IRS UPDATE – Information Returns and Self-Insured Health Coverage

IRS UPDATE – Employers Providing Self-Insured Health Coverage Must Report on Information Returns

Updated July 28, 2015: This update is to clarify that self-insured employers that are not applicable large employers, those with fewer than 50 full-time or full-time equivalent employees in the preceding calendar year, should file IRS Form 1095-B. Self-insured employers that are applicable large employers should report health coverage information on IRS Form 1095-C.  This update does not apply to information reporting on health care coverage of individuals who are not employees or entitled to coverage because of a relationship to an employee.

All providers of health coverage, including employers that provide self-insured coverage, must file annual returns with the IRS reporting information about the coverage and about each covered individual.  Insurance Companies must report on coverage under employer plans that are insured.

Employers should report this information on Forms 1094-B and 1095-B or on Forms 1094-C and 1095-C, depending on whether the employer is an applicable large employer for purposes of the employer shared responsibility provisions. An applicable large employer is generally defined as an employer that employed an average of at least 50 full-time employees – including full-time equivalent employees – in the preceding calendar year. `

As coverage providers, employers providing self-insured coverage that are not applicable large employers must:

  • Report the coverage on a IRS Form 1095-B, Health Coverage, filed with the IRS, accompanied by a Form 1094-B transmittal. While filers of more than 250 Forms 1095-B must e-file, the IRS allows and encourages entities with fewer than 250 forms to e-file.
  • Furnish a copy of the 1095-B to a “responsible individual,” the person who should be the statement recipient.  For employer coverage the statement recipient generally is the employee. Providers, including self-insured employers, may electronically furnish the Form 1095-B if the recipient consents.

If an employer providing self-insured coverage is an applicable large employer, it generally reports information regarding coverage of an individual on Form 1095-C instead of Form 1095-B.  Form 1095-C combines reporting for two provisions of the Affordable Care Act for these employers.  However, when reporting coverage of an individual who was not a full-time employee for any month of the year, an applicable large employer may choose to use IRS Form 1095-B.

The information reporting requirements are first effective for coverage provided in 2015.  Thus, health coverage providers will file information returns with the IRS in 2016, and will furnish statements to individuals in 2016, to report coverage information in calendar year 2015.

The information that a provider must report to the IRS includes the following:

  • The name, address, and employer identification number of the provider.
  • The statement recipient’s name, address, and taxpayer identification number, or date of birth if a TIN is not available.  If the statement recipient is not enrolled in the coverage, providers may, but are not required to, report the TIN.
  • The name and TIN, or date of birth if a TIN is not available, of each individual covered under the policy or program and the months for which the individual was enrolled in coverage and entitled to receive benefits.

For more information, see “Questions and Answers” on Information Reporting by Health Coverage Providers on IRS.gov/aca.  Employers who provide self-insured coverage should review IRS Publication 5215, Responsibilities for Health Coverage Providers. Applicable large employers should review IRS Publication 5196, Reporting Requirements for Applicable Large Employers.

Hobbies & Income

Hobbies that Earn Income

Millions of people enjoy hobbies. They can also be a source of income. Some of these types of hobbies include stamp or coin collecting, craft making and horse breeding. You must report any income you get from a hobby on your tax return. How you report the income is different than how you report income from a business. There are special rules and limits for deductions you can claim for a hobby. Here are five basic tax tips you should know if you get income from your hobby:

  1. Business versus Hobby.  A key feature of a business is that you do the activity to make a profit. This differs from a hobby that you may do for sport or recreation. There are Nine (9) Factors to consider when you determine if you do the activity to make a profit. Make sure you base your decision on all the facts and circumstances of your situation. Refer to IRS Publication 535, Business Expenses to learn more. You can also visit IRS.gov and type “not-for-profit” in the search box.
  2. Allowable Hobby Deductions.  You may be able to deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is helpful or appropriate.
  3. Limits on Expenses.  As a general rule, you can only deduct your hobby expenses up to the amount of your hobby income. If your expenses are more than your income, you have a loss from the activity. You can’t deduct that loss from your other income.
  4. How to Deduct Expenses.  You must itemize deductions on your tax return in order to deduct hobby expenses. Your costs may fall into three types of expenses. Special rules apply to each type. You should report them on Schedule “A”, Itemized Deductions.
  5. Use IRS Free File.  Hobby rules can be complex. IRS Free File can make filing your tax return easier. IRS Free File is available until Oct. 15. If you make $60,000 or less, you can use brand-name tax software. If you earn more, you can use Free File Fillable Forms, an electronic version of IRS paper forms. You can only access Free File through IRS.gov.

