by | Jul 1, 2021 | Tax Tips and News
The Internal Revenue Service has rolled out a new online tool that’s built to help families register for monthly Advance Child Tax Credit payments. The tool is tailored to the needs of families who are eligible for the advance payments, but don’t normally file an income tax return.
The Non-Filer Sign-Up tool, though, does more than just register taxpayers for the CTC payments. It can also help these taxpayers register for the third round of Economic Impact Payments or claim the Recovery Rebate Credit for any of the first two rounds of EIPs they may have missed.
The challenge for the IRS is to get eligible individuals who don’t normally make enough income to file a yearly tax return to give their information to the agency so they can actually receive the CTC advance payments. The IRS needs the basic information—such as name, address, Social Security numbers and information on dependents—to figure and issue the CTC advances.
IRS Commissioner Chuck Rettig says many times, these individuals and families may have little or no income; they may even be experiencing homelessness, or be a part of another underserved group.
“We have been working hard to begin delivering the monthly Advance Child Tax Credit to millions of families with children in July,” said Commissioner Rettig. “This new tool will help more people easily gain access to this important credit as well as help people who don’t normally file a tax return obtain an Economic Impact Payment. We encourage people to review the details about this important new effort.”
No action needed by most eligible taxpayers
The new tool should not be used by families who’ve already filed—or plan to file—2019 or 2020 income tax returns. Also, those who want to claim other tax credits, such as the Earned Income Tax Credit (EITC) for low- and moderate-income families, shouldn’t use the online tool, but should file a regular tax return instead.
The IRS also reminds that there are scams related to the Advance Child Tax Credit payments and Economic Impact Payments. The only way to get either of these payments is to either file a tax return with the IRS, or to register online using the Non-Filer Sign-Up tool. It is available only on IRS.gov. Any other option is a scam.
For more information on the Advance Child Tax Credit payments, check out our Taxing Subjects blog.
More tools are on the way
The IRS says it will update its Advance Child Tax Credit 2021 page in the coming weeks with some new tools, including:
- An interactive Child Tax Credit eligibility assistant to help families determine whether they qualify for the Advance Child Tax Credit payments.
- Another tool, the Child Tax Credit Update Portal, will initially enable anyone who has been determined to be eligible for advance payments to see that they are eligible and unenroll or opt out of the advance payment program. Later, it will allow people to check on the status of their payments, make updates to their information and be available in Spanish.
Source: IRS unveils online tool to help low-income families register for monthly Child Tax Credit payments.
– Story provided by TaxingSubjects.com
by | Jul 1, 2021 | Tax Tips and News
Most times, businesses pay their employees for the work they do, and set aside a portion of those wages to in turn, pay Uncle Sam. But what if the business has to pay someone who isn’t technically an employee?
Enter nonemployee compensation.
Form 1099-NEC, Nonemployee Compensation, is used to help collect taxes from those who get paid for services to a company or nonprofit organization while not being a full employee.
The law demands that anyone who earns $600 or more in nonemployee compensation in a year has to report the payments using Form 1099-NEC.
The deadline for filing Form 1099-NEC is Jan.31. For 2021 returns, there is no automatic 30-day extension of time to file. However, hardship cases may be able to qualify for an extension.
The IRS says a Form 1099-NEC has to be issued for each person that a business or nonprofit group paid for:
- Services performed by someone who is not their employee (including parts and materials);
- Cash payments for fish (or other aquatic life) they purchased from anyone engaged in the trade or business of catching fish; or
- Payments to an attorney.
Some specific kinds of payments don’t have to be listed on the Form 1099-NEC. For a full list, see the Instructions for Forms 1099-MISC and 1099-NEC on the IRS website.
Backup Withholding
If a person due nonemployee compensation hasn’t supplied the payer with a Taxpayer Identification Number (TIN), or if the IRS says the payee’s TIN doesn’t match their records, backup withholding may be necessary.
A valid TIN can be a Social Security number; employer identification, individual taxpayer identification or adoption taxpayer identification.
Backup withholding may apply to most kinds of payments that are reported on Form W-2G and the various Forms 1099. It is defined as the taxpayer’s requirement to withhold a certain percentage of tax from income not otherwise subject to withholding.
The person or business paying the taxpayer doesn’t generally withhold taxes from some kind of payments, yet there are cases when the payer is required to withhold a percentage of tax due the IRS.
At present, the current backup withholding tax rate is 24%.
For more information see the Instructions for Forms 1099-MISC and 1099-NEC; the General Instructions for Certain Information Returns; or Publication 15, Employer’s Tax Guide (Circular E).
Sources: Businesses must report nonemployee compensation and backup withholding; Instructions for Forms 1099-MISC and 1099-NEC.
