The IRS has issued the inflation-adjusted Health Savings Account (HSA) figures for 2020. The new annual HSA contribution limit for an individual with self-only coverage will be $3,550 (up from $3,500 for 2019). For family coverage, the contribution limit will be $7,100 (up from $7,000 for 2019). HSA contributions can be made only by taxpayers with a high deductible health plan (HDHP). For a health plan to qualify as an HDHP in 2020, its annual deductible must not be less than $1,400 (up from $1,350 for 2019) for self-only coverage or $2,800 (up from $2,700 for 2019) for family coverage. (Revenue Procedure 2019-25)
Do you work multiple jobs or are you adding a summer job this year? The IRS suggests that you conduct a “paycheck checkup” to learn if you’re having the right amount of tax withheld from your paycheck. The Tax Cuts and Jobs Act made changes that might affect the taxes you owe. Changes include increasing the standard deduction, eliminating personal exemptions, discontinuing certain deductions, increasing the child credit, changing the tax rates and brackets and more. The easiest way to do a checkup, the tax agency says, is to use the IRS Withholding Calculator. Have your 2018 tax return and a recent pay stub handy to make the process easier.
The IRS has issued final regulations that spell out federal employment tax consequences for certified professional employer organizations (CPEOs) and their customers. Small businesses often contract with these employee leasing companies to ensure compliance with workplace laws and regulations. Typically, the CPEO computes the FICA, withholding tax, worker’s compensation, and 401(k) contributions of each employee and bills the client for the amount. The final regulations adopt the proposed regs with several changes. They include credits for non-worksite covered employees, provisions for self-employed individuals and reporting to the IRS. They also make changes to various definitions.
The IRS has issued depreciation limits for business passenger autos (including trucks and vans) placed in service in 2019. IRS Revenue Procedure 2019-26 provides that, for vehicles acquired before September 28, 2017, and placed in service in 2019, the depreciation limits are $10,100 for the first year ($14,900 with bonus depreciation), $16,100 for the second year, $9,700 for the third year, and $5,760 each year thereafter. For vehicles acquired after September 27, 2017, and placed in service in 2019, the limits are $10,100 for the first year ($18,100 with bonus depreciation), $16,100 for the second year, $9,700 for the third year, and $5,760 each year thereafter. Contact us with questions.
An audit by the Treasury Inspector General for Tax Administration (TIGTA) recently looked at the IRS’s progress in providing guidance related to the Tax Cuts and Jobs Act (TCJA). “Timely issuance of published guidance to taxpayers and tax preparers is critical so they have the information needed to file accurate tax returns,” TIGTA said. By the launch of the 2019 tax filing season, the IRS Chief Counsel Office had identified, created and issued 79 guidance products, with four more issued by late March. “However, much work remains to issue complete guidance for the TCJA,” TIGTA said, noting that more than 90 additional guidance products are planned. (Status of the Office of Chief Counsel’s Issuance of Tax Cuts and Jobs Act Guidance, 2019-14-025)
The IRS’s Large Business and International Division has announced a new compliance program. The new Large Corporate Compliance (LCC) program replaces the Coordinated Industry Case program. The new initiative employs the automatic application of its large-case “pointing criteria” to determine the LCC population. For example, pointing criteria include factors such as gross assets and gross receipts. Pointing had been done on a manual, localized basis. Automated pointing allows a more objective determination of the taxpayers that should be part of the large corporation group. Data analytics is then used to identify the returns that pose the highest compliance risk.
The IRS has concluded that an S corporation’s employee stock compensation plan didn’t create a second class of stock. In a Private Letter Ruling (PLR), the tax agency determined that, in this case, the transfer and repurchase restrictions on the plan’s shares were disregarded when determining whether the shares awarded under the plan had identical rights to other stock issued by the S corporation. Under the U.S. tax code, a domestic corporation may elect to be taxed as an S corporation. To qualify for this election, the corporation must, among other things, have only one class of stock. (PLR 201918013)
The U.S. House is expected to vote on its bipartisan retirement savings bill during the week of May 20. The bill, titled “Setting Every Community Up for Retirement Enhancement Act of 2019” (SECURE Act), is designed to increase retirement savings and improve the portability of lifetime income options from one plan to another. The bill’s provisions include an increase in the automatic enrollment safe harbor cap, simplification of 401(k) plan safe harbor rules and a repeal of the maximum age for traditional IRA contributions. It’s reported that a provision that expands eligible expenses for 529 plans to include home schooling costs and elementary and secondary school expenses will be removed.
The Senate Finance Committee is creating task forces to examine some 42 temporary tax provisions commonly known as “extenders.” The goal is to determine ways to provide more long-term certainty for most of the provisions and possibly phase out others. Senate Finance Committee Chairman Charles Grassley (R-IA) said groups will be tasked with looking at temporary tax provisions that expired, or will expire, between December 31, 2017, and December 31, 2019. The committee members will be divided into groups: workforce and community development, health, energy, business cost recovery, and a combined group consisting of individual, excise and other temporary policies.
