IRS Answers Common Early Tax Refund Questions

The IRS yesterday posted to their website a news release that addresses common questions that they have heard regarding this season’s delay in refunds for federal returns that are claiming the earned income tax credit and/or the additional child tax credit.

This release (IRS Answers Common Early Tax Season Refund Questions and Addresses Surrounding Myths) is a good resource for preparers who receive questions from their affected clients and includes the following:

•      3 YouTube videos (available in English and Spanish) explaining the delay and the IRS refund process
•      Common Myths about the delay in refunds
•      Information about “Where’s My Refund?”

IRS Health Care Tax Tips and Reminder about the Premium Tax Credit for 2014 Returns

Even though most tax provisions of the Affordable Care Act do not begin to affect federal tax returns until next filing season, the provisions will have an impact on the decisions taxpayers make if they need to obtain their health insurance through an Exchange and they receive the advanced premium tax credit (subsidy) to help them pay for their premiums. Below you will find more IRS resources available to taxpayers that help explain the tax provisions and a reminder about the Premium Tax Credit.

New IRS Health Care Tips Page
The IRS has added a Health Care Tax Tips page to their website to help individuals understand how the Affordable Care Act may affect their taxes beginning with their 2014 federal return.

At the present time this site provides links to information on:

• Premium Tax Credit
• Why it is important for individuals who obtain health insurance through an Exchange and receive a subsidy to help pay for their insurance premiums to inform the Exchange of changes in their income or family size during 2014
• Overview of the penalty for not obtaining health insurance and who is exempt from the penalty provision
• Where to obtain more information on health insurance exchanges, other tax law provisions of the Affordable Care Act, and individuals’ health care choices

The IRS will be adding to this site throughout 2014 so be sure to check it periodically to see what new information the IRS has posted.

Premium Tax Credit
Even though the calculation of the premium tax credit will not take place until next year, it is essential to become familiar with this credit. Doing so will enable you to better explain to your clients who received a subsidy how it will affect them when they file their 2014 federal return next filing season.

Below is a brief overview on the premium tax credit:

Every taxpayer who received an advanced premium tax credit to help pay for their health insurance will have to complete the 2014 Premium Tax Credit form when filing their 2014 federal return. The calculated amount of the 2014 premium tax credit will then be compared to the subsidy amount they received which will result in one of the following:

• The taxpayer will receive a refundable credit if the premium tax credit is more than the subsidy amount.
• The taxpayer will have to pay an additional tax if the subsidy amount is higher than the premium tax credit. The amount of additional tax will be limited based on where the taxpayer falls on the federal poverty line. It will range from a minimum of $300 ($600 for married filing joint) to a maximum of $1,125 ($2,500 for married filing joint).

It is important to understand that a taxpayer who receives a subsidy to help pay for their health insurance premiums is required to file a 2014 federal return and complete the premium tax credit form. This is true even if they otherwise would not be required to file a federal return. If they do not complete the premium tax credit form, they will not be able to receive a subsidy in future years.

For a more detailed explanation of the Premium Tax Credit, see the How the Affordable Care Act will Affect You and Your Tax Return - Premium Tax Credit page on the CrossLink Tax website.

Also, here are other Premium Tax Credit resources available on the IRS website:

• IRS Premium Tax Credit
• IRS Questions and Answers for the Premium Tax Credit

IRS Offers Tax Tips for “The Season of Giving”

December is traditionally a month for giving generously to charities, friends and family. But it’s also a time that can have a major impact on the tax return you’ll file in the New Year. Here are some “Season of Giving” tips from the IRS covering everything from charity donations to refund planning:

• Contribute to Qualified Charities. If you plan to take an itemized charitable deduction on your 2012 tax return, your donation must go to a qualified charity by Dec. 31. Ask the charity about its tax-exempt status. You can also visit IRS.gov and use the Exempt Organizations Select Check tool to check if your favorite charity is a qualified charity. Donations charged to a credit card by Dec. 31 are deductible for 2012, even if you pay the bill in 2013. A gift by check also counts for 2012 as long as you mail it in December. Gifts given to individuals, whether to friends, family or strangers, are not deductible.
• What You Can Deduct. You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified charity. Special rules apply to several types of donated property, including clothing or household items, cars and boats.
• Keep Records of All Donations. You need to keep a record of any donations you deduct, regardless of the amount. You must have a written record of all cash contributions to claim a deduction. This may include a cancelled check, bank or credit card statement or payroll deduction record. You can also ask the charity for a written statement that shows the charity’s name, contribution date and amount.
• Gather Records in a Safe Place. As long as you’re gathering those records for your charitable contributions, it’s a good time to start rounding up documents you will need to file your tax return in 2013. This includes receipts, canceled checks and other documents that support income or deductions you will claim on your tax return. Be sure to store them in a safe place so you can easily access them later when you file your tax return.
• Plan Ahead for Major Purchases. If you are making major purchases during the holiday season, don’t base them solely on the expectation of receiving your tax refund before the bills arrive. Many factors can impact the timing of a tax refund. The IRS issues most refunds in less than 21 days after receiving a tax return. However, if your tax return requires additional review, it may take longer to receive your refund.

For more information about contributions, check out Publication 526, Charitable Contributions. The booklet is available on IRS.gov or order by mail at 800-TAX-FORM (800-829-3676).

(The above content is as it appeared in an official IRS Tax Tips e-mail distributed on December 6th, 2012.)