– Story provided by TaxingSubjects.com
by | Jul 1, 2021 | Tax Tips and News
The Internal Revenue Service has unveiled a pair of new tools to help families manage and monitor advance monthly payments of the Child Tax Credit, made possible by the American Rescue Plan.
The new tools join the Non-Filer Sign-up Tool that helps families who aren’t normally required to file an income tax return to file a return and register for the Child Tax Credit.
The Child Tax Credit Eligibility Assistant allows families to determine if they qualify for the advance credit just by answering some questions.
The Child Tax Credit Update Portal can verify taxpayers are eligible for the advance CTC payments. This tool can also be used to unenroll taxpayers from the advance payments if they choose, so they can get a lump sum when they file a tax return next year.
All families need to access the password-protected Portal is internet access and a computer or smartphone.
The Child Tax Credit Eligibility Assistant and the Child Tax Credit Update Portal are both available now on IRS.gov.
“IRS employees continue to work hard to help people receive this important credit,” IRS Commissioner Chuck Rettig said. “The Update Portal is a key piece among the three new tools now available on IRS.gov to help families understand, register for and monitor these payments. We will be working across the nation with partner groups to share information and help eligible people receive the advance payments.”
More features are on the way
A number of updates and upgrades are scheduled for the Child Tax Credit Update Portal by the IRS. Families will soon be able to use the portal to check the status of their payments. Later this month, the IRS expects taxpayers to be able to update bank account information for advance CTC payments. Next month, an upgrade is planned that will let taxpayers change their mailing address.
In late summer and fall, taxpayers should be able to use the Portal to update their family status and changes in income. More on these improvements can be found on the tool’s FAQs on IRS.gov.
Ahead of all the upgrades, though, the initial version of the Portal and its unenrollment feature are worthy of the spotlight.
Some families might prefer to wait until the end of the year and get the full credit amount as a tax refund from their 2021 return, instead of getting the advance payments. The Portal gives these taxpayers an easy way to opt out of the monthly CTC payments.
Unenrollment might also help those families that no longer qualify for the Child Tax Credit – or think they won’t qualify when they file a 2021 tax return.
There are three main ways this could happen:
- Their income in 2021 is too high to qualify them for the credit.
- Someone else (an ex-spouse or another family member, for example) qualifies to claim their child or children as dependents in 2021.
- Their main home was outside of the United States for more than half of 2021.
ID verification required for portal access
Users who want to access the Child Tax Credit Portal first have to verify their identity. Those without an existing IRS account will have to verify their identity with a kind of photo identification that uses ID.me, a trusted third-party vendor for the IRS. This important security check will keep taxpayers’ accounts secure and shielded from identity theft.
Users who have an existing IRS username or an ID.me account can use those credentials to sign in, without creating a new account.
Taxpayers without internet access or who otherwise can’t use the online tool to unenroll should contact the IRS using the telephone number included in their IRS outreach letter.
Check eligibility first
The first stop for taxpayers and their families should be the Child Tax Credit Eligibility Assistant. Here, families can see if they are qualified for the Child Tax Credit and its advance payments.
This simple tool uses a series of questions to determine if the taxpayer qualifies.
It should be noted that this is merely an eligibility tool, not a site to register, so no personal information is requested or used. But it is critical in determining whether the taxpayer should go on and either file a tax return or register using the Non-Filer Sign-up Tool.
For details on the provisions of the Advance Child Tax Credit, check out our Taxing Subjects blog on the CTC or visit the IRS web page Advance Child Tax Credit Payments in 2021.
The IRS page has direct links to all three tools mentioned here, a list of frequently asked questions and other resources.
Sources: IRS announces two new online tools to help families manage Child Tax Credit payments.
– Story provided by TaxingSubjects.com
by | Jun 8, 2021 | Tax Tips and News
Millions of Americans paid taxes on their unemployment compensation before learning that an exclusion was introduced by legislation a month into filing season. So, the Internal Revenue Service is now sending some of those taxpayers a refund to satisfy the new law.
Some 13 million taxpayers could be eligible for the adjustment. The IRS says the refund is an effort to spare those taxpayers from the hassle of filing an amended tax return. Not all of those taxpayers will actually see their refund per se; the IRS says some refunds will be used to pay tax due or other debts, while other taxpayers won’t see a change at all.
So far, the IRS has checked just over 3 million returns, with more than 2.8 million taxpayers getting a refund.
The change applies to TY 2020
“The American Rescue Plan Act of 2021 (ARP) excluded up to $10,200 in unemployment compensation per taxpayer paid in 2020,” the IRS explains. “The $10,200 is the maximum amount that can be excluded when calculating taxable income; it is not the amount of refunds.”
