IRS Tax News

  • 06 Jan 2012 5:35 PM | Anonymous

    WASHINGTON -The Internal Revenue Service today released a new set of tax gap estimates for tax year 2006. The tax gap is defined as the amount of tax liability faced by taxpayers that is not paid on time.

    The new tax gap estimate represents the first full update of the report in five years, and it shows the nation’s compliance rate is essentially unchanged from the last review covering tax year 2001.

    The tax gap statistic is a helpful guide to the scale of tax compliance and to the persisting sources of low compliance, but it is not an adequate guide to year-to-year changes in IRS programs or to year-to-year returns on IRS service and enforcement initiatives.

    The following table summarizes the new estimates being released today, as compared to the 2001 estimates, along with the total tax liabilities in each year. 

     

    Tax Year 2001
    (billions)

    Tax Year 2006
    (billions)

    Total Tax Liabilities

    $2,112

    $2,660

    Gross Tax Gap

    $345
    (83.7% compliance)

    $450
    (83.1% compliance)

    Enforcement and Late Payments

    $55

    $65

    Net Tax Gap

    $290
    (86.3% compliance)

    $385
    (85.5% compliance)

    The voluntary compliance rate undefined the percentage of total tax revenues paid on a timely basis undefined for tax year 2006 is estimated to be 83.1 percent. The voluntary compliance rate for 2006 is statistically unchanged from the most recent prior estimate of 83.7 percent calculated for tax year 2001.

    On a relative basis, the tax gap is largely in line with the growth in total tax liabilities. In addition, some growth in the tax gap estimate is attributed to better data and improved estimation methods. For example, the IRS developed a new econometric model for estimating the tax gap attributable to small corporations which was then applied to newer operational data. Also, large corporation tax gap estimates for 2006 are based on improved statistical methods and updated data. Finally, the data related to individual income taxpayers continues to improve based on improved estimation techniques and newer data.

    The tax gap can be divided into three components: non-filing, underreporting and underpayment.

    As was the case in 2001, the underreporting of income remained the biggest contributing factor to the tax gap in 2006. Under-reporting across taxpayer categories accounted for an estimated $376 billion of the gross tax gap in 2006, up from $285 billion in 2001. Tax non-filing accounted for $28 billion in 2006, up from $27 billion in 2001. Underpayment of tax increased to $46 billion, up from $33 billion in the previous study.

    Overall, compliance is highest where there is third-party information reporting and/or withholding. For example, most wages and salaries are reported by employers to the IRS on Forms W-2 and are subject to withholding. As a result, a net of only 1 percent of wage and salary income was misreported. But amounts subject to little or no information reporting had a 56 percent net misreporting rate in 2006.

  • 05 Jan 2012 9:45 AM | Anonymous

    WASHINGTON - The Internal Revenue Service today opened the 2012 tax filing season by announcing that taxpayers have until April 17 to file their tax returns. The IRS encourages taxpayers to e-file as it is the best way to ensure accurate tax returns and get faster refunds.

    The IRS also announced a number of improvements to help make this tax season easy for taxpayers. This includes new navigation features and helpful information on IRS.gov and a new pilot to allow taxpayers to use interactive video to get help with tax issues.

    “At the IRS, we’re working hard to make the process of filing your taxes as quick and easy as possible,” said IRS Commissioner Doug Shulman. “Providing quality service is one of our top priorities. It not only reduces the burden on taxpayers, but also helps in filing an accurate return right from the start.”

    Taxpayers will have until Tuesday, April 17 to file their 2011 tax returns and pay any tax due because April 15 falls on a Sunday, and Emancipation Day, a holiday observed in the District of Columbia, falls this year on Monday, April 16. According to federal law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have two extra days to file this year. Taxpayers requesting an extension will have until Oct. 15 to file their 2011 tax returns.

    The IRS expects to receive more than 144 million individual tax returns this year, with most of those being filed by the April 17 deadline.

