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Archive | Tax Time

State tax return deadline extended

Taxpayers can now file tax returns and make payments by May 17, 2021

LANSING, Mich.–State of Michigan individual income tax annual returns are now due on May 17, 2021, according to the Michigan Department of Treasury.

The new filing deadline comes after the Internal Revenue Service extended its deadline to the same date. For the benefit and convenience of taxpayers, both the beginning and end of income tax filing season are the same as the IRS.

“I’m happy to announce that we are giving Michiganders extra time on their taxes this year,” said Governor Whitmer. “This has been a difficult year for everyone, and by moving the income tax payment date, I hope families have the buffer they need to get their finances in order. I am grateful for the money going out to Michiganders under the American Rescue Plan and proud of the state-level pandemic relief we’ve delivered to families and small businesses. Together, we’ll build our economy back better.”

“Taxpayers are trying to understand how the federal stimulus and the COVID-19 pandemic is impacting their taxes,” State Treasurer Rachael Eubanks said. “We are continuously evaluating how we can assist taxpayers. Changing the state’s filing and payment deadlines can help individuals figure out their next steps as we navigate these extraordinary times.”

“Our members have been adamant to find relief everywhere we can for the people of the State of Michigan,” said *Matt Hall, chairman of the House Tax Policy committee. “We have been prepared with legislation to extend the April 15 filing deadline this year and we’re grateful that Treasury and the administration are working to waive penalties and interest in the meantime.”

Under a Taxpayer Notice issued by the state Treasury Department, state individual income tax annual returns and payments are now due before 11:59 p.m. on May 17, 2021.

Individual taxpayers who need additional time to file beyond the May 17 deadline can request an extension to Oct. 15, 2021. Taxpayers requesting additional time to file should estimate their tax liability and pay any taxes owed by May 17, 2021, to avoid additional interest and penalties.

Because the extension is limited to the 2020 taxes, first quarter estimates for tax year 2021 remain due on April 15, 2021.

Taxpayers who are owed a refund are encouraged to file their state income tax returns so they can receive their refunds. More information about e-filing is available at www.michigan.gov/mifastfile.

Changes to city income tax deadlines require state legislation.

To learn more about Michigan’s taxes, go to www.michigan.gov/taxes or follow the state Treasury Department on Twitter at @MITreasury [ https://www.twitter.com/mitreasury ].

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Tax Time Guide: Get credit for IRA contributions made by April 15

WASHINGTON—The Internal Revenue Service notes that taxpayers of all ages may be able to claim a deduction on their 2020 tax return for contributions to their Individual Retirement Arrangement made through April 15, 2021. There is no longer a maximum age for making IRA contributions.

An IRA is designed to enable employees and the self-employed to save for retirement. Most taxpayers who work are eligible to start a traditional or Roth IRA or add money to an existing account.

Contributions to a traditional IRA are usually tax deductible, and distributions are generally taxable. There is still time to make contributions that count for a 2020 tax return, if they are made by April 15, 2021. Taxpayers can file their return claiming a traditional IRA contribution before the contribution is actually made. The contribution must then be made by the April due date of the return. While contributions to a Roth IRA are not tax deductible, qualified distributions are tax-free. In addition, low- and moderate-income taxpayers making these contributions may also qualify for the Saver’s Credit.

Generally, eligible taxpayers can contribute up to $6,000 to an IRA for 2020. For someone who was 50 years of age or older at the end of 2020, the limit is increased to $7,000. The restrictions on taxpayers age 70 1/2 or older to make contributions to their IRA were removed in 2020.

Qualified contributions to one or more traditional IRAs are deductible up to the contribution limit or 100% of the taxpayer’s compensation, whichever is less.

For 2020, if a taxpayer is covered by a workplace retirement plan, the deduction for contributions to a traditional IRA is generally reduced depending on the taxpayer’s modified adjusted gross income:

Single or head of household filers with income of $65,000 or less can take a full deduction up to the amount of their contribution limit. For incomes more than $65,000 but less than $75,000, there is a partial deduction and if $75,000 or more there is no deduction.

Filers that are married filing jointly or a qualifying widow(er) with $104,000 or less of income, a full deduction up to the amount of the contribution limit is permitted. Filers with more than $104,000 but less than $124,000 can claim a partial deduction and if their income is at least $124,000, no deduction is available.

For joint filers, where the spouse making the IRA contribution is not covered by a workplace plan, but their spouse is covered, a full deduction is available if their modified AGI is $196,000 or less. There’s a partial deduction if their income is between $196,000 and $206,000 and no deduction if their income is $206,000 or more.

