IRS Tax News

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  • 12 May 2021 3:13 PM | Anonymous

    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 1 million payments in the ninth batch of Economic Impact Payments from the American Rescue Plan.

    Today’s announcement brings the total disbursed so far to approximately 165 million payments, with a total value of approximately $388 billion, since these payments began rolling out to Americans in batches as announced on March 12. 

    The ninth batch of payments began processing on Friday, May 7, with an official payment date of May 12, 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 more than 960,000 payments with a value of more than $1.8 billion.
    • More than 500,000 payments, with a value of over $1 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 460,000 of these “plus-up” payments, with a value of more than $800 million. In all, the IRS has made more than 6 million of these supplemental payments this year.
    • Overall, this ninth batch of payments contains nearly 500,000 direct deposit payments (with a total value of $946 million) with the remainder as paper payments.

    Additional information is available on the first eight batches of Economic Impact Payments from the American Rescue Plan, which processed weekly on April 30, April 23, April 16, 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 third 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.


  • 11 May 2021 4:40 PM | Anonymous

    WASHINGTON — The Internal Revenue Service today provided an overview of some of the key tax provisions in the American Rescue Plan Act.

    Several provisions affect the 2020 tax return people are filling out this filing season, including one exempting up to $10,200 in unemployment compensation from tax and another benefiting many people who purchased subsidized health coverage through either federal or state Health Insurance Marketplaces. In addition, the law also includes a third round of Economic Impact Payments, now going out to eligible Americans, that are generally equal to $1,400 per person for most people, as well as several other key changes for tax-year 2021.

    The best way to keep up with tax law developments is by regularly checking IRS.gov.

    In the meantime, the IRS urges taxpayers who have already filed their 2020 returns to avoid filing amended returns, refund claims or contacting the IRS about obtaining newly-enacted tax benefits. Taking any of these actions now will not speed up a future refund and may even slow down an existing refund claim. Instead, as noted below, the IRS will automatically provide these benefits to eligible filers.

    Retroactive changes for 2020

    Some unemployment compensation not taxed for many

    For tax year 2020 only, the first $10,200 of unemployment compensation is not taxable for most households. This tax benefit is only available to those whose modified adjusted gross income is below $150,000 during 2020. The same income cap applies to all filing statuses.

    This means that those eligible who haven’t filed a 2020 return yet can subtract the first $10,200 from the total compensation received and only include the difference in their taxable income. For couples where both spouses received unemployment compensation, each spouse can subtract $10,200. Details, including a worksheet, are available at IRS.gov/Form1040.

    For any eligible taxpayer who has already filed and reported their compensation as fully taxable, the IRS is automatically adjusting their return and providing them this tax benefit. Refunds, based on this adjustment, are being issued in May and continuing through the summer.

    Repayment of excess Advance Premium Tax Credit suspended

    Taxpayers who purchased health insurance through a federal or state Health Insurance Marketplace won’t report an excess repayment or attach Form 8962, Premium Tax Credit, when they file. Taxpayers use Form 8962 to figure the amount of the premium tax credit (PTC) they are entitled to receive and reconcile it with any advance premium tax credit (APTC) they receive through the Marketplace. If the advance payment was too little, they claim a net premium tax credit. The process remains unchanged for taxpayers claiming a net PTC for 2020. They must file Form 8962 when they file their 2020 tax return.

    However, if the advance payment was higher than their allowable PTC, they need to pay back the difference, known as the excess APTC.

    The new law suspends the repayment requirement for 2020. This means that affected taxpayers do not need to report excess APTC or file Form 8962. The IRS will automatically reduce the repayment amount to zero. In addition, the agency will automatically reimburse anyone who has already repaid their 2020 excess APTC.

    Looking ahead to the 2021 tax season

    Child and dependent care credit increased for 2021 only

    The new law increases the amount of the credit and eligible expenses for child and dependent care, modifies the phase-out of the credit for higher earners and makes it refundable.

    For 2021, the top credit percentage of qualifying expenses increased from 35% to 50%.
    In addition, eligible taxpayers can claim qualifying child and dependent care expenses of up to:

    • $8,000 for one qualifying child or dependent, up from $3,000 in prior years, or
    • $16,000 for two or more qualifying dependents, up from $6,000 before 2021.

    This means that the maximum credit in 2021 of 50% for one dependent’s qualifying expenses is $4,000, or $8,000 for two or more dependents.

    When figuring the credit, employer-provided dependent care benefits, such as those provided through a flexible spending account (FSA), must be subtracted from total eligible expenses.

    As before, the more a taxpayer earns, the lower the credit percentage. But under the new law, more people will qualify for the new maximum 50% credit rate. That’s because the adjusted gross income (AGI) level at which the credit percentage is reduced is raised substantially from $15,000 to $125,000.

