Tax Tip 2023-62

Finding work can be a hard for anybody and certain groups face even bigger challenges. The Work Opportunity Tax Credit is extended through the end of 2025 to help employers that hire workers certified as members of these groups that face barriers to employment:

• People who receive:
  • Long-term family assistance
  • Long-term unemployment
  • Supplemental Nutrition Assistance Program benefits
  • Supplemental Security Income
  • Temporary Assistance for Needy Families
• Formerly incarcerated individuals
• Qualified unemployed veterans, including disabled veterans
• Designated community residents living in Empowerment Zones or Rural Renewal Counties
• People referred to vocational rehabilitation programs
• Summer youth employees living in Empowerment Zones

Certification requirement
To claim the credit, an employer must first get certification that an individual is eligible. To do this, the employer submits IRS Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit, to their state workforce agency within 28 days after the eligible worker begins work. Employers should not submit this form to the IRS. They should contact their state workforce agency with questions about processing Form 8850.

Figuring and claiming the credit
Eligible businesses claim the Work Opportunity Tax Credit on their federal income tax return. It’s generally based on wages paid to eligible workers during the first year of employment. After the employer receives the Form 8850 certification from the state workforce agency, they can:

• Figure the credit with Form 5884, Work Opportunity Credit
• Claim it on Form 3800, General Business Credit

Special rule for tax-exempt organizations
A special rule allows tax-exempt organizations to claim the credit only for hiring qualified veterans who began work for the organization before 2026. After the employer receives the Form 8850 certification from the state workforce agency, these organizations claim the credit against payroll taxes on Form 5884-C, Work Opportunity Credit for Qualified Tax Exempt Organizations. IRS recommends that qualified tax-exempt employers don’t reduce their required deposits as they wait for the tax credit.

Limitations on the credits
For a taxable business, the credit is limited to the business' income tax liability. Unused credit is subject to the normal carry-back and carry forward rules. For qualified tax-exempt organizations, the credit is limited to the amount of the employer’s share of Social Security tax it owes on wages it paid to qualifying employees.

Upcoming IRS improvements for small business owners

FS-2023-13, May 2023 

As part of National Small Business Week, April 30 to May 6, the Internal Revenue Service wants small business taxpayers to know they will soon see changes to help them better interact with the Internal Revenue Service in ways that work best for them. New improvements to phone service, in-person and online options will allow small business taxpayers get the help they need when they need it.

These improvements are a result of the Inflation Reduction Act (IRA) that passed in August of 2022. The Strategic Operating Plan describes how the agency plans to use funding from IRA to improve customer service and other priorities.

These are some of the enhancements to help small business taxpayers in the near future:

Expanded online service tools

Before next filing season, the IRS will launch Business Online Accounts. This tool is designed with small business taxpayers in mind. Additional features are scheduled to rollout in 2024. As the tool evolves through 2024, small businesses will be able to:

• Use their account to see their tax information, track refunds, and schedule and track payments.
• Access business tax transcripts will also be available online in an easy-to-read format.

Additional ability to respond to notices and file documents online

• The IRS recently launched an online portal for businesses to file Form 1099 series information returns electronically. Businesses used to have to submit these forms by mail.
• later this summer, small business owners will be able to respond to certain notices online like LTR0143C, Signature Missing. The IRS will continue to improve and expand these features.
• By 2024, small business owners will be able to respond to the correction of self-employment income, employment-related identity theft notifications and dozens of other online notices. The IRS will also simplify the language in the notices sent to taxpayers. These notices will have clear instructions on what taxpayers need to do.

Simplified, mobile-friendly forms

• Small business owners who file their own taxes will save time with new simplified tax forms.
• The IRS will modernize tax forms that small businesses most frequently use, including Forms 940, 941 and 944. The updated forms will be streamlined, mobile-friendly and available in multiple languages.

Digitization to eliminate paper-based processes

Improved processing times and faster refunds are on the way as the IRS automates paper-based processes and makes more forms available online. The IRS is expanding its scanning of paper forms to include the most popular forms, Forms 1040 and 941. The IRS is on track to scan millions of returns in 2023, which will save small businesses time and money by speeding up processing and refund delivery.

IR-2023-86: IRS, DOL and HHS issue frequently asked questions about upcoming changes to COVID-19 coverage and payment requirements

WASHINGTON – The Internal Revenue Service, Departments of Labor and Health and Human Services have jointly issued Frequently asked questions, Part 58 and Part 59 to clarify how the COVID-19 coverage and payment requirements under the Families First Coronavirus Response Act (FFCRA), the Coronavirus Aid, Relief and Economic Security Act (CARES Act) will change when the Public Health Emergency (PHE) ends.