Filers who are married filing separately and have an income of less than $10,000 can claim a partial deduction. If their income is at least $10,000, there is no deduction.

Worksheets are available in the Form 1040 Instructions or in Publication 590-A, Contributions to Individual Retirement Arrangements. The deduction is claimed on Form 1040, Schedule 1. Nondeductible contributions to a traditional IRA are reported on Form 8606.

Even though contributions to Roth IRAs are not tax deductible, the maximum permitted amount of these contributions begins to phase out for taxpayers whose modified adjusted gross income is above a certain level:

For filers who are married filing jointly or qualifying widow(er), that level is $196,000.

For those who file as single, head of household, or married filing separately and did not live with their spouse at any time during the year, that level is $124,000.

For filers who are married filing separately and lived with their spouse at any time during the year, any amount of modified AGI reduces their contribution limit.

The Saver’s Credit, also known as the Retirement Savings Contributions Credit, is often available to IRA contributors whose adjusted gross income falls below certain levels. In addition, beginning in 2018, designated beneficiaries may be eligible for a credit for contributions to their Achieving a Better Life Experience (ABLE) account. For 2018, the income limits are:

$32,500; single and married filing separate

$48,750; head of household

$65,000; married filing jointly

Taxpayers should use Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the Saver’s Credit, and its instructions for details on figuring the credit correctly.

Taxpayers can find answers to questions, forms and instructions and easy-to-use tools online at IRS.gov. They can use these resources to get help when it’s needed, at home, at work or on the go.

This news release is part of a series called the Tax Time Guide, a resource to help taxpayers file an accurate tax return. Additional help is available in Publication 17, Your Federal Income Tax For Individuals.

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IRS begins delivering third round of Economic Impact Payments to Americans

WASHINGTON—The Internal Revenue Service announced today that the third round of Economic Impact Payments will begin reaching Americans over the next week.

Following approval of the American Rescue Plan Act, the first batch of payments will be sent by direct deposit, which some recipients started receiving as early as last weekend, and with more receiving coming this week.

Additional batches of payments will be sent in the coming weeks by direct deposit and through the mail as a check or debit card. The vast majority of these payments will be by direct deposit.

No action is needed by most taxpayers; the payments will be automatic and, in many cases, similar to how people received the first and second round of Economic Impact Payments in 2020. People can check the Get My Payment tool on IRS.gov to see the payment status of the third stimulus payment.

“Even though the tax season is in full swing, IRS employees again worked around the clock to quickly deliver help to millions of Americans struggling to cope with this historic pandemic,” said IRS Commissioner Chuck Rettig. “The payments will be delivered automatically to taxpayers even as the IRS continues delivering regular tax refunds. We urge people to visit IRS.gov for the latest details on the stimulus payments, other new tax law provisions and tax season updates.”

Highlights of the third round of Economic Impact Payments; IRS will automatically calculate amounts

In general, most people will get $1,400 for themselves and $1,400 for each of their qualifying dependents claimed on their tax return. As with the first two Economic Impact Payments in 2020, most Americans will receive their money without having to take any action. Some Americans may see the direct deposit payments as pending or as provisional payments in their accounts before the official payment date of March 17.

Because these payments are automatic for most eligible people, contacting either financial institutions or the IRS on payment timing will not speed up their arrival. Social Security and other federal beneficiaries will generally receive this third payment the same way as their regular benefits. A payment date for this group will be announced shortly.

The third round of Economic Impact Payments (EIP3) will be based on the taxpayer’s latest processed tax return from either 2020 or 2019. This includes anyone who successfully registered online at IRS.gov using the agency’s Non-Filers tool last year, or alternatively, submitted a special simplified tax return to the IRS. If the IRS has received and processed a taxpayer’s 2020 return, the agency will instead make the calculation based on that return.

In addition, the IRS will automatically send EIP3 to people who didn’t file a return but receive Social Security retirement, survivor or disability benefits (SSDI), Railroad Retirement benefits, Supplemental Security Income (SSI) or Veterans Affairs benefits. This is similar to the first and second rounds of Economic Impact Payments, often referred to as EIP1 and EIP2.

For those who received EIP1 or EIP2 but don’t receive a payment via direct deposit, they will generally receive a check or, in some instances, a prepaid debit card (referred to as an EIP Card). A payment will not be added to an existing EIP card mailed for the first or second round of stimulus payments.

Under the new law, an EIP3 cannot be offset to pay various past-due federal debts or back taxes.

