WASHINGTON —The Internal Revenue Service today provided guidance on tax breaks under the American Rescue Plan Act of 2021 for continuation health coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).

Notice 2021-31 provides guidance for employers, plan administrators, and health insurers regarding the new credit available to them for providing continuation health coverage to certain individuals under COBRA.

The American Rescue Plan provides a temporary 100% reduction in the premium that individuals would have to pay when they elect COBRA continuation health coverage following a reduction in hours or an involuntary termination of employment. The new law provides a corresponding tax credit for the entities that maintain group health plans, such as employers, multiemployer plans, and insurers. The 100% reduction in the premium and the credit are also available with respect to continuation coverage provided for those events under comparable State laws, sometimes referred to as “mini-COBRA.”

Notice 2021-31 provides information regarding the calculation of the credit, the eligibility of individuals, the premium assistance period, and other information vital to employers, plan administrators, and insurers to understand the credit.

COBRA provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates. COBRA generally covers health plans maintained by private-sector employers with 20 or more full and part-time employees. It also covers employee organizations or federal, state or local governments. State mini-COBRA laws often provide similar benefits for insured small employers not subject to Federal COBRA.

The IRS will continue to update information related to health plans on IRS.gov.

Notice 2021-31 provides guidance on issues relating to the application of recently enacted § 9501 of the American Rescue Plan Act of 2021 (the ARP), which provides temporary premium assistance for Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) continuation coverage. Section 9501 of the ARP provides for a full reduction in the premium otherwise payable by certain individuals and their families who elect COBRA continuation coverage due to a loss of coverage as the result of a reduction in hours or an involuntary termination of employment. The COBRA premium assistance is available beginning April 1, 2021 through September 30, 2021. The ARP also allows certain individuals a second chance to elect COBRA continuation coverage with the subsidy beginning April 1. The ARP also adds § 6432 to the Code, which provides a refundable payroll tax credit for an amount equal to the COBRA premium not paid by the individuals who receive the premium assistance.

Notice 2021-31 will appear in IRB 2021-23, dated June 7, 2021.

Revenue Procedure 21-24 provides two procedures for individuals not otherwise required to file 2020 Federal income tax returns to file returns to receive advance child tax credit payments, 2020 recovery rebate credit payments, additional 2020 recovery rebate credit payments, and third-round economic impact payments. The first procedure permits these individuals to file simplified returns.  The second procedure enables these individuals to file complete returns electronically even if they have zero adjusted gross income.

Revenue Procedure 21-24 will be in IRB:  2021-23, dated 6/7/2021.

Today, the IRS published the latest executive column “A Closer Look,” which features IRS Commissioner, Charles Rettig, discussing how taxpayers who file and pay on time play a vital role in the tax system. “More than 98 percent of the tax revenue collected by the IRS comes in voluntarily from taxpayers. When you do your part by filing your tax return, you should feel confident that others are doing the right thing too,” said Rettig. Read more here. Read the Spanish version here.

“A Closer Look” is a column from IRS executives that covers a variety of timely issues of interest to taxpayers and the tax community. It also provides a detailed look at key issues affecting everything from IRS operations and employees to issues involving taxpayers and tax professionals.

Check here for prior posts and new updates.

WASHINGTON — The Internal Revenue Service reminds taxpayers that the deadline for filing most individual income tax returns this year is May 17. The agency also wants taxpayers who have yet to file their tax returns to know that there are a variety of options available to help them.

IRS tax help is available 24 hours a day on IRS.gov. Whether filing a tax return, requesting an extension or making a payment, the IRS website can help last-minute filers on just about everything related to taxes.

The IRS encourages taxpayers to file electronically. Doing so, whether through e-file or IRS Free File, vastly reduces tax return errors as the tax software does the calculations, flags common errors and prompts taxpayers for missing information. Free File Fillable Forms means there is a free option for everyone.

Request more time
Anyone who needs more time to file can get it. The easiest way to do so is through the Free File link on IRS.gov. In a matter of minutes, anyone, regardless of income, can use this free service to electronically request an extension on Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.

