WASHINGTON — The Internal Revenue Service today reminded small businesses that recent tax reform legislation lowered the backup withholding tax rate to 24 percent and the withholding rate that usually applies to bonuses and other supplemental wages to 22 percent. The agency also urged employers to encourage their employees to check their withholding using the IRS Withholding Calculator. [Read more…]
With the filing deadline close, here’s why taxpayers should e-File
A few taxpayers still use the old-school method of filing their tax returns: on paper. For these people, now is the time to consider filing electronically. With the April tax deadline right around the corner, it’s the perfect time to use IRS e-File.
Here are the top six reasons why taxpayers should file electronically in 2019:
It’s accurate and easy. E-File helps taxpayers avoid mistakes, such as a transposed Social Security number. Taxpayers who e-File receive an acknowledgement from the IRS within minutes, telling them their return has been accepted. If a return is rejected, the acknowledgement will detail why the IRS rejected the tax return.
E-file meets strict security guidelines. It uses modern encryption technology to protect tax returns. The IRS continues to work with states and tax industry leaders to protect tax returns from tax-related identity theft. This effort has helped put strong safeguards in place to make electronic tax filing a safe and secure option.
It means faster refunds. When taxpayers e-File and use direct deposit for their refund, they can get their money in less than 21 days in most cases. On the other hand, if they mail a paper tax return to the IRS and request a refund check in the mail, it can take up to six weeks. Also, since e-Filed returns are generally more accurate, there probably won’t be additional delays. They delays can be caused when the IRS finds mistakes that must be fixed before the IRS can send a refund.
It’s often free. Most taxpayers can e-file for free through IRS Free File. Free File is only available on IRS.gov. Some taxpayers may also qualify to have their taxes e-filed for free through IRS volunteer programs. Volunteer Income Tax Assistance offers free tax preparation to people who generally earned $55,000 or less. Tax Counseling for the Elderly generally helps people who are age 60 or older.
It can be used whether a taxpayer is getting a refund or needs to make a payment. Taxpayers who owe taxes can e-File early and set up an automatic payment on any day until the April deadline. They can pay electronically from their bank account with IRS Direct Pay. Taxpayers can visit IRS.gov for information on other payment options.
As people prepare to file their taxes, there are things to consider. They will want to determine if they need to file and the best way to do so.
For tax year 2018, all individual taxpayers will file using the new Form 1040. Forms 1040A and 1040EZ are no longer available. Taxpayers who previously filed these forms will now file Form 1040. The new Form 1040 uses a “building block” approach allowing individuals to add only the schedules they need to their 2018 federal tax return. Taxpayers with more complicated returns will need to complete one or more of the new Form 1040 Schedules. This group of taxpayers includes those who claim certain deductions or credits, or who owe additional taxes.
Individuals who filed their federal tax return electronically last year may not notice any changes, as the tax return preparation software will automatically use their answers to the tax questions to complete the Form 1040 and any needed schedules.
Here are three more things for people to keep in mind as they prepare to file their taxes:
Who is required to file. In most cases, income, filing status and age determine if a taxpayer must file a tax return. Other rules may apply if the taxpayer is self-employed or if they are a dependent of another person. For example, if a taxpayer is single and younger than age 65, they must file if their income was at least $12,000. There are other instances when a taxpayer must file. Taxpayers can visit IRS.gov/filing for more information.
Filing to get a refund. Even if a taxpayer doesn’t have to file, they should consider filing a tax return if they can get money back. If a taxpayer answers “yes” to any of these questions, they could be due a refund:
- Did my employer withhold federal income tax from my pay?
- Did I make estimated tax payments?
- Did I overpay on my 2017 tax return and have it applied to 2018?
- Am I eligible for certain refundable credits such as, the earned income tax credit
Taxpayers can file for free. Join the millions of Americans who safely file their taxes and save money using IRS Free File. Seventy percent of the nation’s taxpayers are eligible for IRS Free File. The IRS’s commercial partners offer free brand-name software to about 100 million individuals and families with incomes of $66,000 or less. Taxpayers who earned more can use Free File Fillable Forms. This option allows taxpayers to complete IRS forms electronically. It is best for those who are comfortable doing their own taxes.