Based on current COVID-19 trends, the Department of Health and Human Services is planning for the federal PHE for COVID-19 to end on May 11, 2023. Once the PHE ends, the coverage and payment requirements will change.

Under the FFCRA and the CARES Act, plans and issuers are not required to provide coverage for items and services related to diagnostic testing for COVID-19 that are furnished after the end of the PHE. If they provide such coverage, they may impose cost-sharing requirements, prior authorization or other medical management requirements for the items and services.

Previously issued FAQs are available on the Center for Medicare and Medicaid Fact Sheets & Frequently Asked Questions (FAQs) webpage. 

Revenue Procedure 2023-15 provides a safe harbor method of accounting that taxpayers may use to determine whether expenses to repair, maintain, replace, or improve natural gas transmission and distribution property must be capitalized. To apply this safe harbor method, a taxpayer must first classify its natural gas transmission and distribution property as either linear property (for example, pipe, fittings, and valves) or non-linear property (for example, compressors, regulators, and meters). This revenue procedure then provides methods of accounting for each type of property, specifically, a safe harbor method used for the taxpayer’s linear transmission and distribution property and an optional safe harbor method that the taxpayer may choose to use for its non-linear transmission and distribution property. The revenue procedure also provides procedures for obtaining automatic consent to change to the safe harbor method for linear property and the safe harbor method for non-linear property.

Revenue Procedure 2023-15 will be in IRB: 2023-18, dated 05/01/2023.

IR-2023-83: Reminder: Proposed regulations related to the new clean vehicle critical mineral and battery components go into effect April 18

WASHINGTON — The Internal Revenue Service published proposed regulations today in the Federal Register related to certain requirements that must be met for critical mineral and battery components for the new clean vehicle credit.

The critical mineral and battery component requirements apply to vehicles placed in service on or after April 18, 2023, the day after the Notice of Proposed Rulemaking is published in the Federal Register.

New clean vehicles placed in service on or after April 18, 2023, are subject to the critical mineral and battery component requirements even if the vehicle was ordered or purchased before April 18, 2023.

The Inflation Reduction Act (IRA) allows a maximum credit of $7,500 per vehicle, consisting of $3,750 in the case of a vehicle that meets certain requirements relating to critical minerals and $3,750 in the case of a vehicle that meets certain requirements relating to battery components.

To check if a specific make and model meets the critical mineral and battery components, visit Fuel Economy.gov.

Revenue Ruling 2023-02 confirms that the basis adjustment under section 1014 generally does not apply to the assets of an irrevocable grantor trust not included in the deceased grantor’s gross estate for Federal estate tax purposes. Section 1014 of the Internal Revenue Code does not apply to “step-up” the basis of assets gifted to an irrevocable grantor trust by completed gift in cases in which such assets are not included in the gross estate of the owner of the trust for Federal estate tax purposes. In such cases, even though the grantor trust’s owner is liable for Federal income tax on the trust’s income, the assets of the grantor trust are not considered as acquired or passed from a decedent by bequest, devise, inheritance, or otherwise within the meaning of § 1014(b), and therefore § 1014(a) does not apply.

Revenue Ruling 2023-02 will be in IRB: 2023-16, dated April 17, 2023.

It’s important for taxpayers to file a federal tax return that has a complete and correct reporting of their income – which may mean including income from sources other than regular wages from an employer. Income from gig economy activities and tip income are two common sources of such income.

Gig economy earnings are taxable
The gig economy is activity where people earn income providing on-demand work, services or goods, such as selling goods online, driving a car for deliveries or renting out property. This income is often received through a digital platform like an app or website.

Taxpayers must report income earned from the gig economy on a tax return, even if the income is:

• From part-time, temporary or side work.
• Paid in any form, including cash, property, goods or digital assets.
• Not reported on an information return form like a Form 1099-K, 1099-MISC, W-2 or other income statement.

For more information taxpayers should visit the gig economy tax center page of IRS.gov.

Reporting service industry tips
People who work in restaurants, salons, hotels and similar service industries often receive tips for the customer service they provide. Tips are generally taxable income, and it's important for people working in these areas who regularly receive tips to understand the requirements on reporting tips.

Tips are optional cash or noncash payments customers make to employees.

• Cash tips include those received directly from customers, electronically paid tips distributed to the employee by their employer and tips received from other employees under any tip-sharing arrangement. All cash tips must be reported to the employer, who must include them on the employee's Form W-2, Wage and Tax Statement.

• Noncash tips are those of value received in any medium other than cash, such as: tickets, passes or other goods or commodities a customer gives the employee. Employees don’t report noncash tips to their employer, but they must report the value of them on a tax return.