 

Tax Breaks for the Military

Tax Breaks for the Military

If you are in the U. S. Armed Forces, special tax breaks may apply to you. For example, some types of pay are not taxable. Certain rules apply to deductions or credits that you may be able to claim that can lower your tax. In some cases, you may get more time to file your tax return. You may also get more time to pay your income tax. Here are the top 10 IRS tax tips about these rules:

  1. Deadline Extensions.  Some members of the military, such as those who serve in a combat zone, can postpone some tax deadlines. If this applies to you, you can get automatic extensions of time to file your tax return and to pay your taxes.
  2. Combat Pay Exclusion.  If you serve in a combat zone, certain combat pay you get is not taxable. You won’t need to show the pay on your tax return because combat pay is not part of the wages reported on your Form W-2, Wage and Tax Statement. If you serve in support of a combat zone, you may qualify for this exclusion.
  3. Earned Income Tax Credit or EITC.  If you get nontaxable combat pay, you can include it to figure your EITC. Doing so may boost your credit. Even if you do, the combat pay stays nontaxable.
  4. Moving Expense Deduction.  You may be able to deduct some of your unreimbursed moving costs. This applies if the move is due to a permanent change of station.
  5. Uniform Deduction.  You can deduct the costs of certain uniforms that you can’t wear while off duty. This includes the costs of purchase and upkeep. You must reduce your deduction by any allowance you get for these costs.
  6. Signing Joint Returns.  Both spouses normally must sign a joint income tax return. If your spouse is absent due to certain military duty or conditions, you may be able to sign for your spouse. In other cases when your spouse is absent, you may need a power of attorney to file a joint return.
  7. Reservists’ Travel Deduction.  If you’re a member of the U.S. Armed Forces Reserves, you may deduct certain costs of travel on your tax return. This applies to the unreimbursed costs of travel to perform your reserve duties that are more than 100 miles away from home.
  8. ROTC Allowances.  Some amounts paid to ROTC students in advanced training are not taxable. This applies to allowances for education and subsistence. Active duty ROTC pay is taxable. For instance, pay for summer advanced camp is taxable.
  9. Civilian Life.  If you leave the military and look for work, you may be able to deduct some job search expenses. You may be able to include the costs of travel, preparing a resume and job placement agency fees. Moving expenses may also qualify for a tax deduction.
  10. Tax Help.  Most military bases offer free tax preparation and filing assistance during the tax filing season. Some also offer free tax help after April 15.

 

IRS Tax Problems – IRS Notices – What to do if You get a Notice

IRS Tax Problems – What To Do If You Get an “IRS Notice”

Each year the IRS mails millions of notices and letters to taxpayers. If you receive a notice from the IRS, here is what you should do:

  • Don’t Ignore It.  You can respond to most IRS notices quickly and easily. It is important that you reply right away.
  • Focus on the Issue.  IRS notices usually deal with a specific issue about your tax return or tax account. Understanding the reason for your notice is important before you can comply.
  • Follow Instructions.  Read the notice carefully. It will tell you if you need to take any action to resolve the matter. You should follow the instructions.
  • Correction Notice.  If it says that the IRS corrected your tax return, you should review the information provided and compare it to your tax return.

    If you agree, you don’t need to reply unless a payment is due.

    If you don’t agree, it’s important that you respond to the IRS. Write a letter that explains why you don’t agree. Make sure to include information and any documents you want the IRS to consider. Include the bottom tear-off portion of the notice with your letter. Mail your reply to the IRS at the address shown in the lower left part of the notice. Allow at least 30 days for a response from the IRS.

  • Premium Tax Credit.  The IRS may send you a letter asking you to clarify or verify your premium tax credit information. The letter may ask for a copy of your Form 1095-A, Health Insurance Marketplace Statement.  You should follow the instructions on the letter that you receive. This will help the IRS verify information and issue the appropriate refund.
  • No Need to Visit IRS.  You can handle most notices without calling or visiting the IRS. If you do have questions, call the phone number in the upper right corner of the notice. You should have a copy of your tax return and the notice with you when you call.
  • Keep the Notice.  Keep a copy of the notice you get from the IRS with your tax records.
  • Watch Out for Scams.  Don’t fall for phone or phishing email scams that use the IRS as a lure. The IRS first contacts people about unpaid taxes by mail – not by phone. The IRS does not initiate contact with taxpayers by email, text or social media.
  • The Right to Retain Representation. The Taxpayer Bill of Rights, or TBOR, takes many of your rights in our tax laws and groups them into 10 broad categories. For instance, you have the Right to Retain Legal Counsel Representation in your dealings with the IRS.

