Category Archives for Federal Tax Return

IRS tips for the 2013 summertime taxpayer

IRS tax formsTax season ends for most people when they file their tax return on or before April 15. They either pay income taxes they still owe or wait for a refund of their excess withholding. There are, however, a small group of people who still have unresolved issues. Some taxpayers need to setup payment plans or address written questions from the IRS. The government sends out letters requesting additional documentation that might clarify discrepancies in the information reported on a tax return. You, as a taxpayer, need a plan of action if you face a tax bill or receive one of those disturbing IRS letters.

It is best to pay any legitimate outstanding tax bills from the IRS as soon as possible. Seek professional assistance if you receive an IRS letter like, for example, a CP 2000 proposing tax changes. The IRS balances shown are sometimes misleading. There are many different kinds of IRS notices and letters described here.

Interest and penalty charges for late filing and/or late payment accumulate from the time of your filing deadline. Any calculated tax balance for most tax payers is due on the 15th day of the fourth month of the calendar year following the tax year. Consider borrowing money from a commercial lender to pay your tax bill rather than entering into an IRS installment plan.

If you pay by personal check, cashier’s check or money order payable to U.S. Treasury. Take an additional moment to confirm your social security number or other tax identification number is written in the memo section.  It is important, when mailing a payment, to indicate which tax year you want the IRS to apply your payment. For example, when you mail a check now in 2013 but are sending a balance due for Tax year 2012 write 2012 IRS 1040-V; if you are making payment based on a separate IRS letter like a CP2000, Proposed Changes for Tax year 2011, write 2011 IRS CP2000. If you are making estimated tax payments for the current tax year, write 2013 IRS 1040-ES. Do not staple the payment to any voucher or paper. Indicate how you wish your payment to be applied to minimize confusion and possible bookkeeping errors.

Different Payment Methods

You can make payments through a debit card, a credit card or, based on the size and nature of your payments, even through the Electronic Federal Tax Payment System(EFTPS) or over a telephone (800-555-4477). Review a variety of options here. If you mail a payment, make certain you secure a return receipt from the US Post Office. If you want to use a debit or credit card, reference this IRS listing of recognized processing companies here.

Pay within 120 days

If you can pay the full balance due within 120 days or less, consider a short-term agreement rather than an installment plan. Review the Online Payment Agreement website here.

Make monthly payments

If you want to establish a monthly payment plan and owe $50,000 or less, apply for and receive prompt notification of approval using the Online Payment Agreement. You will have options and fee reductions if you can provide a bank account for a recurring direct debit of funds. Use IRS Form 9465, Installment Agreement Request. If you owe more than $50,000, complete IRS Form 433F, Collection Information Statement. There are one-time fees for these installment plans ranging from $105 down to $43.

Consider an Offer In Compromise (OIC)

There are ways to resolve outstanding tax debt if you cannot make payments. Seek professional assistance if you need to seek alternatives to an installment agreement. Use the OIC Pre-Qualifier tool to determine eligibility and review other options to resolve your tax issues. The IRS Fresh Start is another initiative that applies to both individual and small businesses. This program may also offer alternatives ways to address impending tax liens and the payment of back taxes.

Consider increasing withholding allowances

Review your IRS Form W-4, Employee’s Withholding Allowance Certificate, your employer uses to calculate your net pay. The government also provides an IRS Withholding Calculator tool to assist in your current year tax planning.


You can find a discussion of the IRS Collection Process in IRS Publication 594 here. The IRS also provides other information sources including videos and podcasts. Find a list of resources in English, Spanish, and American Sign Language (ASL) in the IRS Summertime Tax Tip 2013-14, August 2, 2013.

Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs)

IRS Form 8889Everyone including tax preparers is eagerly waiting for more guidance from the government regarding the implementation of Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs) in 2014. The Health and Human Services (HHS), Department Of Labor (DOL), and the Treasury Department are releasing rules and regulations on a regular basis these days to help explain parts of the Patient Protection and Affordable Care Act (hereafter, PPACA) affecting job-related health care plans, as well as tax planning, for small business owners and the individual tax payer. Many important tax features in the current Internal Revenue Code will change in definition, complexity, and strategic use. HSAs and HRAs are but two examples of a wide range of areas in business planning that need greater clarification and study.

What is a Health Savings Account?

HSAs include specially designated funds managed by an individual or family intended exclusively for qualified medical expenses. It parallels funds contributed to retirement plans like traditional Independent Retirement Arrangements (IRAs) and Roth 401(k) plans except the tax-deductible contributions must be used to a taxpayer’s health costs. The Internal Revenue Code requires a minimum health insurance deductible from all sources in order to allow the special tax treatment of HSA contributions. These designated funds can accumulate tax-free interest and/or dividends. When applied to qualified medical expenses, their distribution is also tax-free. Thus, HSA annual contributions are like IRA contributions; they are 100% tax-deductible. Any distributions can be deferred indefinitely without tax penalty or required minimum distribution. Refer to 2014 HSA rules and regulations in the June 28, 2010 Federal Register here.

