New Federal Tax Law May Affect Some Refunds Filed in Early 2017; IRS to Share Details Widely with Taxpayers Starting This Summer
The Internal Revenue Service has announced initial plans for processing tax returns involving the Earned Income Tax Credit and Additional Child Tax Credit during the opening weeks of the 2017 filing season. The IRS is sharing the information now to help the tax community prepare for the 2017 season, and plans are being made for a wider communication effort this summer and fall to alert taxpayers about the changes that will affect some early filers.
This action is driven by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) that was enacted Dec. 18, 2015, and made several changes to the tax law to benefit taxpayers and their families. Section 201 of this new law mandates that no credit or refund for an overpayment for a taxable year shall be made to a taxpayer before Feb. 15 if the taxpayer claimed the Earned Income Tax Credit or Additional Child Tax Credit on the return.
This change begins Jan. 1, 2017, and may affect some returns filed early in 2017. Additional information is listed below.
•To comply with the law, the IRS will hold the refunds on EITC and ACTC-related returns until Feb. 15.
•This allows additional time to help prevent revenue lost due to identity theft and refund fraud related to fabricated wages and withholdings.
•The IRS will hold the entire refund. Under the new law, the IRS cannot release the part of the refund that is not associated with the EITC and ACTC.
•Taxpayers should file as they normally do, and tax return preparers should also submit returns as they normally do.
•The IRS will begin accepting and processing tax returns once the filing season begins, as we do every year. That will not change.
•The IRS still expects to issue most refunds in less than 21 days, though IRS will hold refunds for EITC and ACTC-related tax returns filed early in 2017 until Feb. 15 and then begin issuing them.
This is one more step the IRS is taking to ensure taxpayers receive the refund they are owed. The IRS plans to work closely with stakeholders and IRS partners to help the public understand this process before they file their tax returns and ensure a smooth transition for this important law change.
IRS OPEN THEIR FILING SEASON
The IRS will begin accepting tax returns electronically on Jan. 20. Paper tax returns will begin processing at the same time.
What are My Self-Employed Tax Obligations?
As a self-employed individual, generally you are required to file an annual return and pay estimated tax quarterly.
Self-employed individuals generally must pay self-employment tax (SE tax) as well as income tax. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. In general, anytime the wording "self-employment tax" is used, it only refers to Social Security and Medicare taxes and not any other tax (like income tax).
Before you can determine if you are subject to self-employment tax and income tax, you must figure your net profit or net loss from your business. You do this by subtracting your business expenses from your business income. If your expenses are less than your income, the difference is net profit and becomes part of your income on page 1 of Form 1040. If your expenses are more than your income, the difference is a net loss. You usually can deduct your loss from gross income on page 1 of Form 1040. But in some situations your loss is limited. See Pub. 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ) for more information.
You have to file an income tax return if your net earnings from self-employment were $400 or more. If your net earnings from self-employment were less than $400, you still have to file an income tax return if you meet any other filing requirement listed in the Form 1040 instructions (PDF).
How the ObamaCare Tax Penalty Works
Your tax penalty (shared responsibility fee) for not having insurance is paid on your federal income taxes at the end of the year. If your taxable income is below 133% of the federal poverty level you are exempt from this tax.
2014 = $95 per adult and $47.50 per child per year | or 1% of your income (whichever is greater)
2015 = $325 per person and $162.50 per child per year | or 2% of your income (whichever is greater)
2016 = $695 per person and $347.50 per child per year | or 2.5% of your income (whichever is greater)
2017 = Tax Penalty will increase by the rate of inflation going forward | or 2.5% of your income (whichever is greater)
• If you’re uninsured for just part of the year, 1/12 of the yearly penalty applies to each month you’re uninsured.
• The total penalty for the taxable year cannot exceed the national average of the annual premiums of a bronze-level health insurance plan offered through the health insurance marketplaces.
