by Socheata Ten EA, LLC | Jul 29, 2021 | Tax Tips and News
With summer comes the prospect of a summer job for college students. Many times, their top priorities are twofold:
- Get some valuable work experience that can help them snag a choice position once they’ve graduated
- Make some spending money while they’re at it
It’s during this time these working students get to know one of the basic laws of the Real World: Not all the money they earn goes into their pockets because their employer has to withhold taxes from their paychecks.
Even with part-time or temporary jobs, there are some things the IRS wants taxpayers to keep in mind.
What tax issues should college students consider when working a summer job?
New Employees: Workers, including students working summer jobs, normally have income and other taxes withheld from their paychecks by their employers. New hires need to fill out a Form W-4, Employee’s Withholding Allowance Certificate, and send that to their employer.
The employer, in turn, uses the completed W-4 to figure just how much money should be withheld from the new employee’s pay. In the old days, the employee had to figure out just how much to withhold from paychecks to satisfy the tax man. Now, though, new hires can go online and use the Withholding Estimator on the IRS website.
Self-Employment: If summer work consists of baby-sitting, lawn care or gig economy work and the like, these jobs are generally considered to be self-employed work by the IRS.
Cash earned from self-employment is taxable, and students in this line of work will have to pay their taxes directly to the Internal Revenue Service. One of the best ways to do this is to make estimated tax payments during the year.
Tip Income: Students who wait tables or tend bar as part of their summer jobs should remember that tip income is taxable. They need to keep a daily log of the tips they receive so they can report them accurately. Cash tips have to be reported to their employer if they bring in $20 or more for the month.
Payroll Taxes: These taxes pay for Social Security benefits. Even though students working a summer job might not earn enough over the season to owe income tax, their employers nevertheless have to withhold Social Security and Medicare taxes from their pay. Those students who are considered self-employed are generally responsible for paying Social Security and Medicare taxes directly.
Reserve Officers’ Training Corps Pay: Students in ROTC may be taxed on certain activities connected to their training. For example, if students are paid for things such as summer advanced camp, it is taxable. However, other perks the student receives, such as food and lodging, may not be taxed. See the Armed Forces Tax Guide on IRS.gov for more details.
For more information on summer jobs and taxes, check out Tax Rules for Students; Is My Tip Income Taxable?; and Do I Have Income Subject to Self-Employment Tax?
Source: IRS Tax Tip 2021-108
– Story provided by TaxingSubjects.com
by Socheata Ten EA, LLC | Jul 27, 2021 | Tax Tips and News
Live long enough, and we all come to realize there are still a few universal truths:
- Everybody likes to save a little time.
- Everybody likes options.
- Everybody likes things to be easy.
When it comes to dealing with yearly income taxes, the Internal Revenue Service thinks its new IRS online account can give taxpayers a little more on all three fronts. The agency says this online account is a safe and—yes—easy way for taxpayers to keep up with some of the details of their federal income taxes.
What can taxpayers see on their IRS online account?
The IRS says that taxpayers can see the following information on their IRS online account:
- Their payoff amount, which is updated for the current day.
- The balance for each tax year for which they owe taxes.
- Their payment history.
- Key information from the their most current tax return as originally filed.
- Payment plan details if they have one.
- Digital copies of select IRS notices.
- Economic Impact Payments if they received any.
- Their address on file.
What can taxpayers do on their IRS online account?
The IRS says taxpayers can take the following actions using their IRS online account:
- Select an electronic payment option.
- Set up an online payment agreement.
- Go directly to Get Transcript.
One of the other new features in the Online Account is the ability for taxpayers to designate who can represent them before the IRS or to view their tax records. Users can also approve Power of Attorney and Tax Information Authorization requests from their tax professional—and to sign the documents digitally.
All these features can go a long way to helping out with that “saving time” thing.
The IRS reminds there are a few details to remember when using the Online Account feature. A taxpayer’s balance will update only once over a 24-hour period; usually, this happens overnight.
In addition, taxpayers should allow 1-3 weeks for payments to show up in their payment history.
Registration through Secure Access is required before access to the Online Account is granted. This two-factor authentication process helps ensure that users’ personal information remains secure.
Taxpayers can review the Secure Access process online before starting registration.
Source: IRS Tax Tip 2021-107
– Story provided by TaxingSubjects.com
by Socheata Ten EA, LLC | Jul 24, 2021 | Tax Tips and News
Let’s face it: higher education is expensive, whether it’s community college, a trade school, a four-year university or an advanced degree. That’s where higher education tax credits come in.
