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Tax Tips
Identical WagersYou may have to give the payer a statement of the amount of your winnings, if any, from identical wagers. If this statement is required, the payer will ask you for it. You provide this statement by signing Form W-2G or, if required, Form 5754. Identical wagers include two bets placed in a pari-mutuel pool on one horse to win a particular race. However, the bets are not identical if one bet is “to win” and one bet is “to place.” In addition, they are not identical if the bets were placed in different pari-mutuel pools. For example, a bet in a pool conducted by the racetrack and a bet in a separate pool conducted by an offtrack betting establishment in which the bets are not pooled with those placed at the track are not identical wagers.
Issue Number: IR-2008-91 Inside This Issue IRS Sending Stimulus Payment Information to Retirees, Veterans Public Service Announcement: It's Not Too Late To Get Your Stimulus Payment WASHINGTON — The Internal Revenue Service today reminded qualifying retirees and veterans that it is not too late to file for an economic stimulus payment and announced it will send a second set of information packets to 5.2 million people who may be eligible but who have not yet filed for their stimulus payment. The packages will contain everything needed by a person who normally does not have a filing requirement but who must file this year in order to receive an economic stimulus payment. There will be instructions, an example Form 1040A return showing the few lines that need to be completed, and a blank Form 1040A. The packages will be mailed over a three-week period starting July 21. “All it takes is a few simple steps, and the payment can be on its way. It’s not too late to file, but the sooner people file, the faster they’ll receive their money,” said Doug Shulman, IRS Commissioner. The mailing is part of an IRS summer campaign to reach out to those people who have no requirement to file a tax return but who may be eligible for a stimulus payment of up to $300 ($600 for married filing jointly). For those eligible for a payment for themselves, there also is a $300 per child payment for eligible children younger than 17. The IRS has accounted for about 75 percent of the approximately 20 million Social Security and Veterans Affairs beneficiaries identified as being potential stimulus recipients. All but 5.2 million of those have either filed a return, filed a joint return or were not eligible for a stimulus payment (for example, they were claimed as a dependent on another’s return). To reach the remaining recipients, the IRS is working with national partners, members of Congress and state and local officials to ensure that assistance to eligible people is available. The agency also reminded people that it has more than 400 local Taxpayer Assistance Centers operating normal business hours Monday through Friday. These centers can provide assistance to retirees and veterans trying to receive their payments. A list of addresses and office hours can be found at Contact My Local Office. The Economic Stimulus Act of 2008 provided for payments of up to $600 ($1,200 for married filing jointly) for taxpayers who normally file a tax return and have a tax liability. It provided that stimulus recipients could receive another $300 for each eligible child younger than 17. The Act also created a special category for people who had certain types of income but may not file a tax return because their income is too low or their income is nontaxable. People in this category must have at least $3,000 in qualifying income to be eligible for the minimum amount of $300 ($600 married filing jointly). Qualifying income is the total of Social Security, Veterans Affairs and/or Railroad Retirement benefits plus earned income, including nontaxable combat pay People receiving only Supplemental Security Income are not eligible. Eligible people must have a Social Security number (unless their spouse is a member of the military) and be neither a dependent nor eligible to be a dependent on another’s tax return. Receiving the stimulus payment should have no impact on other federal benefits currently being received. The stimulus payment is not taxable. Absent any other filing requirements, filing a tax return to receive a stimulus payment does not mean that retirees and others will have to start filing tax returns again. As of July 11, the IRS had issued 112.4 million payments totaling $91.8 billion. Payments are based on 2007 tax returns being filed this year. People must file by Oct. 15 in order to receive a payment in 2008. Those who do not file a tax return to obtain their stimulus payment this year may still receive their stimulus payments by filing a 2008 tax return next spring, but then their stimulus payment would be based on their 2008 qualifying income. Related Item: Stimulus Payments — It's Not Too Late
Form W-2G. If a payer withholds income tax from your gambling winnings, you should receive a Form W-2G, Certain Gambling Winnings, showing the amount you won and the amount withheld. Report the tax withheld on Form 1040, line 64. Information to give payer. If the payer asks, you must give the payer all the following information.
Your name, address, and social security number.
Whether you made identical wagers (explained below).
Whether someone else is entitled to any part of the winnings subject to withholding. If so, you must complete Form 5754, Statement by Person(s) Receiving Gambling Winnings, and return it to the payer. The payer will use it to prepare a Form W-2G for each of the winners.
Gambling Winnings Income tax is withheld at a flat 25% rate from certain kinds of gambling winnings. Gambling winnings of more than $5,000 from the following sources are subject to income tax withholding.
Any sweepstakes; wagering pool, including payments made to winners of poker tournaments on or after March 4, 2008; or lottery.
Any other wager if the proceeds are at least 300 times the amount of the bet.
It does not matter whether your winnings are paid in cash, in property, or as an annuity. Winnings not paid in cash are taken into account at their fair market value.
Exception. Gambling winnings from bingo, keno, and slot machines are generally not subject to income tax withholding. However, you may need to provide the payer with a social security number to avoid withholding. See Backup withholding on gambling winnings below. If you receive gambling winnings not subject to withholding, you may need to pay estimated tax. See chapter 2.
If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. See chapter 4.
Issue Number: IR-2008-090 Inside This Issue Commissioner Doug Shulman Discusses 10-Year Anniversary of the IRS Restructuring and Reform Act of 1998 Prepared Remarks Before Tax Analysts Conference on RRA '98 WASHINGTON –– Good morning. I would like to thank Chris Bergin for the opportunity to be here today to discuss the IRS Restructuring and Reform Act. I greatly enjoyed my work on the Restructuring Commission, and it is a real pleasure to see here today so many familiar faces from that time – even if we all look a little older. Before I get into a discussion of the Act I would like to make one observation about the IRS. I think we would all agree that, in general, the IRS is viewed as a very efficient and competent tax agency. In fact, it is the tax agency that other tax agencies around the work aspire to emulate. But I must tell you how impressed I am with the workforce and the leadership at the IRS. In my four months on the job, I have seen the incredible dedication and commitment to public service of the people at the IRS. The IRS workforce is highly motivated and clearly understands its mission. Just look at the last few months. This year, the employees and leaders at the IRS delivered another successful filing season. They dealt with the late enactment of the AMT patch in a way that minimized delays for taxpayers. And they still found time to send out more than 112 million stimulus payments totaling about $92 billion. I am very proud to be leading an organization of such fine public servants. Let me turn now to the Restructuring Act. I want to make some observations about the Act and then talk a little about where I think the IRS needs to go and where I hope to lead it during my time as commissioner. As you all know, the Act was a landmark in the history of the IRS. It laid out a fundamental new direction for the agency. And it contains many detailed provisions including 71 new taxpayer rights. As I reviewed the Act to prepare for today, it’s easy to get lost in the trees and fail to see the forest. So I will confine my remarks today to the broader issues that I believe the Act addressed. One of the clear mandates of the Act was for IRS to dramatically improve service to taxpayers. No one can argue that this was not the right thing to do. In the 1990s, service at the IRS fell to unacceptable levels. Getting through the toll-free system to talk to an assistor was a daunting task. And to add insult to injury, once a taxpayer got through, the risk that the information given out was wrong was unacceptably high. In this area, the IRS has shown dramatic improvement. In FY 2007, our toll-free assistor level of service was 82 percent and the tax law accuracy was 91 percent. So we are giving better service, and it is easier to get through. But the toll-free line is no longer the sole way to get help from the IRS. The IRS Web site has become increasingly important in providing taxpayers with the information they need. And taxpayers are becoming more and more comfortable going to the Web. For example, last year, there were 215 million visits to our Web site. That is more than double what it was only five years earlier. And the Web is not just a place to get a form or a publication. We are adding more and more tools to the Web every year. And taxpayers are using them. Last year, we had over 32 million refund status checks using our “Where’s my Refund” application. And this year, we added applications to help taxpayers compute the amount of their stimulus payments and track when the payment would be made. I have talked a little bit about service. I want to now talk a little about enforcement. In the years following the enactment of the Restructuring Act, there were marked declines in certain areas of IRS enforcement. I think there are many reasons for this. But more importantly, I believe that the IRS has now appropriately refocused on its enforcement efforts. I think that the IRS has worked hard to ensure that there is balance between service and enforcement. Maintaining that balance between service and enforcement is, in my mind, critical. It isn’t an either/or proposition. We need to do both. The Act also addressed a number of governance issues. Perhaps most notably, it created the IRS Oversight Board. I have experience working with boards, and I believe they can be helpful. In my time as commissioner so far, I have found the Oversight Board to be a valued resource, and I am grateful to the Board for their support and assistance as we work on strategic issues going