by Lexi Garcia | Feb 23, 2023 | Blog
The IRS has released updated versions of Publications 502 and 503 for the 2022 tax year. Publication 502 describes the medical expenses that are deductible by taxpayers on their 2022 federal income tax returns. Publication 503 explains the requirements that taxpayers must meet to claim the dependent care tax credit (DCTC) for child and dependent care expenses.
The 2022 version of Publication 502 is substantially similar to its 2021 counterpart. Reflecting prior guidance, personal protective equipment (e.g., masks, hand sanitizer, and hand sanitizing wipes) for the primary purpose of preventing the spread of COVID-19 is now included in the list of medical expenses. Clarifications have been added regarding expenses to treat excessive use of alcohol and drugs, and relevant dollar amounts (e.g., the standard mileage rate for use of an automobile to obtain medical care) have been revised to reflect their 2022 inflation-adjusted values. Publication 502 has also been revised to reflect that the health coverage tax credit (HCTC) is not available after 2021. Publication 503 has been revised to note that most of the temporary changes to the DCTC and DCAP rules that were provided as COVID-related relief are no longer available, and to delete references to those changes. It also references prior guidance under which DCAPs could be amended to allow unused amounts from 2021 to carry over to 2022.
Source: Thomson Reuters
by Lexi Garcia | Feb 15, 2023 | Blog
The Internal Revenue Service, Department of Labor, and U.S. Health and Human Services Department have issued proposed regulations that would provide an additional method for individuals to obtain no-cost contraceptive services if their health plan or insurer does not provide such services due to a religious exemption. Under final regulations issued in 2018, qualifying religious employers and other entities with sincerely held religious beliefs or moral convictions are exempt from the Affordable Care Act’s contraceptive coverage mandate, which generally requires coverage of contraceptive services without cost-sharing. Exempt entities may voluntarily engage in an accommodation process that allows plan participants to receive contraceptive services directly from a TPA or insurer without the employer’s involvement. In an FAQ issued in 2021, the agencies announced they were considering changes to the 2018 regulations “in light of recent litigation”. Here are highlights of the proposal:
- Individual Contraceptive Arrangement: Leaving in place the existing religious exemptions and accommodations, the agencies have proposed to add a new “individual contraceptive arrangement” through which individuals enrolled in plans or coverage sponsored or arranged by entities with religious objections could access no-cost contraceptive services without the involvement of their employer, group health plan, plan sponsor, or insurer. A provider or facility that furnishes contraceptive services in accordance with the individual contraceptive arrangement would be reimbursed through an arrangement with an Exchange insurer, which would request an Exchange user fee adjustment to cover the costs.
- Moral Exemption Rescinded: The proposed regulations would revoke the 2018 regulations’ moral exemption and accommodation. The agencies explain that “there have not been a large number of entities that have expressed a desire for an exemption based on a non-religious moral objection” and that there is no legal obligation (including under the Religious Freedom Restoration Act) to provide such an exemption.
Source: Thomson Reuters
by admin | Dec 22, 2022 | Blog
The IRS has issued the final versions of Publication 15 (Circular E, Employer’s Tax Guide) and Publication 15-T (Federal Income Tax Withholding Methods) for use in the 2023 tax year.
Publication 15: This publication explains the tax responsibilities as an employer regarding the requirements for withholding, depositing, reporting, paying, and correcting employment taxes. The publication also explains the forms an employer must give to its employees, those employees must provide, and those the employer must send to the IRS and the Social Security Administration (SSA).
Publication 15-T: Publication 15-T supplements Publication 15 and Publication 51 (Agricultural Employer’s Tax Guide). It describes how to figure withholdings using the wage bracket method or percentage method.
Qualified sick/family leave in 2023: Publication 15 notes that the rate of Social Security tax on taxable wages, including qualified sick leave wages and qualified family leave wages paid in 2023 for leave taken between March 31, 2021 – October 1, 2021, is 6.2% each for the employer and employee or 12.4% for both.
However, qualified sick leave wages and qualified family leave wages paid in 2023 for leave taken between March 31, 2020 -April 1, 2021, are not subject to the employer share of Social Security tax; therefore, the tax rate on these wages is 6.2%. The 2023 Social Security wage base limit is $160,200.
Payroll research tax credit: For tax years beginning before January 1, 2023, a qualified small business may elect to claim up to $250,000 of its credit for increasing research activities as a payroll tax credit. The Inflation Reduction Act of 2022 (the IRA) increased the election amount to $500,000 for tax years beginning after December 31, 2022.
The election and determination of the credit amount that will be used against the employer’s payroll taxes are made on Form 6765 (Credit for Increasing Research Activities). The amount from Form 6765, line 44, must then be reported on Form 8974 (Qualified Small Business Payroll Tax Credit for Increasing Research Activities).
Starting in the first quarter of 2023, the payroll tax credit is first used to reduce the employer share of Social Security tax up to $250,000 per quarter and any remaining credit reduces the employer share of Medicare tax for the quarter (any remaining credit is carried forward to the next quarter).
Forms and publications discontinued forms after 2023: Form 941-SS (Employer’s Quarterly Federal Tax Return) and Publications 80 and 179.
Source: Thomson Reuters
by admin | Dec 5, 2022 | Blog
During a December 1 payroll industry conference call, the IRS discussed the recent increase in the qualified small business payroll tax credit for increasing research activities as provided under the Inflation Reduction Act.
Background: A provision of the Inflation Reduction Act allows a “qualified small business” (QSB), for tax years beginning after December 31, 2022, to apply an additional $250,000 in qualifying expenses as a payroll tax credit against the employer share of Medicare. Prior to the act, a QSB could apply $250,000 against the employer share of Social Security. The total credit that may be applied will be $500,000 beginning after December 31, 2022. Unused amounts of the credit may be carried over.
Future form revisions: The IRS noted that Form 6765 (Credit for Increasing Research Activities) and its instructions must be revised and will reflect the increased $500,000 limit for the payroll tax credit election. Further, Form 8974 (Qualified Small Business Payroll Tax Credit for Increasing Research Activities) and its instructions must be updated to calculate the amount of credit that can be applied against both Social Security and Medicare. The IRS anticipates the updated forms to be released during the first quarter of 2023.
Claiming the credit: The IRS emphasized that the calculation of the credit does not change on Form 6765 and that only the amount of the credit increases. This form is attached to tax returns as an annual election and cannot be made for the tax year if the election was made for five or more preceding tax years. Taxpayers can claim the credit on Form 941 starting with the first quarter that began after the election. Form 8974 must be completed and attached to Form 941. When the new election with the $500,000 limit is made on Form 6765 that is in effect for 2023 tax year, the IRS expects that it will be claimed in 2024.
Electronic filing of Form 8974: This form is available to be filed electronically. Moreover, Form 8974 can be used to indicate up to a $250,000 credit for the employer share of Social Security and an additional $250,000 credit for the employer share of Medicare. Amounts that are not used can be carried over to a subsequent employment tax return.
Source: Thomson Reuters
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
