2016 Tax Changes
Three Extra Days to File and Pay
Taxpayers will have until Tuesday, April 18, 2017 to file their 2016 returns and pay any taxes due. That’s because of the combined impact of the weekend and a holiday in the District of Columbia. The customary April 15 deadline falls on Saturday this year, which would normally give taxpayers until at least the following Monday. But Emancipation Day, a D.C. holiday, is observed on Monday, April 17 giving taxpayers nationwide an additional day. By law, D.C. holidays impact tax deadlines for everyone in the same way federal holidays do. Taxpayers requesting an extension will have until Monday, Oct. 16, 2017 to file.
Refunds Delayed for Some Taxpayers
A law change that went into effect this year requires the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) until at least Feb. 15. Still, even with this change, the fastest way to get a refund is to file electronically and choose direct deposit. Even though the IRS will begin releasing EITC and ACTC refunds on Feb. 15, many early filers will still not have actual access to their refunds until at least the week of Feb. 27. The additional delay is due to several factors including the time needed by banks to process direct deposits.
Under this change, required by the Protecting Americans from Tax Hikes (PATH) Act, the IRS must hold the entire refund — even the portion not associated with the EITC and ACTC. This change helps ensure that taxpayers get the refund they are owed by giving the IRS more time to help detect and prevent fraud. Taxpayers should file as usual, and tax return preparers should submit returns as they normally do. Beginning a few days after Feb. 15, affected taxpayers can check the status of their refund by visiting IRS.gov/Refunds and clicking on Where’s My Refund? Or using the IRS2Go mobile app.
Renew ITIN Soon to Avoid Refund Delays
Many Individual Taxpayer Identification Numbers (ITINs) expired on Jan. 1, and affected taxpayers should act soon to avoid refund delays and possible loss of eligibility for some key tax benefits until the ITIN is renewed. An ITIN is used by anyone who has tax-filing or payment obligations under U.S. law but is not eligible for a Social Security number.
Under a PATH Act change, any ITIN not used on a tax return at least once in the past three years has expired. Also now expired is any ITIN with middle digits of either 78 or 79 (9NN-78-NNNN or 9NN-79-NNNN).
It can take up to 11 weeks to process a complete and accurate ITIN renewal application. For that reason, the IRS urges anyone with an expired ITIN needing to file a return this tax season to submit their ITIN renewal application soon. ITIN renewal applicants can get help by visiting IRS.gov/ITIN, consulting a Certified Acceptance Agent or Acceptance Agent or making an appointment at an IRS Taxpayer Assistance Center (TAC).
Olympic Medals and Prize Money Now Tax-Free for Most Olympians
Starting in 2016, most Olympic and Paralympic winners qualify for a new tax benefit. To qualify, the taxpayer’s adjusted gross income (AGI) must be $1 million or less ($500,000 or less, if married filing separately. For these taxpayers, the value of Olympic and Paralympic medals and the amount of United States Olympic Committee (USOC) prize money is not taxable. These amounts are shown in Box 3 on Form 1099-MISC. See the Form 1040 instructions for Lines 21 and 36 for details on how to report.
ABLE Accounts Now Available for Some People with Disabilities
States are now offering specially designed, tax-favored ABLE accounts to people with disabilities who became disabled before age 26. Originally authorized in legislation enacted in late 2014, these special accounts first became widely available during 2016. Recognizing the special financial burdens faced by families raising children with disabilities, ABLE accounts are designed to enable people with disabilities and their families to save for and pay for disability-related expenses.
Contributions totaling up to the annual gift tax exclusion amount — $14,000, in both 2016 and 2017 — can generally be made to an ABLE account each year. Though contributions are not deductible, distributions are tax-free if used to pay qualified disability expenses. See the Tax Benefit for Disability page for more information.
Standard Mileage Rates Revised
The standard mileage rates for the use of a car, van, pickup or panel truck are:
- 54 cents per mile for business miles driven in 2016, down from 57.5 cents in 2015. For those planning ahead, the 2017 rate, for use on a 2017 return filed next year, is 53.5 cents per mile.
- 19 cents per mile driven for medical or moving purposes in 2016, down from 23 cents in 2015. The 2017 rate is 17 cents.
- 14 cents per mile driven in service of charitable organizations. This rate is set by law and is unchanged.