forward. Perhaps the most dramatic change brought about by the Act was the structural reorganization of the agency. When the Restructuring Commission’s report was issued, the IRS was geographically based with a National Office in Washington, DC, and field offices across the country. The field consisted of four regions. Within those four regions were 33 districts, 10 service centers and two computing centers. In January of 1998, the agency unveiled a plan to reorganize around taxpayer segments. The Act validated that concept and paved the way for the IRS to proceed. We are now all very familiar with the notion of the four operating divisions – Wage and Investment, Small Business/Self-Employed, Large and Mid-Sized Business and Tax Exempt and Government Entities. I think most would agree that this new structure has accomplished what was hoped. By focusing on a taxpayer segment, the operating division can tailor programs that are best suited to meet the needs of their taxpayer base. This new structure also enables the IRS to be more effective in reacting quickly to emerging compliance issues. For example, I believe the recent success the IRS has had in combating abusive shelters was, in no small part, attributable to the existence of LMSB. Prior to the reorganization, the responsibility for dealing with tax shelter abuses would have been the responsibility of the examination function, which was to some degree independently managed in each region and district office and had responsibility for all examination activity – from abusive tax shelters to correspondence audits on the Earned Income Tax Credit. LMSB, on the other hand, was able to bring the focus and expertise necessary to address the issues. Let me now turn to what I think we still need to do. Many on the commission were concerned that some of the structural issues ultimately enacted in the legislation would create different types of stove-piping and parochialism. While the district structure had many shortcomings, it did allow for a better understanding by employees of what their colleagues did. Revenue Agents and Exam managers dealt on a daily basis with Revenue Officers and Collection managers. And everyone in the office reported to the same District Director. Some of this changed with RRA, which created the four operating divisions and made adjustments to the structure of the Taxpayer Advocate and the Chief Counsel. To ensure that the current structure truly meets taxpayers’ needs, I believe we need to reinforce the notion of “One IRS.” From the taxpayer’s point of view, we are the IRS. We are not SB/SE, LMSB or the Advocate or Chief Counsel. It is important the entire operation of the IRS is seamless and consistent, while respecting that its different parts each provide a critical piece of tax administration. Another thing we must focus on is the taxpayer’s experience: We must not only meet legal requirements, we must walk a mile in the taxpayers’ shoes and help them navigate the system. There are many critical components to taxpayer service, but there are two I would like to highlight. First, we should aim to resolve any open issues at the earliest moment possible. This will save both the IRS and the taxpayer extra work down the line. Second, if a taxpayer deals with more than one business group within the IRS, we should coordinate with each other so the hand-off is quick and trouble free. The Act also recognized that tax law complexity makes it difficult for taxpayers to comply and difficult for the IRS to administer. The legislation proposed that the IRS have a seat at the table as tax legislation is drafted to offer their view on the administrability of the legislation. While I understand that, upon request from the Joint Committee, we currently provide a complexity analysis of proposed legislation, I think there is more we could and should do to ensure that the policy goals of legislation are administrable. I talked earlier about the importance of maintaining a balance between service and enforcement. To maintain that balance going forward, I believe we need to strive for sustained performance in our enforcement programs. We cannot let our enforcement efforts diminish. But I also believe that we cannot audit our way to full compliance. We need to drive greater innovation in our enforcement endeavors. We need to supplement our efforts with new tools, such as more information reporting, soft notices and self-correction options for taxpayers. Of course, all of our efforts depend upon the people of the IRS. The IRS will continue over the next years to be challenged by large numbers of retirements and increased competition with the public and private sector for talent. Dealing with these workforce issues will be an important issue for me during my time as commissioner. The Restructuring Act recognized the need for the IRS to be successful in recruiting and retaining the talent needed to be successful and provided for personnel flexibilities. Going forward we may need additional flexibilities as we work to retain and promote our best employees and managers and recruit the highest quality workforce possible so that we can continue to be the best tax agency in the world. I have a straightforward goal in this area. I want to ensure that five years from now, we have the leadership and workforce ready for the next 15 years at the IRS. Finally, we spent a lot of time on modernization at the Commission. Since the Commission, I have been involved in very complex technology issues in the private sector. I know from experience that technology at the scale of the IRS is difficult, expensive and a non-linear exercise. Any large technology effort has some plans that are missed and some plans that succeed. That is the nature of the beast. But regardless of what happens, we need steady support for the modernization effort at the IRS. The tax system, the American taxpayer, and $2.7 trillion of revenue depend on it. In closing, I want to again thank Chris for providing me this opportunity to be here today to share with you some of my thoughts and ideas. If you would have told me 12 years ago, when I worked on the Commission, that today I would be with you as IRS Commissioner, I would have told you that you were crazy. But now that I’ve been here four months, I must say that the IRS has come a long way in the past 12 years, and I am proud to lead it. I look forward to hearing more about the ideas shared here today. Thank you.
Issue Number: IR-2008-089 Inside This Issue Victims of Floods, Storms and Tornadoes In Six States Now Have Until Aug. 29 to File Certain Returns WASHINGTON ––The Internal Revenue Service is postponing until Aug. 29 the time to file certain tax returns, to make certain tax payments and to perform time-sensitive acts for storm, flood, and tornado victims in presidential disaster areas in six states, mostly in the Midwest. Previously, these deadlines varied by state, and the postponement provides people affected by the disasters with additional time. "Our hearts go out to to the people hit by these disasters," IRS Commissioner Doug Shulman said. “We realize that as people put their lives back together, they need additional time to work on these tax issues." This announcement will affect counties in Indiana, Iowa, Illinois, Nebraska, West Virginia and Wisconsin that qualify for individual assistance. Affected counties in Missouri previously have been granted relief until Aug. 29. Related Items: Disaster news release for Indiana, Disaster news release for Iowa, Disaster news release for Illinois, Disaster news release for Nebraska, Disaster news release for West Virginia, Disaster news release for Wisconsin, and Disaster news release for Missouri.
Issue Number: Summertime Tax Tip 2008-04 Inside This Issue Parents Can Get Credit for Sending Kids to Day Camp Here’s a tax break for the busy summer. Many working parents must arrange for care of their children under 13 years of age during the school vacation period. A popular solution — with a tax benefit — is a day camp program. The cost of day camp can count as an expense towards the child and dependent care credit. Expenses for overnight camps do not qualify. If your childcare provider is a sitter at your home or a daycare facility outside the home, you'll get some tax benefit if you qualify for the credit. The credit is generally 20% to 35% of non-reimbursed expenses; up to $3000 in expenses for one child and up to $6000 for two or more children. The actual credit is also based on your income. The 35% rate applies if your income is under $15,000; the 20% rate, if your income is over $43,000. For more information, check out IRS Publication 503, Child and Dependent Care Expenses available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676). Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov. Link: IRS Publication 503, Child and Dependent Care Expenses (PDF)
Issue Number: Summertime 2008 Tax Tip -Special Edition Inside This Issue It's Not Too Late to Claim Your Economic Stimulus Payment: IRS Will Issue Checks Through End of Year The last of the economic stimulus checks have been issued under the planned payment schedule, which was a timetable for tax returns that were filed and processed before April 15. However, the Internal Revenue Service will continue processing tax returns and issuing economic stimulus payments for much of the year. It is not too late to file a return to claim an economic stimulus payment. The IRS urges people to file by October 15 to ensure they receive a payment prior to year's end. It can take up to eight weeks for the IRS to process the return and issue the payment. For people who have no tax liability or no tax filing requirement, there is a minimum payment of $300 ($600 for married couples), plus the $300 for each qualifying child. To be eligible for the minimum payment, individuals must have at least $3,000 in qualifying income. Qualifying income includes any combination of earned income, nontaxable combat pay and certain benefit payments from Social Security, Veterans Affairs and Railroad Retirement. The IRS is continuing to work with numerous state, local and national partners to reach people who have no tax liability or no tax filing requirement and to help them file a simple Form 1040A. Below are some links to IRS.gov and the U.S. Treasury regarding economic stimulus payments: Also visit www.treas.gov to see the Treasury News Release Cumulative Economic Payment Totals. Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov Links: Haven't received your payment yet? Form 1040A-3 for retirees, disabled veterans and others who normally don't file a return Economic Stimulus Payment Information Center
Nontaxable part. The part of your pension or annuity that is a return of your investment in your retirement plan, the amount you paid into the plan, or its cost to you, is not taxable. Income tax will not be withheld from the part of your pension or annuity that is not taxable. The tax withheld will be figured on, and cannot be more than, the taxable part. For information about figuring the part of your pension or annuity that is not taxable, see Publication 575, Pension and Annuity Income.