The IRS reminds taxpayers that the income levels in this new round of stimulus payments have changed. This means that some people won’t be eligible for the third payment even if they received a first or second Economic Impact Payment or claimed a 2020 Recovery Rebate Credit. Payments will begin to be reduced for individuals making $75,000 or above in Adjusted Gross Income ($150,000 for married filing jointly.) The reduced payments end at $80,000 for individuals ($160,000); people above these levels are ineligible for a payment. More information is available on IRS.gov.

New payments differ from earlier Economic Impact Payments

The third round of stimulus payments, those authorized by the 2021 American Rescue Plan Act, differs from the earlier payments in several respects:

  • The third stimulus payment will be larger for most people. Most families will get $1,400 per person, including all dependents claimed on their tax return. Typically, this means a single person with no dependents will get $1,400, while a family of four (married couple with two dependents) will get $5,600.
  • Unlike the first two payments, the third stimulus payment is not restricted to children under 17. Eligible families will get a payment based on all of their qualifying dependents claimed on their return, including older relatives like college students, adults with disabilities, parents and grandparents.

Additional information is available on IRS.gov.

Posted in Tax TimeComments Off on IRS begins delivering third round of Economic Impact Payments to Americans

Things taxpayers should know when choosing between standard and itemized deductions

Deductions reduce the amount of taxable income when filing a federal income tax return. In other words, they can reduce the amount of tax someone owes.

Most taxpayers have a choice of either taking the standard deduction or itemizing their deductions. The standard deduction may be quicker and easier, but, itemizing deductions may lower taxes more, in some situations. It’s important for all taxpayers to look into which deduction method best fits them.

New this year

Following tax law changes, cash donations of up to $300 made by December 31, 2020 are deductible without having to itemize when people file a 2020 tax return.

Here are some details about the two methods to help people decide deduction to take:

Standard deduction

The standard deduction is an amount that reduces taxable income. The amount adjusts every year and can vary by filing status. The standard deduction amount depends on the taxpayer’s filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and don’t itemize deductions are entitled to a higher standard deduction.

Taxpayers benefit from the standard deduction if their standard deduction is more than the total of their allowable itemized deductions. They can use the Interactive Tax Assistant, How Much Is My Standard Deduction? to determine the amount their standard deduction and if they should itemize their deductions. www.irs.gov/help/ita/how-much-is-my-standard-deduction.

Itemized deductions

Taxpayers may itemize deductions because that amount is higher than their standard deduction, which will result in less tax owed or a larger refund. In some cases, they not allowed to use the standard deduction.

Tax software can guide taxpayers through the process of itemizing their deductions. Taxpayers who itemize file Schedule A, Form 1040, Itemized Deductions or Form 1040-SR, U.S. Tax Return for Seniors.

A taxpayer may benefit by itemizing deductions if any of following apply to their tax situation, they:

  • Had large uninsured medical and dental expenses
  • Paid interest and taxes on their home
  • Had large uninsured casualty or theft losses
  • Made large contributions to qualified charities

Individual itemized deductions may be limited. Schedule A, Form 1040, Itemized Deductions can help determine what limitations may apply. www.irs.gov/forms-pubs/about-schedule-a-form-1040

More information:

Publication 501, Dependents, Standard Deduction, and Filing Information www.irs.gov/forms-pubs/about-publication-501
Topic No. 551, Standard Deduction www.irs.gov/taxtopics/tc551

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Avoid pandemic paper delays

Use e-file with direct deposit for faster refunds

WASHINGTON—Tax filing season opened on Feb. 12, and the Internal Revenue Service is urging taxpayers to take some simple steps to help ensure they file accurate tax returns and speed their tax refunds to avoid a variety of pandemic-related issues.

Although every year the IRS encourages taxpayers to e-file their returns and use direct deposit to receive refunds, to those taxpayers who have previously not used e-file, the IRS emphasizes using it this year to avoid paper-related processing delays. Taxpayers can file electronically by using a tax professional, IRS Free File [ https://www.irs.gov/freefile ] or other commercial tax preparation software. The IRS cautioned paper-filed tax returns and paper checks will take even longer this year due to a variety of reasons.

Taxpayers have until Thursday, April 15, 2021, to file their 2020 tax return and pay any tax owed. The IRS expects to receive more than 160 million individual tax returns this year with nine out of 10 returns filed electronically [ https://www.irs.gov/filing/e-file-options ]. At least eight out of 10 taxpayers get their refunds by using direct deposit [ https://www.irs.gov/refunds/get-your-refund-faster-tell-irs-to-direct-deposit-your-refund-to-one-two-or-three-accounts ].

