By law, business taxpayers who pay or receive nonemployee compensation of $600 or more must report these payments to the IRS. They do this using Form 1099-NEC, Nonemployee Compensation.
Generally, payers must file Form 1099-NEC by January 31. For 2021 tax returns. There is no automatic 30-day extension to file Form 1099-NEC. However, an extension to file may be available under certain hardship conditions.
Nonemployee compensation may be subject to backup withholding if a payee has not provided a Taxpayer Identification Number to the payer or the IRS notifies the payer that the payee provided a TIN that does not match their name in IRS records.
A TIN can be one of the following numbers: Social Security; Employer Identification (EIN); Individual Taxpayer Identification (ITIN); or Adoption Taxpayer Identification
What is backup withholding?
Backup withholding can apply to most kinds of payments reported on Forms 1099 and W-2G. The person or business paying the taxpayer doesn’t generally withhold taxes from certain payments; however, there are situations when the payer is required to withhold a certain percentage of tax to make sure the IRS receives the tax due on this income The payer’s requirement to withhold taxes from payments not otherwise subject to withholding is known as backup withholding. The current backup withholding tax rate is 24%.
Anyone can request an automatic tax-filing extension, but some people get extra time without asking, according to the Internal Revenue Service.
Due to the ongoing pandemic, this year the IRS postponed the usual April 15 deadline for filing individual income tax returns until May 17, 2021. Even so, as is the case every year, many Americans will still need more time to meet their tax-filing obligation.
The IRS estimates that more than 16 million taxpayers will get an automatic extension this filing season, either by filing a form or making an electronic tax payment. But some taxpayers, including disaster victims, those serving in a combat zone and Americans living abroad get more time, even if they don’t ask for it. Here are details on each of these special tax-relief provisions.
Victims of the February winter storms in Texas, Oklahoma and Louisiana have until June 15, 2021, to file their 2020 returns and pay any tax due.
The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in a federally declared disaster area when at least one area qualifies for FEMA’s Individual Assistance program. Ordinarily, this means that taxpayers need not contact the IRS to get disaster tax relief.
This relief also includes more time for making 2020 contributions to IRAs and other plans and making 2021 estimated tax payments. In some cases, relief is also available to people living outside the disaster area if, for example, they have a business located in the disaster area, have tax records located in the disaster area or are assisting in disaster relief.
Taxpayers outside the United States
U.S. citizens and resident aliens who live and work outside the U.S. and Puerto Rico have until June 15, 2021 to file their 2020 tax returns and pay any tax due.
The special June 15 deadline also applies to members of the military on duty outside the U.S. and Puerto Rico who do not qualify for the longer combat zone extension. Affected taxpayers should attach a statement to their return explaining which of these situations apply.
Taxpayers who don’t qualify for any of these three special situations can still get more time to file by submitting a request for an automatic extension. This will extend their filing deadline until Oct. 15, 2021. But because this is only a tax-filing extension, their 2020 tax payments are still due by May 17.
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. Under this option, there is no need to file a separate Form 4868. Please note, you must register for EFTPS before using.
To give people a needed temporary financial boost, the Coronavirus, Aid, Relief and Economic Security Act allowed employers to defer payment of the employer’s share of Social Security tax. IRS Notice 2020-65 allowed employers to defer withholding and payment of the employee’s Social Security taxes on certain wages paid in calendar year 2020. Employers must pay back these deferred taxes by their applicable dates.
The employee deferral applied to people with less than $4,000 in wages every two weeks, or an equivalent amount for other pay periods. It was optional for most employers, but it was mandatory for federal employees and military service members.
Repayment of the employee’s portion of the deferral started Jan. 1, 2021 and will continue through Dec. 31, 2021. Payments made by Jan 3, 2022, will be timely because Dec. 31, 2021, is a holiday. The employer should send repayments to the IRS as they collect them. If the employer does not repay the deferred portion on time, penalties and interest will apply to any unpaid balance.
Employees should see their deferred taxes in the withholdings from their pay. They can check with their organization’s payroll office for details on the collection schedule.
