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Issue Number: Tax Tip 2021-121

Individual Retirement Arrangements, or IRAs, provide tax incentives for people to make investments that can provide
financial security for their retirement. These accounts can be set up with a bank or other financial institution, a life insurance company, mutual fund or stockbroker.

Here’s basic overview to help people better understand this type of retirement savings account.
– Contribution. The money that someone puts into their IRA. There are annual limits to contributions depending on
their age and the type of IRA. Generally, a taxpayer or their spouse must have earned income to contribute to an
IRA.
– Distribution. The amount that someone withdraws from their IRA.
– Withdraws. Taxpayers may face a 10% penalty and a tax bill if they withdraw money before age 59 ½, unless
they qualify for an exception.  
– Required distribution. There are requirements for withdrawing from an IRA:
o Someone generally must start taking withdrawals from their IRA when they reach age 70½.
o Per the 2019 SECURE Act, if a person’s 70th birthday is on or after July 1, 2019, they do not have to take withdrawals until age 72.
o Special distribution rules apply for IRA beneficiaries.  
– Traditional IRA. An IRA where contributions may be tax-deductible. Generally, the amounts in a traditional IRA
are not taxed until they are withdrawn.  
– Roth IRA. This type of IRA that is subject to the same rules as a traditional IRA but with certain exceptions:
o A taxpayer cannot deduct contributions to a Roth IRA.
o Qualified distributions are tax-free.
o Roth IRAs do not require withdrawals until after the death of the owner.  
– Savings Incentive Match Plan for Employees. This is commonly known as a SIMPLE IRA. Employees and
employers may contribute to traditional IRAs set up for employees. It may work well as a start-up retirement
savings plan for small employers.  
– Simplified Employee Pension. This is known as a SEP-IRA. An employer can make contributions toward their
own retirement and their employees’ retirement. The employee owns and controls a SEP.  
– Rollover IRA. This is when the IRA owner receives a payment from their retirement plan and deposits it into a different IRA within 60 days.

More Information:
Publication 590-A, Contributions to Individual Retirement Arrangements Publication 590-B, Distributions from Individual
Retirement Arrangements Topic No. 557, Additional Tax on Early Distributions from Traditional and Roth IRAs
Topic No. 413, Rollovers from Retirement Plans
Topic No. 451, Individual Retirement Arrangements
Share this tip on social media — #IRSTaxTip: Retirement and taxes: Understanding IRAs. https://go.usa.gov/xFVhq

Issue Number: IR-2021-161

WASHINGTON – Calling it a key security issue, the Internal Revenue Service today urged those entities with Employer Identification Numbers (EINs) to update their applications if there has been a change in the responsible party or contact information.
IRS regulations require EIN holders to update responsible party information within 60 days of any change by filing Form 8822-B, Change of Address or Responsible Party – Business. It is critical that the IRS have accurate information in cases of identity theft or other fraud issues related to EINs or business accounts.
The data around the “responsible parties” for business-type entities is often outdated or incorrect, meaning that the IRS does not have accurate records of who to contact for identity theft issues. This means a time-consuming process to identify the point of contact so the IRS can inquire about a suspicious filing.

As a result, the IRS intends to step up its awareness efforts aimed at businesses, partnerships, trusts and estates, charities and other entities that are EIN holders. Starting in August, the IRS will begin sending letters to approximately 100,000 EIN holders where it appears the responsible party is outdated.

All EIN applications (mail, fax, electronic) must disclose the name and Taxpayer Identification Number (Social Security number, Individual Taxpayer Identification Number or EIN) of the true principal officer, general partner, grantor, owner or trustor.

The IRS defines the responsible party as the individual or entity who "controls, manages, or directs the applicant entity and the disposition of its funds and assets.”

Unless the applicant is a government entity, the responsible party must be an individual, not an entity. If there is more than one
responsible party, the entity may list whichever party the entity wants the IRS to recognize as the responsible party.
EINs are to be used strictly for tax administration purposes. Entities with EINs that are no longer in use should close their IRS tax accounts and follow steps outlined at Canceling an EIN – Closing Your Account.
Video – Five Things to Know about the Employer Identification Number

Issue Number:  IR-2021-165 

WASHINGTON – The Treasury Department and the Internal Revenue Service today issued further guidance on the employee retention credit, including guidance for employers who pay qualified wages after June 30, 2021, and before January 1, 2022, and additional guidance on miscellaneous issues that apply to the employee retention credit in both 2020 and 2021. Notice 2021-49 amplifies prior guidance regarding the employee retention credit provided in Notice 2021-20 and Notice 2021-23. 

Notice 2021-49 addresses changes made by the American Rescue Plan Act of 2021 (ARP) to the employee retention credit that are applicable to the third and fourth quarters of 2021. 

Those changes include, among other things, (1) making the credit available to eligible employers that pay qualified wages after June 30, 2021, and before January 1, 2022, (2) expanding the definition of eligible employer to include “recovery startup businesses”, (3) modifying the definition of qualified wages for “severely financially distressed employers”, and (4) providing that the employee retention credit does not apply to qualified wages taken into account as payroll costs in connection with a shuttered venue grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, or a restaurant revitalization grant under section 5003 of the ARP. 

Notice 2021-49 also provides guidance on several miscellaneous issues with respect to the employee retention credit for both 2020 and 2021. This guidance responds to various questions that the Treasury Department and the IRS have been asked about the employee retention credit, including: 

  • The definition of full-time employee and whether that definition includes full-time equivalents, 
  • The treatment of tips as qualified wages and the interaction with the section 45B credit, 
  • The timing of the qualified wages deduction disallowance and whether taxpayers that already filed an income tax return must amend that return after claiming the credit on an adjusted employment tax return, and 
  • Whether wages paid to majority owners and their spouses may be treated as qualified wages. 

Reporting 

Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their employment tax returns (generally, Form 941) for the applicable period. If a reduction in the employer’s employment tax deposits is not sufficient to cover the credit, certain employers may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19. 

Where can I find more information on the employee retention credit and other COVID-19 economic relief efforts? 

Treasury and the IRS continue to closely monitor pending legislation related to the employee retention credit and will provide additional information as needed. 

Updates on the implementation of this employee retention credit, Frequently Asked Questions on Tax Credits for Required Paid Leave  and other information can be found on the Coronavirus page of IRS.gov. 

Issue Number: Tax Tip 2021-112

America’s taxpayers have specific rights when they interact with the IRS. These ten rights are known collectively as the Taxpayer Bill of Rights. 

These rights cover a wide range of topics and issues and lay out what taxpayers can expect in the event they need to work with the IRS on a personal tax matter. This includes when a taxpayer is filing a return, paying taxes, responding to a letter, going through an audit or appealing an IRS decision. 

