WASHINGTON — The Internal Revenue Service recently announced that 401(k) plans and similar employer-sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Michael and Hurricane Florence and to members of their families.

This relief was included in the preamble to proposed regulations, published Nov. 14 in the Federal Register, implementing several recent law changes that affect hardship withdrawals.

As a result, participants in 401(k) plans, employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, as well as state and local government employees with 457(b) deferred-compensation plans may now be eligible to take advantage of these streamlined loan procedures and liberalized hardship distribution rules. Though IRA participants are barred from taking out loans, they may be eligible to receive distributions under liberalized procedures.

Retirement plans can provide this relief to employees and certain members of their families who live or work in disaster areas affected by Hurricane Michael or Florence and designated for individual assistance by FEMA. Currently, parts of Florida, Georgia, North Carolina and South Carolina are eligible. For a complete list of eligible localities, visit https://www.fema.gov/disasters. To qualify for this relief, hardship withdrawals must be made by March 15, 2019.

The IRS is also relaxing procedural and administrative rules that normally apply to retirement plan loans and hardship distributions. As a result, eligible retirement plan participants will be able to access their money more quickly with a minimum of red tape. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.

This broad-based relief means that a retirement plan can allow a victim of Hurricane Michael or Florence to take a hardship distribution or borrow up to the specified statutory limits from the victim’s retirement plan. It also means that a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.

Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features. In addition, the plan can ignore the reasons that normally apply to hardship distributions, thus allowing them, for example, to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement, as described in the preamble.

The IRS emphasized that the tax treatment of loans and distributions remains unchanged. Ordinarily, retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less. Under current law, hardship distributions are generally taxable and subject to a 10-percent early-withdrawal tax.

More information about other tax relief related to Hurricane Michael and Hurricane Florence can be found on the IRS disaster relief page.

The proposed regulations address a number of other issues related to hardship withdrawals. For details and to find out how to submit comments, see the proposed regulations.

WASHINGTON — Hurricane Florence victims in parts of North Carolina and elsewhere have until Jan. 31, 2019, to file certain individual and business tax returns and make certain tax payments, the Internal Revenue Service announced today.

The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance. Currently, this only includes parts of North Carolina, but taxpayers in localities added later to the disaster area, including those in other states, will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov.

The tax relief postpones various tax filing and payment deadlines that occurred starting on Sept. 7, 2018 in North Carolina. As a result, affected individuals and businesses will have until Jan. 31, 2019, to file returns and pay any taxes that were originally due during this period.

This includes quarterly estimated income tax payments due on Sept. 17, 2018, and the quarterly payroll and excise tax returns normally due on Sept. 30, 2018. Businesses with extensions also have the additional time including, among others, calendar-year partnerships whose 2017 extensions run out on Sept. 17, 2018. Taxpayers who had a valid extension to file their 2017 return due to run out on Oct. 15, 2018 will also have more time to file.

In addition, penalties on payroll and excise tax deposits due on or after Sept. 7, 2018, and before Sept. 24, 2018, will be abated as long as the deposits are made by Sept. 24, 2018.

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Thus, taxpayers need not contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2018 return normally filed next year), or the return for the prior year (2017). See Publication 547 for details.

The tax relief is part of a coordinated federal response to the damage caused by severe storms and flooding and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

 

Individual who reside or have a business in Beaufort, Brunswick, Carteret, Craven, New Hanover, Onslow, Pamlico and Pender counties may qualify for this relief. Additional counties may be added. The current list of eligible localities is always available on the disaster relief page on IRS.gov.

AUGUST 2018

Senator Rob Portman (R-Ohio) has introduced a new bill in the Senate that would give the Internal Revenue Service the authority to regulate income tax return preparers. The bill is cosponsored by Senator Ben Cardin (D-Missouri). Read full article here. 

www.CPAPracticeAdvisor.com

WASHINGTON – The Internal Revenue Service today announced that interest rates will remain the same for the calendar quarter beginning Oct. 1, 2018.  The rates will be:  

• five (5) percent for overpayments [four (4) percent in the case of a corporation];
• 2 and one-half (2.5) percent for the portion of a corporate overpayment exceeding $10,000;
• five (5) percent for underpayments; and
• seven (7) percent for large corporate underpayments. 

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis.  For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. 

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during July 2018 to take effect Aug. 1, 2018, based on daily compounding.

Revenue Ruling 2018-25, announcing the rates of interest, is attached and will appear in Internal Revenue Bulletin 2018-39, dated Sept. 24, 2018.

If you have clients who make business-related payments to charities or government entities for which they receive state or local tax credits, they can generally deduct the payments as business expenses. The IRS clarified that this general deductibility rule is unaffected by the recent notice of proposed rulemaking on the availability of a charitable contribution deduction for contributions under such programs.

For more information or to review updates on the implementation of the Tax Cuts and Jobs Act (TCJA), please visit the Tax Reform page of IRS.gov.

The final IRS Nationwide Tax Forum of the year begins in Orlando next week. The Orlando tax forum will be the last opportunity for tax professionals to participate in this year’s educational series and hear directly from the IRS on tax reform, cybersecurity and more.

