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Archive for April, 2010

COBRA Subsidy Eligibility Period Extended to May 31

April 29th, 2010

Workers who lose their jobs during April and May may qualify for a 65-percent subsidy on their COBRA health insurance premiums, according to the Internal Revenue Service. The American Recovery and Reinvestment Act established this subsidy to help workers who lost their jobs as a result of the recession maintain their employer sponsored health insurance.

The Continuing Extension Act of 2010, enacted April 15, reinstated the COBRA subsidy, which had expired on March 31. As a result, workers who are involuntarily terminated from employment between Sept. 1, 2008 and May 31, 2010, may be eligible for a 65-percent subsidy of their COBRA premiums for a period of up to 15 months. In some cases, workers who had their hours reduced and later lose their jobs may also be eligible for the subsidy.

Employers must provide COBRA coverage to eligible individuals who pay 35 percent of the COBRA premium. Employers are reimbursed for the other 65 percent by claiming a credit for the subsidy on their payroll tax returns: Form 941, Employers QUARTERLY Federal Tax Return, Form 944, Employer’s ANNUAL Federal Tax Return, or Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees. Employers must maintain supporting documentation for the claimed credit.

There is much more information about the COBRA subsidy, including questions and answers for employers, and for employees or former employees, on the COBRA pages of IRS.gov.

Some people who are eligible for the COBRA subsidy also qualify for the health coverage tax credit (HCTC) and may want to choose the more generous HCTC benefit, instead. The HCTC pays 80 percent of health insurance premiums for those who qualify.

Ten Facts about Amended Returns

April 26th, 2010

You can make a change or an adjustment to a tax return you’ve already filed by filing an amended return. Here are the top 10 things the IRS wants you to know about amending your federal tax return.

  1. If you need to amend your tax return, use Form 1040X, Amended U.S. Individual Income Tax Return.
  2. Use Form 1040X to correct previously filed Forms 1040, 1040A or 1040EZ. The 1040X can also be used to correct a return filed electronically. However, you can only paper file an amended return.
  3. You should file an amended return if you discover any of the following items were reported incorrectly: filing status, dependents, total income, deductions or credits.
  4. Generally, you do not need to file an amended return for math errors. The IRS will automatically make the correction.
  5. You usually do not need to file an amended return because you forgot to include tax forms such as W-2s or schedules. The IRS normally will send a request asking for those documents.
  6. Be sure to enter the year of the return you are amending at the top of Form 1040X. Generally, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
  7. If you are amending more than one tax return, prepare a 1040X for each return and mail them in separate envelopes to the IRS campus for the area in which you live. The 1040X instructions list the addresses for the campuses.
  8. If the changes involve another schedule or form, you must attach it to the 1040X.
  9. If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund.
  10. If you owe additional tax for 2009, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.

Don’t Panic! Eight Things to Know If You Receive an IRS Notice

April 21st, 2010

The Internal Revenue Service sends millions of letters and notices to taxpayers every year. Here are eight things taxpayers should know about IRS notices – just in case one shows up in your mailbox.

  1. Don’t panic. Many of these letters can be dealt with simply and painlessly.
  2. There are a number of reasons why the IRS might send you a notice. Notices may request payment of taxes, notify you of changes to your account, or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.
  3. Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.
  4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
  5. If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise.
  6. If you do not agree with the correction the IRS made, it is important that you respond as requested. You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
  7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry.
  8. It’s important that you keep copies of any correspondence with your records.

IRS Reaches Out to Millions of Employers on Benefits of New Health Care Tax Credit

April 20th, 2010

The Internal Revenue Service this week began mailing postcards to more than four million small businesses and tax-exempt organizations to make them aware of the benefits of the recently enacted small business health care tax credit.

Included in the Patient Protection and Affordable Care Act approved by Congress last month and signed into law by President Obama, the credit is one of the first health care reform provisions to go into effect. The credit, which takes effect this year, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

“We want to make sure small employers across the nation realize that –– effective this tax year –– they may be eligible for a valuable new tax credit. Our postcard mailing –– which is targeted at small employers –– is intended to get the attention of small employers and encourage them to find out more,” IRS Commissioner Doug Shulman said. “We urge every small employer to take advantage of this credit if they qualify.”

In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low- and moderate-income workers.

