IR-2020-223, September 28, 2020
WASHINGTON — The U.S. Department of the Treasury and the Internal Revenue Service today issued final regulations PDF updating the federal income tax withholding rules for certain periodic retirement and annuity payments made after Dec. 31, 2020.
Prior to the Tax Cuts and Jobs Act (TCJA), if no withholding certificate was in effect for a taxpayer’s periodic payments, the amount to be withheld from the payments was determined by treating the taxpayer as a married individual claiming three withholding exemptions.
The TCJA amended this rule to provide that the rate of withholding on periodic payments when no withholding certificate is in effect (the default rate of withholding) would instead be determined under rules prescribed by the Secretary of the Treasury.
The final regulation issued today provides guidance for 2021 and future calendar years. This guidance specifies that the Treasury Department and the IRS will provide the rules and procedures for determining the default rate of withholding on periodic payments in applicable forms, instructions, publications and other guidance.
In July 2020, the IRS released a draft of a redesigned 2021 Form W-4P and instructions intended to align with the redesigned Form W-4, Employee’s Withholding Certificate.
The draft 2021 Form W-4P also proposed a new default rate of withholding on periodic payments that begin after Dec. 31, 2020. Based on comments received on the draft Form W-4P, regarding the time required by payors to implement the new form and a new default rate of withholding, the IRS will postpone issuance of the redesigned form. Instead, the 2021 Form W-4P will be similar to the 2020 Form W-4P.
The IRS also intends to provide in the instructions to the 2021 Form W-4P and related publications that the default rate of withholding on periodic payments will continue to be determined by treating the taxpayer as a married individual claiming three withholding allowances.
The Treasury and IRS will continue working closely with the tax community on the redesign of Form W‑4P, with the intention of making the withholding system more accurate and transparent for taxpayers.
For more information about this and other TCJA provisions, visit IRS.gov/taxreform.
IR-2020-221, September 24, 2020
WASHINGTON — During Small Business Week, the Internal Revenue Service reminds business owners and self-employed individuals of the employer credits available to them during COVID-19.
These credits were specially created to help small business owners during this unprecedented time. During Small Business Week, the IRS wants to ensure all eligible people know about the relief these credits provide.
The Employee Retention Credit is designed to encourage businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.
The credit is available to all employers regardless of size, including tax-exempt organizations. There are only two exceptions: State and local governments and their instrumentalities and small businesses who take small business loans.
Employers will calculate these measures each calendar quarter.
The Paid Sick Leave Credit is designed to allow business to get a credit for an employee who is unable to work (including telework) because of Coronavirus quarantine, self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis. Those employees are entitled to paid sick leave for up to 10 days (up to 80 hours) at the employee’s regular rate of pay up to $511 per day and $5,110 in total.
The employer can also receive the credit for employees who are unable to work due to caring for someone with Coronavirus or caring for a child because the child’s school or place of care is closed, or the paid childcare provider is unavailable due to the Coronavirus. Those employees are entitled to paid sick leave for up to two weeks (up to 80 hours) at 2/3 the employee’s regular rate of pay or, up to $200 per day and $2,000 in total.
Employees are also entitled to paid family and medical leave equal to 2/3 of the employee’s regular pay, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave can be counted towards the Family Leave Credit.
Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.
Eligible employers are entitled to immediately receive a credit in the full amount of the required sick leave and family leave, plus related health plan expenses and the employer’s share of Medicare tax on the leave, for the period of April 1, 2020, through December 31, 2020. The refundable credit is applied against certain employment taxes on wages paid to all employees.
Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.
Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns or Form 941 beginning with the second quarter. If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Eligible employers can also request an advance of the Employee Retention Credit by submitting Form 7200.
The IRS has also posted Employee Retention Credit FAQs and Paid Family Leave and Sick Leave FAQs that will help answer questions.
Updates on the implementation of the Employee Retention Credit and other information can be found on the Coronavirus page of IRS.gov. https://www.irs.gov/newsroom/irs-highlights-employer-credits-for-businesses-during-small-business-week
IR-2020-219, September 22, 2020
WASHINGTON — Farmers and ranchers who were forced to sell livestock due to drought may have an additional year to replace the livestock and defer tax on any gains from the forced sales, according to the Internal Revenue Service.
To qualify for relief, the farm or ranch must be in an applicable region. This is a county or other jurisdiction designated as eligible for federal assistance plus counties contiguous to it. Notice 2020-74 PDF, posted today on IRS.gov, lists applicable regions in 46 states, the District of Columbia and four U.S. territories.
The relief generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, or poultry, are not eligible.