“The pandemic has created a variety of tax law changes and has created some unique circumstances for this filing season,” said IRS Commissioner Chuck Rettig. “To avoid issues, the IRS urges taxpayers to take some simple steps to help ensure they get their refund as quickly as possible, starting with filing electronically and using direct deposit.

“Following months of hard work, we are ready to start this year’s tax season,” Rettig added. “Getting to this point is always a year-round effort for the IRS and the nation’s tax community. Doing it in a continuing COVID-19 environment while simultaneously delivering stimulus payments for the nation is an unprecedented accomplishment by IRS employees. I also want to thank all our tax partners and tax professionals for their hard work that makes tax time smoother for the nation. All of us stand ready to serve America’s taxpayers during this important filing season.”

Wage and Investment Commissioner and Chief Taxpayer Experience Officer Ken Corbin provides an in-depth perspective on how the IRS is preparing for a successful filing season in his A Closer Look [ www.irs.gov/about-irs/preparing-for-and-delivering-the-2021-filing-season ] column.

Be tax ready: Review pandemic-related changes

Last year’s sweeping set of tax changes not only affected individuals and their families but may also affect the tax return they’re filing this year. A new IRS Fact Sheet [ https://www.irs.gov/newsroom/be-tax-ready-understand-how-life-changes-may-affect-the-2020-tax-return-filed-this-year ] explains what taxpayers need to know to file a complete and accurate tax return. The IRS recognizes that filing this year may be challenging for some taxpayers and it’s important to understand how to claim credits and deductions, get a refund timely and meet all tax responsibilities.

Recovery Rebate Credit helps people still eligible for Economic Impact Payments

For those who may be eligible for stimulus payments, they should carefully review the guidelines for the Recovery Rebate Credit. Most people received Economic Impact Payments automatically, and anyone who received the maximum amount does not need to include any information about their payments when they file. However, those who didn’t receive a payment or only received a partial payment may be eligible to claim the Recovery Rebate Credit [ https://www.irs.gov/newsroom/recovery-rebate-credit ] when they file their 2020 tax return. Tax preparation software, including IRS Free File, will help taxpayers figure the amount.

New language preferences to help taxpayers

Additionally, this year for the first time, Forms 1040 and 1040-SR [ https://www.irs.gov/forms-pubs/about-form-1040 ] are available in Spanish, and the IRS has a new form [https://www.irs.gov/forms-pubs/about-schedule-lep] allowing taxpayers to request that they receive information from the IRS in their preferred language. The Schedule LEP, Request for Change in Language Preference, will allow taxpayers to request information in some 20 different languages besides English.

The IRS also wants to remind taxpayers of other important changes that could impact their tax return this year.

Remember to factor in retirement plan distributions

Some taxpayers found it necessary to take coronavirus-related early distributions from 401(k) plans and traditional IRAs in 2020. Under the CARES Act, those distributions up to $100,000  are not subject to the 10% additional tax that otherwise generally applies to distributions made before an individual reaches age 59. In addition, a coronavirus-related distribution [ https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers ] can be included in income in equal installments over a three-year period, and an individual has three years to repay a coronavirus-related distribution to a plan or IRA and undo the tax consequences of the distribution.

Taxpayers should also remember that they can make contributions to traditional IRAs until April 15, 2021, and still deduct that amount on their 2020 tax return, if eligible.

New for 2020: non-itemizers can deduct $300 for charitable cash contributions

Previously, charitable contributions could only be deducted if taxpayers itemized their deductions. 

However, with the CARES act, taxpayers who don’t itemize deductions may take a charitable deduction [ https://www.irs.gov/newsroom/most-taxpayers-can-deduct-up-to-300-in-charitable-contributions-without-itemizing-deductions ] of up to $300 for cash contributions made in 2020 to qualifying organizations. For the purposes of this deduction, qualifying organizations are those that are religious, charitable, educational, scientific or literary in purpose.

Now more than ever, e-file is best

Now more than ever, the safest and best way to file a complete and accurate tax return and get a refund is to file electronically and use direct deposit [ https://www.irs.gov/filing/e-file-options ]. Taxpayers can visit IRS.gov/filing [ https://www.irs.gov/filing ] for more details about IRS Free File [ https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free ], Free File Fillable Forms [https://www.irs.gov/e-file-providers/free-file-fillable-forms] and Free tax preparation sites [https://www.irs.gov/individuals/irs-free-tax-return-preparation-programs]. E-filing is also available through a trusted tax professional. Free File is a great option for people who are only filing a tax return to claim the Recovery Rebate Credit [ https://www.irs.gov/newsroom/recovery-rebate-credit ], either because they didn’t receive an Economic Impact Payment or did not receive the full amount.