Periodic Payments
Withholding from periodic payments of a pension or annuity is figured in the same way as withholding from salaries and wages. To tell the payer of your pension or annuity how much you want withheld, fill out Form W-4P or a similar form provided by the payer. Follow the rules discussed under Salaries and Wages, starting on page 3, to fill out your Form W-4P.Note. Use Form W-4, not Form W-4P, if you receive any of the following.
Military retirement pay.
Payments from certain nonqualified deferred compensation plans. These are employer plans that pay part of your compensation at a later time, but are not tax-qualified deferred compensation plans. See Nonqualified Deferred Compensation and Section 457 Plans in Publication 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration.
Payments from a state or local deferred compensation plan (section 457 plan).
Withholding rules. The withholding rules for pensions and annuities differ from those for salaries and wages in the following ways.
If you do not fill out a withholding certificate, tax will be withheld as if you were married and claiming three withholding allowances. This means that tax will be withheld only if your pension or annuity is at least $1,560 a month (or $18,720 a year).
You can choose not to have tax withheld, regardless of how much tax you owed last year or expect to owe this year. You do not have to qualify for exemption. See Choosing Not To Have Income Tax Withheld on this page.
If you do not give the payer your social security number (in the required manner) or the IRS notifies the payer before any payment or distribution is made that you gave it an incorrect social security number, tax will be withheld as if you were single and were claiming no withholding allowances. This means that tax will be withheld if your pension or annuity is at least $230 a month (or $2,760 a year).
Estimated Tax If you do not request withholding on Form W-4S, or if you do not have enough tax withheld, you may have to pay estimated tax. If you do not pay enough tax, either through estimated tax or withholding, or a combination of both, you may have to pay a penalty. See chapters 2 and 4.
Pensions and Annuities Income tax usually will be withheld from your pension or annuity distributions unless you choose not to have it withheld. This rule applies to distributions from:
A traditional individual retirement arrangement (IRA);
A life insurance company under an endowment, annuity, or life insurance contract;
A pension, annuity, or profit-sharing plan;
A stock bonus plan; and
Any other plan that defers the time you receive compensation.
The amount withheld depends on whether you receive payments spread out over more than 1 year (periodic payments), within 1 year (nonperiodic payments), or as an eligible rollover distribution (ERD). You cannot choose not to have income tax withheld from an ERD. ERDs are discussed on page 15 under Eligible Rollover Distributions.
Union agreements. If you receive sick pay under a collective bargaining agreement between your union and your employer, the agreement may determine the amount of income tax withholding. See your union representative or your employer for more information. Form W-4S. If you choose to have income tax withheld from sick pay paid by a third party, such as an insurance company, you must fill out Form W-4S. Its instructions contain a worksheet you can use to figure the amount you want withheld. They also explain restrictions that may apply. Give the completed form to the payer of your sick pay. The payer must withhold according to your directions on the form. Form W-4S remains in effect until you change or cancel it, or stop receiving payments. You can change your withholding by giving a new Form W-4S or a written notice to the payer of your sick pay.
Issue Number: Summertime Tax Tip 2008-03 Inside This Issue Can You Take a Home Office Deduction? If you plan to run your small business out of your home you may be temped to “write-off” many of your household expenses. But how do you know what is deductible and what is not? The IRS has some advice that may help answer the question: “Can I take a Home Office Deduction?” Generally, expenses related to the rent, purchase, maintenance and repair of a personal residence are not deductible. However, if you use part of your home for business purposes you may be able to take a home office deduction. Expenses that can be deducted include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, painting, repairs and depreciation. In order to claim a business deduction, you must use part of your home: * Exclusively and regularly as your principal place of business, as a place to meet or deal with patients, clients or customers in the normal course of your business, or in connection with your trade or business where there is a separate structure not attached to the home; or * On a regular basis for certain storage use such as inventory or product samples, as rental property, or as a home daycare facility. In addition, if you work as an employee you can claim this deduction only if the regular and exclusive business use of the home is for the convenience of your employer and the portion of the home is not rented by the employer. “Exclusive use” means a specific area of the home is used only for trade or business. “Regular use” means the area is used regularly for trade or business. Incidental or occasional business use is not regular use. Non-business profit-seeking endeavors such as investment activities do not qualify for a home office deduction, nor do not-for-profit activities such as hobbies. Example: An attorney uses the den in his home to write legal briefs or prepare clients’ tax returns. The family also uses the den for recreation. The den is not used exclusively in the attorney’s profession, so a business deduction cannot be claimed for its use. These requirements are discussed in greater detail in Publication 587, Business Use of Your Home available at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).
Issue Number: IR-2008-088 Inside This Issue Scammers Use e-Mail, Fax to Pose as IRS WASHINGTON — The Internal Revenue Service cautions taxpayers to be on the lookout for a new wave of scams using the IRS name in identity theft e-mails, or phishing, that have circulated during the last two months. In May and June alone, taxpayers reported almost 700 separate phishing incidents to the IRS. In 2008 so far, taxpayers have reported about 1,600 phishing incidents to the IRS. “Taxpayers should take steps to keep their personal information out of the hands of identity thieves,” said IRS Commissioner Doug Shulman. “That includes not falling for any of the phony e-mails or faxes now in circulation pretending to come from the IRS.” The most common scams involve tax refunds and, this year, economic stimulus payments. Although most of these scams consist of e-mails requesting detailed personal information, the IRS generally does not send e-mails to taxpayers, does not discuss tax account matters with taxpayers in e-mails, and does not request security-related personal information, such as PIN numbers, from taxpayers. Refund e-Mail Scam There are several variations of the refund scam, in which an e-mail claiming to come from the IRS falsely informs the recipient that he or she is eligible for a tax refund for a specific amount. The bogus e-mail instructs the recipient to click on a link to access a refund claim form. The form requests personal information that the scammers can use to access the e-mail recipient’s bank or credit card account. This notification is phony. The IRS does not send unsolicited e-mail about tax account matters to taxpayers. Filing a tax return is the only way to apply for a tax refund; there is no separate application form. Taxpayers who wish to find out if they are due a refund from their last annual tax return filing may use the “Where’s My Refund?” interactive application on the IRS Web site at IRS.gov, the only official IRS Web site. Economic Stimulus Payments Scam In this scam, a taxpayer receives an e-mail pretending to come from the IRS which tells the recipient he or she is eligible for an economic stimulus payment. The message recommends direct deposit into the taxpayer’s checking or savings account. To receive the payment, recipients must click on a link to complete and submit an online form by a certain date; otherwise, the e-mail warns, payment may be delayed. The form requests personal and financial data, including checking or savings account numbers that the scammers can use to gain access to the accounts. In reality, the way members of the public receive their economic stimulus payment is to file a tax return with the IRS, not a special form. Additionally, the IRS does not request personal or financial information via e-mail. Information on how to obtain an economic stimulus payment may be found in the Economic Stimulus Payment Information Center on the IRS Web site (www.irs.gov). For more information on stimulus-related scams, see IR-2008-11. Substitute Form 1040 Fax Scam This scam consists of a cover letter and form that are faxed, rather than e-mailed. The cover letter is addressed “Dear Valued Tax Payer (sic)” and appears to be signed by an IRS employee. The letter says that the IRS is updating its files and that recipients who supply the requested information will receive a nominal tax refund. It also states that those who fail to immediately return the completed form risk additional tax and withholding. The attached form is labeled a substitute Form 1040 and is titled “Certificate of Current Status of Beneficial Owner For United States Tax Recertification & Withholding.” It requests a large amount of detailed personal and financial information, such as mother’s maiden name (often used in security screening), bank account numbers, estimated assets and more. It asks the recipient to sign and fax back the completed form, as well as a copy of the