    The IRS will begin accepting e-file and Free File returns on Jan. 17, 2012. Additional details about e-file and Free File will be announced later this month. IRS Free File provides options for free brand-name tax software or online fillable forms plus free electronic filing. Everyone can use Free File to prepare a federal tax return. Taxpayers who make $57,000 or less can choose from approximately 20 commercial software providers. There’s no income limit for Free File Fillable Forms, the electronic version of IRS paper forms, which also includes free e-filing.

    The IRS also reminds paid tax return preparers they must have and include a Preparer Tax Identification Number (PTIN) on all returns they prepare. All PTINs must be renewed for 2012. Tax return preparers can obtain or renew PTINs online.

    Assistance Options

    The IRS continues to focus on taxpayer service. The best way for taxpayers to get answers to their questions is by visiting the IRS website at IRS.gov. The IRS has updated the front page of the IRS website to make it easier for taxpayers to get key forms, information and file tax returns. The front page also has links to taxpayer-friendly videos on the IRS YouTube channel. More improvements are planned for IRS.gov in the months ahead.  

    Last year, the IRS unveiled IRS2Go, its first smartphone application that lets taxpayers check on the status of their tax refund and obtain helpful tax information. The IRS reminds Apple users that they can download the free IRS2Go application by visiting the Apple App Store and Android users can visit the Android Marketplace to download the free IRS2Go app.

    Individuals making $50,000 or less can use the Volunteer Income Tax Assistance program for free tax preparation and, in many cases, free electronic filing. Individuals age 60 and older can take advantage of free tax counseling and basic income tax preparation through Tax Counseling for the Elderly. Information on these programs can be found at IRS.gov.

    For tax law questions or account inquiries, taxpayers can also call our toll-free number (7 a.m. to 7 p.m. local time) or visit a taxpayer assistance center, the locations of which are listed on IRS.gov.

    Virtual Service

    The IRS has begun a new pilot program where taxpayers can get assistance through two-way video conferencing. The IRS is conducting a limited roll out of this new video conferencing technology at 10 IRS offices and two other sites, and may expand to further sites in the future. A list of locations is available on IRS.gov.

    Check for a Refund

    Once taxpayers file their federal return, they can track the status of their refunds by using the “Where's My Refund?” tool, which taxpayers can get to using the IRS2Go phone app or from the front page of www.IRS.gov. By providing their Taxpayer Identification Numbers, filing status, and the exact whole dollar amount of their anticipated refund taxpayers can generally get information about their refund 72 hours after the IRS acknowledges receipt of their e-filed returns, or three to four weeks after mailing a paper return.

  • 28 Dec 2011 9:16 AM | Anonymous
    WASHINGTON - Nearly 160 million workers will benefit from the extension of the reduced payroll tax rate that has been in effect for 2011. The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits.

    Employers should implement the new payroll tax rate as soon as possible in 2012 but not later than Jan. 31, 2012. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.

    Employers and payroll companies will handle the withholding changes, so workers should not need to take any additional action.

    Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year  amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).

    This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions.  The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS will closely monitor the situation in case future legislation changes the recapture provision.

    The IRS will issue additional guidance as needed to implement the provisions of this new two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to the new “recapture” provision.  For most employers, the quarterly employment tax return for the quarter ending March 31, 2012 is due April 30, 2012.

  • 22 Dec 2011 4:04 PM | Anonymous

    The IRS issued final regulations requiring paid tax return preparers to file a due diligence checklist, Form 8867, with any federal return claiming the Earned Income Tax Credit (EITC) beginning Jan. 1, 2012. This is the same form that is currently required to be completed and retained in a preparer’s records.

  • 22 Dec 2011 4:03 PM | Anonymous

    Due to previously scheduled maintenance on IRS systems, the PTIN system will be unavailable for new applications from 5:00 PM ET on Friday, Dec. 26 until approximately 9:00 AM ET on Monday, Jan. 9. Preparers are still able to renew existing PTINs during this window. We sincerely apologize for the inconvenience. We are exploring ways to mitigate the outage for preparers who cannot meet the December 26 deadline.  More to come on this issue.

