WASHINGTON − The IRS urges taxpayers to check into their options to avoid being subject to estimated tax penalties, which apply when someone underpays their taxes. Taxpayers who paid too little tax during 2021 can still avoid a surprise tax-time bill and possible penalty by making a quarterly estimated tax payment now, directly to the Internal Revenue Service. The deadline for making a payment for the fourth quarter of 2021 is Tuesday, Jan. 18, 2022.

Income taxes are pay-as-you-go. This means that taxpayers need to pay most of their tax during the year as income is earned or received. There are two ways to do this:

Act now to avoid a penalty
Either payment method--withholding or estimated tax payments--or a combination of the two, can help avoid a surprise tax bill at tax time and the accompanying penalty that often applies.

If a taxpayer failed to make required quarterly estimated tax payments earlier in the year, making a payment soon to cover these missed payments will usually lessen and may even eliminate any possible penalty. Because the penalty calculation considers the date on which the payment or payments were made, even making a payment now, rather than waiting until the April filing deadline, often helps.

Who needs to make a payment
People who owed tax when they filed their 2020 tax return may find themselves in the same situation again when they file for 2021. This will likely be true, especially if they failed to take action to avoid another shortfall by increasing their withholding during 2021.

People in this situation often include those who itemized in the past but are now taking the standard deduction, two wage-earner households, employees with non-wage sources of income and those with complex tax situations.

In addition, families who received advance payments of the Child Tax Credit during 2021 but don’t expect to qualify for the credit when they file their 2021 return, may need to make an estimated tax payment.

Additional points to consider:

The Tax Withholding Estimator, available on IRS.gov, can often help people determine if they need to make an estimated tax payment.

Alternatively, taxpayers can use the worksheet included with estimated tax form 1040-ES, also available on IRS.gov. In addition, Publication 505, Tax Withholding and Estimated Tax, has additional details, including worksheets and examples, that can be especially helpful to those who have dividend or capital gain income, owe alternative minimum tax or self-employment tax, or have other special situations.

How to make an estimated tax payment
The fastest and easiest way to make an estimated tax payment is to do so electronically using IRS Direct Pay. Taxpayers can schedule a payment in advance for the January deadline.

Taxpayers can now also make a payment through their IRS Online Account. There they can see their payment history, any pending or recent payments and other useful tax information.

The IRS does not charge a fee for these services. Plus, using these or other electronic payment options ensures that a payment gets credited promptly.

For information on other payment options, visit IRS.gov/payments.

Planning ahead
Though it’s too early to file a 2021 return, it’s never too early to get ready for the tax-filing season ahead. For more tips and resources, check out the Get Ready page on IRS.gov.

Revenue Ruling 2022-02 provides the covered compensation tables effective January 1, 2022.

Revenue Ruling 2022-02 will be in IRB:  2022-4, dated January 24, 2022.

Revenue Procedure 2022-08 modifies Rev. Proc. 2022-5 to allow for the new electronic submission process on www.pay.gov of Form 1024, Application for Recognition of Exemption Under Section 501(a) or Section 521 of the Internal Revenue Code. This revenue procedure also provides a 90-day transition relief period, during which paper Form 1024 and letter applications will be accepted and processed by EO Determinations. Rev. Proc. 72-5 and Rev. Proc. 2015-17 are modified and superseded by this revenue procedure.

Revenue Procedure 2022-8 will be in IRB: 2022-4, dated January 24, 2022.

WASHINGTON – As part of ongoing efforts to improve service for the tax-exempt community, the IRS has revised Form 1024, Application for Recognition of Exemption Under Section 501(a) or Section 521 of the Internal Revenue Code, to allow electronic filing.

Beginning Jan. 3, 2022, applications for recognition of exemption on Form 1024 must be submitted electronically online at Pay.gov. The IRS will provide a 90-day grace period during which it will continue to accept paper versions of Form 1024 (Rev. 01-2018) and letter applications.

"Electronic filing makes it easier to complete an application for tax-exempt status while reducing errors," said Sunita Lough, Commissioner of the IRS Tax Exempt and Government Entities division. "Electronic filing also shortens IRS processing time so applicants won’t wait as long for a response."

Organizations requesting determinations under Section 521 are now also able to use the electronic Form 1024 instead of Form 1028, Application for Recognition of Exemption Under Section 521 of the Internal Revenue Code.

The required user fee for Form 1024 will remain $600 for 2022. Applicants must pay the fee through Pay.gov when submitting the form. Payment can be made directly from a bank account or by credit or debit card.

Organizations are encouraged to subscribe to Exempt Organizations Update, a free IRS e-Newsletter, for form updates and other exempt organization news.