Registered attendees can log in to check their information and download the training materials now. For more information or to register, visit the IRS Nationwide Tax Forum website.

In the ninth installment of the Tax Security 101 series, the IRS and its Security Summit partners urge tax professionals to be alert to subtle signs of data theft, noting cases where practitioners are victims of theft and don’t even know it. The IRS and its Security Summit partners have created a list of warning signs that an office may have experienced a data theft.

To review the list of warning signs, visit "Protect Your Clients; Protect Yourself: Tax Security 101." 

Beginning Oct. 14, e-Services users, after entering their accounts, will see a pop-up asking them to accept the terms of the updated user agreement. The IRS strongly encourages e-Service users to read this content and be ready to accept its terms when asked, as these changes will improve security for users.

To review the agreement, see Preview Updated e-Services User Agreement; Launch Set for October 14 or visit www.irs.gov/eservices.

Register for an IRS web conference on estimated taxes next Tuesday, Sept. 11, at 11 a.m. EST. The 60-minute web conference is part of the Paycheck Checkup campaign and will discuss:

• Ways to pay taxes: Withholding and estimated taxes
• "Paycheck Checkup": IRS’ online Withholding Calculator
• Who must make estimated tax payments and payment due dates
• Electronic Federal Tax Payment System (EFTPS) and Direct Pay
• Ways to avoid the estimated tax penalty
• Resources to help meet federal tax payment requirements

To register, visit https://www.webcaster4.com/Webcast/Page/1148/27314.

WASHINGTON – The Internal Revenue Service urges taxpayers who support dependents who can’t be claimed for the Child Tax Credit to do a paycheck checkup soon. The IRS Withholding Calculator can help these taxpayers make sure they have the right amount of tax taken out of their pay.

The Tax Cuts and Jobs Act, enacted in December 2017, added a new tax credit – Credit for Other Dependents. It is a non-refundable credit of up to $500 per qualifying person. Taxpayers may be able to claim the new credit for dependents that these taxpayers claimed a dependency exemption for in the past.

This change, along with others, can affect a family’s tax situation in 2018. Checking and adjusting withholding now can prevent an unexpected tax bill and even penalties next year at tax time.

The Credit for Other Dependents is available for dependents for whom taxpayers cannot claim the newly expanded Child Tax Credit. These dependents may include dependent children who are age 17 or older at the end of 2018, or parents or other qualifying relatives supported by the taxpayer. Families with qualifying children under the age of 17 should first review their eligibility for the expanded Child Tax Credit, which is larger.

The Credit for Other Dependents and the Child Tax Credit begin to phase out at $400,000 of modified adjusted gross income for joint filers and $200,000 for other taxpayers. For more information about these credits, visit Steps to Take Now to Get a Jump on Next Year’s Taxes on IRS.gov.

These credits are among many changes in the new law that will affect 2018 tax returns that people will file in 2019. The IRS Withholding Calculator, available on IRS.gov, can help people with dependents – and others – apply the new law correctly.

The IRS urges all taxpayers to complete their “paycheck checkup” as early as possible so that if a withholding amount adjustment is necessary, there’s more time for withholding to take place evenly throughout the year. Waiting means there are fewer pay periods to withhold the necessary federal tax – so more tax will have to be withheld from each remaining paycheck.

Taxpayers who change their withholding for 2018 should recheck their withholding at the start of 2019, especially taxpayers who reduce their withholding sometime during 2018. A mid-year withholding change in 2018 may have a different full-year impact in 2019. If taxpayers don’t submit a new Form W-4 for 2019, their withholding might be higher or lower than intended.

Using the Withholding Calculator

To use the Withholding Calculator, taxpayers should have their 2017 tax returns and most recent paystubs available to determine their proper withholding for 2018.

Calculator results depend on the accuracy of information entered. If a taxpayer’s personal circumstances change during the year, they should return to the calculator to check whether their withholding should be changed.

Employees can use the results from the Withholding Calculator to determine if they should complete a new Form W-4 and, if so, what information to enter on that form.

The Withholding Calculator does not request personally-identifiable information, such as name, Social Security number, address or bank account number. The IRS does not save or record the information entered on the calculator. As always, taxpayers should watch out for tax scams, especially via email or phone and be alert to cybercriminals impersonating the IRS. The IRS does not send emails related to the Withholding Calculator or the information entered on it.

Adjusting withholding

The Withholding Calculator will recommend how to complete new Forms W-4. If a taxpayer is at risk of being under-withheld, the calculator will recommend an additional amount of tax withholding for each job. The taxpayer can enter these amounts on their respective Forms W-4.

Employees who need to complete a new Form W-4 should submit it to their employers as soon as possible. Employees with a change in personal circumstances that reduce the number of withholding allowances must submit a new Form W-4 with corrected withholding allowances to their employer within 10 days of the change.

Certain taxpayers – including those who don’t have enough income tax withheld by their employer – may have to pay estimated taxes. For additional information, refer to Publication 505, Tax Withholding and Estimated Tax.

Taxpayers may also need to determine if they should make adjustments to their state or local withholding. They can contact their state's department of revenue to learn more.

For information about steps taxpayers can take now to get a head start on next year’s taxes, including how the new tax law may affect them, visit IRS.gov/getready.