Taxpayers are reminded, however, that an extension of time to file is not an extension of time to pay. To get the extension, taxpayers must estimate their tax liability on this form and pay any amount due. Tax payments are generally due by the May 17 filing deadline, and taxpayers should pay as much as they can to avoid possible penalties and interest.

Taxpayers paying all or part of their income taxes, due by the May 17 deadline, with IRS Direct Pay, the Electronic Federal Tax Payment System (EFTPS) or a credit or debit card will get an automatic extension of time to file. By selecting “extension” as the reason for the payment, there is no need to separately file a Form 4868. Taxpayers will also receive a confirmation number after they submit their payment. When paying with Direct Pay and EFTPS, taxpayers can sign up for email notifications.

Any payment made with an extension request will reduce or, if the balance is paid in full, eliminate interest and late-payment penalties that apply to payments made after the May 17 tax filing deadline.

Alternatively, people can complete a paper copy of Form 4868 and mail it to the IRS. The form must be mailed and postmarked by the filing deadline. Download and print it from IRS.gov/forms.

While an estimated 16 million taxpayers will request an extension of time to file, others automatically qualify for more time to meet their tax obligations.

Who automatically has more time to file?
The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in areas covered by Federal Emergency Management Agency disaster declarations. For details on all available relief, visit the Around the Nation page on IRS.gov. Deadlines for individual and business tax returns and make tax payments are extended for taxpayers in:

Special rules may apply for some military personnel serving in a combat zone or a qualified hazardous duty area. This also applies to individuals serving in the combat zone in support of the U.S. Armed Forces. A complete list of designated combat zone localities can be found in Publication 3, Armed Forces’ Tax Guide, available on IRS.gov.

U.S. citizens and resident aliens living outside the United States have until June 15, 2021, to file their 2020 tax returns and pay any tax due.

Additional May 17 extended deadlines
May 17 is also the deadline to make 2020 contributions to: health savings accounts (HSAs) and Archer medical savings accounts (Archer MSAs); individual retirement arrangements (IRAs and Roth IRAs); Solo 401(k)s and Simplified Employee Pension plans (SEPs) as well as Coverdell education savings accounts (Coverdell ESAs).

Employment taxes are also due May 17 for household employees including housekeepers, maids, babysitters, gardeners and others who work in or around a private residence as an employee. For more information, see Publication 926, Household Employer's Tax Guide.

Also, tax-exempt organizations that operate on a calendar-year basis need to file certain annual information and tax returns by May 17.

Unclaimed 2017 refunds
The IRS estimates 1.3 million taxpayers did not file a 2017 tax return to claim tax refunds worth more than $1.3 billion. The three-year window of opportunity to claim a 2017 tax refund closes May 17, 2021, for most taxpayers. If they do not file a tax return by May 17, the money becomes the property of the U.S. Treasury.

Direct deposit for a faster refund
The fastest way to receive a refund is to file electronically and use direct deposit. The best way to check on a refund is the “Where’s My Refund?” tool available on IRS.gov and the IRS2Go mobile app.

Revenue Ruling 2021-09 provides various prescribed rates for federal income tax purposes including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate. These rates are determined as prescribed by § 1274. 

The rates are published monthly for purposes of sections 42, 382, 412, 642, 1288, 1274, 7520, 7872, and various other sections of the Internal Revenue Code.

Revenue Ruling 2021-09 will be in IRB:  2021-23, dated June 7, 2021.

WASHINGTON – The Internal Revenue Service and the U.S. Department of the Treasury announced today that the first monthly payment of the expanded and newly-advanceable Child Tax Credit (CTC) from the American Rescue Plan will be made on July 15. Roughly 39 million households—covering 88% of children in the United States—are slated to begin receiving monthly payments without any further action required.

IRS and Treasury also announced the increased CTC payments will be made on the 15th of each month unless the 15th falls on a weekend or holiday. Families who receive the credit by direct deposit can plan their budgets around receipt of the benefit. Eligible families will receive a payment of up to $300 per month for each child under age 6 and up to $250 per month for each child age 6 and above. 