For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. The maximum credit goes to smaller employers –– those with 10 or fewer full-time equivalent (FTE) employees –– paying annual average wages of $25,000 or less. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals. The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt organizations, the IRS will provide further information on how to claim the credit.

Here’s What Happens After You File

April 19th, 2010

Most taxpayers have already filed their federal tax returns, but many may still have questions. Here’s what the IRS wants you to know about refund status, recordkeeping, mistakes and what to do if you move.

Refund Information

You can go online to check the status of your 2009 refund 72 hours after IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after you mail a paper return. Be sure to have a copy of your 2009 tax return available because you will need to know your filing status, the first Social Security number shown on the return, and the exact whole-dollar amount of the refund. You have three options for checking on your refund:

  • Go to IRS.gov, and click on “Where’s My Refund”
  • Call 1-800-829-4477 24 hours a day, seven days a week for automated refund information
  • Call 1-800-829-1954 during the hours shown in your tax form instructions

What Records Should I Keep?

Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRAs and business or rental property — should be kept longer.

You should keep copies of tax returns you have filed and the tax forms package as part of your records. They may be helpful in amending already filed returns or preparing future returns.

Change of Address

If you move after you filed your return, you should send Form 8822, Change of Address to the Internal Revenue Service. If you are expecting a refund through the mail, you should also file a change of address with the U.S. Postal Service.

What If I Made a Mistake?

Errors may delay your refund or result in notices being sent to you. If you discover an error on your return, you can correct your return by filing an amended return using Form 1040X, Amended U.S. Individual Income Tax Return.

Avoid Common Mistakes When Filing Your Tax Return

April 12th, 2010

The Internal Revenue Service today reminded taxpayers to review their tax returns for common errors that could result in delayed refunds.  Here are some ways to avoid common tax return errors.

File electronically. If you e-file or Free File, tax software will do the calculations, flag common errors and prompt you for missing information.

Remember Making Work Pay. The Making Work Pay tax credit –– available in 2009 and 2010 –– is worth up to $400 for individuals and $800 for married couples. Most people got it as a reduction to their paycheck withholding. Form 1040 filers must complete Schedule M, attach it to their returns, and claim the credit to benefit from it. (Tax software handles these calculations automatically for e-filers.) Also, if you received the one-time Economic Recovery Payment, you need to reduce your Making Work Pay credit by that amount. Taxpayers who are not certain whether they received the economic recovery payment can find out with the help of an online tool, Did I Receive a 2009 Economic Recovery Payment? If you don’t have access to the IRS Web site, call 866-234-2942.

Claiming the Homebuyer Credit? If you claim the first-time homebuyer credit, complete Form 5405, and include it along with the settlement document, such as a HUD-1. More information is available on the homebuyer page.

Use the peel-off label if you mail a paper return. Paper filers may line through and make corrections right on the label. Be sure to fill in your Social Security number in the box provided on the return. If you do not have a peel-off label, fill in all requested information clearly, including Social Security numbers.

Check only one filing status. Also, check the appropriate exemption boxes. When you enter Social Security numbers, make sure they are correct.

Double check all figures. While software catches and prevents many errors on e-file returns, math errors remain common on paper returns.

Get the Right Routing and Account Numbers. Make sure the financial institution routing and account numbers you have entered on the return for direct deposit of your refund are accurate. Incorrect numbers can cause your refund to be delayed or deposited into the wrong account.

Sign and date the return. If you are filing a joint return, both you and your spouse must sign and date the return. E-filers can sign using a self-selected personal identification number (PIN).

Attach Forms To the Front of the Return. Paper filers need to attach W-2s and other forms that reflect tax withholding, as well as other necessary forms and schedules, to the front of their returns.

Do you owe tax? If so, a number of e-payment options are available. Or send a check or money order payable to the “United States Treasury.”

Ten Last Minute Filing Tips

April 9th, 2010

With the tax filing deadline close at hand, the IRS offers 10 tips for those still working on their tax returns:

