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Happy New Year 2023! We hope you all have had a wonderful 2022 and would like to thank you for remaining loyal clients of Carefree Tax Service.  With Wendy’s announcement that she sold the business last year to Tony and Jen Kern, her goal has been to work on a limited basis and enjoy her semi-retirement.  That is still her plan for 2023 but she will be working a reduced schedule this tax season, which will require a portion of her clients to be seen by a different preparer. We understand and appreciate your loyalty to Wendy and will do everything we can to make this transition as seamless as possible to ensure everyone receives the highest level of service. To help with this, we are excited to announce that we have added Jen to the everyday staff.

Following are some of the new 2022 tax law updates and things to consider for 2023. If you are a returning client and would like a personalized client organizer for tax planning, request one via email at: tony@carefreetax1040.com .  An organizer is also on our website, www.carefreetax1040.com, under the Info Center tab. There are several financial calculators on the website along with a number of financial and tax links, including IRS and WI/IL Department of Revenue websites. Our website contains lots of information that will be helpful for tax planning.

We are looking forward to seeing you soon! Call 608-756-9930 to set up your appointment. Again, we thank you for allowing us the opportunity to serve you.

Sincerely,

Tony, Jen, Wendy, and Robin

Electric vehicle credits. Major changes were made to the federal tax credits for purchasing electric vehicles (EV). Some of those tax law changes include:

• Effective immediately, qualifying vehicles must be assembled in North America.
• Starting in 2023, increasing percentages of battery minerals and components must be sourced from the U.S. or from one of its free-trade partners.
• Used EVs sold by dealers will be eligible for a one-time tax credit.
• The manufacturer vehicle sales cap will be eliminated. This means that brands such as Chevrolet, Tesla and Toyota that reached the previous 200,000-unit sales are eligible for credits starting in 2023.
• Starting in 2024, a provision will allow buyers to take the EV tax credit directly from the dealer at the point of sale rather than having to wait for the next tax season.

Effective January 1, 2023, the following price and income limits apply:

Purchase price limitation to be eligible for the EV credit:

• SUVs, vans, and pickup trucks - $80,000
• Any other qualifying vehicle - $55,000

Income limits for taxpayers to be eligible for the new vehicle credit:

• $300,000 - Joint returns or Surviving Spouse
• $225,000 - Head of Household
• $150,000 - Any other filing status

For used vehicles, the credit is 30% of the value, not to exceed $4,000.

Energy efficient home improvement credit. Property owners are eligible for a tax credit for installing energy efficient property to their homes. Under prior law, there was a lifetime limit on the amount of credit you could claim. The new law repeals the lifetime credit limit and instead limits the allowable credit to $1,200 per taxpayer per year. With this, there is an annual limit of $600 for credit with respect to residential energy property expenditures, windows, and skylights, a $250 limit for any exterior door ($500 total for all exterior doors), and $150 limit for a home energy audit. The new law also allows taxpayers to claim the credit for expenses incurred on energy efficient property installed on any home they own and is no longer limited to their principal residence. This applies to qualifying property placed into service on or after January 1, 2023 and before January 1, 2033. A separate $2,000 annual credit applies to amounts paid or incurred for specified heat pumps, heat pump water heaters, and biomass stoves and boilers.

Residential clean energy credit. This credit was formerly referred to as the residential energy efficient property (REEP) credit, which was equal to 26% of property installed in residential homes in years prior to 2024. The new law increases the credit to 30% for property placed in service after December 31, 2021, and before January 1, 2033, 26% for property placed in service after December 31, 2032, and before January 1, 2034, and 22% for property placed in service after December 31, 2033, and before January 1, 2035. Qualified expenditures include the costs incurred for installing qualified solar property for generating electricity and hot water, geothermal heat pumps, fuel cell property, biomass fuel property and small wind energy.

Required distributions to inherited IRAs. New rules that apply to retirement accounts inherited after December 31, 2019, will require most beneficiaries of IRAs and other retirement accounts to withdraw the entire balance of the account within 10 years. Special rules apply to beneficiaries who are spouses, minor children, disabled individuals, or beneficiaries who are less than 10 years younger than the deceased account owner.

