In This Issue:
- IRS Opens Free Portal to File Information Returns
- Client Update: How to Treat Tips for Tax Purposes
- Which Employment Tax Records to Keep and For How Long?
- IRS Saturday Hours for Face-to-Face Help – IRS Assistance Centers Open Across the Nation
- Keep Up to Date on Expiring Provisions
- CPAs Promote Simplicity, Fairness in 2023 Tax Proposals
- Labor Department Already Listing Potential Tax Year 2023 FUTA Credit Reduction States – © 2023 Thomson Reuters/Tax & Accounting.
- IR-2023-22 – Direct Deposit Available with Amended Returns
- Taxpayers Can Now Upload More Documents to the IRS; New Online Option for 9 Notices now Available – IR-2023-29, Feb. 16, 2023
- Iowa—Sales & Use Taxes—Construction Activities—Iowa Regulation Adopted
- IRS Issues Final Mandatory E-Filing Rules
- Applicable Federal Rates for March 2023, Rev. Rul. 2023-5
REMINDER: Unlimited Webinar Package Available for $249.
Check out the schedule here! Webinar Schedule
Issue 1: IRS Opens Free Portal to File Information Returns
Known as the Information Returns Intake System (IRIS), this free electronic filing service is secure, accurate and requires no special software.
Filers can use the platform to create, upload, edit and view information and download completed copies of 1099-series forms for distribution and verification.
With IRIS, businesses can e-file both small and large volumes of 1099-series forms by either keying in the information or uploading a file with the use of a downloadable template.
Currently, IRIS accepts Forms 1099 only for tax year 2022 and later.
The IRS encourages any business, especially those that now file on paper, to switch to e-filing through the platform and share in its benefits.
These benefits include:
- E-file security standards keep information safe and protected.
- The portal is an accurate filing method that automatically detects filing errors and provides alerts for missing information.
- Filers can submit automatic extensions and make corrections to information returns filed through the platform.
- The IRS acknowledges receipt of the return in as early as 48 hours.
- The platform keeps issuer information from year to year, and prior years filed through this platform, providing convenience to 1099 filers.
- E-filing eliminates trips to the post office and can reduce office expenses for paper, postage and storage space.
Enrollment for the IRIS filing platform is now open. Filers should begin the enrollment process immediately.
The Filing Information Returns Electronically (FIRE) system will remain available for bulk filing Form 1099 series and the other information returns through at least the 2023 filing season.
Issue 2: Client Update: How to Treat Tips for Tax Purposes
Individuals who perform services in certain industries receive tips as part of their compensation for the services they provide. Businesses where individuals commonly receive tips are restaurants, hotels, and salons. For individuals who work in these types of businesses, tips usually make up a large part of their pay.
What are tips? Tips are optional payments that customers usually make to employees who perform services in a business where tips are customary.
Tips can be cash or noncash.
- Cash tips include those received directly from customers, electronically paid tips distributed to the employee by their employer and tips received from other employees under any tip-sharing arrangement. Generally, workers must report cash tips to their employer.
- Noncash tips are items of value provided to a worker in any medium other than cash. Noncash tips can include items as tickets, passes or other goods or commodities that a customer gives the employee. Workers don’t have to report noncash tips their employer.
For tax purposes, four factors determine whether a payment qualifies as a tip. Normally, all the following four factors must apply:
- The customer makes the payment voluntarily (i.e., free from compulsion);
- The customer must have the unrestricted right to determine the amount;
- The payment is not negotiated with or dictated by employer policy; and
- Generally, the customer has the right to determine who receives the payment.
Tips can also be direct or indirect.
A direct tip occurs when an employee receives the tip directly from a customer, even if it is part of a tip pool. Examples of directly tipped employees include waiters, waitresses, bartenders, and hairstylists.
An indirect tip occurs when an employee, who normally does not receive tips directly from customers, receives a tip. Examples of indirectly tipped employees include bussers, service bartenders, cooks, and salon shampooers.