The American Rescue Plan increased the maximum Child Tax Credit in 2021 to $3,600 for children under the age of 6 and to $3,000 per child for children between ages 6 and 17. The American Rescue Plan is projected to lift more than five million children out of poverty this year, cutting child poverty by more than half.

Households covering more than 65 million children will receive the monthly CTC payments through direct deposit, paper check, or debit cards, and IRS and Treasury are committed to maximizing the use of direct deposit to ensure fast and secure delivery. While most taxpayers will not be required to take any action to receive their payments, Treasury and the IRS will continue outreach efforts with partner organizations over the coming months to make more families aware of their eligibility.

Today’s announcement represents the latest collaboration between the IRS and Bureau of the Fiscal Service—and between Treasury and the White House American Rescue Plan Implementation Team—to ensure help quickly reaches Americans in need as they recover from the COVID-19 pandemic. Since March 12, the IRS has also distributed approximately 165 million Economic Impact Payments with a value of approximately $388 billion as a part of the American Rescue Plan. 

Additional information for taxpayers on how they can access the Child Tax Credit will be available soon on at IRS.gov/childtaxcredit2021.

WASHINGTON – Victims of this spring’s storms and tornadoes in Tennessee will have until Aug. 2, 2021, to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today.

Following The recent disaster declaration issued by the Federal Emergency Management Agency (FEMA),  the IRS is providing this relief to taxpayers affected by storms, tornadoes, and flooding that took place between March 25 and April 3, 2021, in parts of Tennessee. Currently, relief is available to affected taxpayers who live or have a business in Campbell, Cannon, Cheatham, Claiborne, Clay, Davidson, Decatur, Fentress, Grainger, Hardeman, Henderson, Hickman, Jackson, Madison, Maury, McNairy, Moore, Overton, Scott, Smith, Wayne, Williamson and Wilson counties. 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 March 25. As a result, affected individuals and businesses will have until Aug. 2 to file returns and pay any taxes that were originally due during this period. This includes 2020 individual income tax returns due on May 17, as well as various 2020 business returns normally due on April 15. Among other things, this also means that affected taxpayers will have until Aug. 2 to make 2020 IRA contributions.

The Aug.2 deadline also applies to quarterly estimated income tax payments due on April 15 and June 15, and the quarterly payroll and excise tax returns normally due on April 30. It also applies to tax-exempt organizations, operating on a calendar-year basis, that have a 2020 return due on May 17.    

In addition, penalties on payroll and excise tax deposits due on or after March 25 and before April 9 will be abated as long as the deposits were made by April 9.

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. Therefore, taxpayers do not need to contact the agency 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 2021 return normally filed next year), or the return for the prior year. This means that taxpayers can, if they choose, claim these losses on the 2020 return they are filling out this tax season. Be sure to write the FEMA declaration number – 4601DR − on any return claiming a loss. See Publication 547 for details.

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

Besides Tennessee, taxpayers in part or all of five other states also have more time to file and pay:

Disaster area individuals who need more time to file, beyond these postponed deadlines, can get it by submitting a request for an automatic extension. This will extend their filing deadline until Oct. 15, 2021. The IRS emphasized that this additional extension is not an extension of time to pay.

An easy way to get the extra time is through Free File on IRS.gov. In a matter of minutes, anyone, regardless of income, can use this free service to electronically request an extension on Form 4868. To get the extension, taxpayers must estimate their tax liability on this form.

Another option is to pay electronically and get a tax-filing extension. The IRS will automatically process an extension when a taxpayer selects Form 4868 and makes a full or partial federal tax payment by the May 17 due date using Direct Pay, the Electronic Federal Tax Payment System EFTPS or a debit or credit card. Note that registration is required before using EFTPS. To learn more about each of these electronic payment options, visit IRS.gov/Payments.

The IRS emphasized that May 17 is the last day to request an extension using any of these electronic options. After May 17, disaster-area taxpayers who need more time to file must make that request on paper. To do that, file Form 4868, available on IRS.gov. For more information about extensions, visit IRS.gov/Extension.