Student loan debt forgiveness. Disclaimer: This legislation is currently on hold with the Supreme Court so a final ruling has not yet been determined.

In addition to forgiving up to $10,000 per borrower (or $20,000 if you received a Pell Grant) for those with an adjusted gross income (AGI) under $125,000 in 2020 or 2021 (or $250,000 for married borrowers), President Joe Biden announced he was also extending the current moratorium on student loan payments and interest. However, due to the current status, the moratorium has been extended to the earlier of June 30, 2023 or 60 days after a ruling has been determined. The moratorium on student loan payments and interest includes all federally held student loans, regardless of the company servicing the loan.

Eligible student loans include:

• Direct federal student loans
• Federal Family Education Loan program loans held by the Department of Education, aka FFEL
• Federal Perkins Loans held by the Department of Education
• Defaulted FFEL loans not held by the Department of Education
• Defaulted Health Education Assistance loans, aka HEA

Student loans that are not eligible include:

• Nondefaulted FFEL loans not held by the Department of Education
• Federal Perkins Loans not held by the Department of Education
• Nondefaulted HEAL loans
• Private student loans

Educator expenses. Eligible educators can take up to a $300 deduction for out-of-pocket classroom expenses in 2022. An eligible educator is an individual who is a Kindergarten through Grade 12 teacher, instructor, counselor, principal, or aide. The individual must have worked in a school for at least 900 hours during the school year to be eligible. Out-of-pocket expenses include books, supplies (including athletic supplies for health or physical education educators), computer equipment (including related software and service) and supplementary materials used by the instructor in the classroom. In addition, qualified expenses include personal protective equipment, disinfectant, and other supplies used for the prevention of the spread of COVID-19.

Standard Mileage Rate. Taxpayers can use the standard mileage rate (in lieu of actual expenses) in computing the deductible costs of operating automobiles owned or leased by them (including vans, pickups, or panel trucks) for business purposes. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for business travel. Of note, the mileage deduction for moving is only available to those in the United States Armed Forces. The following rates are applicable for unreimbursed expenses for the 2022 tax year:

Retirement plan contribution limits for 2023. The IRS recently announced the qualified plan and IRA contribution limits for 2023. The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $22,500. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $7,500. Therefore, if you are 50 or older, you can contribute up to $30,000 this year. The catch-up contribution limit for employees aged 50 or older who participate in SIMPLE plans is increased to $3,500 (up from $3,000 last year). The limit on annual contributions to an IRA is increased to $6,500 but the IRA catch‑up contribution limit for individuals aged 50 and over remains $1,000 as it is not subject to an annual cost‑of‑living adjustment.

Year-End Planning and Looking Ahead to 2023

Year-end planning is always complicated by the uncertainty of what the following year may bring, but this year presents yet another challenge.  Inflation is growing and everything seems to be more expensive than last year. Looking for ways to save will require some creativity; saving on your tax bill is a great place to start.

Standard deduction versus itemizing. Many taxpayers can no longer itemize their deductions because of the high basic standard deduction. For tax year 2022, this amount is $12,950 for single or married filing separately taxpayers, $25,900 for married taxpayers, or $19,400 if you qualify as head of household. Each taxpayer is entitled to an additional $1,400 if over age 65 and/or blind. The standard deduction, along with the elimination of many deductions previously deducted as itemized deductions, presents an opportunity for some careful planning. Consider bunching your deductions every other year. This can include making charitable contributions and paying medical expenses in years where you can exceed the standard deduction.

Disaster losses. If you were in a federally declared disaster area (there were a lot of them in 2022!) and you suffered uninsured or unreimbursed disaster-related losses, you can elect to deduct the loss either on the return for the year the loss occurred (in this instance, the 2022 return), or in the tax year immediately before the disaster year by submitting an amendment to your 2021 return. 

IRA contributions. You have until April 15, 2023 to contribute to your IRA to count as a 2022 contribution. For 2022, you can contribute up to $6,000 ($7,000 if you are age 50 or older). Income limits apply if you or your spouse are covered by an employer-provided retirement plan.

