by | Jul 7, 2022 | Tax Tips and News
National Taxpayer Advocate Erin Collins says the Internal Revenue Service is concerned about the 21.3 million paper-return backlog. In her midyear report to Congress, Collins notes that low-income families could face financial burdens as affected refunds are frequently delayed by 10 months.
What is the Taxpayer Advocate Service?
The Taxpayer Advocate Service was established by the Taxpayer Bill of Rights 2 legislation in 1996. Later expanded by the IRS Restructuring and Reform Act of 1998, the TAS raises individual and systemic issues faced by taxpayers.
How Does the Backlog Affect Taxpayers?
The IRS’ delay in working through the mountain of paper tax returns leads Collins’ list of concerns. At the end of May, over 21 million paper tax returns had yet to be processed by the IRS—up by 1.3 million from the same time last year. While diplomatic, Collins is clearly concerned about the trend this reflects.
“The IRS has said it is aiming to crush the backlogged inventory this year, and I hope it succeeds,” she writes. “Unfortunately, at this point, the backlog is still crushing the IRS, its employees, and most importantly, taxpayers. As such, the agency is continuing to explore additional processing strategies.”
The fact that most individual taxpayers get some level of refund is an indicator of how widespread the effects of the backlog can be. Besides delays in processing returns, taxpayers this year have also faced delays in processing correspondence to the IRS, and difficulties in reaching the agency by phone.
“At the end of the day, a typical taxpayer cares most about receiving his or her refund timely,” Collins explains. “Particularly for lower-income taxpayers who receive Earned Income Tax Credit benefits, tax refunds may constitute a significant percentage of their household income for the year. Thus, these processing delays are creating unprecedented financial difficulties for millions of taxpayers and outright hardships for many.”
A Mountain of Paper Returns
The IRS has worked hard over the last few years to move taxpayers to electronic filing, and it has largely worked: 90% of individual taxpayers e-filed last year. Unfortunately, that still left some 17 million taxpayers to file paper returns.
But why?
The IRS says some taxpayers just chose to file on paper. Other taxpayers had no choice; they may have hit a roadblock to e-filing, such as being required to file a tax form or schedule that the agency couldn’t process electronically.
Historically—before the pandemic—paper-filers could expect a refund within four to six weeks after filing. That timeframe has stretched out over the past year. Now, paper-filers can wait up to six months, although in some cases their refund might not show up for 10 months or even more.
In May of this year alone, the report says, the IRS averaged processing some 200,000 Forms 1040 tax returns every week. Yet, at the end of May, the IRS had a Forms 1040 backlog of 8.2 million returns.
As if that weren’t enough, the backlog doesn’t include millions more paper tax returns that still had to be classified or were expected to arrive before the October 15 extended filing deadline.
Collins’ report concludes that the IRS would have to process well over 500,000 Forms 1040 returns every week to eliminate the backlog this year. That would mean processing twice as many returns as the IRS currently does.
There’s more to the backlog than just individual tax returns. Every year, millions of business tax returns and amended tax returns from individuals and businesses are also paper-filed.
Overall, the mountain of returns yet to be processed has grown by 7%.
Faced with a “daunting” backlog of paper returns that likely will be carried over into the 2023 filing season, Collins proposes the IRS uses 2-D barcoding or some other advanced scanning technology so the transcription of paper returns can be automated for future filing.
“Today, the digits on every paper return must be manually keystroked into IRS systems by an employee,” Collins wrote. “In the year 2022, that doesn’t just seem crazy. It is crazy.”
Other Hurdles to Be Cleared
Correspondence Processing Delays: Another paper problem arises when a taxpayer gets a notice and is requested to respond—or chooses to respond; the taxpayer usually has to do so by mail.
For example: through May 21, the IRS had processed 5 million taxpayer responses to proposed tax return adjustments. It took an average of more than eight months for a taxpayer to complete the process—251 days to be exact—three times the average processing time in 2019.
“When a math error or similar notice is generated in connection with a paper-filed tax return,” the report says, “the combination of the return processing delay and the correspondence processing delay may mean that the taxpayer must wait well over a year to get the issue resolved and receive the refund due.”