Taxpayers can also use the Interactive Tax Assistant tool on IRS.gov to answer many tax questions.. They should look for “Do I need to file a return?” under general topics.
All taxpayers should keep a copy of their tax return. Taxpayers using a software product for the first time may need their adjusted gross income amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.
Hot tips for summer jobs
It’s that time of the year again for seasonal work and summer jobs. The IRS is providing the small business and self-employed community some helpful tips to work now and avoid tax issues later:
Worker classification matters. Business owners must determine whether summer workers are employees or independent contractors. Independent contractors are not subject to withholding, making them responsible for paying their own income taxes plus Social Security and Medicare taxes. Workers can avoid higher tax bills and lost benefits if they know their proper status.
Summer workers may be exempt from tax withholding. Workers may not earn enough from summer jobs to owe income tax, but employers usually must withhold Social Security and Medicare taxes from pay. If self-employed or an independent contractor, workers need to pay their own Social Security and Medicare taxes, even if they have no income tax liability. The Form W-2 shows the amount of earnings and withholdings for state and federal taxes, Social Security, Medicare wages and tips.
Check withholding. For those who work a seasonal or part-year job, checking withholding now can help make sure employers withhold the right amount of tax. The Withholding Calculator on IRS.gov helps employees determine whether they need to submit a new Form W-4 to their employer. It estimates income, credits, adjustments and deductions for most financial situations. Employees can use their results from the calculator to fill out the form and adjust their income tax withholding. They must give their updated forms to their employers to take effect.
WASHINGTON – Before starting a summer job, taking a vacation or sending the kids off to camp, the Internal Revenue Service wants taxpayers to know that some summertime activities may qualify for tax credits or deductions. The IRS also recommends that taxpayers check the amount of their withholding taxes now to help avoid surprises next filing season.
Here are some tips from the IRS that may help taxpayers lower taxes and avoid issues with their taxes:
- Worker classification matters. As with other workers, business owners must correctly determine whether summer workers are employees or independent contractors. Independent contractors are not subject to withholding, making them responsible for paying their own income taxes plus Social Security and Medicare taxes. Workers can avoid higher tax bills and lost benefits if they know their proper status.
- Summer workers may be exempt from tax withholding. Workers may not earn enough from summer jobs to owe income tax, but employers usually must withhold Social Security and Medicare taxes from pay. If self-employed or an independent contractor, workers need to pay their own Social Security and Medicare taxes, even if they have no income tax liability. This is important because these taxes count toward coverage under the Social Security system. Normally, employees receive a Form W-2, Wage and Tax Statement, from their employer (even if they don’t work there anymore) to account for the summer’s work by Jan. 31 of the following year. The Form W-2 shows the amount of earnings. It also shows withholdings for state and federal taxes, Social Security, Medicare wages and tips. Employees use the information on this form when they file their annual tax returns.
- Check withholding. For those who work a seasonal or part-year job, checking withholding now can help make sure employers withhold the right amount of tax. Taxpayers who work part of the year should check early in the employment period to determine an accurate amount for their withholding. The Withholding Calculator on IRS.gov helps employees determine whether they need to submit a new Form W-4, Employee’s Withholding Allowance Certificate to their employer. It estimates income, credits, adjustments and deductions for most financial situations. Employees can use their results from the calculator to fill out the form and adjust their income tax withholding. They must give their updated forms to their employers to take effect.
- Getting married? Newlyweds can help make wedded bliss last longer by doing a few things now to avoid problems at tax time. First, report any name change to the Social Security Administration before filing next year’s tax return. Then, report any address change to the United States Postal Service, any employers and the IRS to ensure receipt of tax-related items. Finally, use the Withholding Calculator at IRS.gov to make sure withholding is correct now that there are two people to consider. This is especially important for families with more than one wage earner, for taxpayers who have more than one job at a time, or for those who have children. For best results, do it as soon as possible.
- Clean out, donate, deduct. If they are in good condition, those long-unused items found during spring or summer cleaning and donated to a qualified charity may qualify for a tax deduction. Taxpayers must itemize deductions to deduct charitable contributions, and be sure to have proof of all donations.
- Help with service project, deduct mileage. While there’s no tax deduction for time donated toward a charitable cause, driving a personal vehicle while donating services on a trip sponsored by a qualified charity could qualify for a tax break. Itemizers can deduct 14 cents per mile for charitable mileage driven in 2018. Keep good records of mileage.