Health savings accounts. You are eligible to make contributions into a health savings account if you are covered under a high deductible health plan. If you become eligible in December of 2022 to make health savings account (HSA) contributions, you can make a full year’s worth of deductible HSA contributions for 2022 provided you make them by April 15, 2023. For 2022, the maximum contribution you can make is $3,650 for self-only coverage and $7,300 for family coverage. You can contribute an additional $1,000 if you are age 55 or over.

Maximize your retirement plan contributions. If you participate in your employer’s 401(k) plan, now is the time to review the contributions you made for 2022. This is one of the most important tax deductions available. Not only do your contributions grow tax-free, but you are also allowed to contribute on a pre-tax basis. In many cases, your employer will match your contribution up to a certain percentage. The maximum 401(k) contribution allowed for 2022 is $20,500 (or $27,000 if you are 50 or over).

Charitable donations. If you are age 70 ½ or older, have a traditional IRA, and especially if you are unable to itemize your deductions, consider making charitable donations via qualified charitable distributions from your IRA(s). These distributions are made as a direct transfer from your IRA to the charity, which means the amount of the contribution is not included in your gross income (in most cases) and you are still entitled to claim the entire standard deduction. The limit is $100,000 per taxpayer per year.

Secure Act 2.0 “Setting Every Community Up for Retirement Enhancement” Act 2.0 is now law. The legislation provides changes that could help strengthen the retirement system. Some noteworthy changes:

Required Minimum Distributions. Starting in 2023, the age to start taking RMDs increases from 72 to 73, while the penalty for not taking the RMD decreases from 50% to 25%. In 2024, Roth accounts will be exempt from the RMD requirements.   

529 Plan. After 15 years, unused assets in 529 plans can be rolled over into a Roth IRA for the beneficiary, subject to annual Roth contribution limits and lifetime limit of $35,000.

Catch-Up Contributions Starting in 2025, Secure Act 2.0 bumps the catch-up contribution to a workplace retirement plan for those between 60 and 63 to $10,000, up from $7,500 this year.

PRIVACY POLICY
We do not disclose any non-public personal information about our clients or former clients to anyone, except as instructed to do so by such clients, or required by law. We restrict access to non-public personal information, and we maintain physical, electronic, and procedural safeguards to guard your personal non-public information.

The Internal Revenue Service is still working on the details of how it is going to help taxpayers that may have fallen for deceptive marketing that led them to improperly receive employee retention tax credits.

The Internal Revenue Service is still working on the details of how it is going to help taxpayers that may have fallen for deceptive marketing that led them to improperly receive employee retention tax credits.

Internal Revenue Service Commissioner Daniel Werfel said that the agency is still working to figure out the process of how to help those who have already received their ERC "and now realize they believe they received it inappropriately," including how to come forward preemptively before the IRS takes collection action against them, as well as "on settlement terms for paying back in a way we hope works out for those companies economically."

He also noted the agency is working on updating its procedures "for how we review credits, how we communicate with stakeholders to make sure there’s exact clarity, and we’re even stronger in our outreach in terms of what are the issues that we see companies in thinking they’re eligible when they are not." Werfel made his comments November 14, 2023, at the AICPA & CIMA National Tax & Sophisticated Tax Conference.

The IRS already has issued procedures on how taxpayers can withdraw claims for the employee retention credit if the claim has not been processed, as well as placed a moratorium on processing claims until at least the end of year.

Werfel also used his speech to reiterate previously highlighted improvements in customer service and compliance and enforcement following the supplemental funding provided by the Inflation Reduction Act.

National Taxpayer Advocate Erin Collins also acknowledged the improvement in the wake of the issues that arose during the COVID-19 pandemic.

"The good news is the IRS is in a much better place than it was over the last three years," Collins said during the conference. "The not-so-good news is we still have a long way to go."

In particular, she targeted the continued filing of paper returns as a key contributor to delays in processing returns and other correspondence. The IRS has been working to improve the abilities to filing tax returns and other correspondence electronically as a means of speeding up the processing, and she noted that what has been accomplished thus far "is a good thing."

However, she noted that another challenge is that even if they are electronically filed, they are still manually processed and more work needs to be done to improve the technology to help get them electronically processed.