The report also notes that taxpayers who are trying to resolve identity theft issues also have to suffer through long delays, waiting nearly a year on average to complete the process of sending affidavits and other documentation to substantiate their identities.
Telephone Overload: The Internal Revenue Service fielded about 73 million telephone calls during the 2022 filing season. While that number is overwhelming, consider that only one call out of 10 actually reached a human IRS employee. When compared with numbers from the 2021 filing season, the percentage of IRS-fielded calls in 2022 is very close to that in 2021.
“If a private company failed to answer nine out of 10 customer calls, customers would go elsewhere,” Collins wrote. “That, of course, is not an option for U.S. taxpayers, so it is critical that the IRS increase staffing in its telephone call centers to handle the volume of calls it receives.”
Hold times on IRS lines increased to 29 minutes, up from 20 minutes in 2021.
Looking Ahead
The Taxpayer Advocate Service, or TAS, has come up with some key objectives for the IRS over the coming year. Collins says her department will place a lot of emphasis on working with the agency to help its performance by:
- Automating the processing of paper tax returns
- Reducing barriers to e-filing tax returns
- Improving the IRS’ hiring and training processes
- Improving telephone service
For more of the latest tax-news updates, be sure to bookmark Taxing Subjects.
Source: National Taxpayer Advocate issues midyear report to Congress; expresses concern about continued refund delays and poor taxpayer service
– Story provided by TaxingSubjects.com
by | Jun 28, 2022 | Tax Tips and News
The Internal Revenue Service started using voice bots on many of its toll-free telephone lines around the first of the year. The system has already helped more than 3 million taxpayers avoid wait times for simple questions about payments or notices, and the agency is adding more options.
Callers can set up or modify payment plans on the Automated Collection System (ACS) and Accounts Management toll-free lines. The system will even help create a personal identification number using information from a taxpayer’s most recent IRS bill and some additional personal information.
Will the IRS add more voice bots in the future?
IRS voice bots use artificial intelligence software to route callers to the information they need based on voice responses. Initially designed to answer simple questions, the IRS plans to continue adding voice-bot features that will help callers avoid extended wait times—even during tax season.
Voice bots aren’t just being used to collect payments. They have already been deployed on the Economic Impact Payment (EIP) and Advance Child Tax Credit toll-free lines to answer frequently asked questions. And the IRS says planned upgrades will provide taxpayers with active PINs access to a number of newly automated services:
- Account and return transcripts
- Payment history
- Current balance owed
While voice bots can quickly provide information for taxpayers, the agency says live phone representatives will still be available for English and Spanish speakers.
More information about self-service options is available on IRS.gov.
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Source: IR-2022-127
– Story provided by TaxingSubjects.com
by | Jun 24, 2022 | Tax Tips and News
Singer Neil Sadaka was right: breaking up is hard to do. For clients in the process of ending their marriage, there is more to consider than a simple separation of assets. Whether legally separating or divorcing, they could be facing big changes in their individual tax situations—and the Internal Revenue Service recently highlighted information that could help.
One of the first issues is timing. The Internal Revenue Service considers a married couple to be wed until they get either a separate maintenance decree or a final divorce decree. So, until there is an official court ruling, they’ll still be viewed as a married couple for tax purposes.
Another early issue is withholding. When a taxpayer divorces or legally separates from their partner, they will normally need to modify their withholding setup at work. This means filing a new Form W-4 with their employer.
For some, the process may not be more complicated. Taxpayers who receive alimony payments, for example, may have to make estimated tax payments. However, help is available through the Tax Withholding Estimator tool on IRS.gov. This tool can determine whether current withholding amounts are correct for a specific situation.
What are the tax considerations of alimony and separate maintenance?
The IRS could view money “paid to a spouse or a former spouse under a divorce decree, a separate maintenance decree, or a written separation agreement may be alimony or separate maintenance payments for federal tax purposes.” Why is this important? Some payments are deductible for the payer and have to be included in income by the payee. However, there are exceptions.