The fastest way to get a refund is to file electronically and use direct deposit [https://www.irs.gov/filing/e-file-options]. Most refunds are issued in less than 21 days, but some refunds may take longer for a variety of reasons. Taxpayers can track their refund using “Where’s My Refund? [ https://www.irs.gov/refunds ]” on IRS.gov or by downloading the IRS2Go mobile app where theyll get a personalized refund date as soon as 24 hours after the tax return is electronically submitted.

Most early Earned Income Tax Credit/Additional Child Tax Credit filers should see an update to Where’s My Refund? by Feb. 22. The IRS cannot answer refund status inquiries unless it has been 21 days since the return was electronically filed.

IRS tax help is available 24 hours a day on IRS.gov, where people can find answers to tax questions and resolve tax issues online from the safety of their home. The Let Us Help You [https://www.irs.gov/help/telephone-assistance] page helps answer most tax questions, and the IRS Services Guide PDF [ https://www.irs.gov/pub/irs-pdf/p5136.pdf ] links to other important IRS services.

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Beware of ghost preparers who don’t sign tax returns

WASHINGTON—The Internal Revenue Service reminds taxpayers to avoid “ghost” tax return preparers whose refusal to sign returns can cause a frightening array of problems. It is important to file a valid, accurate tax return because the taxpayer is ultimately responsible for it.

Ghost preparers get their scary name because they don’t sign tax returns they prepare. Like a ghost, they try to be invisible to the fact they’vee prepared the return and will print the return and get the taxpayer to sign and mail it. For e-filed returns, the ghost preparer will prepare but refuse to digitally sign it as the paid preparer.

By law, anyone who is paid to prepare or assists in preparing federal tax returns must have a valid Preparer Tax Identification Number, or PTIN. Paid preparers must sign and include their PTIN on the return. Not signing a return is a red flag that the paid preparer may be looking to make a fast buck by promising a big refund or charging fees based on the size of the refund.

Unscrupulous tax return preparers may also:

  • Require payment in cash only and not provide a receipt.
  • Invent income to qualify their clients for tax credits.
  • Claim fake deductions to boost the size of the refund.
  • Direct refunds into their bank account, not the taxpayer’s account.

The IRS urges taxpayers to choose a tax return preparer wisely. The Choosing a Tax Professional page on IRS.gov has information about tax preparer credentials and qualifications. The IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications can help identify many preparers by type of credential or qualification.

No matter who prepares the return, the IRS urges taxpayers to review it carefully and ask questions about anything not clear before signing. Taxpayers should verify both their routing and bank account number on the completed tax return for any direct deposit refund. And taxpayers should watch out for preparers putting their bank account information onto the returns.

Taxpayers can report preparer misconduct to the IRS using IRS Form 14157, Complaint: Tax Return Preparer. If a taxpayer suspects a tax preparer filed or changed their tax return without their consent, they should file Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit.

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What taxpayers need to know to claim the earned income tax credit

Tax tip 2021-06

The earned income tax credit can give qualifying workers with low-to-moderate income a substantial financial boost. In 2019, the average amount of this credit was $2,476. It not only reduces the amount of tax someone owes but may give them a refund even if they don’t owe any taxes or aren’t required to file a return. People must meet certain requirements and file a federal tax return in order to receive this credit.

EITC eligibility

° a new job or loss of a job

° unemployment benefits

° a change in income

° a change in marital status

° the birth or death of a child

° a change in a spouse’s employment situation

  • Taxpayers qualify based on their income and the filing status they use on their tax return. The credit can be more if they have one or more children who live with them for more than half the year and meet other requirements.

New this tax season

There’s a new rule to help people impacted by a job loss or change in income in 2020. taxpayers can use their2019 earned income to figure your EITC, if their 2019 earned income was more than their 2020 earned income. The same is true for the additional child tax credit. For details, see the instructions for Form 1040.

2020 Maximum credit amounts allowed

The maximum credit amounts are based on whether the taxpayer can claim a child for the credit and the number of children claimed:

  • Zero children: $538
  • One child: $3,584
  • Two children: $5,920
  • Three or more children: $6,660

2020 income limits

Those who are working and earn less than these amounts may qualify for the EITC:

Married filing jointly:

  • Zero children: $21,710
  • One child: $47,646
  • Two children: $53,330
  • Three or more children: $56,844

Head of household and single:

  • Zero children: $15,820
  • One child: $41,756
  • Two children: $47,440
  • Three or more children: $50,954

Taxpayers who are married filing separately can’t claim EITC.