As part of the revision, applications for recognition of exemption under Sections 501(c)(11), (14), (16), (18), (21), (22), (23), (26), (27), (28), (29) and 501(d) can no longer be submitted as letter applications. Instead, these requests must be made on the electronic Form 1024.  Accordingly, organizations that are described in Section 501(c) (other than 501(c)(3) and (c)(4)) and 501(d) applying for tax-exempt status must now use the electronic Form 1024. Section 501(c)(3) organizations must continue to use Form 1023 or Form 1023-EZ, and Section 501(c)(4) organizations must continue to use Form 1024-A. Those forms also must be filed electronically.

Additional information on how to apply for IRS recognition of tax-exempt status:
• Applying for Tax-Exempt Status on IRS.gov
• Revenue Procedure 2022-08

Revenue Procedure 2022-11 provides the indexing factor to be used by group health plans and health insurance issuers to calculate the qualifying payment amount (QPA) for items or services provided on or after January 1, 2022, and before January 1, 2023. Temporary regulations, jointly issued with the Departments of Health and Human Services and Labor and the Office of Personnel Management in July 2021, provide the methodology for calculating the QPA, which is generally the plan’s median contracted rate for the same or similar item or service, indexed for inflation. Those temporary regulations provide that the Department of the Treasury and IRS will identify the annual indexing factor in guidance, rounded to 10 decimal places.

Revenue Procedure 2022-11 will appear in IRB 2022-3, dated 1/18/2022.

WASHINGTON — The Internal Revenue Service today reminded employers and self-employed individuals that chose to defer paying part of their 2020 Social Security tax obligation that a payment is due on Jan. 3, 2022.

Most affected employers and self-employed individuals received reminder billing notices from the IRS. The agency noted, however, that those affected are still required to make the payment on time, even if they did not receive a bill.

As part of the COVID relief provided during 2020, employers and self-employed people could choose to put off paying the employer’s share of their eligible Social Security tax liability, normally 6.2% of wages. Half of that deferral is now due on Jan. 3, 2022, and the other half on Jan. 3, 2023.

Under separate COVID relief, employers could choose to forgo withholding Social Security taxes from eligible employees, and instead withhold tax this year and then pay those amounts to the IRS. For details, visit What employers need to know about repayment of deferred payroll taxes on IRS.gov.

How to repay the deferred taxes

Employers and individuals can make the deferral payments through the Electronic Federal Tax Payment System or by credit or debit card, money order or with a check. To be sure these payments are credited properly, they must be made separately from other tax payments.

EFTPS has an option to make a deferral payment. On the Tax Type Selection screen, choose Deferred Social Security Tax and then change the date to the applicable tax period (typically, the calendar quarter in 2020 for which tax was deferred). Visit EFTPS.gov, or call 800-555-4477 or 800-733-4829 for details.

Individual taxpayers can also use Direct Pay, available only on IRS.gov. Select the "balance due” reason for payment. If paying with a debit or credit card, select "installment agreement." Apply the payment to the 2020 tax year where the payment was deferred.

WASHINGTON — The Internal Revenue Service announced today that it will issue information letters to Advance Child Tax Credit recipients starting in December and to recipients of the third round of the Economic Impact Payments at the end of January. Using this information when preparing a tax return can reduce errors and delays in processing.

The IRS urged people receiving these letters to make sure they hold onto them to assist them in preparing their 2021 federal tax returns in 2022.

Watch for advance Child Tax Credit letter

To help taxpayers reconcile and receive all of the Child Tax Credits to which they are entitled, the IRS will send Letter 6419, 2021 advance CTC, starting late December, 2021 and continuing into January. The letter will include the total amount of advance Child Tax Credit payments taxpayers received in 2021 and the number of qualifying children used to calculate the advance payments. People should keep this and any other IRS letters about advance Child Tax Credit payments with their tax records.

Families who received advance payments will need to file a 2021 tax return and compare the advance Child Tax Credit payments they received in 2021 with the amount of the Child Tax Credit they can properly claim on their 2021 tax return.

The letter contains important information that can make preparing their tax returns easier. People who received the advance CTC payments can also check the amount of their payments by using the CTC Update Portal available on IRS.gov.

Eligible families who did not receive any advance Child Tax Credit payments can claim the full amount of the Child Tax Credit on their 2021 federal tax return, filed in 2022. This includes families who don't normally need to file a tax return.

Economic Impact Payment letter can help with the Recovery Rebate Credit

The IRS will begin issuing Letter 6475, Your Third Economic Impact Payment, to EIP recipients in late January. This letter will help Economic Impact Payment recipients determine if they are entitled to and should claim the Recovery Rebate Credit on their tax year 2021 tax returns that they file in 2022.

Letter 6475 only applies to the third round of Economic Impact Payments that was issued starting in March 2021 and continued through December 2021. The third round of Economic Impact Payments, including the “plus-up” payments, were advance payments of the 2021 Recovery Rebate Credit that would be claimed on a 2021 tax return. Plus-up payments were additional payments the IRS sent to people who received a third Economic Impact Payment based on a 2019 tax return or information received from SSA, RRB or VA; or to people who may be eligible for a larger amount based on their 2020 tax return.