The tax instructions have details on taking advantage of each of these provisions.
New Self-Certification Available for Missed Rollover Deadline
Beginning Aug. 24, 2016, a taxpayer who inadvertently fails to properly complete a tax-free rollover of a distribution from an IRA or workplace retirement plan to another eligible retirement program can often qualify to use a new self-certification procedure. Under the procedure, eligible taxpayers, encountering a variety of mitigating circumstances, can qualify for a waiver of the 60-day time limit and avoid possible early distribution taxes. Normally, an eligible distribution from an IRA or workplace retirement plan can only qualify for tax-free rollover treatment if it is contributed to another IRA or workplace plan by the 60th day after it was received. Previously, in most cases, taxpayers who failed to meet the time limit could only obtain a waiver by requesting a private letter ruling from the IRS.
Now, a taxpayer who missed the time limit ordinarily qualifies for a waiver if one or more of 11 circumstances apply to them. They include a distribution check that was misplaced and never cashed, the taxpayer’s home was severely damaged, a family member died, the taxpayer or a family member was seriously ill, the taxpayer was incarcerated or restrictions were imposed by a foreign country.
Ordinarily, the IRS and plan administrators and trustees will honor a taxpayer’s truthful self-certification that they qualify for a waiver under these circumstances. Moreover, even if a taxpayer does not self-certify, the IRS now has the authority to grant a waiver during a subsequent examination. Further details, including a sample self-certification letter that a taxpayer can use to notify the administrator or trustee of the retirement plan or IRA receiving the rollover that they qualify for the waiver, can be found in Revenue Procedure 2016-47, posted on IRS.gov.
The IRS encourages eligible taxpayers wishing to transfer retirement plan or IRA distributions to another retirement plan or IRA to consider requesting that the administrator or trustee make a direct trustee-to-trustee transfer, rather than doing a rollover. Doing so can avoid some of the delays and restrictions that often arise during the rollover process. For more information about rollovers and transfers, check out the Can You Move Retirement Plan Assets? section in Publication 590-A or the Rollovers of Retirement Plan and IRA Distributions page on IRS.gov.
New Deadline for Reporting Foreign Accounts
The deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is now the same as for a federal income tax return. This means that the 2016 FBAR, Form 114, must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) by April 18, 2017. FinCEN will grant filers missing the April 18 deadline an automatic extension until Oct. 16, 2017 to file the FBAR. Specific extension requests are not required. In the past, the FBAR deadline was June 30 and no extensions were available.
In general, the filing requirement applies to anyone who had an interest in, or signature or other authority over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2016. Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is only available through the BSA E-Filing System website.
This month, as 2014 comes to a close, we are taking a look back at some of the most important blog topics we have covered both in case you missed them, and to help you prepare for 2015!
“A Gratuity of 18% Will Be Charged for Parties Over 6”
According to IRS Ruling 2012-18, a tip is defined as “(1) payment must be made free from compulsion; (2) the customer must have the unrestricted right to determine the amount; (3) the payment should not be the subject of negotiation or dictated by employer policy; and (4) generally, the customer has the right to determine who receives the payment.
The absence of any of these factors indicates that the payment is a service charge and not a “tip”. These service charges are considered restaurant income; if they are given to the employees, they are then considered wages and not tips.
As they are not tips, but rather wages, restaurants may not count the service charges (automatic %’s) toward the FLSA tip credit, even if they distribute the gratuities to the employees. When employees are serving parties not subject to an automatic service charge along with parties that are subject to an automatic service charge at the same time, it becomes a daunting task to determine what wages to pay the servers as they are performing both tipped and non-tipped duties, and only the tipped duties are eligible for the FLSA tip credit.
If the service charges are distributed to the employees, they become wages and therefore increase an employee’s regular rate of pay and must be factored into any overtime calculations. As if that’s not a big enough headache, restaurants must also remember to report service charges as employee’s wages not as tips on their payroll reports. They should also take these into consideration when completing their Employer’s Annual Information of Tip Income and Allocated Tips form. For income tax purposes, the service charge distributed to employees as wages should be reported as wages on the business tax return.
As you can imagine, this ruling has created a large amount of class actions alleging the improper failure to include service charges, aka mandatory gratuities, into the calculation of employee’s regular rate of pay. The easiest way for restaurants to avoid the above headaches and legal action is to simply eliminate the automatic gratuities, but provide suggested tip amounts.