• The maximum penalty per family is capped at no more than 300% of the minimum penalty (e.g. $695 x 300% = $2,085).
• Children under 18 are assessed at 50% of the minimum penalty.
• The penalty is pro-rated for the number of months you are without health insurance, though there is no penalty for a single gap in coverage of less than 3 months in a year.
• Health insurance plans will provide proof of coverage for their customers so as long as you have health insurance you don’t have to worry about the details.
The Latest Date You Can Sign Up For ObamaCare
You’ll need to sign up for ObamaCare before the end of open enrollment each year or qualify for an extension or exemption.
If you enrolled in a health insurance plan through the Marketplace before March 31, 2014, you won’t have to make the payment for any month before your coverage began.
Marketplace coverage always starts on the first day of a month, and to qualify you must have enrolled by the 15th day of the previous month.
If you missed open enrollment you’ll need to wait until the next enrollment period to use the marketplace. Find out more about open enrollment.
IRS Warns Taxpayers To Be Diligent As Identity Thieves Add New Twist To Phone Scam
For the past several years, the Internal Revenue Service (IRS) has been encouraging taxpayers to file their returns electronically. That’s why it came as a shock to John* (not his real name) when he received a phone call (allegedly) from the IRS advising him that he needed to file his federal income tax return by mail.
The reason? He was (allegedly) the victim of identity theft and as a result, he was not eligible to file electronically: the return and the payment were to be filed by regular mail.
That was the first of a series of communications (allegedly) from the IRS. A subsequent phone call purported to be from IRS Criminal Investigations (IRS-CI) and asked that John return the call to discuss the identity theft. He was also advised that he would be served with a summons at his home if he ignored these communications. The efforts to reach John were pretty persistent: at least once, IRS Criminal Investigations (allegedly) left a voice mail for John and asked that he call back immediately. John saved the message and played the call for me at his office.
Despite the official sounding lingo, John figured out pretty easily that this was a scam. But it sure sounded real.
John isn’t the only taxpayer that got these calls and letters. It’s the latest in a series of scams aimed at taxpayers in an effort to steal your identity. And yes, it’s a bit genius to try and steal your identity by alleging that they’re trying to help you after your identity has already been stolen.
Identity theft is a big problem these days – and taxpayers are not immune from difficulties filing electronically once their identity has been compromised. When identical Social Security numbers show up in the system on different returns, those returns are flagged. The idea that your return could be flagged for something you didn’t do isn’t all that outrageous.
If your return is flagged due to a problem with Social Security numbers or alleged identity theft, the IRS will contact you. The initial contact, however, will most likely be by mail. It’s unlikely to be a phone call – and if you did receive a phone call, you would not be directed to pay over the phone or send your return and payment somewhere other than an IRS Service Center.
And while the IRS is hopeful that you’ll cooperate if you’re the victim of identity theft – that’s how they catch the bad guys – they’re not going to issue a summons to you to compel you to come forward and discuss your case. If you do receive a summons from IRS (it happens), they’re not going to call you in advance to let you know that they’re taping it to your door. That isn’t typically how a summons is served. The IRS doesn’t typically issue a summons as a first step: you’ll receive numerous opportunities in writing to respond to a valid claim by IRS prior to the issuance of a summons.
Of course, while IRS-CI does exist and does fight identity theft, they’re tasked with enforcement efforts, not collections. IRS-CI has approximately 3,700 employees worldwide; about 70% of those employees are special agents who tackle crimes focusing on tax, money laundering and Bank Secrecy Act laws. It’s important that IRS-CI be involved in these investigations because by law, IRS is the only federal agency that can investigate potential criminal violations of the Internal Revenue Code.
