Summertime is the perfect time for a mid-year tax checkup. A tax checkup will help you avoid being surprised with a potentially large tax bill and may help uncover ways you can save throughout the rest of the year. It is also a good time to account for any life changes that may affect your overall tax liability.
Collect and keep your records and receipts. Record keeping can help you identify sources of income, track deductible expenses, and make preparing a complete and accurate tax return easier.
Notify the IRS if your address changes and notify the Social Security Administration of a legal name change.
Create and/or sign into your individual IRS online account to view your federal tax records, manage communication preferences, make payments and more.
Perform A Paycheck Check-up
Pay close attention to your paystubs to help prevent end-of year surprises. Make sure the earnings are correct and that you have the proper amount of tax withheld. As time passes, life events like marriage, divorce, having a child, buying a home, or a change in income may affect your taxes. The IRS’s Tax Withholding Estimator will help you assess your income tax, credits, adjustments, and deductions, and determine whether you need to change your tax withholding. If a change is recommended, the estimator will provide instructions to update your withholding with your employer either online or by submitting a new Form W-4, Employee’s Withholding Allowance Certificate.
Remember, most income is taxable. This includes the following sources and more:
In the latest NTA BLOG, National Taxpayer Advocate Erin M. Collins urges Congress to increase funding for IRS taxpayer services and business systems/IT modernization to better meet taxpayer needs.
In the blog, the National Taxpayer Advocate notes that the Inflation Reduction Act passed last August provided the IRS with $80 billion in additional funding over the next ten years, but only 10 percent of the funding was directed toward taxpayer services and IT modernization. Ninety percent was directed toward enforcement and operations support.
“The top tax administration priority now should be to improve taxpayer service, particularly after the struggles of the last few years, and to do that, the IRS needs more funding in the Taxpayer Services and Business Systems Modernization accounts,” Collins writes.
The blog outlines four alternative ways Congress can ensure the IRS receives enough funding to effectively serve taxpayers, and it provides concrete examples of how poor customer service and antiquated technology has led to problems.
Collins emphasizes that improving service and technology can help the IRS save money on enforcement.
Collins says, “The most efficient way to improve compliance is by encouraging and helping taxpayers to do the right thing on the front end. That is much cheaper and more effective than trying to audit our way out of the tax gap one taxpayer at a time on the back end.”
Please visit the NTA BLOG to read more details about the National Taxpayer’s call to Congress to meet taxpayer needs and support an effective, fair, and equitable tax administration. We encourage you to share this important information with your audience.
National Taxpayer Advocate
National Taxpayer Advocate Issues Midyear Report To Congress; Expresses Concern About Continued Refund Delays And Poor Taxpayer Service
National Taxpayer Advocate Objectives Report To Congress 2022
TAS’s Systemic Advocacy Objectives for FY 2022 are:
- Improve IRS Recruitment, Hiring, and Retention Strategies
- Collaborate With the IRS in the Development of Its Training Strategy to Enhance the Taxpayer Experience
- Expand the Functionality of Online Account Services for Taxpayers and Practitioners
- Expand Technology Capabilities and Access to Customer Service
- Provide Taxpayers a Better Understanding of IRS Processes and Procedures by Promoting Detailed and Timely IRS Transparency
- Improve Taxpayer Access to Digital Communication Options and Permit Digital Signatures
- Mitigate the Impact of the 2021 Filing Season Challenges and Refund Delays
- Minimize Refund Delays for Taxpayers Whose Legitimate Returns Are Delayed by IRS Fraud Filters
- Expand Electronic Filing Capabilities
- Provide Administrative Appeal Rights to Taxpayers Requesting Abatement and Include Additional Status Information on the Where’s My Amended Return Tool
- Analyze Math Errors Attributable to the 2020 Recovery Rebate Credit/Economic Impact Payments to Eliminate Future Recovery Rebate Credit Errors During 2021
- Monitor the IRS’s Recovery for the Unemployment Compensation Exclusion
- Assist Taxpayers Who Experience Changes Relating to the Child Tax Credit During 2021
- Improve Correspondence Audit Communications and Focus on High Default Rates for Taxpayers With Adjusted Gross Incomes Below $50,000