Here are the rights outlined in the Taxpayer Bill of Rights 

1. The Right to Be Informed 
2. The Right to Quality Service 
3. The Right to Pay No More than the Correct Amount of Tax 
4. The Right to Challenge the IRS’s Position and Be Heard 
5. The Right to Appeal an IRS Decision in an Independent Forum 
6. The Right to Finality 
7. The Right to Privacy 
8. The Right to Confidentiality 
9. The Right to Retain Representation 
10. The Right to a Fair and Just Tax System 

More Information: 
Publication 1, You Rights as a Taxpayer  
Taxpayer Advocate Service 

Share this tip on social media — #IRSTaxTip: Excise tax filers should give e-file a try https://go.usa.gov/xFKB2 

Issue Number:  Tax Tip 2021-111 

The IRS encourages taxpayers who file federal excise taxes to file electronically. The following excise forms can be e-filed: 

  •  Form 720, Quarterly Federal Excise Tax Return
    • Form 2290, Heavy Highway Vehicle Use Tax
    • Form 8849, Claim for Refund of Excise Taxes Return; Schedules 1, 2, 3, 5, 6 and 8 only 

Advantages of excise e-file. 

  •  E-filing excise tax returns is safe, secure, easy, and accurate.
    • Form 720 e-file is convenient, plus taxpayers receive faster service and an acknowledgment from the IRS that the agency accepted their e-filed Form 720.
    • Form 8849 e-file offers faster refunds than through paper filing. Form 8849 Schedules 1, 2, 3, 5, 6 and 8 may be e-filed. 
    • Form 2290 e-file provides taxpayers their Form 2290 Schedule 1 almost immediately after the IRS receives the e-filed form. 

Excise tax e-file facts. 

  •  Only providers who have passed the IRS Assurance Testing System requirements for software developers of electronic IRS Excise returns are listed on the excise tax e-file providers’ pages.
    • IRS-approved excise tax e-file providers do charge a fee. This fee is not part of the excise tax payment.
    • Filers must have an Employer Identification Number to e-file excise tax returns. Taxpayers who don’t already have an EIN can learn how to apply for one on IRS.gov. 
    • Service is available 24/7.  
    • Filers reporting 25 or more trucks on Form 2290 must e-file. 
    Paying the excise taxes completes the filing process, and there are multiple ways to pay any excise tax due, including electronic methods. 

More information:  
Excise Tax e-file for Forms 720, 2290 and 8849 
Frequently Asked Questions – Form 8849, Claim for Refund of Excise Taxes 
Frequently Asked Questions – Form 720, Quarterly Federal Excise Tax Return e-file 
FAQs for Truckers Who e-file 

Share this tip on social media — #IRSTaxTip: Excise tax filers should give e-file a try  https://go.usa.gov/xFKB4 

Issue Number: Tax Tip 2021-115

After a natural disaster, having access to personal financial, insurance, medical and other records can help people starting the recovery process quickly. There are a few things taxpayers can do to help protect their financial safety in a disaster situation.  

Here are some financial preparedness tips.  
 
Update emergency plans. A disaster can strike at any time. Personal and business situations are constantly evolving, so taxpayers should review their emergency plans annually.    
 
Create electronic copies of documents. Taxpayers should keep documents in a safe place. This includes bank statements, tax returns and insurance policies. This is especially easy now since many financial institutions provide statements and documents electronically. If original documents are available only on paper, taxpayers can use a scanner and save them on a USB flash drive, CD or in the cloud.  
 
Document valuables. Documenting valuables by taking pictures or videoing them before a disaster strikes makes it easier to claim insurance and tax benefits, if necessary. IRS.gov has a disaster loss workbook that can help taxpayers compile a room-by-room list of belongings.    
 
Understand tax relief is available in disaster situations. Information on Disaster Assistance and Emergency Relief for Individuals and Businesses is available at IRS.gov. Taxpayers should also review the itemized deduction for casualty and theft losses. Net personal casualty and theft losses are deductible only to the extent they’re attributable to a federally declared disaster. Claims must include the FEMA code assigned to the disaster.    
 
Taxpayers who live in a federally declared disaster, can visit Around the Nation on IRS.gov and click on their state to review the available disaster tax relief. Those who live in counties qualifying for disaster relief receive automatic filing and payment extensions for many currently due tax forms and don’t need to contact the agency to get relief. People with disaster-related questions can call the IRS at 866-562-5227 to speak with an IRS specialist trained to handle disaster issues. They can request copies of previously filed tax returns and attachments by filing Form 4506, order transcripts showing most line items through Get Transcript on IRS.gov or call 800-908-9946 for transcripts. 

More information:  
Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook  
Publication 547, Casualties, Disasters, and Thefts  
Publication 5307, Tax Reform: Basics for Individuals and Families Publication 583, Starting a Business and Keeping Records 

 
Share this tip on social media — #IRSTaxTip: Financial safety: The often forgotten piece of disaster preparedness. https://go.usa.gov/xFRA2 

Issue Number:    IR-2021-167

WASHINGTON – The Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) today issued a safe harbor allowing employers to exclude certain items from their gross receipts solely for determining eligibility for the Employee Retention Credit (ERC). 

Revenue Procedure 2021-33 provides a safe harbor permitting employers to exclude certain amounts from gross receipts solely for determining eligibility for the ERC. These amounts are: 

  • The amount of the forgiveness of a Paycheck Protection Program (PPP) Loan; 
  • Shuttered Venue Operators Grants under the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act; and 
  • Restaurant Revitalization Grants under the American Rescue Plan Act of 2021. 

An employer elects to apply the safe harbor by excluding these amounts solely for determining whether it is an eligible employer for a calendar quarter for purposes of claiming the ERC on its employment tax return. 

Revenue Procedure 2021-33 requires employers to apply the safe harbor consistently for determining eligibility for the ERC. The employer must exclude the amounts from their gross receipts for each calendar quarter in which gross receipts are relevant to determining eligibility to claim the ERC. The employer claiming the credit must also apply the safe harbor to all employers treated as a single employer under the aggregation rules. 

An employer is not required to apply this safe harbor, and the safe harbor does not permit the exclusion of these amounts from gross receipts for any other federal tax purpose. 

Employers claim the ERC on their employment tax return, generally Form 941, Employers Quarterly Federal Tax Return, or adjusted employment tax return, generally Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. 

Revenue Procedure 2021-33, updates and amplifies guidance provided in Notice 2021-20, which addressed the ERC as it applies to qualified wages paid after March 12, 2020, and before January 1, 2021, Notice 2021-23, which addressed the ERC as it applies to qualified wages paid after December 31, 2020 and before July 1, 2021, and Notice 2021-49, which addressed the ERC as it applies to qualified wages paid after June 30, 2021 and before January 1, 2022. 

Treasury and the IRS continue to closely monitor pending legislation related to the ERC and will provide additional information as needed. 

Issue Number: Tax Tip 2021-116  

The IRS and its Security Summit partners recently kicked off their annual summer campaign. This year’s theme, Boost Security Immunity: Fight Against Identity Theft, urges tax pros to step up their efforts to protect client data. An IP PIN is a valuable tool that can help in this effort and it is now available to anyone who can verify their identity. 