Most eligible people already received the payments. However, people who are missing stimulus payments should review the information to determine their eligibility and whether they need to claim a Recovery Rebate Credit for tax year 2020 or 2021.

Like the advance CTC letter, the Economic Impact Payment letters include important information that can help people quickly and accurately file their tax return.

More information about the Advance Child Tax Credit, Economic Impact Payments and other COVID-19-related tax relief may be found at IRS.gov.

As the 2022 tax filing season approaches, the IRS urges people to make sure an accurate tax return and use electronic filing with direct deposit to avoid delays.

WASHINGTON — Victims of Hurricane Ida in six states now have until Feb. 15, 2022, extended from Jan. 3, to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today.

The updated relief covers the entire states of Louisiana and Mississippi, as well as parts of New York, New Jersey, Connecticut and Pennsylvania. The current list of eligible localities is always available on the Around the Nation section of the disaster relief page on IRS.gov.

The updated relief postpones various tax filing and payment deadlines that occurred starting on dates that vary by state:

• Aug. 26, 2021 for Louisiana,
• Aug. 28, 2021 for Mississippi,
• Aug. 31, 2021 for Pennsylvania and
• Sept. 1, 2021 for New York, New Jersey and Connecticut.

As a result, affected individuals and businesses will have until Feb. 15, 2022, to file returns and pay any taxes that were originally due during this period. This means individuals who had a valid extension to file their 2020 return that ran out on Oct. 15, 2021, will now have until Feb. 15, 2022, to file. The IRS noted, however, that because tax payments related to these 2020 returns were due on May 17, 2021, those payments are not eligible for this relief.

The Feb. 15 extended deadline also applies to quarterly estimated income tax payments that were due on Sept. 15, 2021, and Jan. 18, 2022. This means that taxpayers in these areas can now skip making their estimated tax payments for both the third and fourth quarters of 2021 and instead include them when they file their 2021 return.

The Feb. 15 deadline also applies to the quarterly payroll and excise tax returns normally due on Nov. 1, 2021, and Jan. 31, 2022. Businesses with an original or extended due date also have the additional time including, among others, calendar-year partnerships and S corporations whose 2020 extensions ran out on Sept. 15, 2021, and calendar-year corporations whose 2020 extensions ran out on Oct. 15, 2021. It also applies to calendar-year tax-exempt organizations whose 2020 extensions ran out on Nov. 15, 2021.

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2021 return normally filed next year), or the return for the prior year (2020). See Publication 547 for details.

The tax relief is part of a coordinated federal response to the damage caused by Hurricane Ida and is based on local damage assessments by the Federal Emergency Management Agency (FEMA). For information on disaster recovery, visit disasterassistance.gov.

Notice 2022-01 announces that lenders or servicers of certain student loans should not file Forms 1099-C, Cancellation of Debt, or submit payee statements, for student loan debt described in section 9675 of the American Rescue Plan Act of 2021 (American Rescue Plan Act).  That debt discharge is excluded from gross income under section 108(f)(5) of the Code, as amended by the American Rescue Plan Act of 2021 (ARP), Pub. L. 117-2, 135 Stat. 4 (March 11, 2021), for taxable years 2021 to 2025.

Washington—The competent authorities of the United States and Malta signed a competent authority arrangement (CAA) confirming their understanding of the meaning of pension fund for purposes of the United States–Malta income tax treaty (Treaty). The competent authorities have entered into this agreement after becoming aware that U.S. taxpayers with no connection to Malta were misconstruing the pension provisions of the Treaty to avoid income tax on the earnings of, and distributions from, personal retirement schemes established in Malta. 

The CAA confirms the U.S. and Malta competent authorities’ understanding that (except in the case of a qualified rollover from a pension fund in the same country) a fund, scheme or arrangement is not operated principally to provide pension or retirement benefits if it allows participants to contribute property other than cash, or does not limit contributions by reference to income earned from employment and self-employment activities. Because Maltese personal retirement schemes contain these features, they are not properly treated as a pension fund for Treaty purposes and distributions from these schemes are not pensions or other similar remuneration.

The IRS put taxpayers on notice earlier this year that it was reviewing the use of Maltese personal retirement schemes. The IRS is actively examining taxpayers who have set up these arrangements and recognizes that other taxpayers may have filed tax returns claiming Treaty benefits as a result of their participation in these arrangements. These taxpayers should consult an independent tax advisor prior to filing their 2021 tax returns and take appropriate corrective actions on prior filings. 

The IRS also cautions taxpayers against entering into any substantially similar arrangements that would seek to misconstrue the provisions of a bilateral income tax treaty of the United States to avoid income tax. IRS enforcement, both the civil and criminal divisions, is committed to pursuing abuse and those who market and participate in abusive transactions. 

The CAA is available on irs.gov and will be published in the Internal Revenue Bulletin.