- Identify Potential Collection Barriers for Low-Income Taxpayers
- Continue Advocacy Efforts to Correct Erroneous Collection Statute Expiration Dates Due to Pending Installment Agreements
- Increase Taxpayer Participation in the Offer in Compromise Program
- Mitigate the Unintended Effects of the 2020 and 2021 Filing Season Postponements on Timely Filed Refund Claims
- Improve Timeliness of Tentative Allowance Refunds During National Emergencies
- Advocate for Efficiencies and Additional IRS Resources to Timely Process Individual Taxpayer Identification Number Applications
- End Systemic Assessment of International Information Return Penalties That Harm Taxpayers and Burden the IRS
- Advocate for Improved Voluntary Disclosure Practice to Reduce Taxpayer Uncertainty and Encourage Participation
TAS Advocacy Objectives: Download 25 Page Report
In the National Taxpayer Advocate’s Fiscal Year 2021 Objectives Report to Congress, Erin M. Collins discusses starting her position in March 2020 amid a pandemic, her experience thus far, and her expectations and approach to her role as the National Taxpayer Advocate. She also discusses subjects that she thinks warrant the closest scrutiny and congressional oversight. These subjects include improving taxpayers’ experience throughout the year; protecting the rights of taxpayers impacted by COVID-19; reducing burden resulting from the implementation of the Coronavirus Aid, Relief and Economic Security (CARES) Act; implementing the Taxpayer First Act; and protecting the rights of taxpayers who receive “soft letters” requiring them provide information outside an examination.
As part of the Tax Cuts and Jobs Act (TCJA) passed in December 2017, the Child Tax Credit (CTC) (Internal Revenue Code (IRC) § 24) was amended to require a Social Security number (SSN) for all qualifying children for whom the credit is being claimed. The stated purpose for the TCJA amendment was to prevent taxpayers who are not eligible to obtain a work-eligible SSN from improperly or fraudulently claiming the CTC or the American Opportunity Tax Credit (AOTC). This requirement raised concerns for some taxpayers—most notably the Amish—some of whom will refrain from obtaining SSNs for their children altogether or for themselves until later in life, due to their deeply held religious beliefs. Prior to this amendment, IRC § 24 only required that a taxpayer identification number (TIN) be provided, and the IRS developed a procedure that allowed Amish taxpayers to claim the dependent exemption under IRC § 151 and the CTC without placing an identifying number on the dependent line of the return. These procedures, described below, have been in place for over 30 years.
After I raised this issue back in the summer of 2018, and after the IRS reversed course several times, IRS Chief Counsel issued program manager technical advice (PMTA) on March 29, 2019, concluding “… the [IRS] need not provide administrative relief for these taxpayers.” The IRS revised its guidance on April 15, 2019, to reflect the Chief Counsel’s advice and is disallowing the CTC where qualifying children do not have SSNs on the basis of religious beliefs. Under the TCJA, the maximum CTC for 2018 was $2,000 per child. However, without an SSN, the taxpayer can only receive a partial $500 credit allowed for a dependent—a significant reduction of 75 percent.
In this week’s National Taxpayer Advocate blog, I highlight my concerns with the IRS Free File program, which I also discussed in my 2018 Annual Report to Congress and my recent testimony before the House Ways and Means Subcommittee on Oversight. I also describe my personal experience using Free Fillable Forms and make some recommendations for improving these products. This is a bit of a long post, but the topic requires some background discussion to understand how we got to where we are today.
The IRS Restructuring and Reform Act of 1998 directed the IRS to set a goal of increasing the e-file rate to at least 80 percent by 2007. In 2002, the IRS entered into an agreement with a consortium of tax software companies, known as Free File, Inc. (FFI), under which the companies would provide free tax return software to a certain percentage of U.S. taxpayers, and in exchange, the IRS would not compete with these companies by providing its own software to taxpayers. The agreement has been renewed at regular intervals, and for at least the past decade, the agreement has provided that the consortium would make free tax return software available for 70 percent of taxpayers (currently, about 105 million), particularly focusing on increasing access for economically disadvantaged and underserved communities, as measured by adjusted gross income.