In some states, the IRS is working with law enforcement under a pilot program to fight identity theft. The program began in Florida in 2012 and has since expanded to Alabama, California, Georgia, New Jersey, New York, Oklahoma, Pennsylvania and Texas. As part of this program, taxpayers are asked to share certain personal information, including their tax returns, with local law enforcement in an effort to assist with investigation and prosecution of identity theft. Since federal law prohibits the sharing of your tax information with third parties, taxpayers have to agree to allow IRS to release this information to local law enforcement: that’s done using a specific form and is coordinated with IRS and law enforcement. Taxpayers will not be asked to release their information directly to a third party.
I asked IRS about this latest scam – there are so many at this point, it’s hard to keep track. IRS is aware that it’s happening and advise that “[w]e are working with TIGTA and have reported this latest twist in the scams.” TIGTA is the Treasury Inspector General for Tax Administration – they’re tasked with all aspects of work related to tax administration, including working to prevent fraud and abuse involving IRS – or allegedly involving IRS. You can find an entire page on their web site dedicated to IRS impersonation scams.
The IRS also reminds taxpayers be diligent as they work to “protect taxpayers from the ongoing trend of phone scams pretending to be the IRS.” According to IRS, “As a general reminder, if the IRS suspects that you may be the victim of identity theft, you will receive a notice via mail. If you receive a notice from IRS, respond immediately, but we would caution taxpayers to avoid giving out personal information over the phone unless you are positive that you have the real IRS on the line. Keep in mind that the IRS does not take tax payments over the phone; however, we have a number of payment options on our website at www.irs.gov. Additionally, IRS Criminal Investigation does not collect payments of taxes. Taxpayers will find e-file is the safest, fastest and most secure way to file your taxes.”
Of course, identity theft scams sometimes do work – and sometimes your identity really can be compromised. The IRS advises that “[i]f you believe someone may have used your SSN fraudulently to file taxes, please notify the IRS immediately. You will need to fill out the IRS Identity Theft Affidavit, Form 14039. (downloads as a pdf)”
If you have previously been in contact with the IRS about an identity theft problem, and it has not yet been resolved, call the IRS Identity Protection Specialized Unit, toll-free, at 1.800.908.4490.
If you aren’t sure that your identity has been compromised but you have reason to believe that you are at risk because you’ve lost your wallet or have questionable credit card activity, you’ll also want to contact the IRS Identity Protection Specialized Unit (same number: 1.800.908.4490).
As tax season approaches (about two months left until the 2015 season kicks off), it’s likely that these scams will increase, not decrease. And this latest scam shows that fraudsters are trying to stay above the curve by tweaking existing schemes. Even if the methods and scams change, the way that IRS does business remains steady. They won’t ask you for personal information using email or social media as a first contact: your first contact with the IRS is usually by mail. The IRS won’t ask for payment using a pre-paid debit card or wire transfer or ask for a credit card number over the phone. The IRS also does not ask for PINs, passwords or similar confidential access information for credit card, bank or other financial accounts. And the IRS won’t use threatening language or claim that you’ll be reported to other agencies such as the United States Citizenship and Immigration Services (USCIS) or local law enforcement.
If you receive a bogus call from someone purporting to be from IRS, you can report it to TIGTA at 1.800.366.4484. Try to remember as many details about the call so that the authorities can follow-up.
If you’re ever suspicious about a call or other contact, trust your gut. Get a budget number from the person claiming to be from IRS, hang up and then call IRS back at their real number (1.800.829.1040) to resolve your tax matters. Don’t be bullied into giving up personal information over the phone and don’t become a victim.
STANDARD DEDUCTIONS FOR 2014
Family Related Tax Item Updates:
Earned Income Tax Credit (EITC). For 2015, the maximum EITC amount available is $3,359 for taxpayers filing jointly with one child; $5,548 for two children; $6,242 for three or more children (up from $6,143 in 2014) and $503 for no children. Phaseouts are based on filing status and number of children and begin at $8,240 for single taxpayers with no children and $18,110 for single taxpayers with one or more children.
Child Tax Credit. For 2015, the value used to determine the amount of credit that may be refundable is $3,000 (the credit amount has not changed). Keep in mind that this is the value of the expenses used to determine the credit and not the actual amount of the credit.