By Gregory Twachtman, Washington News Editor

The IRS has announced that calendar year 2023 would continue to be regarded as a transition period for enforcement and administration of the de minimis exception for reporting by third party settlement organizations (TPSO) under Code Sec. 6050W(e).

The IRS has announced that calendar year 2023 would continue to be regarded as a transition period for enforcement and administration of the de minimis exception for reporting by third party settlement organizations (TPSO) under Code Sec. 6050W(e). The IRS has also planned for a threshold of $5,000 for tax year 2024 to phase in implementation. Previously, in Notice 2023-10, the IRS announced that 2022 would be regarded as a transition period for the same issue. Specifically, the transition period focuses on the implementation of the amendment to Code Sec. 6050W(e) by the American Rescue Plan Act of 2021 (P.L. 117-2) that lowered the de minimis exception for TPSOs to $600.

Background

Code Sec. 6050W requires a TPSO to file an information return (Form 1099-K) each calendar year to report the annual gross amount of reportable payment transactions to the IRS and provide a copy of the return to the participating payee. A de minimis exception to this reporting requirement is provided in Code Sec. 6050W(e). Prior to the amendment by the American Rescue Plan Act, a TPSO was exempt from the reporting requirement if the gross amount that would otherwise be reported did not exceed $20,000 and the number of such transactions with that participating payee did not exceed 200. Section 9674(a) of the American Rescue Plan Act amended the de minimis exception to require a TPSO to file an information return if the gross amount of total reportable payment transactions exceeds $600, effective for tax years beginning after December 31, 2021.

Transition Period

Notice 2023-74 extends the transition period issued under Notice 2023-10 to the 2023 calendar tax year. Under the transition period, a TPSO would not be required to file Form 1099-K to report payments in settlement of third-party network transactions unless the gross amount of aggregate payments to be reported exceeds $20,000 and the number of such transactions with that participating payee exceeds 200. Further, a TPSO exempt from reporting due to the transition period would not be subject to penalties under Code Secs. 6721 or 6722 for the failure to file or furnish Form 1099-K.

The transition period is limited to the amendments made by the American Rescue Plan Act to Code Sec. 6050W(e) and does not apply to other requirements under Code Sec. 6050W. In addition, the transition period does not apply to backup withholdings under Code Sec. 3406(a). TPSOs that have performed backup withholding for a payee during calendar year 2023 must file a Form 945 and a Form 1099-K with the IRS provide copies to the participating payee if total reportable payments to the payee exceeded $600.

The IRS has released the annual inflation adjustments for 2024 for the income tax rate tables, plus more than 60 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.

The IRS has released the annual inflation adjustments for 2024 for the income tax rate tables, plus more than 60 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.

2024 Income Tax Brackets

For 2024, the highest income tax bracket of 37 percent applies when taxable income hits:

• $731,200 for married individuals filing jointly and surviving spouses,
• $609,350 for single individuals and heads of households,
• $365,600 for married individuals filing separately, and
• $15,200 for estates and trusts.

2024 Standard Deduction

The standard deduction for 2024 is:

• $29,200 for married individuals filing jointly and surviving spouses,
• $21,900 for heads of households, and
• $14,600 for single individuals and married individuals filing separately.

The standard deduction for a dependent is limited to the greater of:

• $1,300 or
• the sum of $450, plus the dependent’s earned income.

Individuals who are blind or at least 65 years old get an additional standard deduction of:

• $1,550 for married taxpayers and surviving spouses, or
• $1,950 for other taxpayers.

Alternative Minimum Tax (AMT) Exemption for 2024

The AMT exemption for 2024 is:

• $133,300 for married individuals filing jointly and surviving spouses,
• $85,700 for single individuals and heads of households,
• $66,650 for married individuals filing separately, and
• $29,900 for estates and trusts.

The exemption amounts phase out in 2024 when AMTI exceeds:

• $1,218,700 for married individuals filing jointly and surviving spouses,
• $609,350 for single individuals, heads of households, and married individuals filing separately, and
• $99,700 for estates and trusts.

Expensing Code Sec. 179 Property in 2024

For tax years beginning in 2024, taxpayers can expense up to $1,220,000 in section 179 property. However, this dollar limit is reduced when the cost of section 179 property placed in service during the year exceeds $3,050,000.

