Category Archives: Personal Tax

Treasury and IRS unveil new Form W-4 for 2020

The Treasury Department and the Internal Revenue Service released a redesigned Form W-4on Friday for tax year 2020, making a number of changes to earlier draft versions of the form after hearing complaints from tax professionals.

The Treasury said it doesn’t expect to make further changes to the redesign beyond some minor updates for inflation adjustments.

“Our dedicated staff at the Treasury and IRS worked tirelessly over the past year to produce a Form W-4 that is more accurate, transparent and simplifies the tax withholding experience for hardworking Americans,” said Treasury Secretary Steven T. Mnuchin in a statement. “We are proud that the Tax Cuts and Jobs Act lowered taxes for most Americans and are enthusiastic that the improved W-4 will help taxpayers better determine the correct withholding amount for their personal financial situation to more readily reap the benefits of historic tax reform.”

Form W-4 for 2020 draft

The redesigned Form W-4 employs a building block approach to replace complex worksheets with more straightforward questions that make it simpler for employees to figure a more accurate withholding. While it uses the same underlying information as the old design, the new form uses a more personalized, step-by-step approach to better accommodate individual taxpayer needs.

Employees who have submitted a Form W-4 in any year before 2020 are not required to submit a new form merely because of the redesign. Employers will continue to compute withholding based on the information from the employee’s most recently submitted Form W-4.

The Treasury and the IRS are releasing the nearly finalized improved Form W-4 now, to give employers and payroll processors extra time to learn about the new form and update their systems for next year. As usual, the IRS also plans to release withholding tables with routine adjustments for inflation in November.

Several accounting and tax professional groups had complained that earlier draft versions of the form required taxpayers to reveal too much information to their employers about outside sources of income for employees and their spouses. The Treasury and the IRS redesigned the W-4 withholding form in the wake of the Tax Cuts and Jobs Act, which eliminated the traditional exemptions for dependents and the taxpayers themselves along with a host of deductions. Many taxpayers discovered this year as a result of the changes that they unexpectedly ended up owing taxes because they didn’t have enough money withheld from their paychecks last year. The IRS urged taxpayers to do a “paycheck checkup” last year using an online withholding calculator, but the process was complicated and relatively few taxpayers did it. Earlier this week, the IRS unveiled an improved Tax Withholding Estimator tool to aid in the process (see IRS offers new tax withholding estimate tool).

The IRS is once again urging taxpayers to do another paycheck withholdings checkup this year to ensure they have the correct amount withheld for their personal tax profile.

IRS sends letters to 10,000+ cryptocurrency users urging them to pay taxes

The Internal Revenue Service has started sending letters to over 10,000 taxpayers who own virtual currencies, such as Bitcoin and Ethereum, advising them to pay back taxes on any income they failed to report.

The IRS announced on Friday that it began sending the educational letters to taxpayers last week. More than 10,000 taxpayers are expected to receive the letters by the end of August. The IRS obtained the names of the taxpayers through various ongoing compliance efforts. For example, the IRS filed a John Doe summons with Coinbase, one of the largest Bitcoin and Ethereum exchanges in the U.S., in 2016, to obtain the names of all its users, although it later limited the probe to those who engaged in transactions of $20,000 or more (see IRS scales back Coinbase investigation).

There are three different types of letter being sent to taxpayers, but all three versions aim to help taxpayers understand their tax and filing obligations and how to correct previous errors. The letters also tell taxpayers where they can find relevant information on the IRS website, including which forms and schedules to use and where to send them.

“Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties,” said IRS commissioner Chuck Rettig in a statement. “The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations.”

Last year, the IRS announced a Virtual Currency Compliance campaign to deal with tax noncompliance related to virtual currency by doing more outreach and examinations of taxpayers. The IRS intends to stay actively engaged in addressing noncompliance related to crypto transactions through various efforts, ranging from taxpayer education to audits to criminal investigations. Virtual currency is also an ongoing focus area for the IRS Criminal Investigation unit.

Accountants and tax practitioners can help any cryptocurrency-using clients who have been contacted by the IRS. “The IRS and additional government authorities continue to focus on cryptocurrency transactions, and the tax reporting by investors engaged in such transactions,” said Tim Speiss, partner-in-charge of the Personal Wealth Advisors Group at EisnerAmper in New York. “Tax professionals have also been striving to assist investors with the proper federal and state tax reporting rules. The proper tax reporting of these transactions can be very complex. Therefore, assisting investors and taxpayers so they are in compliance with reporting rules is critical in assisting them to avoid potential penalties and interest attributable to non-reporting.”

Back in 2014, the IRS issued Notice 2014-21, which said that virtual currency is property for federal tax purposes and offered guidance on how general federal tax principles apply to virtual currency transactions. Compliance efforts follow these general tax principles, but the IRS has also been looking to update the guidance, as the cryptocurrency market has grown dramatically in recent years. The IRS plans to continue to consider and solicit feedback from both taxpayers and tax practitioners on its education efforts and future guidance.