• Any cash tips the employee didn't report to the employer must be reported separately on Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to include as additional wages with their tax return. The employee must also pay the employee share of Social Security and Medicare tax owed on those tips.

Employees don't have to report tip amounts of less than $20 per month per employer. For larger amounts, employees must report tips to the employer by the 10th of the month following the month they received the tips.

The employee can use Form 4070, Employee's Report of Tips to Employer, available in Publication 1244, Employee's Daily Record of Tips and Report to Employer, or they can use an employer-provided form or other electronic system used by their employer.

For more information on how to report tips taxpayers should review the Tip Recordkeeping and Reporting page of IRS.gov.

WASHINGTON — The Treasury Department and the Internal Revenue Service today issued Notice 2023-20, which provides interim guidance for insurance companies and certain other taxpayers for the new corporate alternative minimum tax (CAMT) until the issuance of proposed regulations.

The Inflation Reduction Act of 2022 created the CAMT, which imposes a 15% minimum tax on the adjusted financial statement income of large corporations for taxable years beginning in 2023. Large corporations, including insurance companies, with average annual adjusted financial statement income exceeding $1 billion are the taxpayers generally affected by the CAMT. The Treasury Department and the IRS have issued Notice 2023-20 to provide certainty to insurance companies and certain other taxpayers.

In particular, Notice 2023-20 provides interim guidance for the determination of adjusted financial statement income as it relates to (1) variable contracts and similar contracts, (2) funds withheld reinsurance and modified coinsurance agreements, and (3) the basis of certain assets held by certain previously tax-exempt entities that received a “fresh start” basis adjustment.

Notice 2023-20 also solicits comments on the rules contained in the notice and certain other issues under consideration. The Treasury Department and the IRS recommend that such comments be submitted by April 3, 2023.

More information may be found on the Inflation Reduction Act of 2022 page on IRS.gov.

WASHINGTON — The Internal Revenue Service announced today that taxpayers who receive certain notices requiring them to send information to the IRS now have the option of submitting their documentation online through IRS.gov.

This new secure step will allow taxpayers or their tax professional to electronically upload documents rather than mailing them in, helping reduce time and effort resolving tax issues.

In this stage of the ongoing effort, nine notices will be available for this feature. This potentially can help more than 500,000 taxpayers each year who receive these notices, which include military personnel serving in combat zone areas and recipients of important credits like the Earned Income Tax Credit and Child Tax Credit.

“This capability is another step forward by the IRS to help taxpayers and improve service,” said IRS Acting Commissioner Doug O’Donnell. “This provides immediate benefits to taxpayers, who have nearly instant confirmation that documents were received by the IRS. In turn, this will dramatically speed up the resolution of issues by removing a time-consuming step in the process. This means people can have their issues resolved much faster, including getting refunds to affected taxpayers faster. We will continue to look at improvements like this as we work to transform the IRS following passage of the Inflation Reduction Act last year.”

Initially, the online correspondence feature will be available to taxpayers who receive one of nine IRS notices. For the most part, the IRS sends these notices to individual tax filers claiming various tax benefits, such as the Earned Income Tax Credit for low- and moderate-income workers, the Child Tax Credit for families with dependents, the Premium Tax Credit for those who obtain health coverage through the Health Insurance Marketplace and members of the military claiming combat zone tax benefits.

Taxpayers receiving these notices can respond securely to IRS online, regardless of whether they have an IRS Online Account.

IRS created the Document Upload Tool

IRS information technology specialists developed a prototype for the Document Upload Tool  in 2021. Since then, the IRS has been testing this feature on a limited number of exam-related notices, and 38% of the responses to these notices have used the agency’s secure electronic communications rather than traditional mail.

How it works

Language on the notice informs the taxpayer to, “Send us your documents using the Documentation Upload Tool within 30 days from the date of this notice.” It includes the link and a unique access code.

• The taxpayer can open the link in any browser and then input their unique code, their first and last name and their Social Security, Individual Taxpayer Identification or Employee Identification number.
• The taxpayer can then securely upload scans, photos or digital copies of documents (maximum of 15MB per file, up to 40 files).
• The taxpayer receives a confirmation that the IRS received their documents, and the IRS employee assigned the case can manage the transmitted documents.

What notices qualify?

Taxpayers who receive one of the following notices with the link and access code can choose to upload their documents:

• CP04, relating to combat zone status.
• CP05A, information request related to a refund.
• CP06 and CP06A, relating to the Premium Tax Credit.
• CP08, relating to the Child Tax Credit.
• CP09, relating to claiming the Earned Income Tax Credit.
• CP75, relating to the EITC.
• CP75a, relating to the EITC.
• CP75d, relating to the EITC and other credits.