recipient’s driver’s license and passport. The letter, signature and form are all fraudulent. Moreover, the IRS does not send unsolicited faxes to taxpayers and does not request such detailed personal and financial information. This is a variant of earlier scams. For more information, see news releases IR-2004-104 and IR-2004-75. Company Report Scam This e-mail appears to come from an IRS.gov e-mail address, addresses recipients by name and references the company the recipient works for. These personalized details may convince the recipient that the e-mail is legitimate. The e-mail says that the IRS has a report on the company and asks the recipient to review a copy by clicking on a link to download the report. However, when the link is clicked, malware is downloaded to the recipient’s computer. There are various types of malware, which can hijack a victim’s computer hard drive to give someone remote access to the computer, search for passwords and other information and send them to the scammer, or cause other types of identity theft or damage. The IRS does not compile reports on companies or send e-mails to company staff asking them to review a report. Generally, the IRS does not send unsolicited e-mails to taxpayers. Tax Court Scam In this scam, an e-mail that appears to come from the U.S. Tax Court contains a petition involving a court case between the IRS and the recipient. The document instructs the recipient to download other files. The downloads transfer malware, or malicious code, to the recipient’s computer. There are various types of malware, which, for example, can hijack a victim’s computer hard drive to give someone remote access to the computer, or can search for passwords and other information and send them to the scammer. The truth is that the Tax Court is not e-mailing notices to anyone who currently has a case before the court. Visit the court’s Web site at http://www.ustaxcourt.gov/ for more information. Recipients are advised to avoid clicking on any links in the e-mail and to delete the e-mail. How Scams Work To lure their victims, phishing scams use the name of a known institution, such as the IRS, to either offer a reward for taking a simple action, such as providing information, or threaten or imply an unpleasant consequence, such as losing a refund, for failing to take the requested action. The goal of the scams is to trick people into revealing personal and financial information, such as Social Security, bank account or credit card numbers, which the scammers can use to commit identity theft. Typically, identity thieves use a victim’s personal and financial data to empty the victim’s financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name, file fraudulent tax returns or even commit crimes. Most of these fraudulent activities can be committed electronically from a remote location, including overseas. Committing these activities in cyberspace allows scammers to act quickly and cover their tracks before the victim becomes aware of the theft. People whose identities have been stolen can spend months or years — and their hard-earned money — cleaning up the mess thieves have made of their reputations and credit records. In the meantime, victims may lose job opportunities or may be refused loans, education, housing or cars. What to Do Anyone wishing to access the IRS Web site should type www.irs.gov into their Internet address window, rather than clicking on a link in an e-mail or opening an attachment, either of which may download malicious code or send the recipient to a phony Web site. Those who have received a questionable e-mail claiming to come from the IRS may forward it to the following address: phishing@irs.gov. Use the instructions contained in an article on IRS.gov titled “How to Protect Yourself from Suspicious E-Mails or Phishing Schemes.” Following the instructions will help the IRS track the suspicious e-mail to its origins and shut down the scam. Find the article by visiting IRS.gov and entering the words “suspicious e-mails” into the search box in the upper right corner of the front page. Those who have received a questionable telephone call that claims to come from the IRS may also use the phishing@irs.gov mailbox to notify the IRS. The IRS has issued previous warnings on scams that use the IRS name to lend the scam legitimacy. More information on identity theft, phishing and telephone scams using the IRS name, logo or spoofed (copied) Web site is available on the IRS Web site at IRS.gov. Enter the terms “phishing,” “identity theft” or “e-mail scams” into the search box in the upper right corner of the front page. Related Information: FS-2008-9, Identity Theft E-Mails Scams a Growing Problem IR-2007-109, IRS Warns Taxpayers of New E-mail Scams Suspicious e-Mails and Identity Theft
Issue Number: IR-2008-087
Inside This Issue National Taxpayer Advocate Releases Report to Congress; Identifies Priority Challenges and Issues for Upcoming Year WASHINGTON — National Taxpayer Advocate Nina E. Olson today delivered a report to Congress that identifies the priority issues the Office of the Taxpayer Advocate will address in the coming fiscal year. Among the key areas of focus will be improving IRS procedures to protect victims of tax-related identity theft and expanding outreach and education to individuals who have lost their homes to foreclosure concerning the “cancellation of debt” tax consequences they face. The report notes that July 22, 2008, will mark the 10th anniversary of the enactment of the IRS Restructuring and Reform Act of 1998, which created the Office of the Taxpayer Advocate in its current form and added significant taxpayer rights protections. Olson praised the legislation, saying: “From my perspective as the National Taxpayer Advocate, I see daily how much taxpayers benefit from RRA 98.” The Advocate’s report, which is required by law, sets out the objectives of the Office of the Taxpayer Advocate for the upcoming fiscal year and provides substantive analysis of issues as well as statistical information. Among the areas the report identifies for particular emphasis in FY 2009 are the following: 1. Tax-Related Identity Theft. The National Taxpayer Advocate’s 2007 Annual Report to Congress identified tax-related identity theft as one of the most serious problems facing taxpayers. The report stated that the IRS does not have adequate procedures in place to assist victims of identity theft and does not have adequate systems in place to quantify the number of tax-related incidents of identity theft that occur. The report made eight recommendations, including the creation of a centralized unit to handle identity theft cases and the development of a centralized set of procedures that cuts across IRS functions. The IRS has taken a number of steps to improve its procedures; notably, it has developed a Service-wide identity theft indicator and is studying the creation of a centralized unit to assist identity theft victims. During FY 2009, the Office of the Taxpayer Advocate will work with the IRS to improve its procedures in this area. 2. Cancellation of Debt Income. When an individual or business borrows money and the debt is cancelled, the borrower generally must include the amount of the cancelled debt in gross income. This requirement generally affects borrowers who lose their homes to foreclosure or who default on car loans or credit card debts. Taxpayers may exclude the amount of a cancelled debt from gross income under certain circumstances, but to do so, they must take the affirmative act of filing Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), with their tax returns. Very few taxpayers file Form 982, and the Office of the Taxpayer Advocate has focused and will continue to focus on increasing public awareness of the rules and exceptions. It has worked with the IRS to simplify the instructions for Form 982 and to develop an IRS publication that covers the tax aspects of cancellation of debt issues comprehensively, produced podcasts (known as “TAScasts”) that are available online, and provided specialized training for Low Income Taxpayer Clinic (LITC) practitioners. The Office of the Taxpayer Advocate will continue to work with the IRS to simplify reporting procedures and will continue to conduct outreach to affected taxpayers and practitioners in FY 2009. 3. IRS Collection Practices. The National Taxpayer Advocate’s 2006 Annual Report to Congress raised a number of concerns about IRS collection practices. Joint working groups have been established to work on five issues – levies, allowable living expense standards, installment agreements, offers in compromise, and early intervention techniques. However, the Office of the Taxpayer Advocate remains concerned about additional collection issues, including resorting to seizures before all viable collection alternatives have been exhausted, under-utilization of partial-pay installment agreements, and excessive delays in collection that exacerbate taxpayer delinquency problems because of the accumulation of interest and penalties. The IRS is working with the Office of the Taxpayer Advocate to address these concerns, and the collaboration will continue in FY 2009. Other areas of emphasis for FY 2009 identified in the report include monitoring the private debt collection program, working with the IRS to assist taxpayers with disproportionate tax liabilities due to alternative minimum tax resulting from the exercise of incentive stock options (known as “ISO/AMT” tax liabilities), working with the IRS to address problems and inefficiencies in the correspondence examination program, and updating a 2003 report on the standards and structure of federal ombudsmen offices. * * * * * *