When you get married, your tax situation changes. Your marital status as of Dec. 31 determines your tax filing options for the entire year. If you’re married at year-end, you have two filing status choices:
- filing jointly with your new spouse, Married Filing Jointly, or
- filing separate from your spouse, Married Filing Separately
Most married couples file jointly because it is simpler and makes you eligible for many tax deductions and tax credits. However, if either spouse owes back taxes, whether federal or state, or owes certain other non-tax debts, such as delinquent child support or student loans in default, the IRS may offset your joint tax refund to satisfy the individual debts. Also, individuals who file a joint return incur “joint and several liability” explained later. Filing separately may seem like a good idea if you’re aware of prior tax and other liabilities of your spouse and don’t want to be responsible for them, but there’s potentially a downside. Filing separately may make you ineligible to claim certain tax deductions and tax credits, such as the child-care credit and the earned income tax credit (EITC). Refer to IRS Publication 501 for more information.
In my last blog, I discussed issues that arose during the 2018 filing season that contributed to the delay of taxpayers’ refunds when those taxpayers’ returns were selected into the non-IDT refund fraud program, including:
- timing issues with the matching of third-party information;
- how the system does not consider how third-party information would affect a taxpayer’s refund, and
- how the pre-refund wage verification program’s case management system, Electronic Fraud Detection System (EFDS), had to have third-party information uploaded manually instead of systemically.
These issues resulted in an unprecedented increase in Taxpayer Advocate Service (TAS) case receipts in 2018 as more affected taxpayers sought TAS assistance.
As we approach the filing season, I thought it would be a good idea to discuss an issue that affects many taxpayer returns, namely the IRS processes for identifying and stopping refund fraud. Attempted refund fraud has become a significant problem in our tax system. According to the most recent figures available, in calendar year (CY) 2016, identity theft (IDT), refund fraud alone, cost the government roughly $1.7 billion. I fully support the IRS’s efforts to reduce refund fraud and protect revenue. However, I have expressed concern over several years that the refund fraud false positive rate (FPR) is too high and that the IRS takes far too long to process legitimate taxpayers’ returns once it has determined that they have been inaccurately selected. For some taxpayers who rely on their tax refund to pay for necessary living expenses, their anxiety increases every day that their refund is delayed.
One of the main drivers behind these issues is the timing between when the IRS selects returns to be analyzed for possible refund fraud, and when it receives payor information that would either verify or disprove this possibility. But before we get into specific concerns surrounding the IRS’s fraud detection program, here is a little background on how the systems that select possible fraudulent returns work.
My June Report to Congress included an Area of Focus entitled: “The IRS Has Expanded Its Math Error Authority, Reducing Due Process for Vulnerable Taxpayers, Without Legislation and Without Seeking Public Comments.” The post-processing math error issue came up after a report by the Treasury Inspector General for Tax Administration (TIGTA) said the IRS improperly paid refundable credits, including the Earned Income Tax Credit (EITC), to those filing 2016 returns with taxpayer identification numbers (TINs) (e.g., Social Security Numbers) that were issued after the due date of the returns. TINs are long strings of numbers that can easily contain typos. The IRS committed to “evaluate this population for inclusion in the appropriate post-refund treatment program.” Perhaps because it costs $1.50 to resolve an erroneous EITC claim using automated math error authority (MEA) compared to $278 for an audit (according to TIGTA), the Wage and Investment Division (W&I) planned to use MEA to recover these credits in 2018.
I asked Counsel about the legality of using MEA to disallow credits long after the IRS had processed the returns (i.e., post-processing) and paid them. Counsel responded on April 10, 2018, with a Program Manager Technical Advice (PMTA) that approved the practice (here). It concluded there were no due process concerns. This blog explores the due process that the government may be constitutionally required to provide before recovering EITC from those who depend on it to survive.