The IRS said it anticipates issuing additional legal guidance in this area in the near future. In the meantime, taxpayers who don’t properly report the income tax consequences of digital currency transactions could be liable for tax, penalties and interest, and in some cases, may even be subject to criminal prosecution.

More information on virtual currencies can be found on IRS.gov.

IRS expands underpayment and under-withholding relief

By Michael Cohn

The Treasury Department and the Internal Revenue Service said Friday they are lowering the withholding underpayment threshold to 80 percent to give more taxpayers relief from tax penalties if they didn’t withhold enough taxes from their paychecks last year in the wake of the Tax Cuts and Jobs Act.

The change applies to taxpayers whose total withholding and estimated tax payments for 2018 are equal to or greater than 80 percent of their taxes owed. The usual threshold for avoiding a tax penalty is 90 percent, but earlier this year the Treasury agreed to reduce the threshold to 85 percent. The Treasury and the IRS came under pressure from lawmakers to either waive the tax penalty for under-withholding entirely this year or lower it to 80 percent.

“I appreciate the bipartisan interest from members of Congress on this issue and agree that further relief should be provided to taxpayers,” said Treasury Secretary Steven T. Mnuchin in a statement. “Treasury is exempting even more taxpayers from the usual underpayment penalties in an effort to help those who attempted in good faith to meet their withholding obligations.”

Last year, the Treasury and the IRS urged taxpayers to use an online withholding calculator and the updated W-4 form to help them figure the right amount to withhold from their paychecks, but the calculator was difficult to use and required a great deal of guesswork, so relatively few taxpayers actually used it. In cases where taxpayers have marginally miscalculated their 2019 withholdings, the extra waiver should help more taxpayers avoid a penalty for underpaying their taxes. Upcoming guidance and updated Form 2210 instructions will give taxpayers more guidance on this relief and filing for penalty abatement. The Treasury is still urging taxpayers to check their withholding at IRS.gov/withholding to make sure they are withholding enough this year and are getting the full benefits of the new tax law.

The IRS said it would waive the estimated tax penalty for any taxpayer who paid at least 80 percent of their total tax liability in 2018 via federal income tax withholding, quarterly estimated tax payments or a combination of the two. The revised waiver computation will be integrated into commercially available tax software and reflected in an upcoming revision of the instructions for Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts. Taxpayers who have already filed for tax year 2018 but qualify for the expanded relief will be able to claim a refund by filing Form 843, Claim for Refund and Request for Abatement and include the statement “80% Waiver of estimated tax penalty” on Line 7. The form cannot be filed electronically.

In Notice 2019-25, the IRS officially expanded the waiver. “We heard the concerns from taxpayers and others in the tax community, and we made this adjustment in an effort to be responsive to a unique scenario this year,” said IRS Commissioner Chuck Rettig in a statement. “The expanded penalty waiver will help many taxpayers who didn’t have enough tax withheld. We continue to urge people to check their withholding again this year to make sure they are having the right amount of tax withheld for 2019.”

Lawmakers praised the extra relief. Rep. Judy Chu, D-Calif., pointed out that she had received a commitment from Mnuchin to respond to her request for this relief during a House Ways and Means Committee hearing last week on the Treasury Department budget. She had made the same request in a letter last month with Rep. John Lewis, D-Ga., which followed a similar letter last July with 12 other Democratic members of the Ways and Means Committee asking the IRS to grant the relief. Chu also recently re-introduced legislation known as the Taxpayer Penalty Protection Act that would have lowered the penalty threshold to 80 percent had the Treasury not acted on the request. Senator Kirsten Gillibrand, D-N.Y., introduced similar legislation in the Senate earlier this year.

“Families depend on their tax refunds each year to pay down bills, make ends meet, and save for the future,” Chu said in a statement. “But this year, the reality for many is much different as they are shocked to discover they owe hundreds or thousands of dollars to the IRS through no fault of their own, and could even face penalties. I have been concerned about this issue since the passage of the Republican tax law. That’s why I introduced the Taxpayer Penalty Protection Act, to waive this penalty for more taxpayers. Even Nina Olsen, the National Taxpayer Advocate, confirmed to the House Ways and Means Committee that the confusion created by the new tax law could lead to many taxpayers facing a penalty and urged the government to act. As tax filing season is in full swing, Treasury’s action will relieve the financial anxiety facing worried taxpayers across the country. I am glad that Secretary Mnuchin responded to my request and acted in accordance with my legislation to make this change.”