Issue Number: Summertime Tax Tip 2008-02 Inside This Issue Gambling Winnings and Losses Your summer vacation may mean a trip to the casino or the racetrack. What will you owe Uncle Sam if Lady Luck happens to be on your side? Gambling winnings are fully taxable and must be reported on your tax return. You must file Form 1040 and include all of your winnings. Gambling income includes, among other things, winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and also the fair market value of prizes such as cars and trips. You can find more information in Publication 525, Taxable and Nontaxable Income. Anyone who pays your winnings or awards you a prize is required to issue you a Form W-2G if your winnings are subject to Federal income tax withholding or if your winnings are over a certain amount. However, all gambling winnings must be reported regardless of whether any portion is subject to withholding. In addition, you may be required to pay an estimated tax on your gambling winnings. For information on tax withholding on gambling income, refer to Publication 505, Tax Withholding and Estimated Tax. If your luck isn’t always so good, you may deduct gambling losses. Losses may be deducted only if you itemize deductions and only if you also have gambling winnings. Claim your gambling losses as a miscellaneous deduction on Form 1040, Schedule A. But remember, the losses you deduct may not be more than the gambling income you report on your return. Even though you may be on vacation, if you want to deduct losses when you file your return next spring, it is important to keep an accurate diary or similar record of your gambling winnings and losses right now. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show both your winnings and losses. For more information, refer to Publication 529, Miscellaneous Deductions. The publication is available at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676). Links:
Issue Number: Summertime Tax Tip 2008-01 Inside This Issue You May Be Eligible for the Advanced Earned Income Tax Credit Why wait? You may be eligible for a tax credit right now that could mean larger paychecks this summer. This benefit is called the Advanced Earned Income Credit or Advance EIC. If you expect to qualify for the credit in 2008, you may be able to start getting part of the credit with your pay now. Otherwise, you could wait until you file your tax return in 2009. To receive part of the credit with your pay, you must expect to have at least one qualifying child for the current year, expect to fall within certain income limits, and expect to meet certain other conditions. You cannot get the Advance EIC if you do not expect to have a qualifying child, even if you expect to be eligible to claim the EIC on your current year tax return. To see if you qualify, ask your employer for the current year Form W-5, Earned Income Credit Advance Payment Certificate. If you qualify, complete Form W–5 and give it to your employer. Your employer will then add the advance earned income credit to your net pay each pay period you are eligible. You may have only one Form W–5 in effect with a current employer at one time. If you and your spouse are both employed, each of you must file a separate Form W–5. If your situation changes after you give your employer Form W–5, you must give your employer a new Form W–5. For example, give your employer a new Form W–5 if you no longer expect to qualify for the EIC or you no longer want to get advance payments of the credit with your pay. Remember, if you receive the EIC with your pay during the current year, you must file Form 1040A or Form 1040 for the current year to report the advance payments you received during the year and to take advantage of any remaining credit. You cannot use Form 1040EZ. The total of the advance payments you receive will be shown on your current year Form W–2. The current year Form W–5 expires on December 31, 2008. If you expect to be able to claim the credit in advance for the following year, you must give a new completed Form W–5 which is valid for that year to your employer. For more information about the Advance EIC see IRS Publication 596, Earned Income Credit. This publication (available in both English and Spanish) and Form W-5 can be downloaded from IRS.gov or by calling 800-TAX-FORM (800-829-3676). Links: * 2008 Form W-5 IRS Publication 596, Earned Income Credit
Taxable Fringe Benefits Sick Pay Sick pay is a payment to you to replace your regular wages while you are temporarily absent from work due to sickness or personal injury. To qualify as sick pay, it must be paid under a plan to which your employer is a party. If you receive sick pay from your employer or an agent of your employer, income tax must be withheld. An agent who does not pay regular wages to you may choose to withhold income tax at a flat rate. However, if you receive sick pay from a third party who is not acting as an agent of your employer, income tax will be withheld only if you choose to have it withheld. See Form W-4S below. If you receive payments under a plan in which your employer does not participate (such as an accident or health plan where you paid all the premiums), the payments are not sick pay and usually are not taxable.
Periodic Payments Withholding from periodic payments of a pension or annuity is figured in the same way as withholding from salaries and wages. To tell the payer of your pension or annuity how much you want withheld, fill out Form W-4P or a similar form provided by the payer. Follow the rules discussed under Salaries and Wages, starting on page 3, to fill out your Form W-4P.Note. Use Form W-4, not Form W-4P, if you receive any of the following.
Military retirement pay.
Payments from certain nonqualified deferred compensation plans. These are employer plans that pay part of your compensation at a later time, but are not tax-qualified deferred compensation plans. See Nonqualified Deferred Compensation and Section 457 Plans in Publication 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration.
Payments from a state or local deferred compensation plan (section 457 plan).
Issue Number: IR-2008-086 Inside This Issue IRS’s July Tax Talk Today: “Retirement Plan Pitfalls” WASHINGTON — The Internal Revenue Service’s Tax Talk Today program returns on Tuesday, July 8, 2008 at 2 p.m. with a Web cast on “Retirement Plan Pitfalls.” Few issues are as important to the owner of a business and its employees as the proper administration of its retirement plans. Ensuring that the retirement plan is in good running order keeps the promise made in setting up the plan. Attend this program to learn how to use the IRS Fix-It Guides to identify and correct frequently encountered errors the IRS sees in retirement plans. These correction programs help retirement plans operate within the law and protect participant benefits.And they provide real incentives to identify and correct mistakes sooner rather than later. In addition, the IRS will provide tips on how these mistakes can be avoided in the future. Moderated by Les Witmer, the show’s panel of experts includes Avaneesh Bhagat, IRS, Program Coordinator, Employee Plans Voluntary Compliance; Dan Morgan, Partner Dickstein Shapiro, LLP; Thomas G. Schendt, Partner, Alston & Bird LLP; and Monika Templeman, IRS, Director, Employee Plans Examination. Tax Talk Today is a Web cast aimed at educating tax and payroll professionals on the most current and complex tax issues. Tax professionals are encouraged to watch and submit questions. Viewers can register online to access the Web cast at no charge. Tax professionals in need of continuing education credits are eligible to receive one CPE credit by viewing the May 13 Web cast. Archived shows are available on the site also. Related Items: * www.taxtalktoday.tv
Issue Number: IR-2008-085 Inside This Issue IRS Seeking Applications for New VITA Grant WASHINGTON — The Internal Revenue Service is now accepting applications for the first-ever Volunteer Income Tax Assistance (VITA) matching grant program. The application period for 2009 is from July 1 through Sept. 2, 2008. The Community VITA grant program is the first of its kind at the IRS. In December 2007, Congress appropriated funds to the IRS to establish and administer a one-year matching grant program in consultation with the Taxpayer Advocate Service. The VITA program offers free tax help for low-to-moderate income individuals for tax return preparation. Under the grant program, the IRS will award matching grants to extend services to underserved populations and hard-to-reach areas, both urban and non-urban. The grants will also be used to increase the capacity to file returns electronically and enhance training of volunteers at VITA sites. The establishment of the grant will enable the IRS to offer funding to assist organizations in sustaining the VITA program. Who Can Apply Applicants must be any one of the following: A private or public non-profit organization qualifying for tax exemption under IRC 501. A state or local government agency. A regional, statewide or local coalition with one lead organization that meets one of the eligibility criteria stated above. Applicants must also provide matching funds on a dollar-for-dollar basis. Matching funds consist of cash, computer hardware and software and third-party, in-kind contributions. Funding from other federal grants cannot be counted as matching funds. How to Apply The period for accepting applications is July 1 through Sept. 2, 2008. Interested applicants may apply at Grants.gov. Applicants can also mail a completed application to: IRS-SPEC Grant Program Office 401 West Peachtree Street, NW Stop 420-D Atlanta, GA 30308 All applications must be received in the Grant Program Office by 4:00 p.m. EST on Sept. 2, 2008. Copies of Publication 4671, VITA Grant Program Overview and Application Package, are available on IRS.gov. More information, including Frequently Asked Questions, can be found on the Partner and Volunteer Resource Center page on IRS.gov. Questions about the VITA Grant program or the application process should be e-mailed to Grant.Program.Office@irs.gov or mailed to the Grant Program Office at the address listed above.
