News and Updates from the IRS

January 11, 2022

WASHINGTON — The IRS urges taxpayers to check into their options to avoid being subject to estimated tax penalties, and late pay penalties which apply when someone underpays their taxes. Taxpayers who paid too little tax during 2021 can still avoid a surprise tax-time bill and possible penalty by making a quarterly estimated tax payment now, directly to the Internal Revenue Service. The deadline for making a payment for the fourth quarter of 2021 is Tuesday, January 18, 2022.

 

Income taxes are pay-as-you-gone. This means that taxpayers need to pay most of their tax during the year as income is earned or received.

 

There are two ways to do this:

 

  • Withholding from paychecks, pension payments and some government payments, such as Social Security benefits or unemployment compensation. Most people pay their tax this way.

 

  • Making quarterly estimated tax payments throughout the year to the IRS. Self-employed people and investors, among others, often pay tax this way.

 

Either payment method--withholding or estimated tax payments--or a combination of the two, can help avoid a surprise tax bill at tax time and the accompanying penalty that often applies.

 

If a taxpayer failed to make required quarterly estimated tax payments earlier in the year, making a payment soon to cover these missed payments will usually lessen and may even eliminate any possible penalty. Because the penalty calculation considers the date on which the payment or payments were made, even making a payment now, rather than waiting until the April filing deadline, often helps. 

 

 CAUTION: Waiting to pay taxes LATE will cost you more.  The IRS will assess late pay penalties in addition to estimated tax penalties. The IRS will charge interest on taxes paid late. 

 

Who needs to make a payment?

 

People who owed tax when they filed their 2020 tax return may find themselves in the same situation again when they file for 2021. This will likely be true, especially if they failed to take action to avoid another shortfall by increasing their withholding during 2021.

 

People in this situation often include those who itemized in the past but are now taking the standard deduction, two wage-earner households, employees with non-wage sources of income and those with complex tax situations.

 

In addition, families who received advance payments of the Child Tax Credit during 2021 but don't expect to qualify for the credit when they file their 2021 return, may need to make an estimated tax payment.

 

Additional points to consider:

 

Income from all sources is taxable. Besides wages, interest and other investment income, which also includes income related to virtual currencies, refund interest and income from the gig economy are taxable.

 

Unemployment compensation is fully taxable in 2021. The American Rescue Plan Act of 2021 allowed an exclusion of unemployment compensation of up to $10,200 for 2020 only. Often, this means that an estimated tax payment should be made, especially if no federal income tax was withheld from these payments.  If you filed your 2020 tax return before March 11, 2021 before this change became law please check your tax return since the law is retroactively applied to 2020.  If you received unemployment compensation in 2020 and did not take the exclusion the IRS guidance is not to file an amended tax return.  The IRS will provide guidance in the near future.

 

Various financial transactions, especially late in the year, can often have an unexpected tax impact. Examples include year-end and holiday bonuses, stock dividends, capital gain distributions from mutual funds, and stocks, bonds, virtual currency, real estate or other property sold at a profit.

 

The Tax Withholding Estimator, is available on IRS.gov, can often help people determine if they need to make an estimated tax payment.

 

Alternatively, taxpayers can use the worksheet included with estimated tax Form 1040-ES, also available on IRS.gov. In addition, Publication 505, Tax Withholding and Estimated Tax, has additional details, including worksheets and examples, that can be especially helpful to those who have dividend or capital gain income, owe alternative minimum tax or self-employment tax, or have other special situations.

 

How to make an estimated tax payment:

 

The fastest and easiest way to make an estimated tax payment is to do so electronically using IRS Direct Pay. Taxpayers can schedule a payment in advance for the January deadline.

 

Taxpayers can now also make a payment through their IRS Online Account. There they can see their payment history, any pending or recent payments and other useful tax information.

 

The IRS does not charge a fee for these services. Plus, using these or other electronic payment options ensures that a payment gets credited promptly.

 

Planning ahead:  Though it's too early to file a 2021 return, it's never too early to get ready for the tax-filing season ahead. For more tips and resources, check out the Get Ready page on IRS.gov.

 

Please contact the Croft and Frost Tax Resolution Team for questions relating to estimated tax payments  taxresolution@frostcpas.com or telephone 423-486-9300.

IRS Update

12.30.21 

Recently, IRS Commissioner Charles Rettig stated that taxpayers should not file their 2021 return until the Additional Child Tax Credit (ACTC) has been reconciled with the IRS Letter 6419 (estimated mailing date January 21, 2022) sent to the taxpayer or using IRS Transcript data.

Over 10 million 2019 tax returns were held for manual processing, causing an enormous backlog and delayed refunds. The IRS does not want this to happen again. Taxpayers may also be leaving money on the table if they do not reconcile their Economic Impact Payments (EIP).

Don't hesitate to contact CROFT & FROST Tax Resolution at taxresolution@frostcpas.com.

January 11, 2022

WASHINGTON — Victims of this month's tornadoes in parts of Illinois and Tennessee will have until May 16, 2022, to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today. This is the same relief already provided to storm victims in Kentucky.

 

Following last week's emergency declarations 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 starting on December 10 in parts of Illinois and Tennessee. Currently, relief is available to affected taxpayers who live or have a business in the following counties:

 

Illinois

Bond

Cass

Coles

Effingham

Fayette

Jersey

Macoupin

Madison

Montgomery

Morgan

Moultrie

Pike

Shelby

 

Kentucky

Caldwell

Christian

Fulton

Grave

Hart

Hickman

Hopkins

Logan

Lyon

Marshall

Muhlenberg

Ohio

Taylor

Warren

Tennessee

Cheatham

Decatur

Dickson

Dyer

Gibson

Lake

Obion

Steward

Weakley

 

But the IRS will provide the same relief to any other localities designated by FEMA in these or neighboring states.

 

The tax relief postpones various tax filing and payment deadlines that occurred starting on December 10. As a result, affected individuals and businesses will have until May 16 to file returns and pay any taxes that were originally due during this period. This includes 2021 individual income tax returns due on April 18, as well as various 2021 business returns normally due on March 15 and April 18. Among other things, this means that affected taxpayers will have until May 16 to make 2021 IRA contributions.

 

In addition, farmers who choose to forgo making estimated tax payments and normally file their returns by March 1 will now have until May 16, 2022 to file their 2021 return and pay any tax due.

 

The May 16 deadline also applies to quarterly estimated income tax payments due on January 18 and April 18. Among other things, this means that individual taxpayers can skip making the fourth quarter estimated tax payment, normally due January 18, 2022, and instead include it with the 2021 return they file, on or before May 16. In addition, the quarterly payroll and excise tax returns normally due on January 31 and May 2, 2022 are also now due on May 16.

 

In addition, penalties on payroll and excise tax deposits due on or after December 10 and before December 27 will be abated as long as the deposits are made by December 27, 2021.

 

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, 2020 in this instance. Be sure to write the FEMA declaration number – 3577EM for Illinois or 3576EM for Tennessee − 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.

 

Please contact the Croft and Frost Tax Resolution Team for questions relating to FEMA disasters at taxresolution@frostcpas.com or telephone 423-486-9300.

Disaster Guidance from the IRS