership is dedicated to protecting taxpayers from fraudulent attacks on the country’s tax ecosystem,” said Federation of Tax Administrators Executive Director Sharonne Bonardi. “We are committed to continuing our collaborative efforts by working with the IRS, industry and other stakeholders to implement strategies that allow for proactive detection, prevention and mitigation of scams and schemes deployed by bad actors intending to defraud tax agencies.”

The new coalition is an outgrowth of the Security Summit effort, and while the new collaborative effort will not replace the Summit, the scams coalition will be closely modeled on the Summit. The Security Summit was launched in 2015 by the same groups to stem the growth in tax-related identity theft. The combined effort improved information sharing between the groups, identified common approaches to combat tax-related identity theft, improved internal tax system defenses and conducted extensive public awareness campaigns for taxpayers and tax professionals. While tax-related identity theft remains a concern, the improved protections have protected millions of taxpayers and prevented billions of dollars of fraudulent payments.

For this new project targeting scams, the CASST task force has agreed to high-level principles. The purpose of the group will be to better protect taxpayers from falling prey to unscrupulous actors by leveraging multilateral relationships across the tax ecosystem to minimize the filing of fraudulent tax returns.

“CERCA is pleased to work with the IRS and the states to combat the proliferation of ‘scams and schemes’ that are victimizing millions of Americans,” said Shannon Bond, chair of the Council for Electronic Revenue Communication Advancement. CERCA represents companies in the tax software and preparation industries as well as financial service groups and others in the tax community. “Continuing our long partnership with the IRS, CERCA stands shoulder to shoulder with both the federal government and the states to reduce first-party fraud, which threatens the viability of tax systems and imperils vulnerable taxpayers.”

During the past tax season, there has been increased activity involving a variety of scams and schemes harming taxpayers, including the Fuel Tax Credit, household employment taxes and the Sick and Family Leave Credit. The IRS has seen hundreds of thousands of dubious claims come in where it appears taxpayers are claiming credits for which they are not eligible, leading to refunds being delayed and the need for taxpayers to show they have legitimate documentation to support these claims.

Numerous other scams and schemes continue to be seen circulating on social media and are highlighted through efforts including the annual IRS Dirty Dozen list and alerts from the Security Summit partners. The new approach will increase collaborative efforts to raise awareness and education about schemes, not just during tax season but throughout the year.

With the new scam and scheme initiatives, the IRS, states and the private sector will work to put in place new protections by filing season 2025. The combined effort is particularly important because the group has seen instances where scammers look for weak points in government systems and the private sector to exploit. The combined effort will improve defenses across both the private and public sector with a goal of making it more difficult for scammers to slip improper or false tax returns through the system.

The group will also work to make long-term structural changes to fundamentally improve the ability to identify and stop scams. This includes working to improve EFIN and PTIN validation and new steps to combat “ghost preparers,” who prepare tax returns for a fee and do not in any way sign a tax return or disclose their role on the tax return as the preparer. In many cases, these are inflated tax refunds that lead to millions in revenue loss and add risk for taxpayers who file potentially improper claims with only the individual’s name associated with the tax return.

Source: IRS-2024-215, Aug. 16, 2024

The Internal Revenue Service today reminded taxpayers of the ability to submit electronic requests for relief for certain late-filed international documents.

As part of a step toward full digitalization, the electronic option introduced August 2023, applies to the following filings:

1. Gain recognition agreements,
2. Late-filed dual consolidated losses, and
3. Partnership gain deferral contributions.

How the process works

Requests can be submitted via eFax at 855-582-4842. Guidance for making each request can be found on IRS.gov using the following links:

• Relief for gain recognition agreements
• Late filing relief for dual consolidated losses
• Relief for partnership gain deferral contributions

Benefits for taxpayers and tax administration

The ability for taxpayers to securely communicate with the IRS reduces their correspondence burden while supporting IRS tax administration work. It also helps provide immediate documentation delivery to the IRS.

For IRS employees, transitioning away from the manual mailing process reduces paper documentation and improves processing time, which benefits taxpayers including those living internationally.

Source: IRS-2024-206, Aug. 12, 2024

The Internal Revenue Service today posted an early draft of the updated Form 1099-DA, which is the form for brokers to report certain sale and exchange transactions of digital assets that take place beginning in calendar year 2025. Generally, these forms will be sent separately to taxpayers and the IRS in early 2026.

The new draft of Form 1099-DA, Digital Asset Proceeds From Broker Transactions PDF, reflects the final regulations for custodial broker reporting and includes the transitional relief described in Notice 2024-56, Notice 2024-57 and Revenue Procedure 2024-28. Interested parties can provide the IRS with comments about the draft at the forms and publications comments page on IRS.gov.

“This new form will provide more clarity for taxpayers and give them another tool to help them accurately report their digital assets transactions,” said IRS Commissioner Danny Werfel. “We know third-party reporting greatly improves compliance with the nation’s tax law. This step will also help us make sure digital assets are not used to hide taxable income, including in high-income categories, while providing taxpayers who play by the rules more information to accurately report their income.”

“Digital assets greatly increase the complexity of our tax system, and the IRS continues to work to make improvements in this area as part of our larger efforts to transform the agency,” Werfel added. “We will continue working this area to help ensure the tax laws are met while working to reduce burden wherever possible to help taxpayers in this challenging area.”

As part of the process that will lead to a final version of the form, the IRS posted the new draft of Form 1099-DA to IRS.gov along with the instructions for the recipients of the form. The IRS expects to post the draft instructions for filers soon. Once the draft filer instructions have been posted, a notice will be published in the Federal Register to allow for a 30-day comment period.

The IRS issued a news release at the end of June announcing the final regulations on the reporting requirements for custodial brokers regarding digital assets, while informing the public that the agency would soon release an updated form.

Source: IRS-2024-204, Aug. 9, 2024