Issue Number: IR-2008-084 Inside This Issue Filing Extensions Changing for Some Business Taxpayers Later this Year WASHINGTON — Internal Revenue Service officials today announced a change in the extended due date on certain business returns to help individuals better meet their filing obligations. The change, which reduces the extension period from six to five months, eases the burden on taxpayers who must report information from Schedules K-1 and similar documents on their individual tax returns.
Income, deductions and credits from partnerships, S corporations, estates and trusts are reported to partners, investors and beneficiaries on Schedules K-1 and other similar statements. The recipients then use that information to complete their own tax returns.
Currently, the extended due date for both businesses and individuals often falls on the same date, generally Oct. 15. This creates a burden for individual taxpayers who rely on the information from Schedule K-1 and other similar statements to prepare and file their personal tax returns in a timely manner.
"We are eliminating the same-day deadline for these returns, which causes needless hardship and puts the individual taxpayer in an awkward position," said IRS Commissioner Doug Shulman. "We want to correct this timing issue to ensure that all taxpayers have the information they need to file timely and stay in compliance with the law."
The IRS today issued temporary and proposed regulations that will reduce the extension of time to file tax returns for certain businesses that generate Schedules K-1 and other similar statements from six months to five. Requiring these statements to be issued one month earlier, generally by Sept. 15, will provide recipients time to prepare and file returns within the extended time frames.
This change will be effective for extension requests with respect to tax returns due on or after Jan. 1, 2009, and applies to business entities that file the following returns and forms that have a tax year ending on or after Sept. 30, 2008: 1. Form 1065, U.S.Return of Partnership Income
2. Form 1041, U.S. Income Tax Return for Estates & Trusts
3. Form 8804, Annual Return for Partnership Withholding Tax (Section 1446)
The regulation does not change the process for requesting an extension of time to file, nor does it affect extensions of time to file other types of business returns, such as those used by S corporations.
“The regulations will bring the extended time frames of certain business entities with flow-through items in line with other similar businesses, such as S corporations," said Jodi Patterson, director of IRS’s Office of Taxpayer Burden Reduction. “S corporations have a return due date of March 15 and, under a regular 6-month extension of time to file, their extended due date already falls on September 15.”
The IRS initiated the proposal to reduce the extension of time to file, carefully weighing the impact on partnerships and other affected entities against the burden the existing deadline puts on individuals, who need this information to file timely and accurate returns.
Comments on the proposed regulations can be sent electronically via the Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-115457-08). For further information on commenting on the proposed regulations, see REG-115457-08.
The IRS is committed to reducing unnecessary taxpayer burden and welcomes input from tax and payroll professionals, business owners and the general public on opportunities to make it easier to comply with the tax laws. More information, including a link to Form 13285A, Reducing Tax Burden on America's Taxpayers, can be found on the TBR page of IRS.gov, Office of Taxpayer Burden Reduction. Links: REG-115457-08 -- Notice of proposed rulemaking by cross-reference to temporary on Extension of Time for Filing Returns TD 9407 -- Final and temporary regulations and removal of temporary regulations on Extension of Time for Filing Returns
Taxable Fringe Benefits Pensions and Annuities Income tax usually will be withheld from your pension or annuity distributions unless you choose not to have it withheld. This rule applies to distributions from:
A traditional individual retirement arrangement (IRA);
A life insurance company under an endowment, annuity, or life insurance contract;
A pension, annuity, or profit-sharing plan;
A stock bonus plan; and
Any other plan that defers the time you receive compensation. The amount withheld depends on whether you receive payments spread out over more than 1 year (periodic payments), within 1 year (nonperiodic payments), or as an eligible rollover distribution (ERD). You cannot choose not to have income tax withheld from an ERD. ERDs are discussed on page 15 under Eligible Rollover Distributions. Nontaxable part. The part of your pension or annuity that is a return of your investment in your retirement plan, the amount you paid into the plan, or its cost to you, is not taxable. Income tax will not be withheld from the part of your pension or annuity that is not taxable. The tax withheld will be figured on, and cannot be more than, the taxable part. For information about figuring the part of your pension or annuity that is not taxable, see Publication 575, Pension and Annuity Income.
Taxable Fringe Benefits Form W-4S. If you choose to have income tax withheld from sick pay paid by a third party, such as an insurance company, you must fill out Form W-4S. Its instructions contain a worksheet you can use to figure the amount you want withheld. They also explain restrictions that may apply. Give the completed form to the payer of your sick pay. The payer must withhold according to your directions on the form. Form W-4S remains in effect until you change or cancel it, or stop receiving payments. You can change your withholding by giving a new Form W-4S or a written notice to the payer of your sick pay. Estimated tax. If you do not request withholding on Form W-4S, or if you do not have enough tax withheld, you may have to pay estimated tax. If you do not pay enough tax, either through estimated tax or withholding, or a combination of both, you may have to pay a penalty. See chapters 2 and 4.
Taxable Fringe Benefits Union agreements. If you receive sick pay under a collective bargaining agreement between your union and your employer, the agreement may determine the amount of income tax withholding. See your union representative or your employer for more information.
Taxable Fringe Benefits Sick Pay Sick pay is a payment to you to replace your regular wages while you are temporarily absent from work due to sickness or personal injury. To qualify as sick pay, it must be paid under a plan to which your employer is a party.
If you receive sick pay from your employer or an agent of your employer, income tax must be withheld. An agent who does not pay regular wages to you may choose to withhold income tax at a flat rate.
However, if you receive sick pay from a third party who is not acting as an agent of your employer, income tax will be withheld only if you choose to have it withheld. See Form W-4S below.
If you receive payments under a plan in which your employer does not participate (such as an accident or health plan where you paid all the premiums), the payments are not sick pay and usually are not taxable.
Taxable Fringe Benefits How withholding is figured. Your employer can either add the value of a fringe benefit to your regular pay and figure income tax withholding on the total or withhold a flat percentage of the benefit's value. If the benefit's actual value cannot be determined when it is paid or treated as paid, your employer can use a reasonable estimate. Your employer must determine the actual value of the benefit by January 31 of the next year. If the actual value is more than the estimate, your employer must pay the IRS any additional withholding tax required. Your employer has until April 1 of that next year to recover from you the additional income tax paid to the IRS for you. How your employer reports your benefits. Your employer must report on Form W-2 the total of the taxable fringe benefits paid or treated as paid to you during the year and the tax withheld for the benefits. These amounts can be shown either on the Form W-2 for your regular pay or on a separate Form W-2. If your employer provided you with a car, truck, or other motor vehicle and chose to treat all of your use of it as personal, its value must be either separately shown on Form W-2 or reported to you on a separate statement. More information. For information on fringe benefits, see Fringe Benefits under Employee Compensation in Publication 525, Taxable and Nontaxable Income.
Taxable Fringe Benefits
The value of certain noncash fringe benefits you receive from your employer is considered part of your pay. Your employer generally must withhold income tax on these benefits from your regular pay. Although the value of your personal use of an employer-provided car, truck, or other highway motor vehicle is taxable, your employer can choose not to withhold income tax on that amount. Your employer must notify you if this choice is made.When benefits are considered paid. Your employer can choose to treat a fringe benefit as paid by the pay period, by the quarter, or on some other basis as long as the benefit is considered paid at least once a year. Your employer can treat the benefit as being paid on one or more dates during the year, even if you get the entire benefit at one time. Special rule. Your employer can choose to treat a benefit provided during November or December as paid in the next year. Your employer must notify you if this rule is used. Example. Your employer considers the value of benefits paid from November 1, 2006, through October 31, 2007, as paid to you in 2007. To determine the total value of benefits paid to you in 2008, your employer will add the value of any benefits paid in November and December of 2007 to the value of any benefits paid in January through October of 2008. Exceptions. Your employer cannot choose when to withhold tax on the transfer of either real property or personal property of a kind normally held for investment (such as stock). Your employer must withhold tax on these benefits at the time of the transfer.