Daily tip record. Tipped workers must keep a daily record of the cash tips they receive. Tipped workers can use Form 4070A (Employee’s Daily Record of Tips), which can be found in Publication 1244, (Employee’s Daily Record of Tips and Report of Tips to Employer) to keep track of the cash tips they receive.
Tipped workers should also keep a record of the date and value of any noncash tips. Although the IRS doesn’t require workers to report noncash tips to their employer, noncash tips must be reported as income on the worker’s tax return.
How to report tips to your employer. Employees must report tips to their employer by the 10th of the month following the month the tips were received. The IRS doesn’t require a worker to use a particular form to report their tips. However, a worker’s tip report generally should include:
- Employee signature;
- Employee’s name, address and social security number;
- Employer’s name and address (and business name if different);
- Month or period the report covers; and
- Total of tips received during the month or period.
Whatever method or system the employee uses to report tips, it must contain the above information.
Note: Employees whose tips are less than $20 per month don’t need to report them to their employer.
Issue 3: Which Employment Tax Records to Keep and For How Long?
Employers should keep records of employment taxes for at least four years after filing the fourth quarter for the year in case the IRS requests to review them. Employment tax records should contain the following:
- Employer identification numbers (EIN);
- Amounts and dates of all wage, annuity, and pension payments;
- Amounts of tips reported by employees;
- Record of all allocated tips;
- The fair market value of in-kind wages paid;
- Names, addresses, Social Security Numbers, and occupations of employees and recipients;
- Any employee copies of Form W-2 and W-2c returned to as undeliverable;
- Dates of employment for each employee;
- Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them;
- Copies of employees’ and recipients’ income tax withholding certificates (Forms W-4, W-4P, W-4S, and W-4V);
- Dates and amounts of tax deposits you made and acknowledgment numbers for deposits made by EFTPS (Electronic Federal Tax Payment System);
- Copies of returns filed and confirmation numbers;
- Records of fringe benefits and expense reimbursements provided to your employees, including substantiation; and
- Documentation to substantiate the amount of any employer or employee share of Social Security tax deferred and paid for 2020.
According to the IRS, records related to qualified sick leave wages and qualified family leave wages for leave taken after March 31, 2021, and records related to qualified wages for the employee retention credit paid after June 30, 2021, should be kept for at least six years.
While the IRS generally requires a four year time period for keeping employment taxes, other federal agencies have different time period for different records.
For example, the U.S. Department of Labor requires certain records related to the Fair Labor Standards Act (FLSA) to be kept for three years. The FLSA does not have a particular form requirement for the records, but it does require that the records include certain identifying information about the employee and data about the hours worked and the wages earned.
Also, the Equal Employment Opportunity Commission (EEOC regulations) requires that employers keep all personnel or employment records for one year. If an employee is involuntarily terminated, his/her personnel records must be retained for one year from the date of termination.
Issue 4: IRS Saturday Hours for Face-to-Face Help – IRS Assistance Centers Open Across the Nation
As part of a continuing effort to improve service this tax season, the Internal Revenue Service announced special Saturday hours for the next four months at Taxpayer Assistance Centers (TACs) across the country.
The special Saturday availability across the nation will take place from 9 a.m. to 4 p.m., March 11, April 8 and May 13. Offices in dozens of states, the District of Columbia and Puerto Rico will be open during this special four-month event, with no appointments required. The IRS encourages taxpayers to visit a special IRS.gov page for the latest information on the special Saturday hours.
At these offices, called TACs, people receive in-person help from IRS employees. Normally, these centers are not open on Saturdays, and people must have appointments to receive services.
During these Saturday hours, people can walk-in for all services routinely offered at an office, except for making cash payments. They can also ask about setting up an Online Account and getting an Identity Protection PIN among other topics.
The IRS’s Contact Your Local Office site lists all services provided at specific TACs.
If someone has questions about a tax bill or IRS audit or they need help resolving a tax problem, they’ll receive assistance from IRS employees specializing in those services. If these employees aren’t available, the individual will receive a referral for these services. IRS Taxpayer Advocate Service employees may also be available to help with some issues.