  1. File Electronically Consider filing electronically instead of using paper tax forms. If you file electronically and choose to have your tax refund deposited directly into your bank account, you will have your money in as few as 10 days. Virtually everyone can prepare a return and electronically file it for free.   For the second year, the IRS and its partners are offering the option of Free File Fillable Forms.   Another option is Traditional Free File.  About 98 million taxpayers – 70 percent of all taxpayers – are eligible for the IRS Traditional Free File.
  2. Check the Identification Numbers When filing a paper return carefully check the identification numbers — usually Social Security numbers — for each person listed. This includes you, your spouse, dependents and persons listed in relation to claims for the Child and Dependent Care Credit or Earned Income Tax Credit. Missing, incorrect or illegible Social Security numbers can delay or reduce a tax refund.
  3. Double-Check Your Figures If you are filing a paper return, you should double-check that you have correctly figured the refund or balance due.
  4. Check the Tax Tables If you are filing using the Free File Fillable Forms or a paper return you should double-check that you have used the right figure from the tax table.
  5. Sign your form You must sign and date your return. Both spouses must sign a joint return, even if only one had income. Anyone paid to prepare a return must also sign it.
  6. Mailing Your Return Use the coded envelope included with your tax package to mail your return. If you did not receive an envelope, check the section called “Where Do You File?” in the tax instruction booklet.
  7. Mailing a Payment People sending a payment should make the check out to “United States Treasury” and should enclose it with, but not attach it to the tax return or the Form 1040-V, Payment Voucher, if used. The check should include the Social Security number of the person listed first on the return, daytime phone number, the tax year and the type of form filed.
  8. Electronic Payments Electronic payment options are convenient, safe and secure methods for paying taxes. You can authorize an electronic funds withdrawal, or use a credit or a debit card. For more information on electronic payment options, visit IRS.gov.
  9. Extension to File By the April due date, you should either file a return or request an extension of time to file. Remember, the extension of time to file is not an extension of time to pay.
  10. IRS.gov Forms and publications and helpful information on a variety of tax subjects are available around the clock at IRS.gov. You can also check the status of your refund after you file your return by clicking on Where’s My Refund?.

Three Ways to Pay Your Federal Income Tax

April 7th, 2010

People who owe taxes but can’t pay the full amount owed by the April deadline should still file their return on time and pay as much as they can to avoid penalties and interest. If you can’t pay the full amount, you should contact the IRS to ask about alternative payment options.  Here are some of the alternative payment options you may want to consider:

  1. Additional Time to Pay Based on your circumstances, you may be granted a short additional time to pay your tax in full. A brief additional amount of time to pay can be requested through the Online Payment Agreement application at IRS.gov or by calling 800-829-1040. Taxpayers who request and are granted an additional 30 to 120 days to pay the tax in full generally will pay less in penalties and interest than if the debt were repaid through an installment agreement over a greater period of time.
  2. Installment Agreement You can apply for an IRS installment agreement using the Web-based Online Payment Agreement application on IRS.gov. This Web-based application allows taxpayers who owe $25,000 or less in combined tax, penalties and interestto self-qualify, apply for, and receive immediate notification of approval. You can also request an installment agreement before your current tax liabilities are actually assessed by using OPA. The OPA option provides you with a simple and convenient way to establish an installment agreement and eliminates the need for personal interaction with IRS and reduces paper processing. You may also complete and submit a Form 9465, make your request in writing, or call 1-800-829-1040 to make your request. For balances over $25,000, you are required to complete a financial statement to determine the monthly payment amount for an installment plan. For more complete information see Tax Topic 202, Tax Payment Options on IRS.gov.
  3. Pay by Credit Card or Debit Card You can charge your taxes on your American Express, MasterCard, Visa or Discover credit cards. Additionally, you can pay by using your debit card. However, the debit card must be a Visa Consumer Debit Card, or a NYCE, Pulse or Star Debit Card. To pay by credit card or debit card, contact one of the service providers at its telephone number or Web site listed below and follow the instructions. There is no IRS fee for credit or debit card payments, but the processing companies charge a convenience fee or flat fee. If you are paying by credit card, the service providers charge a convenience fee based on the amount you are paying. If you are paying by debit card, the service providers charge a flat fee of $3.89 to $3.95.Do not add the convenience fee or flat fee to your tax payment.

The processing companies are:

Official Payments Corporation:
To pay by debit or credit card: 888-UPAY-TAX (888-872-9829),
www.officialpayments.com/fed

Link2Gov Corporation:
To pay by debit or credit card: 888-PAY-1040 (888-729-1040),
www.pay1040.com

RBS WorldPay, Inc.
To pay by debit or credit card: 888-9PAY-TAX (888-972-9829),
www.payUSAtax.com

Going Green May Reduce Your Taxes

April 5th, 2010

When you invest in energy-efficient products, you may be saving money on both your energy bills and your tax return. The Internal Revenue Service wants you to know about these six energy-related tax credits created or expanded by the American Recovery and Reinvestment Act of 2009.