To qualify, the sales must be solely due to drought, flooding or other severe weather causing the region to be designated as eligible for federal assistance. Livestock generally must be replaced within a four-year period, instead of the usual two-year period. The IRS is also authorized to further extend this replacement period if the drought continues.
The one-year extension, announced in the notice, gives eligible farmers and ranchers until the end of the tax year after the first drought-free year to replace the sold livestock. Details, including an example of how this provision works, can be found in Notice 2006-82 PDF, available on IRS.gov.
The IRS provides this extension to farms and ranches located in the applicable region that qualified for the four-year replacement period if any county that is included in the applicable region is listed as suffering exceptional, extreme or severe drought conditions during any week between September 1, 2019, and August 31, 2020. This determination is made by the National Drought Mitigation Center. All or part of 46 states, plus the District of Columbia and four U.S. territories are listed in the notice.
As a result, qualified farmers and ranchers whose drought-sale replacement period was scheduled to expire at the end of this tax year, December 31, 2020, in most cases, now have until the end of their next tax year. Because the normal drought-sale replacement period is four years, this extension immediately impacts drought sales that occurred during 2016. The replacement periods for some drought sales before 2016 are also affected due to previous drought-related extensions affecting some of these localities.
More information on reporting drought sales and other farm-related tax issues can be found in Publication 225, Farmer’s Tax Guide, available on IRS.gov. https://www.irs.gov/newsroom/irs-drought-stricken-farmers-ranchers-have-more-time-to-replace-livestock
IR-2020-207, September 10, 2020
WASHINGTON — The Internal Revenue Service today urged individuals who owe taxes but have not yet filed for 2019 to act now to avoid larger penalties that, by law, start after September 14.
The tax deadline was July 15 this year. Taxpayers who submitted an extension have until October 15 to file and do not face the failure to file penalty if they file their taxes by that deadline. But taxpayers need to remember that an extension to file is not an extension to pay. Any taxes they owed after the July 15 deadline are subject to the failure to pay penalty and interest.
Those taxpayers who didn’t request an extension, and still owe taxes, face both the failure to file and the failure to pay penalties. They should file now and pay what they can before larger penalties take effect after September 14.
The penalty for not filing a federal tax return by the due date, or extended due date, is generally 5% of the unpaid tax for each month or part of a month that a tax return is late, up to 25% of the unpaid tax. However, if the return is more than 60 days late, a minimum penalty applies. If no return has been filed after 60 days, the minimum penalty that can be charged is $435 or 100% of the unpaid tax, whichever is less. This year, that important 60-day date occurs after Sept. 14. In addition to penalties, interest will also be charged on any tax not paid by the July 15 due date.
Remember, if a refund is due, no penalty is charged on the late return filed by a taxpayer.
IRS Free File is available on IRS.gov through October 15 to prepare and e-file a 2019 individual return.
Taxpayers who have not been assessed any penalties for the past three years often qualify to have penalties abated. A taxpayer who does not qualify for the first-time penalty relief may still qualify for penalty relief if their failure to file or pay on time was due to reasonable cause and not willful neglect. By law, interest cannot be abated.
There are options for taxpayers who owe but can’t pay the full amount. Qualified taxpayers can choose to pay any taxes over time through a payment plan, including an installment agreement that can be set up in a matter of minutes on IRS.gov. A taxpayer’s specific tax situation will determine which payment options are available. The IRS has more information for taxpayers who owe taxes, but cannot afford to pay the full amount.
To avoid surprises next year, taxpayers can use the IRS Tax Withholding Estimator to do a Paycheck Checkup to have the right amount of tax withheld during the year.
The IRS reminds taxpayers that unemployment compensation is generally taxable. To determine if unemployment is taxable, taxpayers can visit the Are Payments I Receive for Being Unemployed Taxable? tax tool at IRS.gov.
Taxpayers can choose to have federal income tax withheld from their unemployment payments. For more information, go to Form W-4V, Voluntary Withholding Request (PDF). Otherwise, taxpayers receiving unemployment benefits may be required to make quarterly estimated tax payments. https://www.irs.gov/newsroom/irs-highlights-higher-penalties-for-some-tax-returns-filed-after-sept-14
IR-2020-199, September 1, 2020
WASHINGTON- The IRS announces the launch of the Bi-Partisan Budget Act (BBA) Centralized Partnership Audit Regime webpage.
The Centralized Partnership Audit Regime replaces the Tax Equity and Fiscal Responsibility Act (TEFRA) and the electing large partnership rules. The centralized partnership audit regime, or BBA, is generally effective for tax years beginning January 2018. Under the BBA, the IRS generally assesses and collects any understatement of tax (called an imputed underpayment) at the partnership level.
