Two New Provisions to be Aware of for 2018

As this filing season begins you need to be aware of two new provisions (that were included in the Tax Cuts and Jobs Act) that go into effect for 2018. One may affect some of your clients that use an ITIN for their children and the other is an addition to the preparer due diligence requirements.

New Requirement for Child Tax Credit beginning in 2018
Beginning with 2018 federal returns in order for a child to be eligible for either the $2,000 child tax credit or the $500 family credit they must have a Social Security Number. 

This change was part of the Tax Cuts and Jobs Act that increased the child tax credit (for tax years 2018 – 2025) to $2,000 for eligible children under 17 of which $1,400 may be refundable. Also, the earned income threshold will be $2,500 when calculating the refundable portion of the child tax credit.

A $500 nonrefundable credit was also added for children who are 17, 18, or for full time students ages 19-24 and other eligible dependents.

New paid preparer due diligence requirement for head of household status
Beginning with 2018 federal returns the Tax Cuts and Jobs Act added a requirement that preparer due diligence will apply to tax returns where the taxpayer uses the head of household filing status.

This means that additional questions will be added to the 2018 Form 8867 (Preparer’s Due Diligence Checklist) to ensure that paid preparers are performing their due diligence in determining that the taxpayer is eligible to file using the head of household filing status. Also the $510 penalty for any preparers where the IRS determines that they did not following the due diligence requirements will apply.

See the New Federal Tax Law Changes Included in the Tax Cuts and Jobs Act page in the Tax Resource Center on the Crosslinktax website.

IRS Reminds Taxpayers about Special Rule for Calculating EITC for Hurricane Victims

The IRS is urging victims of Hurricanes Harvey, Irma and Maria that qualify for the earned income tax credit to check to see if they are eligible to use 2016 earned income to calculate their earned income tax credit (EITC) for 2017.

This special rule is available to individuals who lived in one of three hurricane disaster areas on the date of one of the applicable hurricanes. Taxpayers whose income dropped in 2017 can choose to figure their EITC using their 2016 earned income rather than their 2017 earned income. Eligible taxpayers should figure the 2017 EITC both ways (regular way using 2017 earned income and the special way using 2016 earned income) to see which yields a larger EITC.

See IRS news release IR-2018-10 (Many Hurricane Victims Qualify for Earned Income Tax Credit; Special Method Can Aid Workers Whose Income Dropped) for more information on this special rule.

Things to be Aware of for the Upcoming 2018 Filing Season

Tax Cuts and Jobs Act Has Only Minimal Effect on 2017 Federal Returns

Except for the three provisions listed below all of the new tax changes that were included in the recently passed Tax Cuts and Jobs Act go into effect beginning in 2018 or beyond.

The following do go into effect at some point in 2017 and thus will be applicable for 2017 federal returns:

• Medical Expense Deduction Threshold
  The AGI threshold for medical expenses on Schedule A will be 7.5% for all taxpayers for 2017 and 2018.
• 100% Bonus Depreciation
  Qualifying assets purchased after September 27, 2017 will be eligible for 100% bonus depreciation.
• Home Mortgage Interest Limitation
  The taxpayer may deduct the interest on no more than $750,000 of principal residence acquisition indebtedness for loans incurred beginning on or after December 15, 2017. The limit is $1,000,000 for loans incurred before December 15, 2017.

Expiration of ITINs
At the end of 2017 the following ITINs expired and must be renewed if an individual wants to use it on a 2017 federal return:

• ITINs with middle digits of 70, 71, 72 or 80.
• ITINs that have not been used at least once in the last three consecutive years

See the IRS Individual Taxpayer Identification Number page for more information on expiring ITINs and how to renew an ITIN.

Be Aware of Phishing Emails 
Preparers need to be on the lookout for spear phishing emails that are targeting tax preparers. The goal of these phishing emails is to take over a preparer’s computer (or computer system) in order to obtain the tax and personal information of their clients.

Spear phishing emails pose as familiar entities and are tailored to the individual preparer. These emails disguised as being from a trusted source seek to have the preparer voluntarily disclose sensitive information such as passwords. They may also encourage the preparer to open a link or attachment that actually downloads malware onto their computer. Once the malware is downloaded the cybercriminal now has access to the preparer’s computer and (all information contained on it) without them even knowing about it.