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Tax filing season set to begin February 12

The IRS will begin accepting and processing 2020 tax year returns on Friday, Feb.12, 2021.

People who are ready to file can begin filing their tax returns with tax prep software, including IRS Free File. Software providers are accepting completed tax returns now and holding them until the IRS begins processing returns on Friday, Feb.12. The quickest way for taxpayers to get a tax refund is by filing electronically and choosing direct deposit for their refund.

Most earned income tax credit or advanced child tax credit related refunds should be available in taxpayer bank accounts or on debit cards by the first week of March, if they choose direct deposit and there are no other issues with their tax return.

By law, the IRS cannot issue refunds before mid-February for tax returns that claim the earned income tax credit or ACTC. The IRS must hold the entire refund, even the portion not associated with EITC or ACTC. This helps ensure taxpayers receive the refund they deserve and gives the agency more time to detect and prevent errors and fraud.

To make filing easier, taxpayers should:

File electronically and use direct deposit for the quickest refunds.

Check IRS.gov for the latest tax information. There is no need to call the IRS.

Those who may have been eligible for stimulus payments should carefully review their eligibility for the recovery rebate credit. Most people received Economic Impact Payments automatically and those who received the maximum amount don’t need to include any information about their payments when they file.

They received the full amounts of both Economic Impact Payments if:

Their first Economic Impact Payment was $1,200 for individuals; $2,400 married filing jointly for 2020, plus $500 for each qualifying child born in 2020.

Their second Economic Impact Payment was $600 for individuals; $1,200 married filing jointly for 2020, plus $600 for each qualifying child born in 2020.

People who didn’t receive the payments or only received partial payments may be eligible to claim the recovery rebate credit when they file their 2020 tax return, even if they are normally not required to file a tax return. Tax preparation software, including IRS Free File, will help taxpayers figure the amount.

Taxpayers should remember that stimulus payments they received are not taxable, and don’t reduce the amount of their refund.

Important filing season dates

  • Friday, Feb. 12. IRS begins 2021 tax season. Individual tax returns start being accepted, and processing begins.
  • Thursday, April 15. Due date for filing 2020 tax returns or requesting extension of time to file.
  • Thursday, April 15. Due date for paying 2020 tax owed to avoid owing interest and penalties.
  • Friday, Oct. 15. Due date to file for those requesting an extension on their 2020 tax returns.

Posted in Tax TimeComments Off on Tax filing season set to begin February 12

Get ready now to file 2020 federal income tax returns

WASHINGTON – The Internal Revenue Service today encouraged taxpayers to take necessary actions this fall to help them file their federal tax returns timely and accurately in 2021, including special steps related to Economic Impact Payments.

This is the first in a series of reminders to help taxpayers get ready for the upcoming tax filing season. A special page, updated and available on IRS.gov, outlines steps taxpayers can take now to prepare for the 2021 tax return filing season ahead.

Steps taxpayers can take now to make tax filing easier in 2021

Taxpayers should gather Forms W-2, Wage and Tax Statement, Forms 1099-Misc, Miscellaneous Income, and other income documents to help determine if they’re eligible for deductions or credits. They’ll also need their Notice 1444, Your Economic Impact Payment, to calculate any Recovery Rebate Credit they may be eligible for on their 2020 Federal income tax return.

Most income is taxable, including unemployment compensation, refund interest and income from the gig economy and virtual currencies.

Taxpayers with an Individual Tax Identification Number should ensure it hasn’t expired before they file their 2020 federal tax return. If it has, IRS recommends they submit a Form W-7, Application for IRS Individual Taxpayer Identification Number, now to renew their ITIN. Taxpayers who fail to renew an ITIN before filing a tax return next year could face a delayed refund and may be ineligible for certain tax credits.

Taxpayers can use the Tax Withholding Estimator on IRS.gov to help determine the right amount of tax to have withheld from their paychecks. If they need to adjust their withholding for the rest of the year time is running out, they should submit a new Form W-4, Employee’s Withholding Certificate, to their employer as soon as possible.

Taxpayers who received non-wage income like self-employment income, investment income, taxable Social Security benefits and in some instances, pension and annuity income, may have to make estimated tax payments. Payment options can be found at IRS.gov/payments.

New in 2021: Those who didn’t receive an EIP may be able to claim the Recovery Rebate Credit

Taxpayers may be able to claim the Recovery Rebate Credit if they met the eligibility criteria in 2020 and:

  • They didn’t receive an Economic Impact Payment this year, or
  • Their Economic Impact Payment was less than $1,200 ($2,400 if married filing jointly for 2019 or 2018) plus $500 for each qualifying child.
  • For additional information about the Economic Impact Payment, taxpayers can visit the Economic Impact Payment Information Center.

