Still Waiting for the IRS to Cash Your Check?

During the COVID-19 pandemic, the IRS has furloughed many of its employees or had them work from home to mitigate the spread of the virus. Many IRS offices remained shuttered for months, and a backlog of millions of pieces of unopened mail accumulated in trailers set up outside IRS facilities.

This includes unopened mail with payment checks, which creates a problem for many e-filed returns with tax due because the IRS computer shows a tax return filed but no payment made. Because the IRS utilizes a significant amount of automation, its computers began automatically spitting out tax-due notices, including to those who had mailed in payments. While most IRS facilities have reopened and IRS employees have returned to work, it will take them weeks, if not months, to get all of the backlogged mail opened and processed.

After receiving complaints from taxpayers and members of Congress, the IRS put information on its website about these outstanding payments: the payments will be posted as of the date when they were received by the IRS, not the date when the Service processes them. In most cases, this will eliminate or minimize penalties and interest for late payments. So, if you mailed a check to the IRS that has yet to clear your bank, with or without a return, the IRS says that you should not cancel or put a stop-payment on the check. However, you should be sure that you have adequate funds in the account from which the check was written, so that the check will clear when the IRS does process it.

Normally, the penalty for a dishonored payment (a bounced check) of over $1,250 is 2% of the amount of the check, money order, or electronic payment. If the amount is $1,250 or less, the penalty is the amount of the check, money order, or electronic payment, or $25, whichever is lower.

To provide fair and equitable treatment during the COVID-19 emergency, the IRS is providing relief from bad-check penalties. The dishonored payment penalty will be waived for dishonored checks that the Service received between March 1 and July 15 due to delays in IRS processing. However, interest and other penalties may still apply.

The IRS has also decided to suspend mailing certain tax-due notices to taxpayers temporarily until the unopened mail backlog is cleared up. If you have received a tax-due notice but know that you already paid the tax, the IRS asks that you wait to contact it about any unprocessed paper payments that are still pending.

So, for now, taxpayers who have uncashed payments need to be patient. There’s no reason to send additional correspondence to the IRS that would just be added to the mountains of unopened mail, and due to high call volumes, phoning the IRS will be of little use at this time.

If you have any further questions, please give our office a call.

  158 Hits

How to File Taxes After Moving to a New State

Moving to a new state can be an awesome new adventure. Whether you are moving for a new job, to be closer to family, to retire, or for some other reason.

No matter what takes you to your new residence, you can’t forget about taxes.

Here’s what you need to know about filing taxes in your new state as you settle into your new routine.

Be Sure to Establish Residency in Your New State

Even if you haven’t sold your home or severed all ties with your previous hometown, you will need to make as many connections with your new residence as possible.

  • Be sure to change your mailing address 
  • Get your driver’s license and voter registration in your new state 
  • Register children for school (if applicable) in your new state 
  • Move your personal belongings and family pets to your new home 

This will help to prove that you have fully moved from the original state and are no longer subject to taxes there as a resident.

Cut Ties with Your Previous Jurisdiction

If you have a second home in another state or you are still working or doing business in your previous state, you may still qualify as a resident in that state for tax purposes.

If you still have ties in your previous state, make sure you understand the residency qualifications so that you can avoid any unexpected surprises at tax time.

Determine What Kind of Tax Return Is Required

Unless you moved on January 1st of the calendar year, you are likely – at a minimum – a part-year resident of each state.

This typically means that you will allocate your income, deductions, credits, and other tax items based on the number of days you lived in each state. You would file a part-year tax return in each state, unless the state that you are moving from or moving to does not have a state income tax requirement.

Check Your Eligibility for Tax Credits and Other Tax Benefits That You May Be Eligible for in Your New State

The forms that each taxpayer may use are consistent when completing your federal tax return. However, no two states are exactly alike when it comes to filing a tax return. Credits and other benefits that you may be eligible for in one state may not apply in another state.

You may find that you now qualify for special credits or other incentives not previously available to you.

Get Help from a Local Tax Professional

When it comes to doing your taxes, it’s best not to go it alone if you’re unsure of the steps to take when completing your tax forms.