An Identity Protection PIN is six-digit number eligible taxpayers get to help prevent their Social Security number or Individual Taxpayer Identification Number from being used to file fraudulent federal income tax returns. This number helps the IRS verify a taxpayer’s identity and accept their tax return. The Get An IP PIN tool  enables anyone who has an SSN or ITIN to get an IP PIN after they verify their identity through a rigorous authentication process. Taxpayers should review the Secure Access requirements before they try to use the Get An IP PIN tool.  

For security reasons, tax pros can’t get an IP PIN on behalf of clients.  

Tax pros who experience data theft can help clients by urging them to get an IP PIN quickly. Even if a thief already filed a fraudulent return, an IP PIN would still offer protections for later years and prevent taxpayers from being repeat victims of tax-related identity theft. 

More things taxpayers should know about the IP PIN: 

  • It’s a six-digit number known only to the taxpayer and the IRS. 
  • The opt-in program is voluntary. 
  • The IP PIN should be entered onto the electronic tax return when prompted by the software product or onto a paper return next to the signature line. 
  • The IP PIN is valid for one calendar year.  
  • For security reasons, enrolled participants get a new IP PIN each year 
  • Spouses and dependents are eligible for an IP PIN if they can verify their identities  
  • IP PIN users should never share their number with anyone but the IRS and their trusted tax preparation provider. The IRS will never call, email or text a request for the IP PIN. 

Currently, taxpayers can get an IP PIN for 2021, which should be used when filing any federal tax returns during the year including prior year returns. New IP PINs will be available starting in January 2022. 

Taxpayers who are unable to validate their identity online and have income of $72,000 or less, can file Form 15227, Application for an Identity Protection Personal Identification Number. The IRS will call the phone number the taxpayer provided on Form 15227 to validate the taxpayer’s identity. However, for security reasons, the IRS will assign an IP PIN for the next filing season and the taxpayer cannot use the IP PIN for the current filing season. 

Taxpayers who cannot validate their identity online, or by the phone, or who are ineligible to file a Form 15227 can make an appointment at a Taxpayer Assistance Center. They will need to bring one current government-issued picture ID and another identification document to prove their identity. Once verified, the taxpayer will receive an IP PIN in the mail usually within three weeks. 

More Information:  
Publication 5367 (EN-SP), IP PIN Opt-In Program for Taxpayers  
Publication 4557, Safeguarding Taxpayer Data  
Publication 5293, Data Security Resource Guide for Tax Professionals  Small Business Information Security: The Fundamentals   
Identity Theft Central  

 
Share this tip on social media — #IRSTaxTip: Tax security tip: Get an IP PIN to help stop identity thieves. https://go.usa.gov/xFRAT 

Issue Number: Tax Tip 2021-118

Small business owners, self-employed people, and some wage earners should look into whether they should make estimated tax payments this year. Doing so can help them avoid an unexpected tax bill and possibly a penalty when they file next year. 

Taxpayers who earn a paycheck usually have their employer withhold tax from their checks. This helps cover taxes the employee owes. On the other hand, some taxpayers earn income not subject to withholding. For small business owners and self-employed people, that usually means making quarterly estimated tax payments.  
 
Here are some details about estimated tax payments: 

  • Generally, taxpayers need to make estimated tax payments if they expect to owe $1,000 or more when they file their 2021 tax return, after adjusting for any withholding. 
  • The IRS urges anyone in this situation to check their withholding using the Tax Withholding Estimator on IRS.gov. If the estimator suggests a change, the taxpayer can submit a new Form W-4  to their employer. 
  • Aside from business owners and self-employed individuals, people who need to make estimated payments also include sole proprietors, partners and S corporation shareholders. It also often includes people involved in the sharing economy. 
  • Corporations generally must make these payments if they expect to owe $500 or more on their 2021 tax return. 
  • Aside from income tax, taxpayers can pay other taxes through estimated tax payments. This includes self-employment tax and the alternative minimum tax. 
  • The final two deadlines for paying 2021 estimated payments are September 15, 2019 and January 15, 2022. 
  • Taxpayers can check out these forms for details on how to figure their payments:  
  • Taxpayers can visit IRS.gov to find options for paying estimated taxes. These include:  
  • Anyone who pays too little tax  through withholding, estimated tax payments, or a combination of the two may owe a penalty. In some cases, the penalty may apply if their estimated tax payments are late. The penalty may apply even if the taxpayer is due a refund. 

 
More information:  
About Form1040  
Form 1120 Instructions  

Share this tip on social media — #IRSTaxTip: What taxpayers need to know about making 2021 estimated tax payments. https://go.usa.gov/xFRAb 

 

Issue Number:  IR-2021-168

WASHINGTON – The Internal Revenue Service today announced it is providing transition relief to certain employers claiming the Work Opportunity Tax Credit (WOTC).  The WOTC is a federal income tax credit available to employers that hire certified members of certain groups specified in the Internal Revenue Code who face significant barriers to employment, including Designated Community Residents or Qualified Summer Youth Employees. 

The IRS today issued Notice 2021-43, which extends the 28-day deadline for employers to submit a request to a designated local agency (DLA) to certify that an employee hired between January 1 and October 8 of this year is a Designated Community Resident or a Qualified Summer Youth Employee. To be certified as a Designated Community Resident or a Qualified Summer Youth Employee under the WOTC, an employee must have a principal place of residence within an Empowerment Zone where the employee continuously resides. 

Empowerment Zone designations terminated on Dec. 31, 2020, but the Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted as Division EE of the Consolidated Appropriations Act, 2021, permitted the designations to be extended through 2025.  On May 26, 2021, all Empowerment Zone designations were extended from Dec. 31, 2020 to Dec. 31, 2025. The transition relief under this notice allows employers to submit Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit) for these employees until Nov. 8, 2021. 

The notice also provides guidance to certain employers who submitted a Form 8850 to a DLA for these employees during the period of transition relief and received a denial due to the termination of Empowerment Zone designations on Dec. 31, 2020, or who received a certification before Empowerment Zone designations were extended. 

The WOTC has been subject to several legislative extensions and modifications since its enactment by the Small Business Job Protection Act of 1996. The amount of the tax credit under WOTC equals a percentage of qualified wages paid in a given tax year to an employee certified by the DLA as being a member of the one of the groups specified in the law. 

Issue Number: Tax Tip 2021-124 

If the IRS does call a taxpayer, it should not be a surprise because the agency will generally send a notice or letter first. Understanding how the IRS communicates can help taxpayers protect themselves from scammers who pretend to be from the IRS with the goal of stealing personal information. 