A partnership is subject to BBA unless it is an eligible partnership and makes an annual election out of BBA on a timely filed Form 1065. An eligible partnership is one with 100 or fewer partners, all of whom are either individuals, C corporations, foreign entities that would be treated as a C corporation if it were domestic, S corporations or estates of deceased partners.
The new webpage is intended to be a one-stop location for anything BBA-related, including regulations and other guidance and instructions related to the Partnership Representative (PR), electing out of the centralized audit regime, Administrative Adjustment Requests (AARs) and what to expect during a BBA administrative proceeding.
Taxpayers are encouraged to visit the webpage often for information, including electronic submission instructions of forms related to a BBA examination when those instructions are available. https://www.irs.gov/newsroom/irs-launches-bba-centralized-partnership-audit-webpage
IR-2020-193, Aug. 27, 2020
WASHINGTON — The Internal Revenue Service announced today the opening of the application period for the 2021 Compliance Assurance Process program. The application period runs Sept. 1 to Nov. 13, 2020. The IRS will inform applicants if they’re accepted into the program in February 2021.
Launched in 2005, CAP employs real-time issue resolution, through transparent and cooperative interaction between taxpayers and the IRS, to improve federal tax compliance by resolving issues prior to the filing of a tax return.
To be eligible to apply for CAP, new applicants must:
To be eligible to participate in CAP, taxpayers must adhere to CAP program limits on the number of open years. For 2021, the IRS modified the open-year criteria, updated its requirements for the Tax Control Framework Questionaire and established a limit on the duration of the Bridge phase.
Program details are available on the CAP webpage. A draft of the 2021 CAP Memorandum of Understanding has also been posted on the CAP webpage, and stakeholders can offer any feedback on the MOU by sending it to the CAP Mailbox at lbi.irs.cap.program@IRS.gov by November 13, 2020. https://www.irs.gov/newsroom/irs-accepting-applicants-for-the-compliance-assurance-process-for-2021
IR-2020-191, August 24, 2020
WASHINGTON — Victims of the California wildfires that began August 14 now have until December 15, 2020 to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today.
The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance. Currently this includes Lake, Monterey, Napa, San Mateo, Santa Cruz, Solano, Sonoma and Yolo counties in California, but taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov.
The tax relief postpones various tax filing and payment deadlines that occurred starting on August 14, 2020. As a result, affected individuals and businesses will have until December 15, 2020, to file returns and pay any taxes that were originally due during this period. This means individuals who had a valid extension to file their 2019 return due to run out on October 15, 2020, will now have until December 15, 2020, to file. The IRS noted, however, that because tax payments related to these 2019 returns were due on July 15, 2020, those payments are not eligible for this relief.
The December 15, 2020 deadline also applies to quarterly estimated income tax payments due on September 15, 2020, and the quarterly payroll and excise tax returns normally due on October 31, 2020. It also applies to tax-exempt organizations, operating on a calendar-year basis, that had a valid extension due to run out on November 15, 2020. Businesses with extensions also have the additional time including, among others, calendar-year corporations whose 2019 extensions run out on October 15, 2020.
In addition, penalties on payroll and excise tax deposits due after August 14 and before August 31, will be abated as long as the deposits are made by August 31, 2020.
The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time.
The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.
In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.
Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2020 return normally filed next year), or the return for the prior year (2019). Be sure to write the FEMA declaration number – 4558 − for California on any return claiming a loss. See Publication 547 for details.
The tax relief is part of a coordinated federal response to the damage caused by wildfires and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov. https://www.irs.gov/newsroom/irs-provides-tax-relief-for-victims-of-california-wildfires-oct-15-deadline-other-dates-extended-to-dec-15
IR-2020-184, August 18, 2020
WASHINGTON — The Internal Revenue Service and Security Summit partners today reminded tax professionals that federal law requires them to have a written information security plan.
Amid continuing security threats during COVID-19, the IRS, state tax administrators and the nation’s tax industry − working together as the Security Summit − also recommended practitioners create an emergency response plan should they experience a data theft. Contacting the IRS is step one in the plan to quickly protect tax professionals and their clients.
Making a plan for protecting data and reporting theft is the last of a five-part series called Working Virtually: Protecting Tax Data at Home and at Work. The special Security Summit initiative spotlights basic security steps for all practitioners, but especially those working remotely or social distancing in response to COVID-19.