See the following on the IRS website for more information on what to look out for and examples of phishing emails:

• Avoid Spear Phishing Emails
• Don’t Take the Bait
• Recognizing Phishing Email Scams

2018 Tax Filing Season Begins Jan. 29, Tax Returns Due April 17; Help Available for Taxpayers

IR-2018-01, Jan. 04, 2018                                                                            

WASHINGTON ― The Internal Revenue Service announced today that the nation’s tax season will begin Monday, Jan. 29, 2018 and reminded taxpayers claiming certain tax credits that refunds won’t be available before late February.

The IRS will begin accepting tax returns on Jan. 29, with nearly 155 million individual tax returns expected to be filed in 2018. The nation’s tax deadline will be April 17 this year – so taxpayers will have two additional days to file beyond April 15. 

Many software companies and tax professionals will be accepting tax returns before Jan. 29 and then will submit the returns when IRS systems open. Although the IRS will begin accepting both electronic and paper tax returns Jan. 29, paper returns will begin processing later in mid-February as system updates continue. The IRS strongly encourages people to file their tax returns electronically for faster refunds.

The IRS set the Jan. 29 opening date to ensure the security and readiness of key tax processing systems in advance of the opening and to assess the potential impact of tax legislation on 2017 tax returns. 

The IRS reminds taxpayers that, by law, the IRS cannot issue refunds claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) before mid-February. While the IRS will process those returns when received, it cannot issue related refunds before mid-February. The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards starting on Feb. 27, 2018, if they chose direct deposit and there are no other issues with the tax return. 

The IRS also reminds taxpayers that they should keep copies of their prior-year tax returns for at least three years. Taxpayers who are using a tax software product for the first time will need their adjusted gross income from their 2016 tax return to file electronically. Taxpayers who are using the same tax software they used last year will not need to enter prior-year information to electronically sign their 2017 tax return. Using an electronic filing PIN is no longer an option. Taxpayers can visit IRS.gov/GetReady for more tips on preparing to file their 2017 tax return.

April 17 Filing Deadline

The filing deadline to submit 2017 tax returns is Tuesday, April 17, 2018, rather than the traditional April 15 date. In 2018, April 15 falls on a Sunday, and this would usually move the filing deadline to the following Monday – April 16. However, Emancipation Day – a legal holiday in the District of Columbia – will be observed on that Monday, which pushes the nation’s filing deadline to Tuesday, April 17, 2017. Under the tax law, legal holidays in the District of Columbia affect the filing deadline across the nation.

The IRS also has been working with the tax industry and state revenue departments as part of the Security Summit initiative to continue strengthening processing systems to protect taxpayers from identity theft and refund fraud. The IRS and Summit partners continued to improve these safeguards to further protect taxpayers filing in 2018.

Refunds in 2018

Choosing e-file and direct deposit for refunds remains the fastest and safest way to file an accurate income tax return and receive a refund. The IRS expects more than four out of five tax returns will be prepared electronically using tax software.

The IRS still anticipates issuing more than nine out of 10 refunds in less than 21 days, but there are some important factors to keep in mind for taxpayers.

By law, the IRS cannot issue refunds on tax returns claiming the Earned Income Tax Credit or the Additional Child Tax Credit before mid-February. This applies to the entire refund — even the portion not associated with the EITC and ACTC.

The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards starting on Feb. 27, 2018, if those taxpayers chose direct deposit and there are no other issues with the tax return. This additional period is due to several factors, including banking and financial systems needing time to process deposits.

After refunds leave the IRS, it takes additional time for them to be processed and for financial institutions to accept and deposit the refunds to bank accounts and products. The IRS reminds taxpayers many financial institutions do not process payments on weekends or holidays, which can affect when refunds reach taxpayers. For EITC and ACTC filers, the three-day holiday weekend involving Presidents’ Day may affect their refund timing.

The Where's My Refund? ‎tool on IRS.gov and the IRS2Go phone app will be updated with projected deposit dates for early EITC and ACTC refund filers in late February. Taxpayers will not see a refund date on Where's My Refund? ‎or through their software packages until then. The IRS, tax preparers and tax software will not have additional information on refund dates, so Where’s My Refund? remains the best way to check the status of a refund.