How to repay the deferred taxes Employers can make the deferral payments through the Electronic Federal Tax Payment System or by credit or debit card, money order or with a check. These payments must be separate from other tax payments to ensure they applied to the deferred payroll tax balance. IRS systems won’t recognize the payment if it is with other tax payments or sent as a deposit.
EFTPS will soon have a new option to select deferral payment. The employer selects deferral payment and then changes the date to the applicable tax period for the payment.
If the employee no longer works for the organization, the employer is responsible for repayment of the entire deferred amount. The employer must collect the employee’s portion using their own recovery methods.
The Treasury Department and the Internal Revenue Service issued guidance allowing deductions for the payments of eligible expenses when such payments would result (or be expected to result) in the forgiveness of a loan (covered loan) under the Paycheck Protection Program (PPP).
Revenue Ruling 2021-02 reflects changes to law contained in the COVID-related Tax Relief Act of 2020, enacted as part of the Consolidated Appropriations Act, 2021 (Act), Public Law 116-260, which was signed into law on Dec. 27, 2020.
The COVID-related Tax Relief Act of 2020 amended the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to say that no deduction is denied, no tax attribute is reduced, and no basis increase is denied by reason of the exclusion from gross income of the forgiveness of an eligible recipient’s covered loan. This change applies for taxable years ending after March 27, 2020.
Revenue Ruling 2021-02 obsoletes Notice 2020-32 and Revenue Ruling 2020-27. This obsoleted guidance disallowed deductions for the payment of eligible expenses when the payments resulted (or could be expected to result) in forgiveness of a covered loan.
The Internal Revenue Service issued the 2021 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2021, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
• 56 cents per mile driven for business use, down 1.5 cents from the rate for 2020, • 16 cents per mile driven for medical or moving purposes for qualified active duty members of the Armed Forces, down 1 cent from the rate for 2020, and • 14 cents per mile driven in service of charitable organizations, the rate is set by statute and remains unchanged from 2020.
The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, unless they are members of the Armed Forces on active duty moving under orders to a permanent change of station.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
Taxpayers can use the standard mileage rate but must opt to use it in the first year the car is available for business use. Then, in later years, they can choose either the standard mileage rate or actual expenses. Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.
Notice 2021-02 contains the optional 2021 standard mileage rates, as well as the maximum automobile cost used to calculate the allowance under a fixed and variable rate (FAVR) plan. In addition, the notice provides the maximum fair market value of employer-provided automobiles first made available to employees for personal use in calendar year 2021 for which employers may use the fleet-average valuation rule in or the vehicle cents-per-mile valuation rule.
The Internal Revenue Service today announced that interest rates will remain the same for the calendar quarter beginning Jan. 1, 2021. The rates will be:
three (3) percent for overpayments [two (2) percent in the case of a corporation];
one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000;
three (3) percent for underpayments; and
five (5) 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 Oct. 2020 to take effect Nov. 1, 2020, based on daily compounding.
As taxpayers get ready to file their 2021 taxes, they may be thinking about hiring a tax preparer. People should choose a tax preparer wisely. This is important because taxpayers are responsible for all the information on their return, no matter who prepares it for them.
There are different kinds of tax preparers, and a taxpayer’s needs will help determine which kind of preparer is best for them. With that in mind, here are some quick tips to help people choose a preparer.
When choosing a tax professional, taxpayers should:
Check the IRS Directory of Preparers. While it is not a complete listing of tax preparers, it does include those who are enrolled agents, CPAs and attorneys, as well as those who participate in the Annual Filing Season Program.
Ask about fees. Taxpayers should avoid tax return preparers who base their fees on a percentage of the refund or who offer to deposit all or part of your refund into their financial accounts.
Be wary of tax return preparers who claim they can get larger refunds than others.
Ask if they plan to use e-file.
Make sure the preparer is available. People should consider whether the individual or firm will be around for months or years after filing the return. Taxpayers should do this because they might need the preparer to answer questions about the preparation of the tax return.