Future expansion planned

In the coming months and years, the IRS plans to expand this capability to dozens of other notices. In addition, the IRS will offer digital correspondence on a variety of other taxpayer interactions. During live interactions such as phone calls with taxpayers, IRS employees will be able to grant upload access by providing the link and unique access code.

With secure digital correspondence, everybody wins

For taxpayers and tax professionals working with the IRS, this new capability reduces the correspondence burden, ensures tax compliance and improves the customer experience. For IRS employees, this reduces paper correspondence, decreases processing time and speeds case resolution.

For more information, see the fact sheet Resolving cases with secure digital correspondence for taxpayers on IRS.gov.

WASHINGTON — With the nation entering a peak period for filing taxes, the Internal Revenue Service urges taxpayers to use online tools to get answers quickly and avoid phone delays during a traditional peak period for IRS phone lines around Presidents Day. 

Presidents Day weekend, when many people prepare their taxes, historically marks a peak period for IRS phone lines. During the two week February period following Presidents Day, the IRS recommends turning first to the self-help tools available online on IRS.gov to avoid delays.

“The IRS continues to see improvements this tax season compared to previous years, including better phone service,” said IRS Acting Commissioner Doug O’Donnell. “But we always see a significant surge in phone traffic around Presidents Day. With the calendar advancing, millions of people turn their attention to taxes during this period. To avoid potential delays, we encourage people to check IRS.gov first, which can provide much of the same information instantly to taxpayers.”

Easy-to-use and available anytime, the IRS website can help taxpayers file and pay taxes, find information about their accounts, determine eligibility for tax credits and get answers to tax questions.

And when it comes time to file, taxpayers are encouraged to e-file and choose direct deposit to get their refunds as quickly as possible.

Available IRS tools to help taxpayers through tax filing season
The IRS recommends trying the following self-help resources available to taxpayers 24/7 for a smooth and easy tax filing experience.

• IRS.gov offers a variety of online tools to help taxpayers answer common tax questions. For example, taxpayers can search the Interactive Tax Assistant, Tax Topics and Frequently Asked Questions to find answers.
• The Earned Income Tax Credit Assistant allows taxpayers to check eligiblity for this valuable credit. Taxpayers can also calculate how much EITC they may get and find answers to EITC questions.
• IRS Online Account gives taxpayers secure access to personal tax account information including balance, payments and tax records with previous year’s adjusted gross income information.
• The IRS offers basic tax information in several languages to help taxpayers get the information they need to file a federal tax return and pay any tax owed.
• IRS Free File provides eligible taxpayers who want to prepare their own returns free tax preparation and the Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) programs offer free tax help from certified volunteers at thousands of sites across the country.
• The “Where’s My Refund?” tool on IRS.gov and the IRS2Go app allow taxpayers to check the status of their refund within 24 hours after the IRS accepts their e-filed tax return. Where's My Refund? updates once every 24 hours, usually overnight, so taxpayers don’t need to check more than once a day. Tax law prevents the IRS from issuing refunds that include the EITC and/or the Additional Child Tax Credit before Feb. 15. But not to worry, “Where’s My Refund?” should provide an updated refund status for most early filers by Feb. 18 and EITC/ACTC related refunds should be available in taxpayer bank accounts or on debit cards by Feb. 28 if they chose direct deposit and there are no other issues with their tax return.
• The Tax Withholding Estimator can help taxpayers determine the right amount of tax to have withheld from a paycheck. Taxpayers should submit a new Form W-4 to their employer if an adjustment is needed.
• The IRS Services Guide and the Let Us Help You page on IRS.gov can help taxpayers find additional ways to get help.

For those who need to talk to someone, the IRS has hired an additional 5,000 customer service representatives to help staff its toll-free customer service line. IRS Taxpayer Assistance Centers or TACs are another resource for individuals who need more than online tools or the IRS toll-free customer service line to solve a tax matter. Anyone who needs face-to-face service should make an appointment or check for special Saturday hours before visiting.  

Missing information?
Taxpayers should call employers for missing Forms W-2. Those who did not receive a Form W-2, Wage and Tax Statement, from one or more employers by Jan. 31 should contact the issuer to inform them of the missing form.

Those who do not get a response from an issuer must still file on time and may need to use Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRA's Insurance Contracts, Etc.
 
For a copy of Form 1099 or 1042 to report Social Security income, visit the Social Security Administration website. These forms can be downloaded through my Social Security account. It’s fast and secure.