Credits reduce the amount of tax owed by qualified taxpayers. Some credits are refundable, that is, if a refundable credit reduces tax owed to less than zero, the taxpayer could get a refund.
And higher education credits can apply to more than just the taxpayer who files. Anyone listed on the return as a dependent—be it a spouse or a child or other dependent—could be eligible if they qualify.
At present there are two credits for higher education expenses and they each cover a different sort of educational scenario.
American Opportunity Tax Credit
This credit aims for the student starting out on their higher-education journey. Some of the main features of the American opportunity tax credit include:
- The credit is for those students pursuing a degree or some other recognized education credential.
- The credit only covers the first four years of education at an eligible college or vocational school.
- Taxpayers can receive up to $2,500 per qualifying student.
- The credit is partially refundable, with eligible students potentially getting up to $1,000 back.
Lifetime Learning Credit
In contrast to the American opportunity tax credit, the lifetime learning credit helps those who have had to “go slow” with their education, stringing their classes out over an extended period—or those students who have to take courses in order to remain employed. Major features of the lifetime learning credit include:
- No matter how many dependents on a single tax return qualify for this credit, the maximum benefit is capped at $2,000 per tax return.
- The credit is available for all years of postsecondary education and for classes to acquire or improve job skills. This includes courses to maintain certification in order to remain employed.
- The credit covers courses no matter when they were taken; it is available for an unlimited number of tax years.
When it comes to claiming either of these credits, the starting place is the institution where the classes are taken. The school has to be an eligible educational education and it must send the student a Form 1098-T.
The IRS cautions, however, that there are some exceptions for some students.
To claim either credit, taxpayers should file Form 8863, Education Credits, in their income tax return.
For more information on these two education credits, see Compare Education Credits, and Publication 970, Tax Benefits for Education on IRS.gov. Use the Interactive Tax Assistant to see if a taxpayer is eligible for these credits.
Source: Here’s what taxpayers need to know about higher education tax credits
– Story provided by TaxingSubjects.com
by Socheata Ten EA, LLC | Jul 23, 2021 | Tax Tips and News
The Internal Revenue Service has long allowed educators to deduct part of the cost of supplies and other expenses from their taxes. The total deduction allowed may not sound like much, but educators all over the U.S. have come to depend on this tax break for a little relief.
The deduction is available for teachers, instructors, counselors, principals, or aides who work at least 900 hours per year in a school that provides elementary or secondary education under state law. Qualified taxpayers must be engaged in providing education services in grades kindergarten through 12th grade.
Further, qualified educators can “deduct part of the cost of technology, supplies, and training from their taxes … [if the] expenses were not reimbursed by their employer, a grant, or other source.”
How does the educator expense duction work?
Qualified educators are able to deduct trade or business expenses that were not reimbursed, up to a cap of $250.
If a couple are both qualified educators and their filing status is married filing jointly, the total deduction cap rises to $500. However, each spouse in this case is still limited to a deduction of $250.
Expenses are limited to those paid during the tax year being filed and should be typical and regular expenses for someone in that profession.
The IRS says the kinds of expenses that qualify for the deduction include:
- Professional development course fees
- Books
- Supplies
- Computer equipment, including related software and services
- Other equipment and materials used in the classroom
- Personal protective equipment, disinfectant, and other supplies used for the prevention of the spread of coronavirus
For more information on the deduction for expenses of an eligible educator, see the Instructions for Form 1040 and Form 1040-SR or the Instructions for Form 1040-NR and Revenue Procedure 2021-15.
Additional help is available from Topic Number 458, Educator Expense Deduction, and Publication 5349, Tax Planning is for Everyone.
Sources: A tip for teachers: Some educator expenses may be tax deductible;
Topic No. 458 Educator Expense Deduction
– Story provided by TaxingSubjects.com
by Socheata Ten EA, LLC | Jul 22, 2021 | Tax Tips and News
The Internal Revenue Service is continuing to move individual income tax features into the digital age. The agency’s latest move gives taxpayers digital control over who can represent them or view their tax records.
The new feature is one of the recent upgrades to the Online Account for individuals. It allows taxpayers to designate their tax professional of choice to represent them before the IRS with a Power of Attorney (POA) and to view their tax accounts with a Tax Information Authorization (TIA). In addition, tax professionals can now visit the new Tax Pro Account on IRS.gov to initiate POAs and TIAs online, using simplified versions of Forms 2848 and 8821.