Here are some facts about how the IRS communicates with taxpayers: 

  • The IRS doesn’t normally initiate contact with taxpayers by email. Do not reply to an email from someone who claims to be from the IRS because the IRS email address could be spoofed or fake. Emails from IRS employees will end in irs.gov. 
  • The agency does not send text messages or contact people through social media. Fraudsters will impersonate legitimate government agents and agencies on social media and try to initiate contact with taxpayers.  
  • When the IRS needs to contact a taxpayer, the first contact is normally by letter delivered by the U.S. Postal Service. Debt relief firms send unsolicited tax debt relief offers through the mail. Fraudsters will often claim they already notified the taxpayer by U.S. mail. 
  • Depending on the situation, IRS employees may first call or visit with a taxpayer. In some instances, the IRS sends a letter or written notice to a taxpayer in advance, but not always. Taxpayers can search IRS notices by visiting Understanding Your IRS Notice or Letter. However, not all IRS notices are searchable on that site and just because someone references an IRS notice in email, phone call, text, or social media, does not mean the request is legitimate. 
  • IRS revenue agents or tax compliance officers may call a taxpayer or tax professional after mailing a notice to confirm an appointment or to discuss items for a scheduled audit. The IRS encourages taxpayers to review, How to Know it’s Really the IRS Calling or Knocking on Your Door: Collection. 
  • Private debt collectors can call taxpayers for the collection of certain outstanding inactive tax liabilities, but only after the taxpayer and their representative have received written notice. Private debt collection should not be confused with debt relief firms who will call, send lien notices via U.S. mail, or email taxpayers with debt relief offers. Taxpayers should contact the IRS regarding filing back taxes properly. 
  • IRS revenue officers and agents routinely make unannounced visits to a taxpayer’s home or place of business to discuss taxes owed, delinquent tax returns or a business falling behind on payroll tax deposits. IRS revenue officers will request payment of taxes owed by the taxpayer. However, taxpayers should remember that payment will never be requested to a source other than the U.S. Treasury. 
  • When visited by someone from the IRS, the taxpayers should always ask for credentials. IRS representatives can always provide two forms of official credentials: a pocket commission and a Personal Identity Verification Credential. 

 
More Information: 
IRS Taxpayers Bill of Rights 
Secure tax payment options 
Consumer alerts 
Report phishing and online scams 
Phone scams 
 
 
Share this tip on social media — #IRSTaxTip: Important additional guidance for employers claiming the employee retention credit. https://go.usa.gov/xFATS 

Issue Number: Tax Tip 2021-144

The credit for other dependents is a tax credit available to taxpayers for each of their qualifying dependents who can’t be claimed for the child tax credit. The maximum credit amount is $500 for each dependent who meets certain conditions. These include: 

  • Dependents who are age 17 or older. 
  • Dependents who have individual taxpayer identification numbers. 
  • Dependent parents or other qualifying relatives supported by the taxpayer. 
  • Dependents living with the taxpayer who aren’t related to the taxpayer. 

The credit begins to phase out when the taxpayer’s income is more than $200,000. This phaseout begins for married couples filing a joint tax return at $400,000. 

A taxpayer can claim this credit if: 

  • They claim the person as a dependent on the taxpayer’s return. 
  • They cannot use the dependent to claim the child tax credit or additional child tax credit. 
  • The dependent is a U.S. citizen, national or resident alien. 

Taxpayers can claim the credit for other dependents in addition to the child and dependent care credit and the earned income credit. 

Taxpayers can use the worksheet in Publication 972, Child Tax Credit and Credit for Other Dependents. This worksheet will help them determine if they can claim the credit for other dependents. 

More Information: 
Whom May I Claim as a Dependent? 
Publication 501, Exemptions, Standard Deduction and Filing Information 

Share this tip on social media — #IRSTaxTip: Taxpayers who aren’t eligible for the child tax credit should look into the credit for other dependents. https://go.usa.gov/xME8r 

Issue Number: Tax Tip 2021-142 

Criminals and fraudsters often see disasters as an opportunity to take advantage of victims when they are the most vulnerable, as well as the generous taxpayers who want to help with relief efforts. 

These disaster scams normally start with unsolicited contact. The scammer contacts their possible victim by telephone, social media, email or in-person. Also, taxpayers may search for a charity online and be directed to a website or social media page that is not affiliated with the actual charity. 

Here are some tips to help taxpayers recognize a scam and avoid becoming a victim: 

  • Some thieves pretend they are from a charity. They do this to get money or private information from well-intentioned taxpayers. 
  • Bogus websites use names like legitimate charities. They do this scam to trick people to send money or provide personal financial information. 
  • Scammers even claim to be working for ― or on behalf of ― the IRS. The thieves say they can help victims file casualty loss claims and get tax refunds. 
  • Disaster victims can call the IRS toll-free disaster assistance line at 866-562-5227. Phone assistors will answer questions about tax relief or disaster-related tax issues. 
  • Taxpayers who want to make donations can get information to help them on IRS.gov. The Tax Exempt Organization Search helps users find or verify qualified charities. Donations to these charities may be tax-deductible. 
  • Taxpayers should always contribute by check or credit card to have a record of the tax-deductible donation if they choose to give money. individual taxpayers can deduct up to $300 and married couples can deduct up to $600 in qualifying charitable contributions for tax year 2021 even if they don’t itemize. 
  • Donors should not give out personal financial information to anyone who solicits a contribution. This includes things like Social Security numbers or credit card and bank account numbers and passwords. 

More Information: 
National Center for Disaster Fraud 
www.disasterassistance.gov 

Issue Number:    Tax Tip 2021-141 

Taxpayers have the right to appeal an IRS decision in an independent forum. This is one of ten basic rights — known collectively as the Taxpayer Bill of Rights — that all taxpayers have when dealing with the IRS. 

The IRS Independent Office of Appeals handles a taxpayer’s case must be separate from the IRS office that initially reviewed that case. Generally, this office will not discuss a case with the IRS to the extent that those communications appear to compromise the independence of Appeals. 

Here are some points to remember about the right to appeal a decision in an independent forum: 

  •   A statutory notice of deficiency is an IRS letter proposing additional tax. Taxpayers who receive this notice and who then timely file a petition with the United States Tax Court may dispute the proposed adjustment before they must pay the tax.

    •  Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties. 
     
    •  Taxpayers have the right to receive a written response regarding a decision from the IRS Office of Appeals. 
     
    •  When taxpayers don’t agree with the IRS’s decisions, they can refer to Publication 5, Your Appeal Rights and How To Prepare a Protest If You Don’t Agree, for details on how to appeal. 
     
    •  Generally, taxpayers may file a refund suit in a United States district court or the United States Court of Federal Claims if: 

 o  They have fully paid the tax and the IRS has denied their tax refund claim. 
 o  No action is taken on the refund claim within six months. 
 o  It’s been less than two years since the IRS mailed them a notice denying the refund 

More Information: 
Publication 1, Your Rights as a Taxpayer 
Taxpayer Advocate 
United States Tax Court 
Online Videos and Podcasts of the Appeals Process 

Issue Number:    IR-2021-192 

WASHINGTON – The IRS today introduced a new webpage that provides information to taxpayers whose large refunds are subject to further review by the Joint Committee on Taxation (JCT or Joint Committee). 

By law, when taxpayers claim a federal tax refund or credit of more than $2 million ($5 million for a C corporation), the IRS must review the refund or credit and provide a report to the JCT, a non-partisan committee of the U.S. Congress. Refunds subject to this review are known as “Joint Committee Refund Cases.” 

Taxpayers can now find answers to most questions about Joint Committee case reviews and links to additional resources at Large Tax Refunds and Credits Subject to Review by the Joint Committee on Taxation – What to Expect. 