Ensure the preparer signs and includes their preparer tax identification number. Paid tax return preparers must have a PTIN to prepare tax returns.
Check the person’s credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in tax matters. Other tax return preparers who participate in the IRS Annual Filing Season Program have limited practice rights to represent taxpayers during audits of returns they prepared.
Las tarjetas de regalo son un regalo popular y conveniente para todas las ocasiones. También son una herramienta que usan los estafadores para robar dinero a las personas.
Los estafadores suelen atacar a los contribuyentes pidiéndoles que paguen una factura de impuestos falsa con tarjetas de regalo. También pueden usar una cuenta de correo electrónico comprometida para enviar correos electrónicos que solicitan compras de tarjetas de regalo para amigos, familiares o compañeros de trabajo. El IRS les recuerda a los contribuyentes que las tarjetas de regalo son para obsequios, no para pagar impuestos.
Así es como suele ocurrir esta estafa:
La manera más común en que los estafadores solicitan tarjetas de regalo es por teléfono, a través de una estafa en la que se hacen pasar por el gobierno. Sin embargo, también solicitarán tarjetas de regalo al enviar un mensaje de texto, correo electrónico o a través de las redes sociales.
Un estafador que se hace pasar por un agente del IRS llamará al contribuyente o le dejará un mensaje de voz con un número de teléfono informándole que está vinculado a alguna actividad delictiva. Por ejemplo, el estafador le dirá al contribuyente que su identidad ha sido robada y usada para abrir cuentas bancarias falsas.
El estafador amenazará o acosará al contribuyente diciéndole que debe pagar una multa tributaria ficticia.
El estafador le indica al contribuyente que compre tarjetas de regalo en varias tiendas.
Una vez que el contribuyente compra las tarjetas de regalo, el estafador le pedirá al contribuyente que proporcione el número de la tarjeta de regalo y el PIN.
Now is a good time for people to begin thinking about next year’s tax return. While it may seem early to be preparing for 2021, reviewing your recordkeeping now will pay off when it comes time to file again.
Here are some suggestions to help taxpayers keep good records. Taxpayers should develop a system that keeps all their essential information together. They can use a software program for electronic recordkeeping. They could also store paper documents in labeled folders.
Throughout the year, they should add tax records to their files as they receive them. This includes Notice 1444, Your Economic Impact Payment, and unemployment compensation documentation. Having records handy makes preparing a tax return next year easier.
Taxpayers should notify the IRS if their address changes. Taxpayers should let the IRS know if they change their address. They should also notify the Social Security Administration of a legal name change to avoid a delay in processing their tax return.
Review their tax return to make sure they didn’t overlook any credits or deductions. Double check credits and deductions. Records that taxpayers should keep include receipts, canceled checks and other documents that support income, including any unemployment compensation.
Taxpayers should also keep records relating to property they dispose of or sell. They must keep these records to figure their basis for figuring gains or losses.
Taxpayers should keep records for three years from the date they filed the return. Taxpayers who have employees must keep all employment tax records for at least four years after the tax is due or paid, whichever is later.
Taxpayers have a variety of options to consider when paying federal taxes. This year, in response to the COVID-19 pandemic, the filing deadline and tax payment due date was postponed from April 15 to July 15, 2020.
The IRS reminds taxpayers filing Form 1040 series returns that they must file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, by July 15 to obtain the automatic extension to Oct. 15. The extension provides additional time to file the tax return – it is not an extension to pay any taxes due.
Those who owe a 2019 income tax liability, as well as estimated tax for 2020, must make two separate payments on or by July 15, 2020.One for their 2019 income tax liability and one for their 2020 estimated tax payments. The two estimated tax payments can be combined into a single payment.
Automatic extension of time to file
Taxpayers who need more time to prepare and file their federal tax return can apply for an extension of time to file until Oct. 15. To get an extension, taxpayers must estimate their tax liability on the extension form and pay any amount due.