The Treasury Department’s Office of Tax Policy has published a research report of interest to families. “Tax Support for Families under Current Law” discusses major tax provisions that support typical families, the number of families that benefit from these provisions, and the degree to which they benefit from them. It also addresses recent changes to the provisions. For tax year 2019, an estimated 64.1 million families will receive $215.9 billion in benefits. And the average benefit from these tax credits will be $3,366, according to the report. (Working Paper 119)
The Tax Cuts and Jobs Act (TCJA) is hurting some children receiving military survivor benefits. The Congressional Research Service (CRS) has issued a new report suggesting ways to fix that. The TCJA changed the calculation of “kiddie tax” on certain military survivor benefits. Retired service members and dependents of servicemembers who die while in active service can elect to provide their families with up to 55% of their pension after their death. The tax on these payments generally increased under the TCJA. The CRS suggests legislative options to prevent a child’s benefits from being taxed at rates higher than they used to be. Read the report here.
The IRS is reminding business taxpayers and the self-employed that an important change is coming that will affect the way it issues employer identification numbers (EINs). Beginning 5/13/19, only individuals with tax identification numbers (either a Social Security number or an individual taxpayer identification number) can request an EIN. The IRS states that this new requirement “will provide greater security to the EIN process by requiring an individual to be the responsible party and will also improve transparency.” An EIN is a 9-digit number assigned to sole proprietors, corporations, partnerships, estates, trusts and other entities for tax-filing and reporting purposes.
As part of National Small Business Week (May 5-11), the IRS issued a reminder about a change in backup withholding. Under the Tax Cuts and Jobs Act, the backup withholding tax rate dropped from 28% to 24%, effective 1/1/18. Backup withholding applies in various situations, including when a taxpayer fails to supply a correct taxpayer identification number (TIN) to a payer. Usually, a TIN is a Social Security number, but in some cases, it can be an employer identification number, individual taxpayer identification number or adoption taxpayer identification number. Backup withholding also applies when a taxpayer underreported interest or dividend income on a federal tax return.
May 5 to 11 is “Hurricane Preparedness Week” and the IRS is encouraging taxpayers “to be prepared for the unexpected.” If you could be affected by a hurricane or other natural disaster, make an emergency plan and update it annually. Store key documents in a safe waterproof place, including bank statements, tax returns and insurance policies. Take photos to document the valuable contents of your home or business so you can help prove the fair market value of items when filing insurance claims. (IR-2019-8)
The “Gold Star Family Tax Relief Act,” recently introduced in the U.S. House, would fix a consequence of the Tax Cuts and Jobs Act. The law resulted in the heavy taxation of military survivor benefits received by children of U.S. service members who died while serving. It modified the “kiddie tax” so that the earned income of a child is taxed at the rates for single individuals. And the net unearned income of a child is taxed according to the brackets (10% to 37%) that apply to trusts and estates. If passed, the bill would provide that, for purposes of the kiddie tax for tax years after 2017, survivor benefits would be included in a Gold Star child’s gross income as earned income.
The IRS is expanding its retirement plan determination letter program. In Revenue Procedure 2019-20, the IRS has provided for a limited expansion of the determination letter program with respect to individually designed retirement plans. The IRS also provides for 1) a limited extension of the remedial amendment period (which provides the circumstances when plan sponsors may submit determination letter applications to the IRS) and 2) special sanction structures that apply to certain plan document failures discovered by the IRS during the review of a plan submitted for a determination letter. (IR-2019-84)
The IRS reform bill has stalled in the Senate. The fate of a bipartisan bill to reform the IRS, the “Taxpayer First Act of 2019,” is uncertain after several Senate Democrats expressed concerns following a media report that private tax preparation companies have prevented low-income taxpayers from accessing their Free File programs. The bill had sailed through the House by unanimous consent on 4/9/19. Senate Democrats are also interested in adding provisions regulating tax return preparers. The bill is intended to modernize the IRS, improve taxpayer services and strengthen taxpayer protections.
A bill designed to strengthen Americans’ long-term financial security moves a step closer to passage. In April the bipartisan “Setting Every Community Up for Retirement Enhancement (SECURE) Act” was unanimously approved in the U.S. House Ways and Means Committee. Next, it moves to the U.S. House, for a vote by Memorial Day. If ultimately passed, among other things this bill would expand opportunities for Americans to increase their savings, modify safe harbor rules and repeal the maximum age for traditional IRA contributions. Here’s the bill to amend the Internal Revenue Code of 1986 to encourage retirement savings, and for other purposes.
LBMC tax tips are provided as an informational and educational service for clients and friends of the firm. The communication is high-level and should not be considered as legal or tax advice to take any specific action. Individuals should consult with their personal tax or legal advisors before making any tax or legal-related decisions. In addition, the information and data presented are based on sources believed to be reliable, but we do not guarantee their accuracy or completeness. The information is current as of the date indicated and is subject to change without notice.