Received interest on a federal tax refund? Remember these are taxable; include when filing

Taxpayers who received a federal tax refund in 2020 may have been paid interest. The IRS sent interest payments to individual taxpayers who timely filed their 2019 federal income tax returns and received refunds. Most interest payments were received separately from tax refunds. Interest payments are taxable and must be reported on 2020 federal income tax returns. In January 2021, the IRS will send a Form 1099-INT, Interest Income, to anyone who received interest totaling at least $10.

Although the IRS issues most refunds in less than 21 days, the IRS cautions taxpayers not to rely on receiving a 2020 federal tax refund by a certain date, especially when making major purchases or paying bills. Some returns may require additional review and may take longer.

EITC/ACTC-related refunds should be available by first week of March

By law, the IRS cannot issue refunds for people claiming the Earned Income Tax Credit or Additional Child Tax Credit before mid-February. The law requires the IRS to hold the entire refund − even the portion not associated with EITC or ACTC. The IRS expects most EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards by the first week of March, if they chose direct deposit and there are no other issues with their tax return. Taxpayers should “Where’s My Refund?” for their personalized refund date.

With social distancing continuing, taxpayers can stay home and stay safe with IRS online tools

Taxpayers can find online tools and resources to help get the information they need. These IRS.gov tools are easy-to-use and available 24 hours a day. Millions of people use them to find information about their accounts, get answers to tax questions or file and pay their taxes.  

Almost everyone can file electronically for free.The IRS Free File program, available only through IRS.gov or the IRS2Go app, offers brand-name tax preparation software packages at no cost. The software does all the work of finding deductions, credits and exemptions for you. It‘s free for those who earned $72,000 or less in 2020. Some of the Free File packages also offer free state tax return preparation.

If you’re comfortable filling out  your own tax forms electronically, you can use Free File Fillable Forms, regardless of your income, to file your tax returns either by mail or online.

Taxpayers have several options to find a tax preparer. One resource is Choosing a Tax Professional, which offers a wealth of information for selecting a tax professional.

The Directory of Federal Tax Return Preparers with Credentials and Select Qualifications can help taxpayers find preparers in their area who currently hold professional credentials recognized by the IRS, or who hold an Annual Filing Season Program Record of Completion.

Taxpayers can use the Interactive Tax Assistant beginning in January 2021 to get answers to a number of tax law questions. The ITA can help determine if a type of income is taxable, if someone is eligible to claim certain credits, or if they can deduct expenses on their tax return.

Taxpayers can check the status of their refund using “Where’s My Refund?”. The status is available within 24 hours after the IRS receives their e-filed tax return or up to four weeks if they after they mailed a paper return. The “Where’s My Refund?” tool updates once every 24 hours, usually overnight, so taxpayers only need to check once a day.

The best and fastest way for taxpayers to get their tax refund is to have it direct deposited into their financial account. Taxpayers who don’t have a financial account can visit the FDIC website for information to help open an account online.

Taxpayers are invited to join the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs. VITA/TCE volunteers receive training to provide free tax return preparation for eligible taxpayers. There’s never been a better time to get ready to help others file and the IRS is rolling out new ways to make volunteering easier. Visit IRS.gov/volunteers to learn more.

Posted in Tax TimeComments Off on Get ready now to file 2020 federal income tax returns

State income tax refunds must be claimed within four years

LANSING, Mich. Michigan taxpayers who missed the July 15 state individual income tax filing deadline have options for filing a late return, according to the Michigan Department of Treasury.

“Taxpayers who missed last week’s individual income tax filing deadline have options,” State Treasurer Rachael Eubanks said. “If you have an outstanding tax debt and cannot make full payment, we will work with you on payment options. Our goal is to help taxpayers limit interest charges and late payment penalties.”

Treasury recommends past-due tax filers to consider:

  • Filing a return to claim an outstanding refund. Taxpayers risk losing their state income tax refund if they don’t file a return within four years from the due date of the original return. Go to www.michigan.gov/mifastfile to learn more about e-filing.
  • Filing a return to avoid interest and penalties. File past due returns and pay now to limit interest charges and late payment penalties. Failure to pay could affect a taxpayer’s credit score and the ability to obtain loans.
  • Paying as much tax as possible. If taxpayers have to pay outstanding taxes but can’t pay in full, they should pay as much as they can when they file their tax returns. Payments can be made using Michigan’s e-Payments service. When mailing checks, carefully follow tax form instructions. Treasury will work with taxpayers who cannot pay the full amount of tax they owe.