The new webpage covers the following topics: 

  • What is a Joint Committee Refund Case 
  • How the IRS handles a Joint Committee Refund Case 
  • What you need to do 

A Joint Committee Refund Case may arise from the following: 

  • A refund claim for previously assessed and paid taxes. A refund claim may be made on an amended return or be made by a claim submitted during an examination. A refund claim would be reviewed by the IRS and reported to the JCT before being paid. 
  • A tentative refund from tentative carrybacks of net operating losses, capital losses or credits. The tentative refund would be claimed on Form 1139, Corporation Application for Tentative Refund, or on Form 1045, Application for Tentative Refund. A tentative refund would be paid prior to IRS and JCT review. 
  • A refund or credit of income taxes due to certain losses relating to federally declared disasters. 

The IRS estimates the new webpage will help hundreds of taxpayers. The agency notifies taxpayers who have Joint Committee Refund Cases that are subject to review. Taxpayers who have been contacted by an IRS agent should work with the agent assigned to their Joint Committee Refund Case. 

Issue Number:    IR-2021-191 

WASHINGTON — The Internal Revenue Service has awarded new contracts to three private-sector collection agencies for collection of overdue tax debts. The new contracts begin Thursday following today’s expiration of the old contracts. 

Beginning Thursday, Sept. 23, 2021, taxpayers with unpaid tax bills may be contacted by one of the following three agencies: 
 
Notification by IRS and the private collection agencies 
The IRS will always notify a taxpayer before transferring their account to a private collection agency (PCA). 

  • First, the IRS will send a letter to the taxpayer and their tax representative informing them that their account was assigned to a PCA and giving the name and contact information for the PCA. This mailing will include a copy of Publication 4518, What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency (.pdf). 
  • Following IRS notification, the PCA will send its own letter to the taxpayer and their representative confirming the account transfer. To protect the taxpayer’s privacy and security, both the IRS letter and the PCA’s letter will contain information that will help taxpayers identify the tax amount owed and assure taxpayers that future collection agency calls they may receive are legitimate. 

How it works 
The private collectors will identify themselves as contractors collecting taxes on behalf of the IRS. Employees of these collection agencies must follow the provisions of the Fair Debt Collection Practices Act, and like IRS employees, must be courteous and must respect taxpayer rights. 

Private firms are not authorized to take enforcement actions against taxpayers. Only IRS employees can take these actions, such as filing a notice of Federal Tax Lien or issuing a levy. 

Payment options 
The private firms are authorized to discuss payment options, including setting up payment agreements with taxpayers. But as with cases assigned to IRS employees, any tax payment must be made directly to the IRS. A payment should never be sent to the private firm or anyone besides the IRS or the U.S. Treasury. Checks should only be made payable to the United States Treasury. To find out more about available payment options, visit IRS.gov/Payments. 

More information 
The IRS established the Private Debt Collection program in 2016, as authorized under federal law, and contracted with several agencies to collect certain unpaid tax debts on the government’s behalf. To learn more about the private debt collection program, visit the Private Debt Collection page on IRS.gov. Additional information can be found at the following links: 

Issue Number:    Tax Tip 2021-140  

It is critical for business owners to correctly determine whether the individuals providing services are employees or independent contractors. 

An employee is generally considered anyone who performs services, if the business can control what will be done and how it will be done. What matters is that the business has the right to control the details of how the worker’s services are performed. Independent contractors are normally people in an independent trade, business or profession in which they offer their services to the public. Doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers or auctioneers are generally independent contractors. 

Independent contractor vs. employee 
Whether a worker is an independent contractor, or an employee depends on the relationship between the worker and the business. Generally, there are three categories to consider. 

  •   Behavioral control − Does the company control or have the right to control what the worker does and how the worker does the job?
    •  Financial control − Does the business direct or control the financial and business aspects of the worker’s job. Are the business aspects of the worker’s job controlled by the payer? Things like how the worker is paid, are expenses reimbursed, who provides tools/supplies, etc.
    •  Relationship of the parties − Are there written contracts or employee type benefits such as pension plan, insurance, vacation pay? Will the relationship continue and is the work performed a key aspect of the business? 

Misclassified worker  
Misclassifying workers as independent contractors adversely affects employees because the employer’s share of taxes is not paid, and the employee’s share is not withheld. If a business misclassified an employee without a reasonable basis, the business can be held liable for employment taxes for that worker. Generally, an employer must withhold and pay income taxes, Social Security and Medicare taxes, as well as unemployment taxes. Workers who believe they have been improperly classified as independent contractors can use Form 8919, Uncollected Social Security and Medicare Tax on Wages to figure and report their share of uncollected Social Security and Medicare taxes due on their compensation. 

Voluntary Classification Settlement Program 
The Voluntary Classification Settlement Program is an optional program that provides taxpayers with an opportunity to reclassify their workers as employees for future employment tax purposes. This program offers partial relief from federal employment taxes for eligible taxpayers who agree to prospectively treat their workers as employees. Taxpayers must meet certain eligibility requirements and apply by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS. 

Who is self-employed? 
Generally, someone is self-employed if any of the following apply to them. 

Self-employed individuals, including those who earn money from gig economy work, are generally required to file an tax return and make estimated quarterly tax payments. They also generally must pay self-employment tax which is Social Security and Medicare tax as well as income tax. These taxpayers qualify for the home office deduction if they use part of a home for business. 

Issue Number:    IR-2021-190 

 

Expanded tax benefits help individuals and businesses give to charity during 2021; deductions up to $600 available for cash donations by non-itemizers 

WASHINGTON – The Internal Revenue Service today explained how expanded tax benefits can help both individuals and businesses give to charity before the end of this year. 

The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted last December, provides several provisions to help individuals and businesses who give to charity. The new law generally extends through the end of 2021 four temporary tax changes originally enacted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Here is a rundown of these changes. 

Deduction for individuals who don’t itemize; cash donations up to $600 qualify 

Ordinarily, individuals who elect to take the standard deduction cannot claim a deduction for their charitable contributions. The law now permits these individuals to claim a limited deduction on their 2021 federal income tax returns for cash contributions made to certain qualifying charitable organizations. Nearly nine in 10 taxpayers now take the standard deduction and could potentially qualify to claim a limited deduction for cash contributions. 

These individuals, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions made to qualifying charities during 2021. The maximum deduction is increased to $600 for married individuals filing joint returns. 

Cash contributions to most charitable organizations qualify. However, cash contributions made either to supporting organizations or to establish or maintain a donor advised fund do not qualify. Cash contributions carried forward from prior years do not qualify, nor do cash contributions to most private foundations and most cash contributions to charitable remainder trusts. In general, a donor-advised fund is a fund or account maintained by a charity in which a donor can, because of being a donor, advise the fund on how to distribute or invest amounts contributed by the donor and held in the fund. A supporting organization is a charity that carries out its exempt purposes by supporting other exempt organizations, usually other public charities. See Publication 526 for more information on the types of organizations that qualify. 