Professional foreign language interpretation will be available in many languages through an over-the-phone translation service. For deaf or hard of hearing individuals who need sign language interpreter services, IRS staff will schedule appointments for a later date. Alternatively, these individuals can call TTY/TDD 800-829-4059 to make an appointment.
For people visiting these offices, individuals should bring the following documents:
- Current government-issued photo identification.
- Social Security cards or ITINs for themselves and all members of their household, including their spouse and dependents (if applicable).
- Any IRS letters or notices received and related documents.
- For identity verification services, two forms of identification and, if filed, a copy of the tax return for the year in question.
During the visit, IRS staff may also request the following information:
- A current mailing address,
- Proof of bank account information included on a tax return to receive payments or refunds by direct deposit.
Issue 5: Keep Up to Date on Expiring Provisions
Follow the link to a document published by the Joint Committee on Taxation to keep up to date on expiring provisions from 2022-2026.
Issue 6: CPAs Promote Simplicity, Fairness in 2023 Tax Proposals
Want to stay ahead on proposals by the American Institute of Certified Public Accountants (AICPA) spanning over 60 recommendations in the interest of simplifying and brining technical corrections to the Tax Code.
Spanning 160 pages, the compendium offers several legislative topics pertaining to employee benefits; individual income tax; tax administration; corporate tax; trust, estate, and gift tax, tax methods and periods, and international tax. Each begins with an overview of present law, details of the proposal, and supporting analysis.
It’s a good read on how Congress can simplify some of the issues we face daily.
Issue 7: Labor Department Already Listing Potential Tax Year 2023 FUTA Credit Reduction States – © 2023 Thomson Reuters/Tax & Accounting.
The U.S. Department of Labor is already announcing a list of potential Federal Unemployment Tax Act (FUTA) tax credit reduction states for the 2023 tax year that includes four states and the U.S. Virgin Islands.
FUTA tax and credit. Employers pay FUTA tax on the first $7,000 in wages for each employee, each year. The FUTA tax rate is 6.0%. However, most employers benefit from a 5.4% FUTA credit reduction. As such, employers pay FUTA tax at a rate of 0.6% on the first $7,000 in wages per employee, each year.
Credit reduction. FUTA provides that employers in states that have an outstanding balance of advances under Title XII of the Social Security Act at the beginning of January 1 of two or more consecutive years are subject to a reduction in credits otherwise available against the FUTA tax, if all advances are not repaid before November 10 of the taxable year (see Payroll Guide ¶4075).
Credit reductions can add up. The first FUTA credit reduction is 0.3%. Another 0.3% is reduced from the 5.4% credit each year thereafter until the federal unemployment account loan is repaid. Other additional FUTA taxes may apply when the loan remains outstanding for three and five years (exceptions may apply and waivers may be granted).
Reporting FUTA credit reduction. IRS Form 940 (Employer’s Annual Federal Unemployment (FUTA) Tax Return) and Schedule A (Form 940, Multi-State Employer and Credit Reduction Information) for tax year 2022 were due by January 31, 2023. Employers use Schedule A if they are located in a FUTA credit reduction state.
2022 FUTA credit reductions. For tax year 2022, employers in California, Connecticut, Illinois, New York, and the U.S. Virgin Islands were FUTA credit reduction states. Employers in the four states had their FUTA credit reduced by 0.3%. Employers in the Virgin Islands had their FUTA credit reduced by 3.6% (the territory received credit reduction add-on relief to avoid a greater increase).