The IRS says that it began reviewing returns that were “filed prior to the enactment of ARPA to identify the excludible unemployment compensation.” As a result, the reviews are also checking for any changes in the Earned Income Tax Credit (EITC), Premium Tax Credit, or Recovery Rebate Credit that would result from the exclusion.
Despite the IRS’ effort to save taxpayers the trouble of amending their return, some people will have to do just that to get their benefits. For example, taxpayers who have qualifying children and become eligible for the EITC after the exclusion is calculated may have to file an amended return to claim their new benefits.
The IRS says it can adjust tax returns where the taxpayer is single with no children and becomes eligible for the EITC, as well as those returns where EITC was claimed and the qualifying children have been identified.
The refunds will continue
These unemployment exclusion-related refunds will be sent out periodically, with more due out in a few weeks. The cycle of review-and-refund will continue through the summer; the IRS is working the simplest returns first and progressing on to more complex tax returns as the process progresses.
Further, the IRS says it is sending letters to taxpayers who get an adjustment to let them know they’ll receive a refund—or that their adjustment is being used to pay a tax debt or some other type of authorized debt.
The agency says the letters are generally sent within 30 days of the adjustment.
Source: IR-2021-123
– Story provided by TaxingSubjects.com
by | Jun 6, 2021 | Tax Tips and News
By most measures, 2021 is shaping up to be much better than 2020. The coronavirus appears to be less of a threat, the economy is beginning a comeback, and the American Rescue Plan is expanding some tax credits for parents and others with children.
The American Rescue Plan (ARP) was passed by Congress earlier this year. The new law sent out direct Economic Impact Payments to millions of Americans. But it also changed tax laws for 2021—and beyond.
Earned Income Tax Credit (EITC)
The EITC has been a workhorse tax credit for some time now, providing working families with a needed tax break. The ARP expands the credit, so more workers and working families who also have investment income can qualify for the EITC.
Starting this year, qualified filers can receive up to $10,000 in investment income and still be eligible for the EITC. The new law also opens doors for separated spouses.
Those who are married but separated can now qualify for the EITC if they live with their qualifying child for more than half the year and can satisfy one of these two requirements:
- The taxpayer doesn’t “have the same principal place of abode as the other spouse for at least the last six months of tax year for which the EITC is being claimed”
- The taxpayer is “legally separated according to their state law under a written separation agreement or a decree of separate maintenance and does not live in the same household as their spouse at the end of tax year for which the EITC is being claimed”
Child Tax Credit (CTC)
The Child Tax Credit saw four major changes that apply only for the 2021 tax year. The American Rescue Plan increased the amount of the credit and made the CTC available for qualifying children who turn age 17 in 2021.
But the ARP made two more changes that millions of families are likely to see firsthand. The CTC was also made fully refundable for most taxpayers and for the first time, qualified taxpayers will be able to get half of the estimated 2021 credit—in advance.
Those taxpayers with qualifying children under age 18 at the end of 2021 can now get the full credit even if they have little or no income.
Before this year, the credit was capped at $2,000 per qualifying child and was refundable up to $1,400 per child. The American Rescue Plan boosts the credit limit to $3,000 per child aged 6 through 17 at the end of 2021; the cap rises to $3,600 each for children age 5 and under at the end of 2021.
The ARP also expands the number of taxpayers who will get cold cash in their pockets from the Child Tax Credit. The credit is fully refundable for those who have their main homes in the U.S. for more than half the tax year. Bona fide residents of Puerto Rico enjoy the same privilege.
If a taxpayer qualifies for the fully refundable credit, the normal $1,400 cap does not apply. A taxpayer qualifies for the maximum credit if they have a modified adjusted gross income of:
- $75,000 or less for single filers and married persons filing separate returns
- $112,500 or less for heads of household
- $150,000 or less for married couples filing jointly and qualifying widows and widowers
Above these levels, the credit begins a phase-out.
Advance Child Tax Credit Payments
The IRS says it expects to send out advance payments of the Child Tax Credit from July 15 through December of this year. Eligible taxpayers will get half of their estimated 2021 CTC in monthly payments during that time.
The payments will go out to those taxpayers who qualify for the Child Tax Credit and have a main home in the U.S. for at least half of the year. This includes all 50 states and the District of Columbia. American military personnel who are stationed outside of the country on extended active duty are also eligible, since they are considered to have a main home in the United States.
“The monthly advance payments will be estimated from their 2020 tax return, or their 2019 tax return if 2020 information is not available,” the IRS explains. “Advance payments will not be reduced or offset for overdue taxes or other federal or state debts that taxpayers or their spouses owe.”