“Individuals can’t deduct alimony or separate maintenance payments made under a divorce or separation agreement executed after 2018 or executed before 2019 but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification,” the IRS explains. “Alimony and separate maintenance payments received under such an agreement are not included in the income of the recipient spouse.”
What about child custody?
Figuring out which partner can claim a dependent child is often a hotly contested topic among those on the brink of a breakup. According to the IRS, “the parent who has custody of the child can [generally] claim the child on their tax return.” However, the situation gets murky if parents split custody 50-50 but can’t agree who gets to claim the child(ren).
In that situation, there are tie-breaker rules that can apply. Further, under this arrangement, the IRS says these “child support payments aren’t deductible by the payer and aren’t taxable to the payee.”
What filing statuses are available to separating or divorced couples?
The IRS lists four basic filing statuses available for individuals who are divorced or separating:
- Married filing jointly. On a joint return, married people report their combined income and deduct their combined allowable expenses. For many couples, filing jointly results in a lower tax than filing separately.
- Married filing separately. If spouses file separate tax returns, they each report only their own income, deductions, and credits on their individual return. Each spouse is responsible only for the tax due on their own return. People should consider whether filing separately or jointly is better for them.
- Head of household. Some separated people may be eligible to file as head of household if all of these apply:
- Their spouse didn’t live in their home for the last six months of the year.
- They paid more than half the cost of keeping up their home for the year.
- Their home was the main home of their dependent child for more than half the year.
- Single. Once the final decree of divorce or separate maintenance is issued, a taxpayer will file as single starting for the year it was issued, unless they are eligible to file as head of household or they remarry by the end of the year.
See Publication 504, Divorced or Separated Individuals, and Topic No. 452, Alimony and Separate Maintenance, for more information on tax issues for divorcing or separating couples.
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Source: IRS Tax Tip 2022-92
– Story provided by TaxingSubjects.com
by | Jun 16, 2022 | Tax Tips and News
Due to rising gasoline prices, the Internal Revenue Service has taken the rare step of increasing its optional standard mileage rates for the last six months of the 2022 tax year. These rates are significant since taxpayers use them to calculate the deductible costs of operating a vehicle for business purposes.
Typically, the IRS tweaks mileage rates for the upcoming tax year in the fall. However, record fuel prices pushed the agency to act now for the current year. The last time the IRS made a midyear adjustment was 2011.
What are the new mileage rates for 2022?
The IRS issued Announcement 2022-13 to make the new rates official, setting forth the associated legal language, guidance, and limitations for the new rates. Here is a short breakdown from the agency:
- The standard mileage rate for business travel will be 62.5 cents per mile
- The new rate for deductible medical or moving expenses (available for active-duty members of the military) will be 22 cents per mile
- The 14 cents per mile rate for charitable organizations remains unchanged as it is set by statute
- These new rates become effective July 1, 2022
Moving expenses are only available to active-duty service members “pursuant to a military order and incident to a permanent change of station” (Announcement 2022-13). Taxpayers who traveled prior to this update—from January 1 to June 30, 2022—should use Notice 2022-03 to calculate their mileage rates.
What are the limits on who can claim a deduction?
Announcement 2022-13 states that the Tax Cuts and Jobs Act (TCJA) passed in 2017 limits which taxpayers are eligible to claim a deduction. The TCJA suspends all miscellaneous itemized deductions that are tied to the 2% of adjusted gross income floor until 2026, including unreimbursed employee travel expenses.
So, how do reservists, some state or local government officials, and some performance artists get to claim the mileage rate whereas other taxpayers do not? They are paid on a fee basis, and the IRS considers the deduction in these cases to be an adjustment to income.
What is the big picture?
Fuel costs are, no doubt, a significant factor for determining mileage rates, but other factors also play a part, such as depreciation, insurance, and other costs. Taxpayers can use the optional business standard mileage rate to help calculate the deductible costs of operating a vehicle for business purposes, instead of keeping track of the actual cost.
In addition, the federal government and some businesses use the rate to reimburse employees for their mileage. The IRS notes that taxpayers always have the option to use their vehicle’s actual costs rather than the optional standard mileage rates.
We can help you stay up to date!