Potential 2023 FUTA credit reductions. On January 18, 2023, less than two weeks before the tax year 2022 FUTA tax forms were due, the DOL announced a list of potential FUTA credit reduction states for the 2023 tax year. The list is the same as the tax year 2022 final list: California, Connecticut, Illinois, New York, and the Virgin Islands. These jurisdictions have until November 10, 2023 to repay their loans or employers will again pay more in FUTA taxes.
|DOL List of Potential FUTA Credit Reduction States for Tax Year 2023|
|2023 Potential Credit Reduction Due to Outstanding Advance (2)||Preliminary Estimate 2023 Potential 2.7 Add-On (3)||Preliminary Estimate 2023 Estimated BCR Add-On (4)||
Preliminary Estimate 2023 Potential Total Credit Reduction (5)
- Each of these states and territories have passed at least two consecutive January 1’s with an outstanding Federal advance and employers in these States are therefore subject to a potential FUTA credit reduction.
- For each consecutive January 1 a state or territory passes with an outstanding advance, following the second one, employers in the state are subject to an additional 0.3% reduction in their FUTA credit.
- Following their third consecutive January 1 with an outstanding advance state are subject to an additional FUTA credit reduction called the 2.7 add-on. A description of this add-on is in Code Sec. 3302(c)(2)(B). This value is a preliminary estimate based on estimated wages and tax contributions for the third and fourth quarter of 2022.
- Virgin Islands is also potentially subject to the Benefit Cost Rate (BCR) additional credit reduction formula for having passed at least five consecutive January 1’s with an outstanding Federal advance (Code Sec. 3302(c)(2)). This value is a preliminary estimate based on estimated wages and tax contributions for the third and fourth quarter of 2022.
- The potential FUTA credit reduction for 2023 is calculated by adding the credit reduction due to having an outstanding advance plus the reduction from the 2.7% add-on or the BCR add-on if applicable, which can be waived and replaced by the 2.7 add-on (Code Sec. 3302(c)(2)(C)).
Issue 8: IR-2023-22 – Direct Deposit Available with Amended Returns
In the latest improvement for taxpayers, the Internal Revenue Service announced that people electronically filing their Form 1040-X, Amended U.S Individual Income Tax Return, will for the first time be able to select direct deposit for any resulting refund.
Previously, taxpayers who filed Form 1040-X with the IRS had to wait for a paper check for any refund, a step that added time onto the amended return process. Now, anyone who electronically files the Form 1040-X can select direct deposit and enter their banking or financial institution information for quicker delivery of refunds. Taxpayers file a total of approximately 3 million amended returns each year.
The IRS began accepting the Form 1040-X electronically in 2020 but until now did not offer direct deposit as an option for a refund.
Taxpayers still have the option to submit a paper version of the Form 1040-X and receive a paper check. They should follow the instructions for preparing and submitting the paper form. Direct deposit is not available on amended returns submitted on paper.
Current processing time is more than 20 weeks for both paper and electronically filed amended returns, as processing an amended return remains a manual process even if it’s filed electronically. However, filing electronically cuts out the mail time, and including direct deposit information on an electronically submitted form provides a convenient and secure way to receive refunds faster.
Issue 9: Taxpayers Can Now Upload More Documents to the IRS; New Online Option for 9 Notices now Available – IR-2023-29, Feb. 16, 2023
The Internal Revenue Service announced today that taxpayers who receive certain notices requiring them to send information to the IRS now have the option of submitting their documentation online through IRS.gov.
This new secure step will allow taxpayers or their tax professional to electronically upload documents rather than mailing them in, helping reduce time and effort resolving tax issues.
In this stage of the ongoing effort, nine notices will be available for this feature. This potentially can help more than 500,000 taxpayers each year who receive these notices, which include military personnel serving in combat zone areas and recipients of important credits like the Earned Income Tax Credit and Child Tax Credit.
Initially, the online correspondence feature will be available to taxpayers who receive one of nine IRS notices. For the most part, the IRS sends these notices to individual tax filers claiming various tax benefits, such as the Earned Income Tax Credit for low- and moderate-income workers, the Child Tax Credit for families with dependents, the Premium Tax Credit for those who obtain health coverage through the Health Insurance Marketplace and members of the military claiming combat zone tax benefits.
Taxpayers receiving these notices can respond securely to IRS online, regardless of whether they have an IRS Online Account.
How it works
Language on the notice informs the taxpayer to, “Send us your documents using the Documentation Upload Tool within 30 days from the date of this notice.” It includes the link and a unique access code.