Cash contributions include those made by check, credit card or debit card as well as amounts incurred by an individual for unreimbursed out-of-pocket expenses in connection with the individual’s volunteer services to a qualifying charitable organization. Cash contributions don’t include the value of volunteer services, securities, household items or other property. 

100% limit on eligible cash contributions made by itemizers in 2021 

Subject to certain limits, individuals who itemize may generally claim a deduction for charitable contributions made to qualifying charitable organizations. These limits typically range from 20% to 60% of adjusted gross income (AGI) and vary by the type of contribution and type of charitable organization. For example, a cash contribution made by an individual to a qualifying public charity is generally limited to 60% of the individual’s AGI. Excess contributions may be carried forward for up to five tax years. 

The law now permits electing individuals to apply an increased limit (“Increased Individual Limit”), up to 100% of their AGI, for qualified contributions made during calendar-year 2021. Qualified contributions are contributions made in cash to qualifying charitable organizations. 

As with the new limited deduction for nonitemizers, cash contributions to most charitable organizations qualify, but, cash contributions made either to supporting organizations or to establish or maintain a donor advised fund, do not. Nor do cash contributions to private foundations and most cash contributions to charitable remainder trusts 

Unless an individual makes the election for any given qualified cash contribution, the usual percentage limit applies. Keep in mind that an individual’s other allowed charitable contribution deductions reduce the maximum amount allowed under this election. Eligible individuals must make their elections with their 2021 Form 1040 or Form 1040-SR. 

Corporate limit increased to 25% of taxable income 

The law now permits C corporations to apply an increased limit (Increased Corporate Limit) of 25% of taxable income for charitable contributions of cash they make to eligible charities during calendar-year 2021. Normally, the maximum allowable deduction is limited to 10% of a corporation’s taxable income. 

Again, the Increased Corporate Limit does not automatically apply. C corporations must elect the Increased Corporate Limit on a contribution-by-contribution basis. 

Increased limits on amounts deductible by businesses for certain donated food inventory 

Businesses donating food inventory that are eligible for the existing enhanced deduction (for contributions for the care of the ill, needy and infants) may qualify for increased deduction limits. For contributions made in 2021, the limit for these contribution deductions is increased from 15% to 25%. For C corporations, the 25% limit is based on their taxable income. For other businesses, including sole proprietorships, partnerships, and S corporations, the limit is based on their aggregate net income for the year from all trades or businesses from which the contributions are made. A special method for computing the enhanced deduction continues to apply, as do food quality standards and other requirements. 

Keep good records 

The IRS reminds individuals and businesses that special recordkeeping rules apply to any taxpayer claiming a charitable contribution deduction. Usually, this includes obtaining an acknowledgment letter from the charity before filing a return and retaining a cancelled check or credit card receipt for contributions of cash. For donations of property, additional recordkeeping rules apply, and may include filing a Form 8283 and obtaining a qualified appraisal in some instances. 

For details on how to apply the percentage limits and a description of the recordkeeping rules for substantiating gifts to charity, see Publication 526, Charitable Contributions, available on IRS.gov. 

The IRS also encourages employers to help get the word out about the advanced payments of the Child Tax Credit because they have direct access to many employees and individuals who receive this credit. More information on the Advanced Child Tax Credit is available on IRS.gov. 

Issue Number:    IR-2021-189  

WASHINGTON – The Internal Revenue Service today reminds taxpayers about the upcoming Oct. 15 due date to file 2020 tax returns. People who asked for an extension should file on or before the extension deadline to avoid the penalty for filing late. Electronic filing options, such as IRS Free File, are still available. 

Although Oct. 15 is the last day for most people to file, some taxpayers may have more time. They include: 

  • Members of the military and others serving in a combat zone. They typically have 180 days after they leave the combat zone to file returns and pay any taxes due. 
  • Taxpayers in federally declared disaster areas who already had valid extensions. For details, see the disaster relief page on IRS.gov. 

There is usually no penalty for failure to file if the taxpayer is due a refund. However, people who wait too long to file and claim a refund, risk losing it altogether. Those who have yet to file a 2020 tax return, owe tax, and did not request an extension can generally avoid additional penalties and interest by filing the return as soon as possible and paying any taxes owed. 

Schedule federal tax payments electronically 

Taxpayers can file now and schedule their federal tax payments up to the Oct. 15 due date. They can pay online, by phone or with their mobile device and the IRS2Go app. When paying federal taxes electronically taxpayers should remember: 

  • They can pay when they file electronically using tax software online. If using a tax preparer, taxpayers should ask the preparer to make the tax payment through an electronic funds withdrawal from a bank account. 
  • IRS Direct Pay allows taxpayers to pay online directly from a checking or savings account for free, and to schedule payments up to 365 days in advance. 
  • Choices to pay with a credit card, debit card or digital wallet option are available through a payment processor. The payment processor, not the IRS, charges a fee for this service. 
  • The IRS2Go app provides the mobile-friendly payment options, including Direct Pay and debit or credit card payments on mobile devices. 
  • The Electronic Federal Tax Payment System is convenient safe and easy. Choose to pay online or by phone by using the EFTPS Voice Response System. 

View tax account online 

Taxpayers can use their online account to securely see important information when preparing to file their tax return or following up on balances or notices. This includes: 

  • Adjusted Gross Income: This can be useful if using a different tax software or tax preparer this year. 
  • Economic Impact Payment amounts: Eligible individuals who did not receive the full amounts of both Economic Impact Payments may claim the Recovery Rebate Credit on their 2020 federal tax return. To claim the full amount, taxpayers will need to know the amounts of the Economic Impact Payments received. These amounts can be found on the Tax Records tab in online account. 
  • Estimated tax payment amounts: The total of any estimated tax payments made during the year or refunds applied as a credit can be found on the Account Balance tab in online account, and a record of each payment appears under Payment Activity. 

Additionally, taxpayers can view the: 

  • Amount owed for any past years, updated for the current calendar day, 
  • Payment history and any scheduled or pending payments, 
  • Payment plan details, 
  • Digital copies of select notices from the IRS, and 
  • Approve or reject authorization requests from tax professionals. 

Choose direct deposit for refunds 

The safest and fastest way for people to get a refund is to file electronically and have their refund electronically deposited into their bank or other financial account. Taxpayers can use direct deposit to deposit their refund into one, two or even three accounts. They can also purchase U.S. Savings Bonds. 

People who don’t have a bank account can go to the FDIC website or the National Credit Union Association to use their Credit Union Locator Tool for information on where to open an online bank or credit union account. Veterans can use the Veterans Benefits Banking Program (VBBP) for access to financial services at participating banks. 

Monthly advance Child Tax Credit payments 

Millions of American families currently receive monthly advance Child Tax Credit payments either through direct deposit or paper check. These payments represent half of the increased Child Tax Credit from the American Rescue Plan and will continue through the end of the year. 

For those eligible and on extension for their 2020 tax returns, the IRS is using previous year tax information, 2019 for most, to determine the credit amount. The IRS urges people who requested an extension to file as soon as possible if they experienced a major change such as the birth of a child in 2020. Once that return is processed, the IRS can calculate the credit based on the 2020 return and pay it out in full over the remaining months in 2021. 