    Above $125,000, the 50% credit percentage is reduced as income rises, plateauing at a 20% rate for taxpayers with an AGI above $183,000. The credit percentage level remains at 20% until reaching $400,000 and is then phased out above that level. It is completely unavailable for any taxpayer with AGI exceeding $438,000.

    In 2021, for the first time, the credit is fully refundable. This means that an eligible family can get it, even if they owe no federal income tax.

    Workers can set aside more in a Dependent Care FSA

    For 2021, the maximum amount of tax-free employer-provided dependent care benefits increased from $5,000 to $10,500. This means that an employee can set aside $10,500 in a dependent care FSA, if their employer has one, instead of the normal $5,000.

    Workers can only do that if their employer adopts this change. Interested employees should contact their employer for details.

    Childless EITC expanded for 2021

    For 2021 only, more childless workers and couples can qualify for the Earned Income Tax Credit (EITC), a fully refundable tax benefit that helps many low- and moderate-income workers and working families. That’s because the maximum credit is nearly tripled for these taxpayers and is, for the first time, made available to both younger workers and senior citizens.

    In 2021, the maximum EITC for those with no dependents is $1,502, up from $538 in 2020. Available to filers with an AGI below $27,380 in 2021, it can be claimed by eligible workers who are at least 19 years of age. Full-time students under age 24 don’t qualify. In the past, the EITC for those with no dependents was only available to people ages 25 to 64.

    Another change is available to both childless workers and families with dependents. For 2021, it allows them to choose to figure the EITC using their 2019 income, as long as it was higher than their 2021 income. In some instances, this option will give them a larger credit.

    Changes expanding EITC for 2021 and future years

    Changes expanding the EITC for 2021 and future years include:

    • Singles and couples who have Social Security numbers can claim the credit, even if their children don’t have SSNs. In this instance, they would get the smaller credit available to childless workers. In the past, these filers didn’t qualify for the credit
    • More workers and working families who also have investment income can get the credit. Starting in 2021, the limit on investment income is increased to $10,000. After 2021, the $10,000 limit is indexed for inflation. The current limit is $3,650.
    • Married but Separated spouses can choose to be treated as not married for EITC purposes. To qualify, the spouse claiming the credit cannot file jointly with the other spouse, cannot have the same principal residence as the other spouse for at least six months out of the year and must have a qualifying child living with them for more than half the year.

    Expanded Child Tax Credit for 2021 only

    The new law increases the amount of the Child Tax Credit, makes it available for 17-year-old dependents, makes it fully refundable and makes it possible for families to receive up to half of it, in advance, during the last half of 2021. Moreover, families can get the credit, even if they have little or no income from a job, business or other source.

    Currently, the credit is worth up to $2,000 per eligible child. The new law increases it to as much as $3,000 per child for dependents ages 6 through 17, and $3,600 for dependents ages 5 and under.

    The maximum credit is available to taxpayers with a modified AGI of:

    • $75,000 or less for singles,
    • $112,500 or less for heads of household and
    • $150,000 or less for married couples filing a joint return and qualified widows and widowers.

    Above these income thresholds, the extra amount above the original $2,000 credit — either $1,000 or $1,600 per child — is reduced by $50 for every $1,000 in modified AGI.

    Also, the credit is fully refundable for 2021. Before this year, the refundable portion was limited to $1,400 per child.

    Advance Child Tax Credit payments

    From July through December 2021, up to half the credit will be advanced to eligible families by Treasury and the IRS. The advance payments will be estimated from their 2020 return, or if not available, their 2019 return.

    For that reason, the IRS urges families to file their 2020 return as soon as possible. This includes many low-and moderate-income families who don’t normally file returns. Often, those families will qualify for an Economic Impact Payment or tax benefits, such as the EITC. This year, taxpayers have until May 17, 2021, to file a return.

    To speed delivery of any refund, be sure to file electronically and choose direct deposit. Doing so will also ensure quick delivery of the Advance Child Tax Credit payments, later this year.

    In the next few weeks, eligible families can choose to decline receiving the advance payments. Likewise, families will also be able to notify Treasury and IRS of changes in their income, filing status or number of qualifying children. Details will be available soon.

    The IRS also urges community groups, non-profits, associations, education groups and anyone else with connections to people with children to share this critical information about the Child Tax Credit as well as other important benefits. The IRS will be providing additional materials and information in the near future that can be easily shared by social media, email and other methods.

    For the most up-to-date information on the Child Tax Credit and advance payments, visit Advance Child Tax Credit Payments in 2021.