Estate and Gift Tax Adjustments for 2024

The following inflation adjustments apply to federal estate and gift taxes in 2024:

• the gift tax exclusion is $18,000 per donee, or $185,000 for gifts to spouses who are not U.S. citizens;
• the federal estate tax exclusion is $13,610,000; and
• the maximum reduction for real property under the special valuation method is $1,390,000.

2024 Inflation Adjustments for Other Tax Items

The maximum foreign earned income exclusion amount in 2024 is $126,500.

The IRS also provided inflation-adjusted amounts for the:

• adoption credit,
• earned income credit,
• excludable interest on U.S. savings bonds used for education,
• various penalties, and
• many other provisions.

Effective Date of 2024 Adjustments

These inflation adjustments generally apply to tax years beginning in 2024, so they affect most returns that will be filed in 2025. However, some specified figures apply to transactions or events in calendar year 2024.

The 2024 cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS. In general, many of the pension plan limitations will change for 2023 because the increase in the cost-of-living index due to inflation met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged.

The 2024 cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS. In general, many of the pension plan limitations will change for 2023 because the increase in the cost-of-living index due to inflation met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged.

The SECURE 2.0 Act (P.L. 117-328) made some retirement-related amounts adjustable for inflation beginning in 2024. These amounts, as adjusted for 2024, include:

• The catch up contribution amount for IRA owners who are 50 or older remains $1,000.
• The amount of qualified charitable distributions from IRAs that are not includible in gross income is increased from $100,000 to $105,000.
• The limit on one-time qualified charitable distributions made directly to a split-interest entity is increased from $50,000 to $53,000.
• The dollar limit on premiums paid for a qualifying longevity annuity contract (QLAC) remains $200,000

Highlights of Changes for 2024

The contribution limit has increased from $22,500 to $23,000 for employees who take part in:

• -401(k),
• -403(b),
• -most 457 plans, and
• -the federal government’s Thrift Savings Plan

The annual limit on contributions to an IRA increased from $6,500 to $7,000.

The catch-up contribution limit for individuals aged 50 and over is subject to an annual cost-of-living adjustment beginning in 2024 but remains $1,000.

The income ranges increased for determining eligibility to make deductible contributions to:

• -IRAs,
• -Roth IRAs, and
• -to claim the Saver's Credit.

Phase-Out Ranges

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. The deduction phases out if the taxpayer or their spouse takes part in a retirement plan at work. The phase out depends on the taxpayer's filing status and income.

• -For single taxpayers covered by a workplace retirement plan, the phase-out range is $77,000 to $87,000, up from between $73,000 and $83,000.
• -For joint filers, when the spouse making the contribution takes part in a workplace retirement plan, the phase-out range is $123,000 to $143,000, up from between $116,000 and $136,000.
• -For an IRA contributor, who is not covered by a workplace retirement plan but their spouse is, the phase out is between $230,000 and $240,000, up from between $218,000 and $228,000.
• -For a married individual covered by a workplace plan filing a separate return, the phase-out range remains between $0 and $10,000.
• The phase-out ranges for Roth IRA contributions are:
• -$146,000 and $161,000, for singles and heads of household,
• -$230,000 and $240,000, for joint filers, and
• -$0 to $10,000 for married separate filers.

Finally, the income limit for the Saver' Credit is:

• -76,500 for joint filers,
• -$57,375 for heads of household, and
• -$38,250 for singles and married separate filers.

The IRS reminded taxpayers who may be entitled to claim Recovery Rebate Credit (RRC) to file a tax return to claim their credit before the April-May, 2024 deadlines. It has been estimated that certain individuals are still eligible to claim RRC for years 2020 and 2021. The deadlines to file a return and claim the 2020 and 2021 credits are May 17, 2024, and April 15, 2025, respectively. Additionally, the IRS reminded that taxpayers must first file a tax return to make their RRC claims irrespective of income slab and source of income.

The IRS reminded taxpayers who may be entitled to claim Recovery Rebate Credit (RRC) to file a tax return to claim their credit before the April-May, 2024 deadlines. It has been estimated that certain individuals are still eligible to claim RRC for years 2020 and 2021. The deadlines to file a return and claim the 2020 and 2021 credits are May 17, 2024, and April 15, 2025, respectively. Additionally, the IRS reminded that taxpayers must first file a tax return to make their RRC claims irrespective of income slab and source of income.