Those who file and have their 2020 return processed on or before Nov. 1, may be eligible for two payments of half the credit in 2021. Similarly, people who file and have their return processed on or before Nov. 29, may be eligible for one payment. 

To speed the processing of returns and to avoid delays, the IRS urges everyone to file electronically. 

Complete information on the advance Child Tax Credit is available on IRS.gov. 

Act soon to claim missing stimulus payments 

For anyone who missed out on the first two rounds of stimulus payments, it’s not too late. People who didn’t get a first and second Economic Impact Payment or got less than the full amounts can get that missing money if they’re eligible for it, but they need to act soon. 

When it comes to missing stimulus payments, it’s critical that eligible people file a 2020 tax return or use the Child Tax Credit Non-filer Sign-up Tool soon even if they don’t usually file to provide information the IRS needs to send the payments. The IRS will also automatically evaluate the taxpayer’s eligibility for the third economic impact payment when the 2020 return is processed. 

The IRS will continue to issue eligible taxpayers their third economic impact payment and plus-up payments through the end of 2021. File a 2020 tax return electronically as soon as possible to give the IRS time to process and issue the payments before the end of 2021. 

IRS.gov assistance 

Taxpayers will find answers to many questions using the Interactive Tax Assistant (ITA), a tax law resource that works using a series of questions and responses. Additionally, the IRS provides payment options at IRS.gov/payments and tax information is available in several languages by clicking on the “English” tab on the front page of IRS.gov. 

Issue Number: Tax Tip 2021-136 

Many Americans have been working from home due to the pandemic, but only certain people will qualify to claim the home office deduction. This deduction allows qualifying taxpayers to deduct certain home expenses on their tax return when they file their 2021 tax return next year. 

Here are some things to help taxpayers understand the home office deduction and whether they can claim it: 

  • Employees are not eligible to claim the home office deduction.  
  • The home office deduction, reported on Form 8829, is available to both homeowners and renters.   
  • There are certain expenses taxpayers can deduct. They include mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent.   
  • Taxpayers must meet specific requirements to claim home expenses as a deduction. Even then, the deductible amount of these types of expenses may be limited.   
  • The term “home” for purposes of this deduction:   
  • Includes a house, apartment, condominium, mobile home, boat or similar property which provide basic living accommodations. 
  • A separate structure on the property such as an unattached garage, studio, barn or greenhouse. 
  • Any portion of a home used exclusively as a hotel, motel, inn or similar establishment does NOT qualify as a “home” and, therefore, does not qualify for a home office deduction.   
  • Generally, there are two basic requirements for the taxpayer’s home to qualify as a deduction:   
  • There must be exclusive use of a portion of the home for conducting business on a regular basis. For example, a taxpayer who uses an extra room to run their business can take a home office deduction only for that extra room so long as it is used both regularly and exclusively in the business. 
  • The home must be the taxpayer’s principal place of business. A taxpayer can also meet this requirement if administrative or management activities are conducted at the home and there is no other location to perform these duties. Therefore, someone who conducts business outside of their home but also uses their home to conduct business may still qualify for a home office deduction. 
  • A portion of a home that is used exclusively for conducting business on a regular basis but not used as the principal place of business, will qualify for a home office deduction if either patients, clients or customers are met in the home or there is a separate structure that is used exclusively for conducting business on a regular basis.   
  • Taxpayers who qualify may choose one of two methods to calculate their home office expense deduction:   
  • Using the simplified method consisting of a rate of $5 per square foot for business use of the home which is limited to a maximum size of 300 square feet and a maximum deduction $1,500. 
  • Using the regular method whereby deductions for a home office are based on the percentage of the home devoted to business use. Any use a whole room or part of a room for conducting their business will involve figuring out the percentage of the home used for business activities to deduct indirect expenses. Direct expenses are deducted in full. 

More information: 
Publication 587, Business Use of Your Home, Including Use by Daycare Providers 

IRS COVID Tax Tips

Issue Number: COVID Tax Tip 2021-117

The advance child tax credit allows qualifying families to receive early payments of the tax credit many people may claim on their 2021 tax return during the 2022 tax filing season. The IRS will disburse these advance payments monthly through December 2021. Here some details to help people better understand these payments. 
 
Who is a qualifying child for the purposes of the advance child tax credit payment. 
For tax year 2021, a qualifying child is an individual who does not turn 18 before January 1, 2022, and meets these requirements: 

  • The individual is the taxpayer’s son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister or a descendant such as a grandchild, niece, or nephew. 
  • The individual does not provide more than one-half of his or her own support during 2021. 
  • The individual lives with the taxpayer for more than one-half of tax year 2021. For exceptions to this requirement, see Publication 972, Child Tax Credit and Credit for Other Dependents. 
  • The individual is properly claimed as the taxpayer’s dependent. For more information about how to do this, see Publication 501, Dependents, Standard Deduction, and Filing Information.   
  • The individual does not file a joint return with the individual’s spouse for tax year 2021 or files it only to claim a refund of withheld income tax or estimated tax paid. 

What should someone do if they don’t want to receive advance child tax credit payments? 
Anyone who does not want to receive monthly advance child tax credit payments because they would rather claim the full credit when they file their 2021 tax return, or because they know they will not be eligible for the credit  in 2021 can unenroll through the Child Tax Credit Update Portal.  People can unenroll at any time, but deadlines apply each month for the update to take effect for the next payment. 

For people married and filing jointly, they and their spouse must unenroll using the Child Tax Credit Update Portal. If only one person unenrolls, they will still receive half the normal payment. Similarly, if you are changing bank account information, both of you must make the update so both halves of your payment go to the new account. 
 
Will receiving advance child tax credit payments affect other government benefits? 
No. Advance child tax credit payments cannot be counted as income when determining if someone is eligible for benefits or assistance, or how much they can receive, under any federal, state or local program financed in whole or in part with federal funds. These programs cannot count advance child tax credit payments as a resource when determining eligibility for at least 12 months after payments are received. 
 
Are advance child tax credit payments taxable? 
No. These payments are not income and will not be reported as income on a taxpayer’s 2021 tax return. These payments are advance payments of a person’s tax year 2021 child tax credit. 

However, the total amount of advance child tax credit payments someone receives is based on the IRS’s estimate of their 2021 child tax credit. Generally, the IRS uses information from previous tax returns to calculate a person’s estimate. If the total is greater than the child tax credit amount, they can claim on their 2021 tax return, they may have to repay the excess amount on their 2021 tax return. For example, if someone receives advance child tax credit payments for two qualifying children claimed on their 2020 tax return, but they no longer have qualifying children in 2021, the advance payments they received are added to their 2021 income tax unless they qualify for repayment protection. 
 