Since the advance payments amount to half of the tax credit, taxpayers can claim the remainder when they file their 2021 income tax return.
Source: Looking ahead: How the American Rescue Plan affects 2021 taxes
– Story provided by TaxingSubjects.com
by | Jun 5, 2021 | Tax Tips and News
Uncle Sam is reminding its citizens who live and work outside its borders that their tax deadline is rapidly approaching.
While the bulk of taxpayers had to get their tax returns filed by May 17 this year, U.S. citizens and resident aliens who live abroad—as well as those with dual citizenship—have to file by June 15.
Just like their fellow citizens inside the U.S., those living abroad have to file a tax return with the IRS every year. They usually automatically get a two-month extension of time to file, putting the deadline this year at June 15.
Stateside taxpayers got an extension from April 15 to May 17, but foreign taxpayers didn’t receive another extension beyond the normal postponement.
Even if a foreign-based U.S. taxpayer doesn’t expect to owe tax thanks to tax benefits such as the Foreign Earned Income Exclusion or the Foreign Tax Credit, they’re still required to file an income tax return by the deadline. The tax benefits are only available if they file a return.
The Internal Revenue Service says taxpayers claiming the special June 15 deadline should attach a statement to their return if one of two conditions apply:
- The taxpayer’s tax home and abode are both outside the U.S. and Puerto Rico, or
- The taxpayer was serving in the American military outside the U.S. and Puerto Rico on the regular due date for the return.
Even with the prior extension of time, some taxpayers may not be able to get their return in on time. Individual taxpayers who need more time to file can complete and mail Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Click here to find out where to mail the form.
Businesses that have to file income tax returns should file Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.
Report foreign accounts and other assets
An important part of filing for foreign-based income tax filers is reporting any worldwide income to the IRS. This can include income from foreign trusts and foreign bank or securities accounts.
Taxpayers with this kind of income will generally have to include Schedule B to their tax return. Schedule B’s Part III asks the taxpayer for information on any foreign accounts, and requires the taxpayer to report the country where each account is located.
Some taxpayers may also have to include Form 8938, Statement of Foreign Financial Assets. U.S. citizens, resident aliens and some nonresident aliens usually have to report specified foreign financial assets on this form if the total value of those assets are above certain limits. For details, see the directions for Form 8938.
Another layer of reporting is required for taxpayers who have either an interest in, or signature or other authority over foreign financial accounts with a total value of more than $10,000 at any time during 2020. These taxpayers must electronically file a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts with the Treasury Department.
Form 114 is only available through the BSA E-filing System website.
While the original deadline for filing the annual FBAR report was April 15, FinCEN gives those who missed the deadline an automatic extension until Oct. 15 to file. There’s no need to request the extension.
Foreign-based filers should remember that when reporting income or deductible expenses, the amounts must be reported in U.S. dollars.
FinCEN Form 114 and IRS Form 8938 both require the use of a December 31 exchange rate for all transactions regardless of the actual rate on the date of the transaction.
For information on exchange rates, refer to Foreign Currency and Currency Exchange Rates.
Reporting for expats
Those taxpayers who gave up their U.S. citizenship or ceased to be lawful permanent residents of the U.S. during 2020 have to file a dual-status alien tax return, attaching Form 8854, Initial and Annual Expatriation Statement.
A copy of Form 8854 should also be mailed to this IRS address:
Internal Revenue Service
3651 S IH35 MS 4301AUSC
Austin, TX 78741
The form should be mailed by the due date of the tax return, including any extensions.
For more information, see the instructions for Form 8854 and Notice 2009-85, Guidance for Expatriates Under Section 877A.
More time for some members of the military
Members of the American military can qualify for even more time to file and pay their taxes. If either of these two conditions apply, they can get an additional extension of 180 days to file and pay any tax due:
- They serve in a combat zone or have qualifying service outside of a combat zone or
- They serve on deployment outside the United States away from their permanent duty station while participating in a contingency operation. This is a military operation designated by the Secretary of Defense or results in calling members of the uniformed services to active duty (or retains them on active duty) during a war or a national emergency declared by the President or Congress.
Individuals serving in a combat zone or a contingency operation in support of the Armed Forces are also granted extended deadlines. This includes Red Cross personnel, accredited reporters and civilian personnel acting under the direction of the Armed Forces in support of their forces.
Spouses of those who served in a combat zone or a contingency operation generally are entitled to the same deadline extensions, however, some exceptions apply. Details and other military tax information is available in IRS Publication 3, Armed Forces’ Tax Guide.
More information for foreign-based filers may be found in About Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad; and About Publication 519, U.S. Tax Guide for Aliens.
– Story provided by TaxingSubjects.com
Asfeld Tax Service