Withholding Taxes
Tips The tips you receive while working on your job are considered part of your pay. You must include your tips on your tax return on the same line as your regular pay. However, tax is not withheld directly from tip income, as it is from your regular pay. Nevertheless, your employer will take into account the tips you report when figuring how much to withhold from your regular pay.Reporting tips to your employer. If you receive tips of $20 or more in a month while working for any one employer, you must report to your employer the total amount of tips you receive on the job during the month. The report is due by the 10th day of the following month. If you have more than one job, make a separate report to each employer. Report only the tips you received while working for that employer, and only if they total $20 or more for the month. How employer figures amount to withhold. The tips you report to your employer are counted as part of your income for the month you report them. Your employer can figure your withholding in either of two ways. * By withholding at the regular rate on the sum of your pay plus your reported tips. * By withholding at the regular rate on your pay plus a percentage of your reported tips. Not enough pay to cover taxes. If your regular pay is not enough for your employer to withhold all the tax (including income tax, social security tax, Medicare tax, or railroad retirement tax) due on your pay plus your tips, you can give your employer money to cover the shortage. If you do not give your employer money to cover the shortage, your employer first withholds as much social security tax, Medicare tax, or railroad retirement tax as possible, up to the proper amount, and then withholds income tax up to the full amount of your pay. If not enough tax is withheld, you may have to pay estimated tax. When you file your return, you also may have to pay any social security tax, Medicare tax, or railroad retirement tax your employer could not withhold. Tips not reported to your employer. On your tax return, you must report all the tips you receive during the year, even tips you do not report to your employer. Make sure you are having enough tax withheld, or are paying enough estimated tax (see chapter 2), to cover all your tip income. Allocated tips. If you work in a large establishment that serves food or beverages to customers, your employer may have to report an allocated amount of tips on your Form W-2. Your employer should not withhold income tax, social security tax, Medicare tax, or railroad retirement tax on the allocated amount. Withholding is based only on your pay plus your reported tips. Your employer should refund to you any incorrectly withheld tax.
Withholding Taxes Penalties You may have to pay a penalty of $500 if both of the following apply.
You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax withheld.
You have no reasonable basis for those statements or allowances at the time you prepare your Form W-4.
There is also a criminal penalty for willfully supplying false or fraudulent information on your Form W-4 or for willfully failing to supply information that would increase the amount withheld. The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both.
These penalties will apply if you deliberately and knowingly falsify your Form W-4 in an attempt to reduce or eliminate the proper withholding of taxes. A simple error or an honest mistake will not result in one of these penalties. For example, a person who has tried to figure the number of withholding allowances correctly, but claims seven when the proper number is six, will not be charged a Form W-4 penalty. However, see chapter 4 for information on the underpayment penalty.Tips
Issue Number: IR-2008-082 Inside This Issue IRS Increases Mileage Rates through Dec. 31, 2008 WASHINGTON — The Internal Revenue Service today announced an increase in the optional standard mileage rates for the final six months of 2008. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. The rate will increase to 58.5 cents a mile for all business miles driven from July 1, 2008, through Dec. 31, 2008. This is an increase of eight (8) cents from the 50.5 cent rate in effect for the first six months of 2008, as set forth in Rev. Proc. 2007-70. In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2008. The IRS normally updates the mileage rates once a year in the fall for the next calendar year. "Rising gas prices are having a major impact on individual Americans. Given the increase in prices, the IRS is adjusting the standard mileage rates to better reflect the real cost of operating an automobile," said IRS Commissioner Doug Shulman. "We want the reimbursement rate to be fair to taxpayers." While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs. The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage. The new six-month rate for computing deductible medical or moving expenses will also increase by eight (8) cents to 27 cents a mile, up from 19 cents for the first six months of 2008. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile. The new rates are contained in Announcement 2008-63 on the optional standard mileage rates. Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. Mileage Rate Changes Purpose
Rates 1/1 through 6/30/08
Rates 7/1 through 12/31/08 Business
50.5
58.5 Medical/Moving
19
27 Charitable
14
14 Back to Top
Withholding Taxes Accountable plan. To be an accountable plan, your employer's reimbursement or allowance arrangement must include all three of the following rules.
Your expenses must have a business connection. That is, you must have paid or incurred deductible expenses while performing services as an employee of your employer.
You must adequately account to your employer for these expenses within a reasonable period of time.
You must return any excess reimbursement or allowance within a reasonable period of time.
An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer.
The definition of reasonable period of time depends on the facts and circumstances of your situation. However, regardless of those facts and circumstances, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time.
You receive an advance within 30 days of the time you have an expense.
You adequately account for your expenses within 60 days after they were paid or incurred.
You return any excess reimbursement within 120 days after the expense was paid or incurred.
You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement. Nonaccountable plan. Any plan that does not meet the definition of an accountable plan is considered a nonaccountable plan. For more information about accountable and nonaccountable plans, see chapter 6 of Publication 463, Travel, Entertainment, Gift, and Car Expenses.
Withholding Taxes Supplemental Wages Supplemental wages include bonuses, commissions, overtime pay, vacation allowances, certain sick pay, and expense allowances under certain plans. The payer can figure withholding on supplemental wages using the same method used for your regular wages. However, if these payments are identified separately from regular wages, your employer or other payer of supplemental wages can withhold income tax from these wages at a flat rate.
Expense allowances. Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages. A nonaccountable plan is a reimbursement arrangement that does not require you to account for, or prove, your business expenses to your employer or does not require you to return your employer's payments that are more than your proven expenses. Reimbursements or other expense allowances paid under an accountable plan that are more than your proven expenses are treated as paid under a nonaccountable plan if you do not return the excess payments within a reasonable period of time.
Issue Number: TT-2008-Special Edition Inside This Issue IRS Launches Summer Push to Reach Retirees and Disabled Veterans Who Have Yet to File for Their Economic Stimulus Payments Millions of retirees and disabled veterans qualify for the economic stimulus payment but have not filed to claim it. Statistics indicate about 74 percent in this group are accounted for in the stimulus payments currently being sent, leaving about 5.2 million potential recipients remaining.
For all taxpayers, the IRS has issued 76.5 million payments worth $63.8 billion based on 2007 tax returns processed so far. The agency expects to issue 124 million payments to Americans by year’s end. Eligible individuals are receiving up to $600 ($1,200 for married couples filing joint returns) plus $300 for eligible children younger than 17.
A special stimulus category includes recipients of certain benefits from Social Security and Veterans Affairs who do not normally have a requirement to file a tax return. However, these individuals must file a tax return before Oct. 15 this year to receive their economic stimulus payments. The IRS has accounted for 74 percent of Social Security and Veterans Affairs beneficiaries out of about 20 million initially identified as being potential stimulus recipients. All but 5.2 million of those have been accounted for as either having filed a return, having filed a joint return, or as not being eligible for a stimulus payment (for example, they were claimed as a dependent on another’s return).
Most people only need to file a tax return as they normally do. The IRS will calculate eligibility and the payment amount. However, many retirees and veterans do not normally file a tax return because their benefits are not taxable. This year, they must file in order to receive an economic stimulus payment.
Receiving a stimulus payment should have no impact on other federal benefits currently being received by retirees. The stimulus payment is not taxable. Absent any other filing requirements, filing a tax return to receive a stimulus payment does not mean that retirees will have to start filing tax returns again.
The IRS has identified 5.2 million retirees and veterans' beneficiaries who potentially are eligible for the stimulus payments. Later this summer, the agency will send them a special letter that explains stimulus payment eligibility and how to claim it. The letter will include a sample tax form and an actual tax form that people can complete and mail to the IRS. This will be the second special mailing to reach those individuals.
The IRS also is working with members of Congress, state and local officials and national partners such as AARP, the National Council on Aging, United Way of America, National Disability Institute and others to continue its extensive outreach efforts to the retiree and veterans’ communities through the summer. The IRS will take the lead in coordinating face-to-face free tax preparation sessions with the help of local community partners at locations where these individuals live, work and socialize such as senior housing, Veterans Affairs hospitals and assisted living facilities.
The agency also reminded people that it has more than 400 local Taxpayer Assistance Centers operating normal business hours Monday through Friday. These centers can provide assistance to retirees and veterans trying to receive their payments. To find an IRS office near you, go to IRS.gov and click on “Contact IRS,” then “Contact Your Local IRS Office.”