Share this tip on social media — #IRSTaxTip: Common questions about the advance child tax credit payments. https://go.usa.gov/xFRzD  

Issue Number: COVID Tax Tip 2021-119

Every year the IRS mails letters or notices to taxpayers for many different reasons. Typically, it’s about a specific issue with a taxpayer’s federal tax return or tax account. A notice may tell them about changes to their account or ask for more information. It could also tell them they need to make a payment. This year, people might have also received correspondence about Economic Impact Payments or an advance child tax credit outreach letter.  

Here are some do’s and don’ts for anyone who receives mail from the IRS: 

  • Don’t ignore it. Most IRS letters and notices are about federal tax returns or tax accounts. Each notice deals with a specific issue and includes specific instructions on what to do  
  • Don’t throw it away. Taxpayers should keep notices or letters they receive from the IRS. These include adjustment notices when an action is taken on the taxpayer’s account, Economic Impact Payment notices, and letters about advance payments of the 2021 child tax credit.They may need to refer to these when filing their 2021 tax return in 2022. In general, the IRS suggests that taxpayers keep records for three years from the date they filed the tax return.   
  • Don’t panic. The IRS and its authorized private collection agencies do send letters by mail. Most of the time, all the taxpayer needs to do is read the letter carefully and take the appropriate action.   
  • Don’t reply unless instructed to do so. There is usually no need for a taxpayer to reply to a notice unless specifically instructed to do so. On the other hand, taxpayers who owe should reply with a payment. IRS.gov has information about payment options.   
  • Do take timely action. A notice may reference changes to a taxpayer’s account, taxes owed, a payment request or a specific issue on a tax return. Acting timely could minimize additional interest and penalty charges.   
  • Do review the information. If a letter is about a changed or corrected tax return, the taxpayer should review the information and compare it with the original return. If the taxpayer agrees, they should make notes about the corrections on their personal copy of the tax return and keep it for their records.   
  • Do respond to a disputed notice. If a taxpayer doesn’t agree with the IRS, they should mail a letter explaining why they dispute the notice. They should mail it to the address on the contact stub included with the notice. The taxpayer should include information and documents for the IRS to review when considering the dispute.   
  • Do remember there is usually no need to call the IRS. If a taxpayer must contact the IRS by phone, they should use the number in the upper right-hand corner of the notice. The taxpayer should have a copy of their tax return and letter when calling the agency.   
  • Do avoid scams. The IRS will never contact a taxpayer using social media or text message. The first contact from the IRS usually comes in the mail. Taxpayers who are unsure if they owe money to the IRS can view their tax account information on IRS.gov. 

 

More Information:  
Understanding Your IRS Notice or Letter  
Tax Topic 651,  Notices – What to Do  
Tax Topic 653, IRS Notices and Bills, Penalties, and Interest Charges  
Tax Topic 654, Understanding Your CP75 or CP75A Notice Request for Supporting Documentation  
Here’s why some people got more than one notice about their Economic Impact Payments  

Share this tip on social media — #IRSTaxTip: What people should and should not do if they get mail from the IRS. https://go.usa.gov/xFVSu 

Issue Number:  COVID Tax Tip 2021-138 

The IRS continues to provide materials and information to help small business owners and self-employed individuals comply with filing and paying requirements. Here’s a recap of key topics covered in IRS messages during National Small Business Week. 

Small businesses can share the word with employees about child tax credit 
The IRS encourages employers to help get the word out about the advance payments of the child tax credit during Small Business Week. Employers have direct access to many who may receive this credit. IRS.gov has tools employers can use to deliver this information, including e-posters, drop-in articles for newsletters and social media posts to share. 

IRS resources to help small business employers understand and meet their tax responsibilities 
The IRS acknowledges that small business employers have unique tax responsibilities. The agency has a variety of information and resources to help employers understand and meet these unique tax responsibilities. Most of these resources are available anytime at IRS.gov. 

Employers should choose their payroll service provider carefully 
To meet payroll and employment tax responsibilities, many businesses hire a payroll and payroll tax company. Most of these businesses provide quality service, however, sometimes a payroll service provider doesn’t submit their client’s payroll taxes and closes abruptly. The client remains legally responsible for paying the taxes due even if they sent funds for deposits or payments to the payroll service provider. The IRS urges employers to choose carefully when selecting a payroll provider. The agency also encourages employers to enroll in the Electronic Federal Tax Payment System. It’s free and when deposits are made under their EIN, it lets them monitor that their payroll service provider is making their tax deposits. 

Small business owners should see if they qualify for the home office deduction 
Many Americans have been working from home due to the pandemic the home office deduction. This tip will help taxpayers understand the home office deduction and whether they can claim it. 

Renewed work opportunity tax credit can help employers hire workers 
Recent legislation extended the work opportunity tax credit through the end of 2025. With many businesses facing a tight job market, the IRS reminds employers to check out this valuable tax credit available to them for hiring long-term unemployment recipients and other groups of workers facing significant barriers to employment. 

COVID Tax Tip 2021-137 

October 15 is fast approaching. That’s the last day to file for most people who requested an extension for their 2020 tax return. These taxpayers can file any time on or before Friday, October 15 if they have all their required tax-related documents. They should also pay part or all their taxes since amounts owed after May 17 this year could be subject to penalties and interest. 

Here are tips extension filers should remember. 

  • Use IRS Free File. Nearly everyone can e-file their tax return for free through IRS Free File. The program is available on IRS.gov through October 15. E-filing is easy, safe and the most accurate way for people to file their taxes. Filing electronically can also help taxpayers determine their earned income tax credit, child and dependent care credit, and recovery rebate credit. If someone is eligible for a recovery rebate credit – and either didn’t receive Economic Impact Payments or received less than the full amounts – they must file a 2020 tax return to claim the credit even if they don’t usually file. 
     
     
  • File to get a refund. Anyone due a refund should file as soon as possible and use direct deposit to get their tax refund electronically deposited for free into their financial account. . There is no penalty for filing a late return for people who are due a refund. 
     
     
  • Pay tax balance as soon as possible. The deadline to pay 2020 income taxes was May 17, 2021. Taxpayers can check their account balance or view payment options They can pay taxes online for free from a checking or savings account with Direct Pay. Those who owe taxes and can’t pay their balance in full should pay as much as they can to reduce interest and penalties for late payment. This IRS has options for people who can’t pay their taxes, including applying for a payment plan on IRS.gov. 
     
     
  • File by the deadline to avoid penalties. Taxpayers should file by Friday, October 15, 2021 to avoid a failure-to-file penalty. 
     
     
  • What taxpayers should do about a missed deadline. Anyone who did not request an extension by this year’s May 17 deadline should file and pay as soon as possible. This will stop additional interest and penalties from adding up. 
     
     

Miscellaneous

Here is a video tax tip from the IRS:  

Here’s What To Do if You Must Close Your Business English | Spanish | Chinese 

Subscribe today: The IRS YouTube channels provide short, informative videos on various tax related topics in English, Spanish and ASL. 

 

 

Here is a video tax tip from the IRS:  

Get an Identity Protection PIN  English | Spanish | ASL 

Subscribe today: The IRS YouTube channels provide short, informative videos on various tax related topics in English, Spanish and ASL. 

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