We have years of experience when it comes to filling out the forms you need, and we can help you with things like tax planning and identifying tax credits and deductions that you might not be aware of. Our practice can also help you to avoid mistakes when completing your tax return that can result in costly interest and penalties. Contact us for more information.

  128 Hits

Grant Applications Now Open in Nebraska

On Monday, Governor Pete Ricketts announced a second round of grants, which amount to more than $300 million, from the $1.1 billion which has been allocated to Nebraska from the Federal Coronavirus Aid, Relief and Economic Security (CARES) Act. The new grants target some businesses that were passed by in the state’s initial round of aid offered back in June, including arenas, ethanol plants, zoos, and massage and tattoo parlors.

The new grants will be available via online applications beginning at 10 a.m. Wednesday, October 21, and ending on November 13. Most of the grants are being offered on a first-come, first-served basis. Under the CARES Act, the state must allocate its funds by the end of the year, or return them to the federal Treasury.

This phase of funding will be available for select programs as follows:

DHHS (Department of Health and Human Services) Administered Programs

  • Stabilization Grant for Charitable Organizations and Licensed Providers, Round 2
  • Healthy Places Grant for Centers of Worship, Round 2

DED (Department of Economic Development) Administered Programs

  • Small Business Stabilization Program, Round 2
  • Livestock Producers Stabilization Program, Round 2
  • Hotels and Convention Centers Stabilization Program
  • Event Centers and Sports Arenas Stabilization Program
  • Restaurants and Bars Stabilization Program
  • Licensed Personal Service Business Stabilization Program
  • Movie Theatre Stabilization Program

Due to the limited number of potentially eligible organizations, the following programs will be administered as direct-solicitation and/or direct-payment programs: 

  • Child Care Stabilization Grant
  • Housing & Shelter Stabilization Grant
  • Food Bank Stabilization Grant
  • Hospital Capacity Grant
  • Ethanol Producers Stabilization Program
  • Zoo Stimulus Program

Upon an award, grantees will receive detailed information about compliance and reporting requirements. Each is advised to document how their funding is used, maintaining books, records and receipts which can be easily accessed should an auditor request to see them in the future. All expenditures should meet federal regulations. Additionally, grantees should document in narrative form the impact the funding has on their organization. All funds must be expended by December 30, 2020.

More information and program applications can be found at the following website:

https://coronavirus.nebraska.gov/Programs&Grants 

Details and Eligibility by Program:

Click Here for Seim Johnson Details and Eligibility by Program (PDF) »

  254 Hits

Do You Know Unemployment Benefits Are Taxable?

With the passage of the CARES Act stimulus package earlier this year, the federal government added $600 to the normal state weekly unemployment benefits and increased the number of benefit weeks to a total of 39.

In many cases, workers are receiving unemployment benefits for the first time in their lives, and they may not be aware that the benefits are fully taxable for federal purposes. Potentially making matters worse is that most states also tax unemployment benefits. This may come as a surprise with a potentially unpleasant outcome for many when it comes time to file their 2020 tax return next year.

Those who received unemployment benefits will be sent a Form 1099-G (Certain Government Payments) from the state that paid the benefits. This tax form shows the amount of unemployment benefits received and the amount of tax withheld, if any.

There are several states where unemployment benefits are not taxable. Seven states do not have a state income tax, so obviously, unemployment benefits are not taxable in those states, which are:

  • Alaska 
  • Florida 
  • Nevada 
  • South Dakota 
  • Texas 
  • Washington 
  • Wyoming

 Seven states have state income tax, but do not tax employment benefits. They include:

  • California 
  • Montana 
  • New Hampshire 
  • New Jersey 
  • Oregon 
  • Pennsylvania 
  • Tennessee 
  • Virginia 

Two states exempt 50% of amounts above $12,000 (single taxpayer) or $18,000 (married taxpayers). They are:

  • Indiana 
  • Wisconsin 

If you’ve collected unemployment compensation this year, your benefits’ impact on your tax bill will depend on a number of factors, including the amount of unemployment received, what other income you have, whether you are single or married (and, if married, whether you and your spouse are both receiving unemployment benefits), and whether you had or are having income tax withheld from benefit payments.