The Recovery Rebate Credit, is a refundable credit for those who missed out on one or more Economic Impact Payments such as stimulus payments which were issued in 2020 and 2021. The persons eligible to claim the 2020 and 2021 RRC must:

• have been a U.S citizen or U.S resident alien in the respective year;
• not have been a dependent of another taxpayer for the respective year;
• have a social security number issued before the due date of the tax return which is valid for employment in the U.S;
• for 2021 RRC- have a valid social security number as above or claim a dependent who has a Social Security number issued by the due date of the tax return, or claim a dependent with an Adoption Taxpayer Identification Number.

For qualified taxpayers who require one-on-one tax preparation help, they can avail the same through the Free tax return preparation assistance available on the IRS website. The IRS urges people to look into possible benefits available to them under the tax law. People can make use of their IRS Online Account also to keep track of payments due to them.

The Internal Revenue Service is looking to improve its customer service metrics as well as improve its technology offerings in the coming tax filing season.

The Internal Revenue Service is looking to improve its customer service metrics as well as improve its technology offerings in the coming tax filing season.

Building on the supplemental funding from the Inflation Reduction Act, the IRS has already seen improvements to its phone service and is now looking to improve on it.

"Massive investments in customer service mean taxpayers will get the information and support they deserve," Department of the Treasury Secretary Janet Yellen said November 7, 2023, during an event at IRS headquarters.

For the 2024 tax filing season, the IRS is committed to maintaining the 85 percent level of service it achieved in the 2023 filing season on the agency’s main taxpayer help line. It also is targeting a hold time of five minutes or less while offering 95 percent call back availability when projected wait times are expected to exceed 15 minutes.

IRS Commissioner Daniel Werfel, speaking at the event, also highlighted a trust target.

"This past filingseason, 84 percent of taxpayers who interacted with our phone assisters stated that this interaction increased their trust in the IRS," Werfel said. "That’s up from 70 percent two years ago. In the coming filingseason, we want to continue to again [the Office of Management and Budget’s] trust goal of 75 percent."

Yellen also highlighted how the "Where’s My Refund?" tool will be improved for the coming season, including incorporating "conversational voice-bot technology to help taxpayers get answers more quickly, and it will provide clearer and more detailed information so taxpayers can address barriers to processing their returns and receive their refunds quickly."

She also said that Taxpayer Assistance Centers increase the hours of face-to-face assistance provided by more than 8,000 hours compared to what was provided in the 2023 filing season.

Yellen also stated that the IRS has met a technology goal and in the 2024 filing season, taxpayers will be able to "digitally upload all correspondence and responses to notices instead of mailing them. … The impact will be significant and far reaching. Taxpayers will save time and effort. The IRS will reduce errors and storage costs and will speed up processing time for the system as a whole."

Additionally, there will be 20 more forms that taxpayers can electronically file in the 2024 filing season.

Yellen and Werfel also reiterated recent announcements on compliance and enforcement efforts and committed to continuing to ensure everyone is paying their fair share of taxes owed.

By Gregory Twachtman, Washington News Editor

The Internal Revenue Service announced the launch of the first phase of rolling out business taxpayer accounts, as well as enable taxpayers to respond to notices online.

The Internal Revenue Service announced the launch of the first phase of rolling out business taxpayer accounts, as well as enable taxpayers to respond to notices online.

In an October 20, 2023, statement, the agency announced that the first phase will allow "unincorporated sole proprietors who have an active Employer Identification Number to set up a business tax account, where they can view their business profits and manage authorized users."

The IRS noted that the business tax accounts will expand to allow taxpayers "to view letters or notices, request transcripts, add third parties for power of attorney or tax information authorizations, schedule or cancel tax payments, and store bank account information."

The business tax accounts were enabled by the agency’s receiving of supplemental funding from the Inflation Reduction Act.

Another technology improvement announced allowing taxpayers to respond online to notices, something that previously required responses via mail.