- Get tax credit for summer day camp expenses. Many working parents must arrange for care of their younger children under 13 years of age during the school vacation period. A popular solution — with favorable tax consequences — is a day camp program. Unlike overnight camps, the cost of day camp may count as an expense towards the Child and Dependent Care Credit. See IRS Publication 503, Child and Dependent Care Expenses, for more information.
- Refunds require a tax return. Although workers may not have earned enough money from a summer job to require filing a tax return, they may still want to file when tax time comes around. It is essential to file a return to get a refund of any income tax withheld. There is no penalty for filing a late return for those receiving refunds, however, by law, a return must be filed within three years to get its refund. Otherwise, the money becomes property of the U. S. Treasury.
The IRS reminds taxpayers who requested an extra six months to file their 2017 tax return that Monday, October 15, 2018, is the extension deadline for most taxpayers.
For taxpayers who have not yet filed, here are a few tips to keep in mind about the extension deadline and taxes:
- Try IRS Free File or e-file. Taxpayers can still e-file returns for free using IRS Free File. The program is available only on IRS.gov. Filing electronically is the easiest, safest and most accurate way to file taxes.
- Use Direct Deposit. For taxpayers getting a refund, the fastest way to get it is to combine direct deposit and e-file.
- Use IRS online payment options. Taxpayers who owe taxes should consider using IRS Direct Pay. It’s a simple, quick and free way to pay from a checking or savings account. There are other online payment options.
- Don’t overlook tax benefits. Taxpayers should be sure to claim all entitled tax credits and deductions. These may include income and savings credits and education credits.
- Keep a copy of return. Taxpayers should keep copies of tax returns and all supporting documents for at least three years. This will help when adjusting withholding, making estimated tax payments and filing next year’s return.
- File by October 15. File on time to avoid a potential late filing penalty.
- More time for the military. Military members and those serving in a combat zone generally get more time to file. Military members typically have until at least 180 days after leaving a combat zone to both file returns and pay any tax due.
Help Available at IRS.gov for Taxpayers Who Filed an Extension
Millions of taxpayers filed an extension this year, and they have until October 15 to file their taxes. Taxpayers who filed an extension can visit IRS.gov for quick access to helpful tax information and tools that can help them between now and October:
- Use IRS Free File. Prepare and e-file federal taxes free with IRS Free File. Taxpayers with income of $66,000 or less can file using free brand-name tax software. Those who earned more can use Free File Fillable Forms, the electronic version of IRS paper forms. Either way, everyone has a free e-file option, and the only way to access Free File is on IRS.gov.
- Find Out How to File Tax Returns Electronically. IRS e-file, which includes Free File, is the easiest, safest and most popular way to file a complete and accurate tax return. The fastest way to get a refund is to combine e-file with direct deposit. On IRS.gov, taxpayers can find software options to e-file their own taxes or find an authorized e-file provider.
- Get Answers to Tax Questions. The Interactive Tax Assistant tool and the IRS Tax Map answer many tax-law questions. Many IRS tools and products are also available in other languages, including Spanish.
- Find a Tax Preparer. Taxpayers can use the Directory of Tax Return Preparers tool to find a list of tax preparers near them. Taxpayers can search based on the credentials and qualifications they want their preparer to have.
- Check on a Refund. Track a refund using Where’s My Refund? It’s quick, easy and secure. Taxpayers can check the status of their refund within 24 hours after the IRS has received the e-filed return. Those who file a paper return can check the refund status four weeks after mailing it. Once the IRS approves a refund, the tool will give a date to expect it. The IRS updates refund status for the tool once a day.
- Pay Taxes Online. Taxpayers will find information about the different ways they can pay their taxes. This includes electronic funds withdrawal, payment by debit or credit card, and IRS Direct Pay.
- Use the EITC Assistant. Taxpayers who worked and earned less than $53,930 in 2017 may be eligible for the earned income tax credit. Taxpayers can use the EITC Assistant tool to see if they qualify.