  • 11 May 2021 1:07 PM | Anonymous

    Revenue Procedure 2021-26 provides guidance with respect to accounting method changes made on behalf of certain foreign corporations.  The procedure accomplishes the following:

    • expands, for a limited period, the availability of automatic consent for controlled foreign corporations (“CFCs”) to change their methods of accounting for depreciation to the alternative depreciation system under section 168(g) in order to ease the burden on CFCs of conforming their income and earnings and profits computations with their qualified business asset investment computations;
    • prescribes terms and conditions for accounting method changes made on behalf of CFCs, to ensure that section 481(a) adjustments resulting from CFCs’ method changes are properly included in computations of tested income and tested loss;
    • clarifies certain aspects of the “150 percent rule” that limits audit protection for CFCs and 10/50 corporations.

    The Treasury Department and the IRS previously announced their intention to issue the guidance set forth in this procedure in the Treasury decision containing the final section 951A regulations published on June 21, 2019. 

    Revenue Procedure 2021-26 will be published in Internal Revenue Bulletin  2021-22 on June 1, 2021.


  • 10 May 2021 3:24 PM | Anonymous

    WASHINGTON – The Internal Revenue Service today issued guidance on the taxability of dependent care assistance programs for 2021 and 2022, clarifying that amounts attributable to carryovers or an extended period for incurring claims generally are not taxable. The guidance also illustrates the interaction of this standard with the one-year increase in the exclusion for employer-provided dependent care benefits from $5,000 to $10,500 for the 2021 taxable year under the American Rescue Plan Act. 

    Because of the pandemic, many people were unable to use the money they set aside in their dependent care assistance programs in 2020 and 2021. Generally, under these plans, an employer allows its employees to set aside a certain amount of pre-tax wages to pay for dependent care expenses. The employee’s expenses are then reimbursed from the dependent care assistance program. 

    Carryovers of unused dependent care assistance program amounts generally are not permitted (although a 2½ month grace period is allowed). However, recent coronavirus-related legislation (the Taxpayer Certainty and Disaster Tax Relief Act of 2020) allowed employers to amend their plans to permit the carryover of unused dependent care assistance program amounts to plan years ending in 2021 and 2022, or to extend the permissible period for incurring claims to plan years over the same period. 

    Today’s Notice 2021-26 clarifies for taxpayers that if these dependent care benefits would have been excluded from income if used during taxable year 2020 (or 2021, if applicable), these benefits will remain excludible from gross income and are not considered wages of the employee for 2021 and 2022. 

    Notice 2021-15, issued in February 2021, states that if an employer adopted a carryover or extended period for incurring claims, the annual limits for dependent care assistance program amounts apply to amounts contributed, not to amounts reimbursed or available for reimbursement in a particular plan or calendar year. Therefore, participants in dependent care assistance programs may continue to contribute the maximum amount to their plans for 2021 and 2022. 

    For more on coronavirus-related tax relief, see IRS.gov.


  • 10 May 2021 2:40 PM | Anonymous

    Revenue Procedure 2021-25 provides the 2022 inflation adjusted amounts for health savings accounts and the maximum amount that may be made newly available for excepted benefit health reimbursement arrangements.

     

    Revenue Procedure 2021-25 will be published in Internal Revenue Bulletin 2021-21 on May 24, 2021.


  • 10 May 2021 2:40 PM | Anonymous

    Notice 2021-26  addresses the taxation of dependent care benefits provided through a dependent care assistance program (DCAP) that are made available in taxable years ending in 2021 and 2022 due to the application of either the carryover or the extension of a claims period made available under § 214 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the Act), enacted as Division EE of the Consolidated Appropriations Act, 2021, Pub. L. 116-260, 134 Stat. 1182 (Dec. 27, 2020) (CAA).  The notice clarifies that if these dependent care benefits would have been excluded from income if used during the taxable year ending in 2020 (or 2021, if applicable), these benefits will remain excludible from gross income and are not wages of the taxpayer for the taxable years ending in 2021 and 2022.  In addition, the notice clarifies that these amounts will not be taken into account for purposes of the application of the limits under § 129 to the other dependent care benefits made available for the taxable years ending in 2021 and 2022.  This is a change from how the § 129 exclusion has been applied to grace period amounts in years prior to the CAA; in those years (and as a continuing general rule), reimbursements of dependent care benefits in excess of the $5,000 statutory amount attributable to a grace period were taxable to recipients

     

    Notice 2021-26, will be published in Internal Revenue Bulletin 2021-21, on May 24, 2021.


  • 07 May 2021 11:11 AM | Anonymous

    WASHINGTON — The Internal Revenue Service today reminds tax-exempt organizations that operate on a calendar-year (CY) basis that certain annual information and tax returns they file with the IRS are due on May 17, 2021. These returns are:

    • Form 990-series annual information returns (Forms 990, 990-EZ, 990-PF, 990-BL)
    • Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or Form 990-EZ
    • Form 990-T, Exempt Organization Business Income Tax Return (other than certain trusts)
    • Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code

    Mandatory Electronic Filing
    Organizations filing a Form 990, 990-PF or 990-N for CY2020 must file their returns electronically. Organizations filing Form 990-EZ for CY2020 received transitional relief and may file electronically or in paper.