"During the filing season 2023, taxpayers were able to respond to 10 of the most common notices for credits like the Earned Income and Health Insurance Tax Credits online, saving them time and money," the agency reported, adding that as of September 29, 2023, it has received more than 32,000 responses to notices via the online tool.

Additionally, the IRS will now accept electronic submissions for three forms via a mobile device-friendly forms. Those forms include:

• Form 15109, Request for Tax Deferment;
• Form 14039, Identity Theft Affidavit; and
• Form 14242, Reporting Abusive Tax Promotions and/or Preparers

The next form expected to have a mobile-friendly option later this fall is Form 13909, Tax-Exempt Organization Complaint, and at least 20 more of the most-used tax forms will have mobile device availability in early 2024, the IRS stated.

"An estimated 15 percent of Americans rely solely on mobile phones for their internet access – they do not have broadband at home – so it is important to make forms available in mobile-friendly formats," the agency sad.

For tax professionals, their online accounts also received enhancements, including helping practitioners manage their active client authorizations on file with the Centralized Authorization File database as well as the ability to view their client’s tax information, including balance due.

By Gregory Twachtman, Washington News Editor

For 2021, the Social Security tax wage cap will be $142,800, and Social Security and Supplemental Security Income (SSI) benefits will increase by 1.3 percent. These changes reflect cost-of-living adjustments to account for inflation.

For 2021, the Social Security tax wage cap will be $142,800, and Social Security and Supplemental Security Income (SSI) benefits will increase by 1.3 percent. These changes reflect cost-of-living adjustments to account for inflation.

2021 Wage Cap
The Federal Insurance Contributions Act (FICA) tax on wages is 7.65 percent each for the employee and the employer. FICA tax has two components:

• a 6.2 percent Social Security tax, also known as Old Age, Survivors, And Disability Insurance (OASDI); and
• a 1.45 percent Medicare tax, also known as hospital insurance (HI).

For self-employed workers, the Self-Employment tax is 15.3 percent, consisting of:

• a 12.4 percent OASDI tax; and
• a 2.9 percent HI tax.

OASDI tax applies only up to a wage base, which includes most wages and self-employment income up to the annual wage cap.

For 2021, the wage base is $142,800. Thus, OASDI tax applies only to the taxpayer’s first $142,800 in wages or net earnings from self-employment. Taxpayers do not pay any OASDI tax on earnings that exceed $142,800.

There is no wage cap for HI tax.

Maximum Social Security Tax for 2021
For workers who earn $142,800 or more in 2021:

• an employee will pay a total of $8,853.60 in social security tax ($142,800 x 6.2 percent);
• the employer will pay the same amount; and
• a self-employed worker will pay a total of $17,707.20 in social security tax ($142,800 x 12.4 percent).

Additional Medicare Tax
Higher-income workers may have to pay an Additional Medicare tax of 0.9 percent. This tax applies to wages and self-employment income that exceed:

• $250,000 for married taxpayers who file a joint return;
• $125,000 for married taxpayers who file separate returns; and
• $200,000 for other taxpayers.

The annual wage cap does not affect the Additional Medicare tax.

Benefits Increase for 2021
Finally, a cost-of-living adjustment (COLA) will increase social security and SSI benefits for 2019 by 1.3 percent. The COLA is intended to ensure that inflation does not erode the purchasing power of these benefits.

The IRS has issued final regulations that provide guidance for employers on federal income tax withholding from employees’ wages.

The IRS has issued final regulations that provide guidance for employers on federal income tax withholding from employees’ wages. The final regulations:

• address the amount of federal income tax that employers withhold from employees’ wages;
• implement changes made by the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97); and
• reflect the redesigned Form W-4, Employee’s Withholding Certificate, and related IRS publications.

TCJA Changes
The TCJA made many amendments affecting income tax withholding on employees’ wages. The TCJA made many amendments affecting income tax withholding on employees’ wages.After the TCJA was enacted, the IRS issued guidance to implement the changes (for example, Notice 2018-14, I.R.B. 2018-7, 353; Notice 2018-92, I.R.B. 2018-51, 1038; Notice 2020-3, I.R.B. 2020-3, I.R.B. 2020-3, 330). The IRS updated Form W-4 and its instructions with significant changes intended to improve the accuracy of income tax withholding and make the withholding system more transparent for employees. It also released IRS Publication 15-T, Federal Income Tax Withholding Methods, which provides percentage method tables, wage bracket withholding tables, and other computational procedures for employers to use to compute withholding for the 2020 calendar year.