  • 22 Dec 2011 10:32 AM | Anonymous

    Employers in “credit reduction” states must remember to calculate a credit reduction as an adjustment to their FUTA tax on their 2011 Form 940 (PDF), Employer's Annual Federal Unemployment (FUTA) Tax Return. “Credit reduction” states are states that did not repay the money they borrowed from the federal government to pay unemployment benefits.

    The Department of Labor determines the credit reduction states for each year. For 2011, employers in these states must reduce their .054 credit on their Form 940 by the following amounts:

    States Reduction Rate
    Arkansas .003
    California .003
    Connecticut .003
    Florida .003
    Georgia .003
    Illinois .003
    Indiana .006
    Kentucky .003
    Michigan .009
    Minnesota .003
    Missouri .003
    Nevada .003
    New Jersey .003
    New York .003
    North Carolina .003
    Ohio .003
    Pennsylvania .003
    Rhode Island .003
    Virginia .003
    Virgin Islands .003
    Wisconsin .003

    Employers in these states must use the Schedule A (Form 940) (PDF) to compute the credit reduction and attach the Schedule A to their Form 940. More information on the credit reduction, including an example on how to calculate the credit reduction is on the Schedule A (Form 940) and also in the Instructions for Form 940 (PDF).

    As a result, if employers pay wages that are subject to the unemployment tax laws of a credit reduction state, the employers must pay additional FUTA tax. Employers must include liabilities owed for credit reduction in calculating their fourth quarter deposit.

  • 20 Dec 2011 3:29 PM | Anonymous

    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; or if any of your current jobs will end before the end of the year, you will probably achieve more accurate withholding by following the instructions in Publication 919, How Do I Adjust My Tax Withholding?

    Tips For Using This Program

    • Have your most recent pay stubs handy.
    • Have your most recent income tax return handy.
    • Estimate values if necessary, remembering that the results can only be as accurate as the input you provide.

    To Change Your Withholding:

    1. Use your results from this calculator to help you complete a new Form W-4, Employee's Withholding Allowance Certificate.
    2. Submit the completed Form to your employer.

     

    Continue to the Withholding Calculator

  • 02 Dec 2011 9:45 AM | Anonymous
    The Affordable Care Act indicates that employers are now required to report the cost of employer-sponsored group health plan coverage on the Form W-2, Wage and Tax Statement. This new reporting requirement is for information only, to inform you about the cost of your health coverage. It does not mean that your employer-provided health care coverage is now subject to tax. Full story
  • 02 Dec 2011 9:44 AM | Anonymous
    If you adopted a child in 2011, you may be eligible for the Adoption Tax Credit. The Affordable Care Act raised the maximum adoption credit to $13,360 per child in 2011. The credit is refundable, meaning that, if eligible, you can get it even if you don’t owe tax for the year. Full story
  • 29 Nov 2011 3:03 PM | Anonymous
    Washington -The Internal Revenue Service today announced that interest rates will remain the same for the calendar quarter beginning Jan. 1, 2012. The rates will be:

    • three (3) percent for overpayments [two (2) percent in the case of a corporation];
    • three (3) percent for underpayments;
    • five (5) percent for large corporate underpayments; and
    • one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

    The 3 percent rate also applies to estimated tax underpayments for the first calendar quarter in 2012 and for the first 15 days in April 2012.

    Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points.

    The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point. Further, the federal short-term rate that applies during the third month following the taxable year also applies during the first 15 days of the fourth month following the taxable year.

    The interest rates announced today are computed from the federal short-term rate during October 2011 to take effect Nov. 1, 2011, based on daily compounding.

    Revenue Ruling 2011-32, announcing the rates of interest, is attached and will appear in Internal Revenue Bulletin No. 2011-52, dated Dec. 27, 2011.

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