If you have questions about the taxation of unemployment compensation, please give our office a call.

 

© 2020

  149 Hits

Ready for the 1099-NEC?

The Internal Revenue Service has resurrected a form that has not been used since the early 1980s, Form 1099-NEC (the NEC stands for non-employee compensation). This form will be used to report non-employee compensation in place of the 1099-MISC, which has been used since 1983 to report payments to contract workers and freelancers. Form 1099-MISC has also been used to report rents, royalties, crop insurance proceeds and several other types of income unrelated to independent contractors.

The revival of the 1099-NEC was mandated by Congress with the passage of the PATH Act back in 2015. However, there have been some complications with implementing the form, so its use has been delayed. It will now make its return debut in 2021 for payments made in 2020.

The reason for the change is to control fraudulent credit claims—primarily for the earned income tax credit (EITC), which is based on earned income from working. Scammers were filing tax returns before the normal February 28 due date for 1099-MISC, which does not give the IRS the time to cross-check the earned income claimed in the returns. As a stopgap measure, 1099-MISC filings that included non-employee compensation were required to be filed by January 31, the same due date as W-2s, another source of earned income. By using the 1099-NEC for non-employee compensation, the IRS will be able to eliminate the problems created by having two filing dates for the 1099-MISC.

As a result, the 1099-MISC has also been revised, and Box 7—where non-employee compensation used to be entered—is now a checkbox for “Payer made direct sales of $5,000 or more of consumer products to a buyer (recipient) for resale.” Other boxes after Box 7 have also been reorganized.

The 1099-NEC is quite simple to use since it only deals with non-employee compensation, which is entered in Box 1, and there are entries for federal and state income tax withholding.1099 October 2020 1

If you operate a business and engage the services of an individual (independent contractor) other than one who meets the definition of an employee, and you pay him or her $600 or more for the calendar year, you are required to issue the individual a Form 1099-NEC soon after the end of the year to avoid penalties and the prospect of losing the deduction for his or her labor and expenses in an audit.

The due date for filing a 1099-NEC with the IRS and mailing the recipient a copy of the 1099-NEC that reports 2020 payments is February 1, 2021. (Normally the due date is January 31, but because that date falls on a weekend next year, the due date becomes the next business day, February 1, 2021.)

It is not uncommon to have a repairman out early in the year, pay him less than $600, then use his services again later in the year and have the total for the year exceed the $599 limit. As a result, you may have overlooked getting the information from the individual needed to file a 1099 for the year. Therefore, it is good practice to always have individuals who are not incorporated complete and sign an IRS Form W-9 the first time you engage them and before you pay them. Having a properly completed and signed Form W-9 for all independent contractors and service providers eliminates any oversights and protects you against IRS penalties and conflicts. If you have been negligent in the past about having W-9s completed, it would be a good idea to establish a procedure for getting each non-corporate independent contractor and service provider to fill out a W-9 and return it to you going forward.

IRS Form W-9, Request for Taxpayer Identification Number and Certification, is provided by the government as a means for you to obtain the vendors’ data you’ll need to accurately file the 1099s. It also provides you with verification that you complied with the law in case a vendor gave you incorrect information. We highly recommend that you have potential vendors complete a Form W-9 prior to engaging in business with them. The W-9 is for your use only and is not submitted to the IRS.

The penalties for failure to file the required informational returns are $280 per informational return. The penalty is reduced to $50 if a correct but late information return is filed no later than 30 days after the required filing date or it is reduced to $110 for returns filed after the 30th day but no later than August 1, 2021. If you are required to file 250 or more information returns, you must file them electronically.

In order to avoid a penalty, copies of the 1099-NECs you’ve issued for 2020 need to be sent to the IRS by February 1, 2021. They must be submitted on magnetic media or on optically scannable forms (OCR forms).

This firm prepares 1099s for submission to the IRS. We provide recipient copies and file copies for your records. Use the 1099 worksheet to provide this office with the information needed to prepare your 1099s.

 

© 2020

  127 Hits