- The taxpayer can open the link in any browser and then input their unique code, their first and last name and their Social Security, Individual Taxpayer Identification or Employee Identification number.
- The taxpayer can then securely upload scans, photos or digital copies of documents (maximum of 15MB per file, up to 40 files).
- The taxpayer receives a confirmation that the IRS received their documents, and the IRS employee assigned the case can manage the transmitted documents.
What notices qualify?
Taxpayers who receive one of the following notices with the link and access code can choose to upload their documents:
- CP04, relating to combat zone status.
- CP05A, information request related to a refund.
- CP06and CP06A, relating to the Premium Tax Credit.
- CP08, relating to the Child Tax Credit.
- CP09, relating to claiming the Earned Income Tax Credit.
- CP75, relating to the EITC.
- CP75a, relating to the EITC.
- CP75d, relating to the EITC and other credits.
In the coming months and years, the IRS plans to expand this capability to dozens of other notices. In addition, the IRS will offer digital correspondence on a variety of other taxpayer interactions. During live interactions such as phone calls with taxpayers, IRS employees will be able to grant upload access by providing the link and unique access code.
Issue 10: Iowa—Sales & Use Taxes—Construction Activities—Iowa Regulation Adopted
The Iowa Department of Revenue has adopted, effective March 15, 2023, new Iowa Admin. Code § 701—219.23 applicable to exempt sales of building materials, supplies, equipment, or services to certain persons performing construction contracts for sponsors that are designated exempt entities and allows designated exempt entities and other persons to seek refund of taxes paid by persons performing construction contracts.
Issue 11: IRS Issues Final Mandatory E-Filing Rules
The IRS is reducing the number of returns and other documents that may be submitted by certain business filers without being required to e-file from 249 in 2023 to nine beginning in 2024. The new rule requiring e-filing of 10 or more documents is included in final regulations issued Feb. 21 (TD 9972) and apply to taxpayers filing partnership, corporate income tax, unrelated business income tax and withholding tax returns. They also apply to certain information returns, registration statements, disclosure statements, notifications of actuarial reports and certain excise tax returns.
Specifically, the final regulations require the following:
- E-filing of certain returns and documents where there was no previous e-filing requirement.
- Aggregation of almost all types of information returns covered by the regulation to determine whether the 10-return threshold has been met.
- Elimination of the e-filing exception for income tax returns of corporations reporting assets of less than $10 million at the end of their taxable year.
- The e-filing of information returns by partnerships with more than 100 partners.
- E-filing by partnerships that file at least 10 returns of any type during the calendar year.
The IRS said the regulations reflect changes made by the Taxpayer First Act of 2019 to increase e-filing without placing undue hardship on taxpayers. A free online portal was also created to help businesses e-file Form 1099 series information returns without any specialized software.
After reviewing comments on the proposed regs, the IRS concluded that the new e-filing rules would apply to returns and other documents required to be filed in calendar year 2024. According to the IRS, this delayed application date will give affected filers ample time to prepare for the transition to e-filing.
For employee plans, the final e-filing rules will apply for plan years that begin on or after January 1, 2024. For fiscal year taxpayers, the final rules will apply to returns required to be filed for tax years ending on or after December 31, 2023, instead of July 31, 2022, as proposed.
In addition, the applicability date in the final rules doesn’t apply to exempt organization returns required to be electronically filed under section 3101 of the TFA. Section 3101 of the TFA requires e-fling by all tax-exempt organizations filing statements or returns in the Form 990 series or Form 8872, Political Organization Report of Contributions and Expenditures. Therefore, the 2024 applicability date in the final rules doesn’t apply to these filers.
Issue 12: Applicable Federal Rates for March 2023, Rev. Rul. 2023-5
REV. RUL. 2023-5 TABLE 5
Rate Under Section 7520 for March 2023 Applicable federal rate for determining the present value of an annuity, an interest in life or a term of years, or a remainder or reversionary interest 4.40%