Here are just a few recent IRS updates we covered:
Sources: IRS increases mileage rate for remainder of 2022; Announcement 2022-13
– Story provided by TaxingSubjects.com
by | Jun 7, 2022 | Tax Tips and News
It’s a tight job market out there, and many employers are struggling to recruit and retain qualified employees to maintain operations. While tax pros can’t provide employees for their clients’ businesses, they can explain tax benefits like the Work Opportunity Tax Credit (WOTC). This credit is designed to reward employers who hire long-term unemployment recipients or those who face employment challenges.
Exploring the Work Opportunity Tax Credit
The Work Opportunity Tax Credit isn’t new. Dating back to 1996, it encourages employers to hire individuals whose circumstances have historically presented barriers to employment by providing a credit for wages paid to qualified workers who start their position on or before Dec. 31, 2025.
The IRS identifies 10 groups who could qualify for the WOTC:
- Temporary Assistance for Needy Families (TANF) recipients
- Unemployed veterans, including disabled veterans
- Formerly incarcerated individuals
- Designated community residents living in Empowerment Zones or Rural Renewal Counties
- Vocational rehabilitation referrals
- Summer youth employees living in Empowerment Zones
- Supplemental Nutrition Assistance Program (SNAP) recipients
- Supplemental Security Income (SSI) recipients
- Long-term family assistance recipients
- Long-term unemployment recipients
To qualify as one of these 10 targeted groups, candidates must meet certain criteria. For example, long-term unemployment recipients are generally defined as those who have been out of work “for at least 27 consecutive weeks and received state or federal unemployment benefits during part or all of that time.”
How do employers determine if a hire qualifies for the WOTC?
To qualify for the WOTC, employers must complete Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit with the job applicant on or before the day they make an offer of employment. Then, they must submit the form to their state workforce agency (SWA)—not the IRS—within 28 days after the eligible worker started the position.
The WOTC is claimed on Form 3800, General Business Credit, but it’s calculated based on the wages paid to new eligible workers during their first year on the job on Form 5884, Work Opportunity Credit. It’s important to note that this credit can only be claimed once for each new employee—rehires do not qualify.
Can tax-exempt organizations claim the WOTC?
Tax-exempt organizations cannot claim the WOTC for most new hires, with the exception of qualified veterans. Instead of Form 3800, tax exempt organizations instead use Form 5884-C, Work Opportunity Credit for Qualified Tax Exempt Organizations Hiring Qualified Veterans.
For more information, see the LB&I and SB/SE Joint Directive on the WOTC issued by the IRS to help employers who have been impacted by extended delays in the Work Opportunity Tax Credit certification process.
Source: IR-2022-104
– Story provided by TaxingSubjects.com
by | Jun 7, 2022 | Tax Tips and News
The Internal Revenue Service is increasing the interest rates it can charge taxpayers for under- or overpayments, starting July 1. This follows the trend of interest rates for consumer loans and other financial transactions.
The Internal Revenue Code dictates that IRS’ interest rates be calculated on a quarterly basis. The rates are split between corporate tax payers and non-corporate tax payers.
What are the new rates?
The IRS says the new rates will be 5% for overpayments (if the taxpayer is a corporation, the rate is 4%); corporate overpayments exceeding $10,000 draw a 2.5% rate; underpayments get a 5% rate; and large-corporate underpayments will add 7%.
In most cases, the underpayment rate for a corporation will be the federal short-term rate plus three percentage points. For corporate overpayments, the rate is the federal short-term rate plus two percentage points.
If the taxpayer is a large corporation, the underpayment rate swells to the federal short-term rate plus five percentage points. If a large corporation makes an overpayment that is more than $10,000 for the taxable period, its overpayment rate will be calculated as the federal short-term rate plus one-half (0.5) of a percentage point.
The new third-quarter rates are calculated using the federal short-term rate that took effect May 1 and are based on daily compounding.
The full schedule of interest rates is listed in Revenue Ruling 2022-11, which officially announces the new rates in Internal Revenue Bulletin 2022-23, dated June 6, 2022.
Source: IRS interest rates increase for the third quarter of 2022
– Story provided by TaxingSubjects.com
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