  1. Residential Energy Property Credit This tax credit is for homeowners who make qualified energy efficient improvements to their existing homes. This credit is 30 percent of the cost of all qualifying improvements. The maximum credit is $1,500 for improvements placed in service in 2009 and 2010 combined. The credit applies to improvements such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems.
  2. Residential Energy Efficient Property Credit This tax credit will help individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, solar electricity equipment and wind turbines installed on or in connection with their home located in the United States and geothermal heat pumps installed on or in connection with their main home located in the United States.The credit, which runs through 2016, is 30 percent of the cost of qualified property. ARRA removes some of the previously imposed annual maximum dollar limits.
  3. Plug-in Electric Drive Vehicle Credit ARRA modifies this credit for qualified plug-in electric drive vehicles purchased after Dec. 31, 2009. The minimum amount of the credit for qualified plug-in electric drive vehicles, which runs through 2014, is $2,500 and the credit tops out at $7,500, depending on the battery capacity. ARRA phases out the credit for each manufacturer after they sell 200,000 vehicles.
  4. Plug-in Electric Vehicle Credit This is a special tax credit for two types of plug-in vehicles — certain low-speed electric vehicles and two- or three-wheeled vehicles. The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500 for purchases made after Feb. 17, 2009, and before Jan. 1, 2012.
  5. Credit for Conversion Kits This credit is equal to 10 percent of the cost of converting a vehicle to a qualified plug-in electric drive motor vehicle that is placed in service after Feb. 17, 2009. The maximum credit, which runs through 2011, is $4,000.
  6. Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed Against AMT Starting in 2009, ARRA allows the Alternative Motor Vehicle Credit, including the tax credit for purchasing hybrid vehicles, to be applied against the Alternative Minimum Tax. Prior to the new law, the Alternative Motor Vehicle Credit could not be used to offset the AMT. This means the credit could not be taken if a taxpayer owed AMT or was reduced for some taxpayers who did not owe AMT.

Ten Things You Need to Know About Tax Refunds

April 2nd, 2010

Are you expecting a refund from the IRS this year? Here are the top 10 things you should know about your refund.

  1. Refund Options You have three options for receiving your individual federal income tax refund: a paper check, direct deposit or U.S. Savings Bonds. You can now use your refund to buy up to $5,000 in U.S. Series I savings bonds in multiples of $50.
  2. Separate Accounts You may use Form 8888, Direct Deposit of Refund to More Than One Account, to request that your refund be allocated by direct deposit among up to three separate accounts, such as checking or savings or retirement accounts. You may also use this form to buy U.S Savings Bonds.
  3. Paper Return Processing Time If you file a complete and accurate paper tax return, your refund will usually be issued within six weeks from the date it is received.
  4. Returns Filed Electronically If you filed electronically, your refund will normally be issued within three weeks after the acknowledgment date.
  5. Check the Status Online The fastest and easiest way to find out about your current year refund is to go to IRS.gov and click the “Where’s My Refund?” link at the IRS.gov home page. To check the status online you will need your Social Security number, filing status and the exact whole dollar amount of your refund shown on your return.
  6. Check the Status By Phone You can check the status of your refund by calling the IRS Refund Hotline at 800–829–1954. When you call, you will need to provide your Social Security number, your filing status and the exact whole dollar amount of the refund shown on your return.
  7. Delayed Refund There are several reasons for delayed refunds. For things that may delay the processing of your return, refer to Tax Topic 303 at IRS.gov, which includes a Checklist of Common Errors When Preparing Your Tax Return.
  8. Larger than Expected Refund If you receive a refund to which you are not entitled, or one for an amount that is more than you expected, do not cash the check until you receive a notice explaining the difference. Follow the instructions on the notice.
  9. Smaller than Expected Refund If you receive a refund for a smaller amount than you expected, you may cash the check. If it is determined that you should have received more, you will later receive a check for the difference. If you did not receive a notice and you have questions about the amount of your refund, wait two weeks after receiving the refund, then call 800–829–1040.
  10. Missing Refund The IRS will assist you in obtaining a replacement check for a refund check that is verified as lost or stolen. If the IRS was unable to deliver your refund because you moved, you can change your address online. Once your address has been changed, the IRS can reissue the undelivered check.