Kiddie Tax. For 2015, the threshold for the kiddie tax – meaning the amount of unearned net income that a child can take home without paying any federal income tax – is $1,050.
Adoption Credit. For 2015, the credit allowed for an adoption of a child with special needs is $13,400, and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $13,400. Phaseouts do apply beginning at taxpayers with modified adjusted gross income (MAGI) in excess of $201,010 and completely phased out for taxpayers with MAGI of $241,010 or more.
Education Related Updates:
Hope Scholarship Credit. The Hope Scholarship Credit for 2015 will be an amount equal to 100% of qualified tuition and related expenses not in excess of $2,000 plus 25% of those expenses in excess of $2,000 but not in excess of $4,000. That means that the maximum Hope Scholarship Credit allowable for 2015 is $2,500. Income restrictions do apply and for 2015, those kick in for taxpayers with modified adjusted gross income (MAGI) in excess of $80,000 ($160,000 for a joint return).
Lifetime Learning Credit. As with the Hope Scholarship Credit, income restrictions apply to the Lifetime Learning Credit. For 2015, those restrictions begin with taxpayers with modified adjusted gross income (MAGI) in excess of $55,000 ($110,000 for a joint return).
Student Loan Interest Deduction. For 2015, the maximum amount that you can take as a deduction for interest paid on student loans remains at $2,500. Phaseouts apply for taxpayers with modified adjusted gross income (MAGI) in excess of $65,000 ($130,000 for joint returns), and is completely phased out for taxpayers with modified adjusted gross income (MAGI) of $80,000 or more ($160,000 or more for joint returns).
Health Care and Fringe Benefit Updates:
Flexible Spending Accounts. The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending accounts (FSA) edges up to $2,550 for 2015 (up from $2,500).
Qualified Transportation Fringe Benefit. For 2015, the monthly limitation for transportation in a commuter highway vehicle and any transit pass is $130. The monthly limitation for qualified parking is $250.
Federal Estate and Gift Tax Updates:
Federal Estate Tax Exemption. Estates of decedents who die during 2015 have a basic exclusion amount of $5,430,000, up from a total of $5,340,000 for estates of decedents who died in 2014.
Federal Gift Tax Exclusion. The annual exclusion for gifts remains at $14,000 for 2015. The exclusion from tax on a gift to a spouse who is not a U.S. citizen is $147,000, up from $145,000 for 2014.
Miscellaneous (but still important!) Updates:
Foreign Earned Income Exclusion. For 2015, the foreign earned income exclusion finally hits six figures: it’s now $100,800, up from $99,200 for 2014.
Alternative Minimum Tax (AMT) Exemptions. The AMT exemption amount for tax year 2015 is $53,600 for individuals and $83,400 for married couples filing jointly. That compares to $52,800 and $82,100, respectively for 2013. In years past, the AMT was subject to a last minute scramble by Congress to “patch” the exemption but as part of the American Taxpayer Relief Act of 2012 (ATRA), the AMT is permanently adjusted for inflation – that’s why you now see it in this list.
Elective Contribution Limits. The elective deferral limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increased from $17,500 in 2014 to $18,000 in 2015. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $5,500 in 2014 to $6,000 in 2015.
IRA Contributions. The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over remains at $1,000.
If you are an employee, the Withholding Calculator can help you determine whether you need to give your employer a new Form W-4, Employee's Withholding Allowance Certificate to avoid having too much or too little Federal income tax withheld from your pay. You can use your results from the calculator to help fill out the form.
Who Can Benefit From The Withholding Calculator?
Employees who would like to change their withholding to reduce their tax refund or their balance due;
Employees whose situations are only approximated by the worksheets on the paper W-4 (e.g., anyone with concurrent jobs, or couples in which both are employed; those entitled to file as Head of Household; and those with several children eligible for the Child Tax Credit);
Employees with non-wage income in excess of their adjustments and deductions, who would prefer to have tax on that income withheld from their paychecks rather than make periodic separate payments through the estimated tax procedures.