On February 13, 2020, the IRS published a notice of proposed rulemaking ( REG-132741-17) to update the regulations under Code Sec. 3401 and Code Sec. 3402 to reflect the legislative changes, and expand the rules to accommodate changes necessary to fully implement the redesigned Form W-4 and its related computational procedures, along with most existing computational procedures that apply to 2019 or earlier Forms W-4.

The final regulations adopt the proposed regulations with a few revisions.

Form W-4
The final regulations do not require all employees with a 2019 or earlier Form W-4 in effect to furnish a redesigned Form W-4. Comments expressed concerns that the proposed regulations and the related forms, instructions, publications, and other IRS guidance would require employers to maintain two different systems for computing income tax withholding on wages: one for 2019 or earlier Forms W-4, and another for the redesigned Forms W-4.

In response, the IRS is acknowledging concerns with (1) instructions to the redesigned Form W-4 for employees with multiple jobs and (2) optional computational “bridge” entries permitted under the regulations and described in Publication 15-T that will allow employers to continue in effect 2019 or earlier Forms W-4 as if the employees had furnished redesigned Forms W-4.

The final regulations revise Reg. §31.3402(f)(4)-1(a) to provide that an employer’s use of the computational bridge entries to adapt a 2019 or earlier Form W-4 to the redesigned computational procedures as if using entries on a redesigned Form W-4 will continue in effect such a Form W-4 that was properly in effect on or before December 31, 2019.

Lock-in Letters
The IRS issues a "lock-in" letter to notify an employer that an employee is not entitled to claim exemption from withholding, or is not entitled to the withholding allowance claimed on the employee’s Form W-4. The lock-in letter prescribes the withholding allowance the employer must use to figure withholding. After the lock-in letter becomes effective, the IRS may issue a subsequent modification notice, but only after the employee contacts the IRS to request an adjustment to the withholding prescribed in the lock-in letter.

Under the final regulations, employers are not required to notify the IRS that they no longer employ an employee for whom a lock-in letter was issued. Further, the final regulations do not require the IRS to reissue lock-in letters or modification notices solely because of the redesigned Form W-4.

The final regulations revise Reg. §31.3402(f)(2)-1(g)(2)(iv) relating to lock-in letters. and Reg. §31.3402(f)(2)-1(g)(2)(vii) relating to modification notices, to provide that an employer may comply with a lock-in letter or modification notice that is based on a 2019 or earlier Form W-4, as required by the regulations, if the employer implements the maximum withholding allowance and filing status permitted in a lock-in letter or modification notice by using the computational bridge entries as set forth in forms, instructions, publications, and other IRS guidance to calculate withholding for such a Form W-4.

Estimated Tax Payments
The final regulations revise Reg. §31.3402(m)-1(d) to allow employees to take estimated tax payments into account, as long as the employee (1) follows the instructions to the IRS’s Tax Withholding Estimator (available at https://www.irs.gov/individuals/tax-withholding-estimator) or IRS Publication 505, (2) is not subject to a lock-in letter or modification notice, and (3) does not request withholding from wages that falls below the pro rata share of income taxes attributable to wages determined under forms, instructions, publications, and other IRS guidance. The IRS intends to update its Tax Withholding Estimator and Publication 505 to reflect this rule.

Applicable Date
The final regulations generally apply on the date they are published in the Federal Register. Reg. §31.3402(f)(2)-1(g), regarding withholding compliance, applies as of February 13, 2020. Reg. §31.3402(f)(5)-1(a)(3), regarding the requirement to use the current version of Form W-4, applies as of March 16, 2020. The removal of Reg. §31.3402(h)(4)-1(b), regarding the combined income tax withholding and employee FICA tax withholding tables, applies on and after January 1, 2020.

Except for the removal of Reg. §31.3402(h)(4)-1(b), taxpayers may choose to apply the final regulations on and after January 1, 2020, and before their applicability date set forth in the regulations.