IRS Offers Help for Taxpayers

The IRS reminds taxpayers they have a variety of options to get help filing and preparing their tax return on IRS.gov, the official IRS website. Taxpayers can find answers to their tax questions and resolve tax issues online. The Let Us Help You page helps answer most tax questions, and the IRS Services Guide links to these and other IRS services.

Taxpayers can go to IRS.gov/account to securely access information about their federal tax account. They can view the amount they owe, pay online or set up an online payment agreement; access their tax records online; review the past 18 months of payment history; and view key tax return information for the current year as filed. Visit IRS.gov/secureaccess to review the required identity authentication process.

In addition, 70 percent of the nation’s taxpayers are eligible for IRS Free File. Commercial partners of the IRS offer free brand-name software to about 100 million individuals and families with incomes of $66,000 or less.

The online fillable forms provide electronic versions of IRS paper forms to all taxpayers regardless of income that can be prepared and filed by people comfortable with completing their own returns.

Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) offer free tax help to people who qualify. Go to IRS.gov and enter “free tax prep” in the search box to learn more and find a nearby VITA or TCE site, or download the IRS2Go smartphone app to find a free tax prep provider. If eligible, taxpayers can also locate help from a community volunteer. Go to IRS.gov and click on the Filing tab for more information.

The IRS also reminds taxpayers that a trusted tax professional can provide helpful information and advice. Tips for choosing a return preparer and details about national tax professional groups are available on IRS.gov.

Reminder – Affordable Care Act for Tax Year 2017 Returns

Congress was unable to pass legislation to repeal and replace the Affordable Care Act. This means that the Affordable Care Act provisions in the tax code remain in effect for 2017 federal tax returns.

Also, although the penalty provision was repealed in the recently passed federal tax legislation, the repeal does not go into effect until 2019.

Therefore, as we approach the beginning of the 2018 filing season here are some reminders about the Form 1095-A, exemptions from the requirement to have health insurance and the what the individual penalty (individual shared responsibility payment) amount is for 2017 federal income tax returns.

Individual Penalty (Shared Responsibility Payment) for 2017
If it is determined that an individual does owe a penalty for 2017, it is calculated as the greater of: 

• 2.5% of the individual’s income that exceeds their 2017 filing threshold (personal exemptions plus standard deduction for their filing status):

Or

• A flat dollar amount that is assessed for the taxpayer, spouse, and dependents as follows:
  • $695 for taxpayer, spouse, and dependents over age 18
  • $347.50.50 for each dependent under age 18
  The maximum family flat dollar amount for 2017 is $2,085

The penalty amount is limited to the annual national average premium for a bronze level health plan available through the Marketplace which is $3,264 per individual ($272 per month per individual) with a cap of $16,320 for a family with five or more members ($1,360 per month).

See pages 15 - 19 of the 2017 Form 8965 instructions for more information on how the penalty is calculated.

Importance of Form 1095-A 
The Form 1095-A (Health Insurance Marketplace Statement) will be received by the approximately 10 million individuals that obtained their 2017 health insurance at the Federal or a State Marketplace.

This form is needed by these taxpayers in order to complete the 2017 Form 8962 (Premium Tax Credit) which calculates their premium tax credit for 2017 and, for those who received a subsidy, it also performs the reconciliation of the subsidy with the calculated credit.

Also, as a reminder any taxpayer that received a subsidy must complete the Form 8962 and include it with their 2017 federal return. If it is not included with the original federal return the processing of the return will be delayed.

The 1095-A should be received:

• For those who used the Federal Marketplace – throughout January but no later than January 31, 2018
• For those who used a State Marketplace – no later than early February, 2018

A copy of the Form 1095-A will be available online for those who used the Federal Marketplace via their account on healthcare.gov in January. It may also be available online for those who used a State Marketplace.

Health Care Coverage Exemptions
Most individuals who did not have health insurance for all or part of 2017 probably qualified for an exemption. Therefore, it is important that before any penalty is calculated that an individual determines whether they may qualify for a health care coverage exemption.

If an individual qualifies for a health care coverage exemption they must complete the applicable parts of the 2017 Form 8965 (Health Coverage Exemptions) and include it with their 2017 federal return.

If an individual needs help in determining whether they qualify and for which exemption a Find Exemptions tool is available on the healthcare.gov website.