“COVID-19 has changed the way many of us work, and more tax professionals are working from home. With these changes, there are new risks from cybercriminals. Our special Security Summit series was designed to give you critical information protect your clients and protect your business,” said IRS Commissioner Chuck Rettig.
“We all have a role in protecting taxpayer data, and the tax professional community is a critical part of that effort,” Rettig added. “It’s more important than ever to take appropriate security precautions, protect remote work sites, use two-factor authentication and plan ahead for all possibilities.”
Federal law administered by the Federal Trade Commission requires all “professional tax preparers” to create and maintain a written information security plan that is appropriate to the firm’s size and complexity.
In addition, the FTC-required information security plan must be appropriate to the nature and scope of the company’s activities and the sensitivity of the customer information it handles. A plan for a sole tax practitioner would differ from a multi-partner, global firm.
Tax professionals working from home must ensure that client data is protected just as it would in an office setting.
Please note: The FTC currently is re-evaluating the Safeguards Rule and has proposed new regulations. Be alert to any changes in the Safeguards Rule and its effect on the tax preparation community.
IRS Publication 4557, Safeguarding Taxpayer Data (PDF), details critical security measures that all tax professionals should enact. The publication also includes information on how to comply with the FTC Safeguards Rule, including a checklist of items for a prospective data security plan. Tax professionals are asked to focus on key areas such as employee management and training; information systems; and detecting and managing system failures.
The IRS also may treat a violation of the FTC Safeguards Rule as a violation of IRS Revenue Procedure 2007-40, which sets the rules for tax professionals participating as an Authorized IRS e-file Provider.
Tax professionals who experience a data theft should report the crime to the IRS immediately so that actions can be taken to protect taxpayers – and the firm. The Security Summit partners recommend practitioners create a response plan so that actions can be taken quickly, and contact information is readily available.
If a client or the firm are the victim of data theft, immediately:
Find more information at Data Theft Information for Tax Professionals.
In addition to trying to steal client data, thieves may try to steal a tax practitioner’s identity as well, using their PTINs, EFINs and CAF numbers to file fraudulent returns or steal even more information. Thieves may even try to impersonate the tax practitioner to obtain tax transcripts or other tax records.
Practitioners should routinely check their IRS e-Services e-file Application to see a weekly count of tax returns filed with their Electronic Filing Identification Numbers or EFIN. Excessive filings are a sign of data theft. E-file applications also should be kept up to date.
Circular 230 practitioners also can review weekly the number of tax returns filed using their Preparer Tax Identification Number or PTIN. Again, excessive filings are a sign of data theft.
Preparers with Centralized Authorization File, or CAF numbers, that enable third party access to tax information or representation should keep those records updated. Practitioners should notify the IRS when they no longer need third-party authorization for clients.
Tax professionals also can get help with security recommendations by reviewing the recently revised IRS Publication 4557, Safeguarding Taxpayer Data (PDF), and Small Business Information Security: The Fundamentals (PDF) by the National Institute of Standards and Technology.
Publication 5293, Data Security Resource Guide for Tax Professionals (PDF), provides a compilation data theft information available on IRS.gov. Also, tax professionals should stay connected to the IRS through subscriptions to e-News for Tax Professionals and Social Media or visit Identity Theft Central at IRS.gov/identitytheft. https://www.irs.gov/newsroom/working-virtually-make-a-plan-for-protecting-data-and-reporting-theft-part-5-of-security-summit-tips-for-tax-professionals
IR-2020-186, August 19, 2020
WASHINGTON — The IRS reminded employers today to carefully choose their payroll service providers following continuing concerns that some disreputable organizations can fail to deposit employment taxes, leaving businesses vulnerable to unpaid bills.
Many employers outsource their payroll and related tax duties to third parties. This streamlines business operations by collecting and timely depositing payroll taxes on the employer’s behalf and filing required payroll tax returns with state and federal authorities.
“A business doing everything else right can suddenly find its future in doubt if it falls victim to an unscrupulous third party that fails to make the required payroll and withholding deposits,” said IRS Commissioner Chuck Rettig. “We want to encourage all employers to understand their obligations and choose wisely when it comes to selecting a trusted payroll service to carry out this critical function. This is especially important right now as businesses face unique challenges because of the pandemic.”
Though most of these businesses provide quality service, there are, unfortunately, some who do not have their clients’ best interests at heart.Each year, a few of these third parties fail to remit the payroll taxes entrusted to them and close their doors abruptly. The damage hits their unsuspecting clients hard.