Individuals – Taxpayers can use Direct Pay for two payments each day. Direct Pay allows taxpayers to pay online directly from a checking or savings account for free, and to schedule payments up to 365 days in advance. They will receive an email confirmation of their payments.
Businesses – For businesses or those making large payments, the best payment option is the Electronic Federal Tax Payment System, which allows up to five payments per day. Enrollment is required. Taxpayers can schedule payments up to 365 days in advance and opt in to receive email notifications about their payments.
Additional electronic payment options:
Taxpayers can pay when they file electronically using tax software online. If using a tax preparer, ask the preparer to make the tax payment through an electronic funds withdrawal from a bank account.
Taxpayers can choose to pay with a credit card, debit card or digital wallet option through a payment processor. Processing fees apply. No part of the card service fee goes to the IRS.
The IRS2Go app provides mobile-friendly payment options, including Direct Pay and Payment Provider payments on mobile devices
Paying by check, money order or cashier’s check:
2019 Tax Liability – If paying a 2019 income tax liability without an accompanying 2019 tax return, taxpayers paying by check, money order or cashier’s check should include Form 1040-V, Payment Voucher with the payment. Mail the payment to the correct address by state or by form. Do not send cash through the mail. Indicate on the check memo line that this is a 2019 income tax payment.
For those paying when filing their 2019 income tax return, do not staple or paperclip the payment to the return. For more information, go to Pay by Check or Money Order on IRS.gov.
2020 Estimated Tax Payments – Taxpayers making their 2020 estimated tax payment by check, money order or cashier’s check should include the appropriate Form 1040 ES payment voucher. Indicate on the check memo line that this is a 2020 estimated tax payment.
Paying by cash:
Individuals and businesses, preferring to pay in cash, can do so at a participating retail store. Select the cash option in the “Other Ways You Can Pay” section and follow the instructions. There is a $1,000 payment limit per day and a $3.99 fee per payment.
Payment options for those who cannot pay in full:
For taxpayers who cannot pay in full, the IRS encourages them to pay what they can and consider a variety of payment options available for the remaining balance. Act as quickly as possible. Tax bills accumulate more interest and fees the longer they remain unpaid.
Most taxpayers have the following payment options:
Online Payment Agreement — These are available for individuals who owe $50,000 or less in combined income tax, penalties and interest and businesses that owe $25,000 or less in combined payroll tax, penalties and interest and have filed all tax returns. Most taxpayers qualify for this option, and an Online Payment Agreement can usually be set up in a matter of minutes on IRS.gov/OPA. Online Payment Agreements are available Monday – Friday, 6 a.m. to 12:30 a.m.; Saturday, 6 a.m. to 10 p.m.; Sunday, 6 p.m. to midnight. All times are Eastern time. Certain fees may apply.
Installment Agreement — Taxpayers who do not qualify to use the online payment agreement option, or choose not to use it, can also apply for a payment plan by phone, or by mail by submitting Form 9465, Installment Agreement Request. Installment agreements paid by direct deposit from a bank account or a payroll deduction will help taxpayers avoid default on their agreements. It also reduces the burden of mailing payments and saves postage costs. Certain fees may apply.
Temporarily Delaying Collection — Taxpayers can contact the IRS to request a temporary delay of the collection process. If the IRS determines a taxpayer is unable to pay, it may delay collection until the taxpayer’s financial condition improves. Penalties and interest continue to accrue until the full amount is paid.
Offer in Compromise — Certain taxpayers qualify to settle their tax bill for less than the amount they owe by submitting an offer in compromise. To help determine eligibility, use the Offer in Compromise Pre-Qualifier tool.
Though interest and late-payment penalties continue to accrue on any unpaid taxes after July 15, the failure to pay tax penalty rate is cut in half while an installment agreement is in effect. The usual penalty rate of 0.5% per month is reduced to 0.25%. For the calendar quarter beginning July 1, 2020, the interest rate for underpayment is 3%.
In addition, taxpayers can consider other options for payment, including getting a loan to pay the amount due. In many cases, loan costs may be lower than the combination of interest and penalties the IRS must charge under federal law.