Taxpayers who receive a final tax bill and are unable to pay the entire amount owed can consider:

  • Requesting a penalty waiver. Penalty may be waived on an assessment if a taxpayer can show reasonable cause for their failure to pay on time. Reasonable cause includes serious illness, a fire or natural disaster, or criminal acts against you. Documentation should be submitted to substantiate the reason for a penalty waiver request.
  • Making monthly payments through an installment agreement. For Installment Agreements lasting for 24 months or less, taxpayers must complete, sign and return the Installment Agreement (Form 990). The agreement requires a proposed payment amount that will be reviewed for approval by Treasury.
  • Filing an Offer in Compromise application. An Offer in Compromise is a request by a taxpayer for the Michigan Department of Treasury to compromise an assessed tax liability for less than the full amount. For more information or an application, visit www.michigan.gov/oic.

The last three options for final tax bills should be filed separately from the state income tax return.

To learn more about Michigan’s income tax, go to www.michigan.gov/incometax or call Treasury’s Income Tax Information Line at 517-636-4486. Taxpayer inquires can also be made online.

Posted in Tax TimeComments Off on State income tax refunds must be claimed within four years

All taxpayers should know the telltale signs of common tax scams

Every year scammers add new twists to well-known tax-related scams and 2020 is no exception.

Taxpayers should remember that the IRS generally first mails a bill to a taxpayer who owes taxes. There are special circumstances when the IRS will call or come to a home or business.

Here are some tips to help taxpayers spot scams and avoid becoming a victim.

Email phishing scams

  • The IRS does not initiate contact with taxpayers by email to request personal or financial information.
  • For ways to avoid these scams read tips from the Department of Homeland Security.
  • For additional tips, check out Taxes. Security. Together.
  • Taxpayers should report IRS, Treasury or tax-related suspicious online or email phishing scams to phishing@irs.gov. They should not open any attachments, click on any links, reply to the sender or take any other actions that could put them at risk.

Phone scams

The IRS and its authorized private collection agencies will never:

  • Leave pre-recorded, urgent or threatening messages.
  • Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying, deported or revoke their licenses.
  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The agency doesn’t use these methods for tax payments.
  • Ask for checks to third parties. The agency has specific instructions on how to pay taxes.
  • Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.

Criminals can fake or spoof caller ID numbers to appear to be anywhere in the country. Scammers can even spoof an IRS office phone number or the numbers of various local, state, federal or tribal government agencies.
If a taxpayer receives an IRS or Treasury-related phone call, but doesn’t owe taxes and has no reason to think they do, they should:

  • Hang up immediately.
  • Contact the Treasury Inspector General for Tax Administration to report the call.
  • Report the caller ID and callback number to the IRS by sending it to phishing@irs.gov. The subject line should include IRS Phone Scam.
  • Report the call to the Federal Trade Commission.

If a taxpayer owes tax or thinks they do, they should:

  • View tax account information online at IRS.gov to see the actual amount owed.
  • Review their payment options.
  • Call the number on any billing notice they receive or call the IRS at 800-829-1040.

Posted in Tax TimeComments Off on All taxpayers should know the telltale signs of common tax scams

How to report nonemployee compensation and backup withholding

There is a new Form 1099-NEC, Nonemployee Compensation for business taxpayers who pay or receive nonemployee compensation.

Starting in tax year 2020, payers must complete this form to report any payment of $600 or more to a payee.

Generally, payers must file Form 1099-NEC by January 31. For 2020 tax returns, the due date is February 1, 2021. There is no automatic 30-day extension to file Form 1099-NEC. However, an extension to file may be available under certain hardship conditions.

Nonemployee compensation may be subject to backup withholding if a payee has not provided a taxpayer identification number to the payer or the IRS notifies the payer that the TIN provided was incorrect.

A TIN can be one of the following numbers:

  • Social Security
  • Employer identification
  • Individual taxpayer identification
  • Adoption taxpayer identification

What is backup withholding?

Backup withholding can apply to most kinds of payments reported on Forms 1099 and W-2G. This means that the person or business paying the taxpayer doesn’t generally withhold taxes from certain payments. There are, however, situations when the payer is required to withhold a certain percentage of tax to make sure the IRS receives the tax due on this income. This is backup withholding.

The tax filing deadline has been postponed to Wednesday, July 15, 2020. The IRS is processing tax returns, issuing refunds and accepting payments. Taxpayers who mailed a tax return will experience a longer wait. There is no need to mail a second tax return or call the IRS.

Posted in Tax TimeComments Off on How to report nonemployee compensation and backup withholding

Intandem Credit Union
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