WASHINGTON – The Internal Revenue Service will begin issuing refunds this week to eligible taxpayers who paid taxes on 2020 unemployment compensation that the recently-enacted American Rescue Plan later excluded from taxable income.

The IRS identified over 10 million taxpayers who filed their tax returns prior to the American Rescue Plan of 2021 becoming law in March and is reviewing those tax returns to determine the correct taxable amount of unemployment compensation and tax. This could result in a refund, a reduced balance due or no change to tax (no refund due nor amount owed).

These corrections are being made automatically in a phased approach, easing the burden on taxpayers. The first phase is underway and includes the simplest returns. The next phase will include the more complex tax returns which the IRS anticipates will take through the end of summer to review and correct.

The first phase of adjustments is being made for single taxpayers who had the simplest tax returns, such as those filed by taxpayers who did not claim children or any refundable tax credits.

The IRS will issue refunds resulting from this effort by direct deposit for taxpayers who provided bank account information on their 2020 tax return. If valid bank account information is not available, the refund will be mailed as a paper check to the address of record. The IRS will continue to send refunds until all identified tax returns have been reviewed and adjusted.

These refunds are subject to normal offset rules, such as past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support or certain federal nontax debts (i.e., student loans). The IRS will send a separate notice to the taxpayer if the refund is offset to pay unpaid debts.

The IRS will send taxpayers a notice explaining the corrections, which they should expect within thirty days of when the correction is made. Taxpayers should keep any notices they receive for their records. Taxpayers should review their return after receiving their IRS notice(s).

Correction to any Earned Income Tax Credit (EITC) without qualifying children and the Recovery Rebate Credit are being made automatically as part of this process. However, some taxpayers may be eligible for certain income-based tax credits not claimed on their original return, such as the EITC for their qualifying children. If so, they should file an amended tax return if the revised adjusted gross income amount makes them eligible for additional benefits.

More complex corrections will begin upon the completion of the first phase and involves couples filing as married filing jointly.

Unemployment compensation is taxable income. The American Rescue Plan excludes $10,200 in 2020 unemployment compensation from income used to calculate the amount of taxes owed. The $10,200 per person exclusion applies to taxpayers, single or married filing jointly, with modified adjusted gross income of less than $150,000. The $10,200 is the amount of income exclusion, not the amount of the refund. Refund amounts will vary and not all adjustments will result in a refund.

The legislation also suspends the requirement to repay excess advance payments of the Premium Tax Credit (excess APTC). If a taxpayer paid an excess APTC repayment amount when they filed their 2020 return, the IRS is also refunding this amount automatically. If the IRS corrects the taxpayer’s account to reflect the unemployment income exclusion, the excess APTC amount that the taxpayer paid will be included in that adjustment. The IRS is also adjusting accounts for those who repaid excess APTC but did not report unemployment compensation on their 2020 tax return.

Taxpayers who have not yet filed a tax return should follow the guidance for Forms 1040 and 1040-SR, which details how to exclude unemployment compensation.

For additional information

• Tax Treatment of Unemployment Compensation
• Unemployment Compensation Exclusion FAQs
• Tax Year 2020: Requirement to repay excess advance payments of the Premium Tax Credit is suspended

Today, the IRS published the latest executive column “A Closer Look,” which features David Alito, deputy commissioner, IRS Wage & Investment Division discussing the opportunity for taxpayers who normally don’t file, claim credits they are eligible for by filing. “So why would anyone want to file a tax return if they don't have to? Well, actually, there are some important reasons – you might get a tax refund and you may be eligible for an additional stimulus payment. If you’re eligible for future payments or credits, it helps if the IRS has your 2020 tax return and direct deposit information on file,” said Alito. Read more here. Read the Spanish version here.

“A Closer Look” is a column from IRS executives that covers a variety of timely issues of interest to taxpayers and the tax community. It also provides a detailed look at key issues affecting everything from IRS operations and employees to issues involving taxpayers and tax professionals.

Check here for prior posts and new updates.