    To help exempt organizations comply with their filing requirements, the IRS provides a series of pre-recorded online workshops. These workshops are designed to assist officers, board members, and volunteers with the steps they need to take to maintain their tax-exempt status, including filing annual information returns.

    "We want to make sure everyone in the exempt sector understands their obligations,” said Robert Malone, Exempt Organizations and Government Entities Director. “The IRS offers an interactive walkthrough of the annual Form 990 filing process and other courses that board members and volunteers can take to learn about maintaining their charity’s tax-exempt status."

    Extension of Time to File
    Tax-exempt organizations that need additional time to file beyond the May 17 deadline can request an automatic extension by filing Form 8868, Application for Extension of Time To File an Exempt Organization Return. An organization will be allowed a six-month extension beyond the original due date. In situations where tax is due, extending the time for filing a return does not extend the time for paying tax. The IRS encourages organizations requesting an extension to electronically file Form 8868.

    Auto-revocation
    Under section 6033(j) of the Internal Revenue Code, organizations that fail to file their Form 990 series for three consecutive years automatically lose their exempt status. This is referred to as “auto-revocation.” The IRS is experiencing delays in processing paper returns in our service centers. Although organizations may file their CY2020 Form 990-EZ in paper, the IRS is encouraging them to electronically file their Form 990-EZ. To avoid auto-revocation, this is especially important for organizations that did not file their information returns for CY2018 and CY2019.

    Small tax-exempt organizations may be eligible to file Form 990-N to satisfy their annual information return requirement. These organizations need only eight items of basic information to complete the submission, which must be electronically filed. The Form 990-N due date cannot be extended, but there is no monetary penalty for late submissions. Although there is no monetary penalty for filing Form 990-N late, organizations that failed to file their required Form 990-N for CY2018 and CY2019, and file after May 17, 2021, are auto-revoked.

    What Can an Organization Do if Auto-revoked?
    The IRS publishes a list of, and mails notices to, organizations whose tax-exempt status has been automatically revoked.  The law prohibits the IRS from undoing a proper automatic revocation, but the IRS has procedures in place to assist organizations that believe they have been erroneously listed as auto-revoked. This includes situations where an organization has documentation that it met its filing requirement for one or more years during the three-consecutive-year period. For example, if an organization receives a notice of automatic revocation or is listed as auto-revoked effective May 17, 2021, but has documentation it filed a paper Form 990 EZ or Form 8868 for CY2020 by that date, it can fax us the relevant information (an IRS receipt for a filed return, for example) at (855) 247 6123 to resolve the issue.


  • 06 May 2021 1:47 PM | Anonymous

    Today, the IRS published the latest executive column “A Closer Look,” which features IRS Commissioner Charles Rettig discussing how the IRS is celebrating the achievements of the IRS workforce. “People at the IRS continually demonstrate just how much they care and how important the agency is to our country by their heroic response to events, both planned and unplanned. I continue to be impressed and humbled by their dedication, their commitment, and above all, their ability to rise above the challenges we face,” said Rettig. Read more here. Read the Spanish version here.

    A Closer Look” is a column from IRS executives that covers a variety of timely issues of interest to taxpayers and the tax community. It also provides a detailed look at key issues affecting everything from IRS operations and employees to issues involving taxpayers and tax professionals.

    Check here for prior posts and new updates. Please contact newsroom@irs.gov for any questions or requests for interviews.


  • 05 May 2021 3:34 PM | Anonymous

    WASHINGTON — Today, the Internal Revenue Service, the U.S. Department of the Treasury, and the Bureau of the Fiscal Service announced they are disbursing more than 1.1 million payments in the eighth batch of Economic Impact Payments from the American Rescue Plan.

    Today’s announcement brings the total disbursed so far to approximately 164 million payments, with a total value of approximately $386 billion, since these payments began rolling out to Americans in batches as announced on March 12. 

    The eighth batch of payments began processing on Friday, April 30, with an official payment date of May 5, 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 more than 1.1 million payments with a value of more than $2 billion.
    • More than 585,000 payments, with a value of over $1.2 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 570,000 of these “plus-up” payments, with a value of nearly $1 billion.
    • Overall, this eighth batch of payments contains about 600,000 direct deposit payments (with a total value of $1.1 billion) with the remainder on paper payments.

    Additional information is available on the first seven batches of Economic Impact Payments from the American Rescue Plan, which processed weekly on April 23, April 16, 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 third 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.


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