Renting a Vacation Home

Renting a Vacation Home

If you rent a home to others, you usually must report the rental income on your tax return. However, you may not have to report the rent you get if the rental period is short and you also use the property as your home. In most cases, you can deduct your rental expenses. When you also use the rental as your home, your deduction may be limited. Here are some basic tax tips that you should know if you rent out a vacation home:

  • Vacation Home.  A vacation home can be a house, apartment, condominium, mobile home, boat or similar property.
  • Schedule E.  You usually report rental income and rental expenses on Schedule “E”, Supplemental Income and Loss. Your rental income may also be subject to “Net Investment Income Tax”.
  • Used as a Home.  If the property is “used as a home,” your rental expense deduction is limited. This means your deduction for rental expenses can’t be more than the rent you received. For more about these rules, see IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes).
  • Divide Expenses.  If you personally use your property and also rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use. To figure how to divide your costs, you must compare the number of days for each type of use with the total days of use.
  • Personal Use.  Personal use may include use by your family. It may also include use by any other property owners or their family. Use by anyone who pays less than a fair rental price is also personal use.
  • Schedule A.  Report deductible expenses for personal use on Schedule “A”, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.
  • Rented Less than 15 Days.  If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income. In this case you deduct your qualified expenses on schedule A.

 

Gambling Income & Losses

Reporting Gambling Income and Losses on Your Tax Return

If you play the ponies, play cards or pull the slots, your gambling winnings are taxable. You must report them on your tax return. If you gamble, these IRS tax tips can help you at tax time next year:

  1. Gambling income.  Income from gambling includes winnings from the lottery, horse racing and casinos. It also includes cash and non-cash prizes. You must report the fair market value of non-cash prizes like cars and trips.
  2. Payer tax form.  If you win, the payer may give you a Form W-2G, Certain Gambling Winnings. The payer also sends a copy of the W-2G to the IRS. The payer must issue the form based on the type of gambling, the amount you win and other factors. You’ll also get a form W-2G if the payer must withhold income tax from what you win.
  3. How to report winnings.  You normally report your winnings for the year on your tax return as “Other Income.” You must report all your gambling winnings as income. This is true even if you don’t receive a Form W-2G.
  4. How to deduct losses.  You can deduct your gambling losses on Schedule “A”, Itemized Deductions. The amount you can deduct is limited to the amount of the gambling income you report on your return.
  5. Keep gambling receipts.  You should keep track of your wins and losses. This includes keeping items such as a gambling log or diary, receipts, statements or tickets.

IRS Tax Problems – Identity Theft

IRS Tax Problems – Identity Theft and Your Taxes

Learning you are a victim of identity theft can be a stressful event. Identity theft is also a challenge to businesses, organizations and government agencies, including the IRS. Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund.

Many times, you may not be aware that someone has stolen your identity. The IRS may be the first to let you know you’re a victim of ID theft after you try to file your taxes.

The IRS combats tax-related identity theft with a strategy of prevention, detection and victim assistance. The IRS is making progress against this crime and it remains one of the agency’s highest priorities.

Here are ten things to know about ID Theft:

  1. Protect your Records.  Do not carry your Social Security card or other documents with your SSN on them. Only provide your SSN if it’s necessary and you know the person requesting it. Protect your personal information at home and protect your computers with anti-spam and anti-virus software. Routinely change passwords for Internet accounts.
  2. Don’t Fall for Scams.  The IRS will not call you to demand immediate payment, nor will it call about taxes owed without first mailing you a bill. Beware of threatening phone calls from someone claiming to be from the IRS. If you have no reason to believe you owe taxes, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484.
  3. Report ID Theft to Law Enforcement.  If your SSN was compromised and you think you may be the victim of tax-related ID theft, file a police report. You can also file a report with the Federal Trade Commission using the FTC Complaint Assistant. It’s also important to contact one of the three credit bureaus so they can place a freeze on your account.
  4. Complete an IRS Form 14039 Identity Theft Affidavit.  Once you’ve filed a police report, file an IRS Form 14039, Identity Theft Affidavit. Print the form and mail or fax it according to the instructions. Continue to pay your taxes and file your tax return, even if you must do so by paper.
  5. Understand IRS Notices.  Once the IRS verifies a taxpayer’s identity, the agency will mail a particular letter to the taxpayer. The notice says that the IRS is monitoring the taxpayer’s account. Some notices may contain a unique Identity Protection Personal Identification Number (IP PIN) for tax filing purposes.
  6. IP PINs.  If a taxpayer reports that they are a victim of ID theft or the IRS identifies a taxpayer as being a victim, they will be issued an IP Pin. The IP PIN is a unique six-digit number that a victim of ID theft uses to file a tax return. In 2014, the IRS launched an IP Pin Pilot Program. The program offers residents of Florida, Georgia and Washington, D.C., the opportunity to apply for an IP PIN, due to high levels of tax-related identity theft there.
  7. Data Breaches.  If you learn about a data breach that may have compromised your personal information, keep in mind not every data breach results in identity theft.  Further, not every identity theft case involves taxes. Make sure you know what kind of information has been stolen so you can take the appropriate steps before contacting the IRS.
  8. Report Suspicious Activity.  If you suspect or know of an individual or business that is committing tax fraud, you can visit IRS.gov and follow the chart on “How to Report Suspected Tax Fraud Activity”.
  9. Combating ID Theft.  Over the past few years, nearly 2,000 people were convicted in connection with refund fraud related to identity theft. The average prison sentence for identity theft-related tax refund fraud grew to 43 months in 2014 from 38 months in 2013, with the longest sentence being 27 years.

    During 2014, the IRS stopped more than $15 billion of fraudulent refunds, including those related to identity theft.  Additionally, as the IRS improves its processing filters, the agency has also been able to halt more suspicious returns before they are processed. So far this year, new fraud filters stopped about 3 million suspicious returns for review, an increase of more than 700,000 from the year before.

  10. Service Options.  Information about tax-related identity theft is available online. IRS has a special section on IRS.gov devoted to identity theft and a phone number available for victims to obtain assistance.

TAX TIPS – Students with Summer Jobs

Tax Tips for Students with Summer Jobs

Students often get a job in the summer. If it’s your first job it gives you a chance to learn about work and paying tax. The tax you pay supports your home town, your state and our nation. Here are some tips students should know about summer jobs and taxes:

  • Withholding and Estimated Tax.  If you are an employee, your employer withholds tax from your paychecks. If you are self-employed, you may have to pay estimated tax directly to the IRS on set dates during the year. This is how our pay-as-you-go tax system works.
  • New Employees.  When you get a new job, you will need to fill out a IRS Form W-4, Employee’s Withholding Allowance Certificate. Employers use it to figure how much federal income tax to withhold from your pay. The IRS Withholding Calculator tool on IRS.gov can help you fill out the form.
  • Self-Employment.  Money you earn doing work for others is taxable. Some work you do may count as self-employment. These can be jobs like baby-sitting or lawn care. Keep good records of your income and expenses related to your work. You may be able to deduct (subtract) those costs from your income on your tax return. A deduction can cut taxes.
  • Tip Income.  All tip income is taxable. Keep a daily log to report them. You must report $20 or more in cash tips in any one month to your employer. And you must report all of your yearly tips on your tax return.
  • Payroll Taxes.  You may earn too little from your summer job to owe income tax. But your employer usually must withhold Social Security and Medicare taxes from your pay. If you’re self-employed, you may have to pay them yourself. They count for your coverage under the Social Security system.
  • Newspaper Carriers.  Special rules apply to a newspaper carrier or distributor. If you meet certain conditions, you are self-employed. If you do not meet those conditions, and are under age 18, you may be exempt from social security and Medicare taxes.
  • ROTC Pay.  If you’re in ROTC, active duty pay, such as pay you get for summer advanced camp, is taxable. A subsistence allowance you get while in advanced training is not taxable.
  • Use IRS Free File.  You can prepare and e-file your tax return for free using IRS Free-File. It is only available on IRS.gov. You may not earn enough money to be required to file a federal tax return. Even if that is true, you may still want to file. For example, if your employer withheld income tax from your pay, you will have to file a return to get a tax refund.