The Economic Stimulus Act of 2008 generally provided for payments of $600 ($1,200 for married couples filing joint returns or the amount equal to the 2007 net income tax liability, whichever is less, ), plus $300 for each qualifying child. Payments also begin to phase out for individuals with adjusted gross incomes greater than $75,000 ($150,000 married couples filing jointly).
For people who have no tax liability or no tax filing requirement, there is a minimum payment of $300 ($600 for married couples), plus the $300 for each qualifying child. To be eligible for the minimum payment, individuals must have at least $3,000 in qualifying income. Qualifying income includes any combination of earned income, nontaxable combat pay and certain benefit payments from Social Security, Veterans Affairs and Railroad Retirement.
People not otherwise required to file an income tax return should file Form 1040A with basic information to ensure they receive the economic stimulus payment. This information includes name; address; dependents, if any; amount of qualifying income (which must be $3,000 or more); direct deposit information and signatures. Forms 1040A and instructions are available on the IRS Web site at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
Although, your payment can be made by check, the IRS urges people to use direct deposit to ensure a speedy delivery.
The types of Social Security benefits that are considered qualifying income include retirement, disability and survivor payments. Supplemental Security Income (SSI) is not qualifying income. The types of Veterans Affairs benefits that are considered qualifying income include disability compensation, disability pension and survivor payments. Qualifying Railroad Retirement payments include the social security equivalent portion of Tier 1 benefits.
Eligible individuals including their qualifying children, must have valid Social Security numbers. Also, people cannot be claimed or be eligible to be claimed as a dependent on someone else’s tax return. People with Individual Taxpayer Identification Numbers, except for the spouses and qualifying children of military personnel, are not eligible.
Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov. Links:
Issue Number: IR-2008-081 Inside This Issue Low-Income Housing Limits to Be Waived in Indiana and Iowa WASHINGTON — The Internal Revenue Service today announced that it will waive certain limitations for the low-income housing tax credit in Indiana and Iowa so that owners of facilities in these states can provide housing to victims of recent storms and flooding.
The IRS will continue to monitor closely the housing situation in other states affected by the recent flooding and is prepared to act quickly as circumstances warrant.
“Our thoughts are with the thousands of families left homeless by these terrible tragedies,” IRS Commissioner Doug Shulman said. “We are pleased to help these states to quickly house the needy whose homes were destroyed.”
Because of the widespread devastation to housing caused by storms and flooding, the IRS will temporarily suspend certain limitations for qualified low-income housing projects located anywhere in the states of Indiana and Iowa. Today’s action will expand the availability of housing for disaster victims and their families.
Formal notices detailing this relief will be issued shortly. For related information, see: * IRS Gives Storm Victims for Time to File and Pay * Disaster Relief for Indiana Storm, Flooding Victims * Disaster Relief for Iowa Storm, Flooding Victims * Disaster Assistance and Emergency Relief for Individuals and Businesses
Issue Number: IR-2008-080 Inside This Issue IRS Launches Summer Push to Reach Retirees and Disabled Veterans Who Have Yet to File for Their Economic Stimulus Payments WASHINGTON — The Internal Revenue Service today announced a new summer campaign to reach those retirees and disabled veterans who qualify for the economic stimulus payment but have not filed to claim it. New statistics released today indicate about 74 percent in this group are accounted for in the stimulus payments currently being sent, leaving about 5.2 million potential recipients remaining. For all taxpayers, the IRS has issued 76.5 million payments worth $63.8 billion based on 2007 tax returns processed so far. The agency expects to issue 124 million payments to Americans by year’s end. Eligible individuals are receiving up to $600 ($1,200 for married couples filing joint returns) plus $300 for eligible children younger than 17. “The IRS has delivered. Only 70 days after the legislation became law, the IRS started putting the money in the hands of tens of millions of Americans. This summer, we will go the extra mile to help the remaining retirees and disabled veterans get their payments,” said Doug Shulman, IRS Commissioner.
A special stimulus category includes recipients of certain benefits from Social Security and Veterans Affairs who do not normally have a requirement to file a tax return. However, these individuals must file a tax return before Oct. 15 this year to receive their economic stimulus payments. The IRS has accounted for 74 percent of Social Security and Veterans Affairs beneficiaries out of about 20 million initially identified as being potential stimulus recipients. All but 5.2 million of those have been accounted for as either having filed a return, having filed a joint return, or as not being eligible for a stimulus payment (for example, they were claimed as a dependent on another’s return). Most people only need to file a tax return as they normally do. The IRS will calculate eligibility and the payment amount. However, many retirees and veterans do not normally file a tax return because their benefits are not taxable. This year, they must file in order to receive an economic stimulus payment.
Shulman also stressed to retirees that receiving the stimulus payment should have no impact on other federal benefits currently being received. The stimulus payment is not taxable. Absent any other filing requirements, filing a tax return to receive a stimulus payment does not mean that retirees will have to start filing tax returns again.
The IRS has identified 5.2 million retirees and veterans' beneficiaries who potentially are eligible for the stimulus payments. Later this summer, the agency will send them a special letter that explains stimulus payment eligibility and how to claim it. The letter will include a sample tax form and an actual tax form that people can complete and mail to the IRS. This will be the second special mailing to reach those individuals.
The IRS also is working with members of Congress, state and local officials and national partners such as AARP, the National Council on Aging, United Way of America, National Disability Institute and others to continue its extensive outreach efforts to the retiree and veterans’ communities through the summer. The IRS will take the lead in coordinating face-to-face free tax preparation sessions with the help of local community partners at locations where these individuals live, work and socialize such as senior housing, Veterans Affairs hospitals and assisted living facilities.
The agency also reminded people that it has more than 400 local Taxpayer Assistance Centers operating normal business hours Monday through Friday. These centers can provide assistance to retirees and veterans trying to receive their payments. A list for addresses and office hours can be found at “Contact My Local Office.”
“Some retirees and others who normally do not file a tax return may be eligible and not know it. And, that’s where we could use the public’s help as well. If you know of a retiree or a disabled veteran who might qualify, please pass along the information to them,” said Shulman.
The Economic Stimulus Act of 2008 generally provided for payments of $600 ($1,200 for married couples filing joint returns or the amount equal to the 2007 net income tax liability, whichever is less, ), plus $300 for each qualifying child. Payments also begin to phase out for individuals with adjusted gross incomes greater than $75,000 ($150,000 married couples filing jointly).
For people who have no tax liability or no tax filing requirement, there is a minimum payment of $300 ($600 for married couples), plus the $300 for each qualifying child. To be eligible for the minimum payment, individuals must have at least $3,000 in qualifying income. Qualifying income includes any combination of earned income, nontaxable combat pay and certain benefit payments from Social Security, Veterans Affairs and Railroad Retirement.
People not otherwise required to file an income tax return should file Form 1040A with basic information to ensure they receive the economic stimulus payment. This information includes name; address; dependents, if any; amount of qualifying income (which must be $3,000 or more); direct deposit information and signatures. Forms 1040A and instructions are available at the IRS Web site.
Although, your payment can be made by check, the IRS urges people to use direct deposit to ensure a speedy delivery.
The types of Social Security benefits that are considered qualifying income include retirement, disability and survivor payments. Supplemental Security Income (SSI) is not qualifying income. The types of Veterans Affairs benefits that are considered qualifying income include disability compensation, disability pension and survivor payments. Qualifying Railroad Retirement payments include the social security equivalent portion of Tier 1 benefits.
Eligible individuals including their qualifying children, must have valid Social Security numbers. Also, people cannot be claimed or be eligible to be claimed as a dependent on someone else’s tax return. People with Individual Taxpayer Identification Numbers, except for the spouses and qualifying children of military personnel, are not eligible.
Issue Number: IR-2008-079 Inside This Issue IRS Reminds Taxpayers to Report Certain Foreign Bank and Financial Accounts by June 30 WASHINGTON –– The Internal Revenue Service today reminded U.S. persons who have bank and other financial accounts in a foreign country that they may be required to report those accounts to the U.S. Department of Treasury by the June 30 deadline.
With globalization, more people in the U.S. have foreign financial accounts. There is nothing improper about setting up or maintaining such accounts. Still, IRS officials are concerned that U.S. persons may overlook that their accounts are large enough to trigger reporting obl |