- View Account Information. Taxpayers can go to IRS.gov/account to securely access information about their federal tax account. They can view the amount they owe, pay online or set up an online payment agreement; access their tax records online; review the past 18 months of payment history; and view key tax return information for the current year as filed. Visit IRS.gov/secureaccess to review the required identity authentication process.
The IRS reminds taxpayers that they should keep copies of their prior-year tax returns for at least three years. Taxpayers using a software product for the first time may need their adjusted gross income amount from their 2016 tax return to file electronically. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.
Tips for Taxpayers Who Missed the April Filing Deadline
While the federal income tax-filing deadline has come and gone for most people, some taxpayers still haven’t filed or paid their taxes.
Here are some tips for handling common issues after the filing deadline has passed:
- Anyone who didn’t file and owes tax should file a return as soon as possible and pay as much as possible to reduce penalties and interest. There’s no penalty for filing a late return if a refund is due. Penalties and interest only accrue on unfiled returns of taxpayers who don’t pay by the deadline.
- For those who qualify, IRS Free File is still available on IRS.gov through October 15 to prepare and file returns electronically.
- Filing soon is especially important because the late-filing penalty on unpaid taxes adds up quickly. Alternatively, taxpayers who have a history of filing and paying on time sometimes qualify for penalty relief.
- Taxpayers who owe taxes can view their balance, and pay with IRS Direct Pay, or by debit or credit card. They can also apply online for a payment plan, including an installment agreement. Before accessing their tax account online, users must authenticate their identity through the Secure Access process. Several other electronic payment options are available on IRS.gov/payments.
- The IRS will usually correct any math errors on a return and notify the taxpayer by mail. Similarly, the agency will send a letter requesting any missing forms or schedules.
During National Small Business Week, the IRS focuses on educating employers about the employer credit for paid family and medical leave created by the Tax Cuts and Jobs Act passed last year. Employers may claim the credit based on wages paid to qualifying employees while they are on family and medical leave.
Here are some facts about this credit and how it benefits employers:
- To claim the credit, employers must have a written policy that meets certain requirements:
- Employers must provide at least two weeks of paid family and medical leave annually to all qualifying employees who work full time. This can be prorated for employees who work part time.
- The paid leave must be not less than 50 percent of the wages normally paid to the employee.
- A qualifying employee is any employee who:
- Has been employed for one year or more.
- For the preceding year, had compensation that did not exceed a certain amount. For 2018, the employee must not have earned more than $72,000 in 2017.
- For purposes of this credit, “family and medical leave” is leave for one or more of the following reasons:
- Birth of an employee’s child and to care for the newborn.
- Placement of a child with the employee for adoption or foster care.
- To care for the employee’s spouse, child, or parent who has a serious health condition.
- A serious health condition that makes the employee unable to perform the functions of his or her position.
- Any qualifying event due to an employee’s spouse, child, or parent being on covered active duty – or being called to duty – in the Armed Forces.
- To care for a service member who is the employee’s spouse, child, parent, or next of kin.
- The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year.
- An employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit. Any wages taken into account in determining any other general business credit may not be used toward this credit.
- The credit is generally effective for wages paid in taxable years of the employer beginning after December 31, 2017. It is not available for wages paid in taxable years beginning after December 31, 2019.
IRS Offers Tips about Tips
Generally, income received in the form of tips is taxable. Here’s some information to help taxpayers correctly report the income they receive as a tip:
- Use the Interactive Tax Assistant. The ITA tool is a tax-law resource that asks taxpayers a series of questions and provides a response based on the answers. Taxpayers can use Is My Tip Income Taxable?.
- Show All Tips on a Tax Return. Use Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to report the amount of any unreported tip income to include as additional wages. This includes the value of non-cash things someone receives as a tip, such as tickets or passes to an event.
- Report All Types of Tips. Taxpayers must pay tax on all tips received during the year, including those:
- Directly from customers.
- Added to credit cards.
- From a tip-splitting agreement with other employees.
- Report Tips to an Employer. Employees who receive $20 or more in tips in any month must report their tips for that month to their employer by the 10th day of the next month, including cash, check and credit card tips received. The employer must withhold federal income, Social Security and Medicare taxes on the reported tips.
- Keep a Daily Log of Tips. Use Publication 1244, Employee’s Daily Record of Tips and Report to Employer, to record tips. This will help report the correct amount of tips on a tax return.