CAUTION: If you will be subject to alternative minimum tax, self-employment tax, or other taxes; you will probably achieve more accurate withholding by following the instructions in Pub 505: Tax Withholding and Estimated Tax.
I glanced at the article on my phone and fired off a quick inquiry to the media department at Internal Revenue Service (IRS) questioning whether it was true. A few minutes later, I sent IRS an apologetic “Doh!” Once I had the chance to sit down at my laptop and read through the piece, it was clear that it was a hoax.
I really should have known better. The headline about Gov. Perry suspending football in Texas should have tipped me off. Or the smiling faces of Sarah Palin and Ted Cruz in the masthead. Or the fact that the link was to the National Report, a satirical news website (in the same vein as The Onion).
I giggled and dismissed it, assuming that nothing would come of it. Apparently, however, news – even fake news – travels fast. By this morning, panicked emails and messages about the story were coming at me fast and furious. I posted a quick link on Facebook dismissing the story as a hoax. But that still didn’t stop the concerns – or the reposts and retweets.
It seems that taxpayers are pretty willing to believe that the story is true. Why is that?
Well, for one, it’s IRS. While statistically, the most recent filing season was pretty smooth for most taxpayers, refunds were delayed for a number of filers – and they weren’t happy about it. The prior year, 2013, the IRS announced that the revised form 8863 delayed refunds for some taxpayers claiming education credits – just as the IRS reported being overwhelmed with refund requests. The result? For two years in a row, a number of taxpayer refunds were delayed – although not purposefully.
The idea that there might be delays in 2015 was then, quite frankly, pretty believable.
Headline on National Report Hoax Article
The timing of the article also followed some recent news – real news – from IRS about expiring tax laws. The so-called “tax extenders” represent about 50 expired tax laws which expired at the end of 2013. In prior years, Congress has mustered up a vote after the start of the tax year to renew those extenders. But this year, with elections looming, Congress doesn’t show any sign of acting. That has some in IRS worried, including IRS Commissioner John Koskinen. Koskinen indicated that IRS might have to delay the 2015 filing season if Congress doesn’t make up its mind soon. In a letter (downloads as a pdf) to Sen. Ron Wyden (D-OR), Chair of the Senate Committee on Finance, Koskinen warned that the failure to make a final decision about the extenders is causing “a great deal of uncertainty” which “if it persists into December or later, could force the IRS to postpone the opening of the 2015 filing season and delay the processing of tax refunds for millions of taxpayers.”
So the notion that refunds could be delayed wasn’t completely out of left field. Both history and politics make the piece pretty believable.
And of course, I’d be remiss if I didn’t point out that the piece is pretty well done. It’s completely straight-face: there’s not even a little bit of a hint inside the article that it’s fake. Championing it as a directive of the Obama administration to save money on interest and borrowing costs? It sounds like it could happen – historically, both North Carolina and California have held tax refunds over concerns about cash flow.
Claiming that the refund delays are limited to individual tax returns while exempting large corporations? In the midst of the Tim Horton/Burger King inversion brouhaha and public outcry over tax schemes utilized by Apple and Twitter, taxpayers could believe that there are two sets of rules: one for individuals and one for corporations.
Adding in “quotes” (yes, quotes in quotes since they aren’t real) from Senator Rand Paul (R-KY) and Senator John McCain (R-AZ) about “working Americans” just adds to the seeming credibility.
But again, remember: it’s not real. Not even a little bit.
While it might feel believable, neither the White House nor the IRS has made any announcement about a scheduled delay to tax season or held refunds. If – and that’s a big if – it were to happen, you’d see it on Forbes (and not on the National Report). Keep checking back with us: our tax coverage will include everything you really need to know for the 2015 tax season.