HR Strategies provides their clients with guidance and assistance with these and other tricky HR matters. To learn more, contact us via the web by clicking here or give us a call today at:
For the next 6 weeks, our blog will be getting “Back to the Basics” of Human Resource as America goes back to school. We will be presenting a crash course on what companies can expect if they sign with HR Strategies and begin to use our services; a kind of HR Outsourcing 101 course, if you will. We will start with payroll, move to employee benefits, and work our way through workers’ compensation, regulatory compliance, HR consulting, and training. If you are interested in learning more about what we do, please contact us today at 770.339.0000 or here on our website: Contact Us Page
Did you know that today is Namesake Day? Have you wondered why we chose the name HR Strategies? We develop in-depth strategies for the human resource needs of small to medium sized businesses. The explanation is simple, but what we do for our clients is complex. Our clients outsource their HR hassles and responsibilities to us. Being able to function as an entire Human Resource department, we chose a name that referenced the detail and forethought in which we plan out the customized services we provide for each business. HR Strategies goes above and beyond in managing customized HR solutions for companies that are motivated to reduce costs by using HR Outsourcing. As a Professional Employer Organization (PEO), HR Strategies becomes your Payroll Processing Company and Workers’ Compensation Outsourcing, handles your Employee Benefits, provides Human Resource Consulting, works with you on Human Resources Regulatory Compliance, and provides Human Resource Training, as well as many other related HR responsibilities. Our professionals enable small business owners to focus on their core competencies, rather than focusing on running payroll, providing employee benefits, or the many other facets of human resource administration. We allow business owners to concentrate on their passion, without being distracted by countless human resources responsibilities.
Call us today to learn how we can take care of your Human Resource needs!
…and the truth to each:
- Loss of Control over the business and employees when using a PEO.
- In a PEO relationship, the client forms a co-employment relationship with the PEO in which the PEO becomes the administrative employer, or the employer of record, for tax and insurance purposes using their own FEIN, and the client remains the worksite employer. As the employer of record, the PEO is responsible for the payment of wages, management of workers’ compensation claims, regulatory paperwork, and compliance issues. The PEO is also responsible for a variety of other administrative duties involving the employees, and may provide the client and/or its worksite employees with additional insurance and benefit plans. The PEO may offer consulting on HR needs such as proper disciplinary actions and termination of employees, but the client remains responsible for directing and controlling the daily activities of the worksite employees. The client is also responsible for maintaining a safe work environment and keeping track of actual hours worked and reporting those hours to the PEO for payroll processing.
- PEOs only look after HR management.
- A PEO is a Professional Employer Organization to which companies outsource a majority of their HR functions, i.e. payroll, benefits, workers’ compensation, tax administration, etc. By outsourcing these needs to the PEO, companies are freeing up time to dedicate to the nuts and bolts of their business.
- The PEO becomes the Company’s new partner in the business.
- The PEO is legally a vendor. However, HR Strategies really goes above and beyond to take those extra steps to manage our client’s HR responsibilities. We work alongside our clients, rather than just doing the minimum of what is required to offer regulatory compliance, workers’ compensation administration, employee benefits, and payroll. Therefore, we act more as a partner to our clients, and because we are a smaller business, we are able to customize solutions for each individual client.
- A PEO will tell me how to handle MY employees.
- The PEO may offer consulting on HR needs such as proper disciplinary actions and termination of employees, but the client remains responsible for directing and controlling the daily activities of the worksite employees.
- Our employees will not embrace the new arrangement.
- The three main advantages to using a PEO are: efficiency, lower administrative costs, and improved employee benefit options. As a business these three advantages mean better productivity, morale, and increased revenue! When your employees are receiving better benefits and skilled professionals to assist them, morale increases, and therefore productivity increases!
Outsourcing your HR needs frees key personnel from the paperwork and complex issues of HR administration, therefore allowing your employees to focus on generating income. Businesses of every industry and any size can find HR Strategies helpful in allowing their company to run more smoothly. Contact us today for a free needs analysis! 770-339-0000.
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We hold complimentary quarterly trainings for all of our clients! Interested in attending the next one? Call or click today for a Free Needs Analysis! 770.330.0000 Become a client and start enjoying all of the excellent benefits HR Strategies’ clients receive!