“Most third-party payroll services do a good job helping small businesses meet their deadlines and payroll obligations,” said Eric Hylton, Commissioner, Small Business/Self Employed Division. “But each year some employers fall prey to unscrupulous third-parties that fail to send the IRS the taxes entrusted to them. We are vigilant in pursuing these third parties, but too often their clients – the employers − are left on the hook. The IRS wants all employers to take the necessary steps to protect themselves.”
Like employers who handle their own payroll duties, employers who outsource this function are in most instances still legally responsible for any and all payroll taxes due. This includes any federal income taxes withheld as well as both the employer and employee shares of Social Security and Medicare taxes. This is true even if the employer forwards tax amounts to the third party to make the required deposits or payments.
One third-party arrangement that can reduce this risk is the certified professional employer organization (CPEO). Unlike other third parties, in most circumstances, the CPEO is solely liable for paying the customer’s employment taxes, filing returns and making deposits and payments for the taxes reported with regard to wages and other compensation it pays to its employees. More information on CPEOs can be found on IRS.gov.
Other third parties, such as payroll service providers (PSPs) and reporting agents (RAs) may also be right for many employers. A reporting agent is a PSP that has informed IRS of its relationship with its client (via Form 8655, Reporting Agent Authorization, which is signed by the client). A reporting agent is required to deposit its client’s taxes via the Electronic Federal Tax Payment System and is authorized to exchange information with IRS on behalf of its client, such as to resolve an issue.
For an overview of how the roles and obligations of PSPs, reporting agents and CPEOs differ from one to another, see the Third Party Arrangement Chart on IRS.gov.
“Employers should remember to watch out and do due diligence to help safeguard themselves – and their employees − from a payroll service provider failing to do what the law requires,” Rettig said.
“IRS Criminal Investigation is committed to investigating all tax criminals, especially professionals who have fiduciary responsibilities and violate the trust of their clients,” said Don Fort, Chief of IRS Criminal Investigation. “Those parties who do violate that trust may go to jail, but the defrauded employers’ problems are just beginning. There is no substitute for continued diligence in ensuring something so important is done right. Your employees are counting on you.”
The IRS urges employers to take a number of steps to protect themselves from unscrupulous third parties.
Contact the IRS about any bills or notices and do so as soon as possible. This is especially important if it involves a payment that the employer believes was made or should have been made by a third party. Call the number on the bill, write to the IRS office that sent the bill, contact the IRS business tax hotline at 800-829-4933, or visit a local IRS office. See Notices for Past Due Tax Returns on IRS.gov for more information. https://www.irs.gov/newsroom/irs-urges-employers-to-choose-carefully-when-selecting-a-payroll-service-provider
IR-2020-183, August 18, 2020
WASHINGTON — This week the Treasury Department and the Internal Revenue Service will send interest payments to about 13.9 million individual taxpayers who timely filed their 2019 federal income tax returns and are receiving refunds.
The interest payments, averaging about $18, will be made to individual taxpayers who filed a 2019 return by this year’s July 15 deadline and either received a refund in the past three months or will receive a refund. Most interest payments will be issued separately from tax refunds.
In most cases, taxpayers who received their refund by direct deposit will have their interest payment direct deposited in the same account. About 12 million of these payments will be direct deposited.
Everyone else will receive a check. A notation on the check − saying “INT Amount” − will identify it as a refund interest payment and indicate the interest amount.
By law, these interest payments are taxable and taxpayers who receive them must report the interest on the 2020 federal income tax return they file next year. In January 2021, the IRS will send a Form 1099-INT to anyone who receives interest totaling at least $10.
This provision is different from the long-standing 45-day rule, generally requiring the IRS to add interest to refunds on timely-filed refund claims issued more than 45 days after the return due date.
Instead, this year’s COVID-19-related July 15 due date is considered a disaster-related postponement of the filing deadline. Where a disaster-related postponement exists, the IRS is required, by law, to pay interest, calculated from the original April 15 filing deadline, as long as an individual files a 2019 federal income tax return by the postponed deadline − July 15, 2020, in this instance. This refund interest requirement only applies to individual income tax filers − businesses are not eligible.
Interest is paid at the legally prescribed rate that is adjusted quarterly. The rate for the second quarter ending June 30 was 5%, compounded daily. Effective July 1, the rate for the third quarter dropped to 3%, compounded daily.
Where the calculation period spans quarters, a blended rate applies, consisting of the number of days falling in each calendar quarter. No interest will be added to any refund issued before the original April 15 deadline.
For more information, visit IRS.gov. https://www.irs.gov/newsroom/13-point-9-million-americans-to-receive-irs-tax-refund-interest-taxable-payments-to-average-18-dollars
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