2023 draft instructions released for Form 1042-S

by admin | Nov 7, 2022 | Blog

The IRS has released a draft version of the 2023 instructions for Form 1042-S (Foreign Person’s U.S. Source Income Subject to Withholding).

For those unaware, withholding agents file Form 1042-S to report amounts paid to foreign persons (e.g., salaries, interest, dividends, premiums, pensions, scholarships, and grants) from sources within the U.S. during the preceding calendar year that are subject to withholding. Copy A of Form 1042-S must be filed with the IRS even if:

• No tax is withheld because the income was exempt from tax under a treaty or under the Internal Revenue Code, including the exemption for income effectively connected with conducting a trade or business in the United States.

• The amount withheld was repaid to the recipient. This means that Form 1042-S should not be filed if the amount is required to be reported on Form W-2 or 1099.

The instructions have been updated to reflect requirements under IRS Codes 1446(a) and 1446(f) that apply beginning January 1, 2023. These requirements apply to brokers effecting transfers of interests in publicly traded partnerships (PTPs). In addition, two new income codes (57 and 58) and a new chapter 3 status code (39) have been added for new requirements, beginning in 2023.

Regardless if Form 1042-S is filed on paper or electronically, the form is due by March 15 of the following year. Additionally, Form 1042-S must be furnished to recipients of the income by March 15.

Note: Filers of 250 or more Forms 1042-S must file the forms electronically. However, the Taxpayer First Act of 2019 authorizes the Treasury and IRS to issue regulations that reduce the 250-return electronic filing requirement. The IRS has stated that until final regulations are issued, the threshold will remain at 250 returns.

Source: Thomson Reuters

2023 inflation adjustments announced for several key payroll tax figures

by admin | Sep 21, 2022 | Blog

A number of key tax figures are adjusted each year for inflation based on the average chained Consumer Price Index (CPI) for all-urban customers for the 12-month period ending the previous August 31. The August 2022 CPI summary has been released by the Labor Department. Using the chained CPI for August 2022 (and the preceding 11 months), here are the calculated 2023 indexed amounts.

Qualified transportation fringe benefits: For 2023, an employee will be able to exclude up to $300 ($280 in 2022) a month for qualified parking expenses, and up to $300 a month ($280 in 2022) of the combined value of transit passes and transportation in a commuter highway vehicle.

Long-term care premiums: Amounts paid for insurance that covers qualified long-term care services are treated as medical expenses up to specified dollar limits that vary with the age of the taxpayer at the end of the tax year. For 2023, the dollar limits will be:

• $480 for a taxpayer age 40 or younger ($450 in 2022)
• $890 for a taxpayer age 41-50 ($850 in 2022)
• $1,790 for a taxpayer age 51-60 ($1,690 in 2022)
• $4,770 for a taxpayer age 61-70 ($4,510 for 2022)
• $5,960 for a taxpayer age 70+ ($5,640 in 2022).

Payments received under qualified long-term care insurance: Amounts received under a qualified long-term care insurance contract are generally excludable as amounts received for personal injuries and sickness, subject to a per diem limitation, which will be $420 in 2023 ($390 in 2022).

Archer MSAs: For Archer medical savings account (MSA) purposes, in 2023, a “high deductible health plan” will be a health plan with an annual deductible of:

• $2,650 – $3,950 in the case of self-only coverage ($2,450 – $3,700 for 2022)
• $5,300 – $7,900 in the case of family coverage ($4,950 – $7,400 for 2022)
• If annual out-of-pocket expenses are required to be paid (other than for premiums) covered benefits cannot exceed $5,300 for self-only coverage ($4,950 for 2022) and $9,650 for family coverage ($9,050 for 2022).

Limit on health FSA salary reduction contributions under a cafeteria plan: For purposes of determining whether a health FSA benefit will be a “qualified benefit” for the 2023 plan year, the cafeteria plan must provide that an employee may not elect to have salary reduction contributions exceeding $3,050 made to the health FSA ($2,850 for 2022).

Small employer health insurance credit: An eligible small employer may claim, subject to a phaseout, a credit equal to 50% of non-elective contributions for health insurance for its employees. The credit is reduced under certain circumstances, including if the average annual full-time equivalent wages per employee are more than $30,700 ($28,700 for 2022).

Qualified small employer HRA: For 2023, a qualified small employer HRA is an arrangement which, among other requirements, makes payments and reimbursements for qualifying medical care expenses of an eligible employee that does not exceed $5,850 ($5,450 for 2022), or $11,800 in the case of an arrangement that also provides for payments or reimbursements for family members of the employee ($11,050 for 2022).

Property exempt from levy: The value of property exempt from levy (fuel, provisions, furniture and other household personal effects, as well as arms for personal use, livestock, and poultry) may not exceed $10,810 for levies in 2023 ($10,090 for 2022). The value of property exempt from levy (books and tools necessary for the trade, business, or profession of the taxpayer) may not exceed $5,400 for levies issued in 2023 ($5,050 for 2022).

Wage levy. The weekly amount of an individual’s salary, wages, etc. exempt from levy for 2023 is $4,700 ($4,400 for 2022) multiplied by the number of the taxpayer’s dependents for the tax year of the levy, plus the taxpayer’s standard deduction, divided by 52.

Source: Thomson Reuters