“The ability for taxpayers to connect online with their tax professional is a groundbreaking step for the IRS,” said IRS Commissioner Chuck Rettig. “This is the first, basic step toward a more fully integrated digital tax system that will benefit taxpayers, tax professionals and the IRS.”
After it’s been submitted by the tax pro, an authorization request appears in the taxpayer’s Online Account; there, they can review the request, reject it if desired, or approve the request and attach a digital signature.
Because the login procedure puts the taxpayer in a secure environment, they simply need to check a box as their signature and send the authorization request straight to the IRS. A completed digital authorization is checked for accuracy before it goes into the Centralized Authorization File (CAF) database. No manual processing is necessary.
Most of these digital requests can be recorded immediately and show on the list of the taxpayer’s approved authorizations immediately in both the taxpayer’s Online Account and the practitioner’s Tax Pro Account. Some authorizations, however, could take up to 48 hours to process. Once that is complete, the tax pro can use the e-Services Transcript Delivery Service to see the taxpayer’s records.
The main benefits of the new digital authorization process is its speed. By automating this digital process, the IRS can turn its attention to those authorization requests it receives by fax, the mail, or through Submit Forms 2848 and 8821 Online – all of which require humans to process.
Getting started
Taxpayers have only to log in to their Online Account with their IRS username and password. First-time users, however, will be directed to create an account after completing a one-time process to confirm their identity.
If a taxpayer is unable to validate their identity, the Online Account won’t be available to them, so their tax pro would have to use the fax, mail or the online submission options instead. Tax professionals who haven’t logged into the Tax Pro Account before will also have to create an account and verify their identities.
The IRS says there are a few rules of the road to keep in mind with this new online process. At present, the digital authorization process is only for individual taxpayers. For now, businesses or other entities are not supported.
Tax pros have to be in good standing with the IRS and should already have a CAF number before making requests through a Tax Pro Account. The practitioner has to enter their information and that of their clients exactly as it appears on IRS tax records.
These features are only available to those with addresses in the United States. And keep in mind that the Tax Pro Account is a separate tool from e-Services.
From their Online Account, individual taxpayers can see:
- The amount they owe, updated for the current calendar day
- Their balance details by year
- Their payment history and any scheduled or pending payments
- Key information from their most recent tax return
- Payment plan details
- Digital copies of select notices from the IRS
- Their Economic Impact Payments, if any
- Their address on file
Taxpayers can also make a payment online, see payment plan options and request a plan through the Online Payment Agreement, and access their tax records via Get Transcript.
Source: IRS improves services to taxpayers with digital authorizations and launch of new Tax Pro Account
– Story provided by TaxingSubjects.com
by Socheata Ten EA, LLC | Jul 21, 2021 | Tax Tips and News
New guidance from the Internal Revenue Service attempts to shine a little light on multiemployer qualified retirement plans that got financial help from the Pension Benefit Guaranty Corporation (PBGC), while explaining what that assistance means for participants and beneficiaries.
The guidance comes by way of Notice 2021-38, which denotes its guidance comes in light of changes driven by the American Rescue Plan of 2021.
The American Rescue Plan, or ARP, made changes in how special financial assistance paid by the PBGC should be treated by eligible multiemployer defined-benefit pension plans that are also at financial risk.
Notice 2021-38 puts forth guidance for these pension plans in three major areas:
- The reinstatement of previously suspended pension benefits, along with make-up payments, as a condition that eligible multiemployer plans must meet if they receive special financial assistance.
- The individual income tax treatment of these make-up payments.
- How a plan that receives special financial assistance must treat the plan’s special financial assistance account for purposes of the minimum funding requirements for multiemployer defined benefit plans
The Notice says it is specifically targeted to qualified pension plans that are required to restart previously suspended benefits as a result of getting special financial help under the Employee Retirement Income Security Act of 1974, (ERISA).
Part of the Notice deals with specific instructions on how plans can use any special financial assistance they may receive:
“Section 432(k)(2)(B) provides that the special financial assistance received by the plan may be used to make benefit payments and pay plan expenses. The special financial assistance must be segregated from other plan assets and invested by the plan in investment-grade bonds (or other investments as permitted by PBGC in regulations or other guidance).”
Eligible plans that receive financial assistance, however, cannot use that assistance to count toward the required level of contributions.
For more information on retirement plans applying for special financial assistance, visit the PBGC website.
Sources: IRS provides guidance for multiemployer retirement plans receiving assistance from the PBGC; Notice 2021-38
– Story provided by TaxingSubjects.com
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