Sen. Ron Wyden, D-Ore., the top Democrat on the Senate Finance Committee, also praised the announcement that taxpayers who paid at least 80 percent of their estimated taxes would not face penalties. “The Trump administration is taking a step to undo the harm the Republican tax law inflicted on millions of families whose taxes were under-withheld through no fault of their own,” he said in a statement. “Piling penalties on top of unexpectedly high tax bills while corporations and the wealthy reap a windfall would have been a slap in the face. It shouldn’t have taken nearly three months to provide additional relief to families facing financial anxiety, but I’m pleased the administration has taken the action we requested.”

Wyden noted that he first raised the issue of penalties for families whose taxes were under-withheld in a January letter to IRS Commissioner Charles Rettig. Wyden and Senate Minority Leader Chuck Schumer, D-N.Y., then led 39 Senate Democrats in a follow-up letter last month expressing concern that the 85 percent threshold wasn’t low enough.

Republicans also hailed the expanded relief. “I appreciate Commissioner Rettig’s consideration of bipartisan congressional feedback urging IRS to provide additional penalty relief to taxpayers for this tax-filing season,” Senate Finance Committee chairman Chuck Grassley, R-Iowa, said in a statement. “IRS has done a laudable job updating withholding tables to reflect the changes in tax law. But no withholding table will be 100 percent accurate for all taxpayers. Over the past year, the IRS implemented a campaign reminding Americans to check their withholding to ensure they’re paying the correct amount of tax throughout the year. This further relief for taxpayers is welcome news for taxpayers who weren’t fully prepared and may have been inadvertently under-withheld due to the significant changes made to the tax code following legislative reforms in the last Congress. The Tax Cuts and Jobs Act was the biggest change to the federal tax code in a generation. This is a reasonable approach in the first year after major reforms to allow taxpayers some flexibility to avoid paying unexpected penalties.”

U.S. tax refunds up 17% in latest data set, Mnuchin says

By Saleha Mohsin
Bloomberg News

 

Tax refunds in the U.S. jumped 17 percent week over week, Treasury Secretary Steven Mnuchin said.

Mnuchin didn’t provide further data or clarify which week he was speaking about, though IRS figures announced last Friday showed a 17 percent drop in the amount of the average tax refund during the week ended Feb. 15 versus the same period a year earlier.

“That basically gets us to the same level as last year,” Mnuchin said during a CNBC interview in London. “I would just emphasize that even if people have perfectly done their withholding, people really should be focused on paying lower taxes and those lower taxes are money back into the economy and that’s why we have the economic growth that we do.”

A Treasury spokeswoman said Mnuchin was referring to a rise in the average size of tax refunds for the week ended Feb. 15. An IRS spokesman didn’t immediately respond.

The IRS’s full weekly tax filing data is scheduled to be released Friday in Washington.

Mnuchin has tried to explain early data and anecdotal evidence that refunds over the first weeks of the tax filing season are lower. Less wealthy people — whose taxes are less complicated and are more eager for a refund — tend to file the earliest tax returns.

The drop in the number and amount of refunds so far has irritated taxpayers and triggered new Democratic complaints about President Donald Trump’s new tax law.

Data for the seven days through Feb. 15 showed that direct-deposit refunds dropped for the third week in a row this filing season to $2,703, from $3,256 a year earlier. The total number of refunds was down 26.5 percent to 23.5 million, the IRS said last week.

— With assistance from Laura Davison

Treasury Department says fewer refunds better for U.S. taxpayers

By Laura Davison

Bloomberg News
February 14, 2019

The U.S. Treasury Department is defending the declining numbers of tax refunds being issued so far this year, saying that taxpayers already saw the benefits of the new tax law in their paychecks.

The number of tax refunds issued so far fell nearly 16 percent to 11.4 million, compared with 13.5 million at the same point in the tax filing season last year, according to Treasury data published on Thursday. The average amount of those refunds dropped to $1,949, compared with $2,135 in 2018.

“Most people are seeing the benefits of the tax cut in larger paychecks throughout the year, instead of tax refunds that are the result of people overpaying the government,” the Treasury said in a statement. “Smaller refunds mean that people are withholding appropriately based on their tax liability, which is positive news for taxpayers.”

The data, which reflects the first two weeks of the filing season, has been a sore point for some taxpayers who discovered that their refund is smaller than last year as a result of the late-2017 tax overhaul, which altered available deductions and credits and revised withholding tables.

In some cases, taxpayers who were counting on a refund found they owed the government instead.

The IRS has been off to a slow start this filing season after a 35-day government shutdown left the agency with a fraction of its staff just before the filing season launched Jan. 28.

Taxpayers, too, have been slower to file this year. The IRS has received about 7 percent fewer returns at this point in the filing season compared with a year ago.

The IRS is urging taxpayers who unexpectedly owe money to pay what they can if they can’t cover the whole liability at once. The agency has payment plan options for people in that situation. The IRS has also waived some penalties for those who didn’t have enough withheld out of their paycheck during the year.