How do HSA limits and thresholds compare in 2014 to 2013?

The upcoming HSA contribution limits and maximum thresholds for out-of-pocket disbursements have increased. In 2014, annual HSA contributions will be $3,300 for self-coverage (individual) and $6,550 for family coverage. These levels compare to 2013 values of $3,250 for single and $6,450 for family coverage. The High Deductible Health Plan (HDHP) deductibles remain the same in 2014 compared to 2013; they are $1,250 and $2,500 for self-only and family coverage respectively. The 2014 inflation adjusted amounts for HSAs as determined under § 223 of the Internal Revenue Code can be referenced here.

Out-of-pocket over the course of one-year can include insurance deductibles, co-payments and amounts not including actual premiums. In 2014, these maximums are $6,350 and $12,700 for self-only and family respectively. In 2013, they are $6,250 and $12,500 for self-only and family respectively.

Individuals who draw down (distribute) funds for payment of non-specific, unqualified, or non-medical expenses face a 20% tax penalty.

What is a Health Reimbursement Arrangement?

A Health Reimbursement Arrangement (HRA) is a special financial account established by employers to reimburse employees for their medical expenses. It is called a notional account because employer contributions are ‘noted’ but not necessarily released to employees. Records of committed funds are kept on behalf of employees in advance of any specific qualified medical disbursement. A notional account means that an employer will reimburse their employee only after medical expenses are paid. HRAs, unlike an HSA, are not established by employees nor linked to a HDHP. Another HRA difference is in funding; these arrangements do not allow employees or outside third parties to make contributions to them.

How is an HRA similar to and different from an HSA?

Employer contributions to both HRA and HSA are tax-deductible. The HRA is far more advantageous to employers because they determine the maximum contribution and disburse funds on demand. Payments exactly match the employee’s specific medical costs making administration easier compared to cafeteria plans or other health cover programs.

An employer excludes HRA from employee wages. The employee treats their own HSA contributions like money independently contributed to an IRA except HSA contributions are tax-free rather than tax-deferred. The HSA funds are portable (from employer to employer) as long as distributions are applied to qualified medical expenses.

Both HSA and HRA funds are “consumer-directed” in that the employee determines to whom, how, where, and when medical expenses are paid. Unused funds will accumulate over time.

 What is an integrated HRA?

If an HRA is part of other coverage included in a group health plan compliant with PPACA rules and regulations, it is considered integrated and allowed. The guidance regarding the implementation of rules for group health plans under PPACA is based on documentation originally published in the Federal Register cited above.

Will HRAs be allowed in 2014?

No guidance has not been issued to date regarding HRAs in 2014. Recent information from Health and Human Services (HHS), Department Of Labor (DOL), and the Treasury Department suggest that if an HRA is not part of a health coverage plan, it will not be allowed after January 1, 2014 because PPACA does not allow any annual dollar limits on essential health benefits. By definition, an HRA would conflict with this rule because it can potentially provide individual market coverage or health plans or alternatively offer credits to anyone not enrolled in other medical programs. Permissibility under PPACA will depend on whether or not the HRA is integrated into the group health plan coverage.

Some other recent references to 2014 changes to HSAs and HRAs:

HRA, HSA and FSA – Changes Under Health Reform | NorthWest …
The Affordable Care Act (known as ACA or health reform) was signed into law in 2010 and impacts many areas of health care and health insurance, including medical reimbursement programs such as HRAs, HSAs and FSAs. Beginning January 1, 2014: HRAs may need minor plan design changes to be ACA-compliant in 2014. HRAs will need to meet one of these five types of HRAs that are excluded from annual limit requirements outlined in health reform laws 

[Intercare Compliance Advisory] IRS Announces 2014 HSA/HDHP …
The Internal Revenue Service recently released 2014 inflation-adjusted figures for contributions to health savings accounts (“HSAs”) and the minimum deductible and maximum out-of-pocket limits for accompanying high deductible Your employees do not become ineligible for an HSA if you only offer (i) a limited purpose health FSA or limited purpose health reimbursement account (“HRA”) (i.e., one that pays or reimburses only permitted coverage such as vision or 

HSAs vs HRAs (Savings Accounts vs Reimbursement Arrangements)
Comparing HSAs vs HRAs… For most businesses, HRAs are superior to HSAs – Which is better for you? HRA or HSA. 2013 9:46 AM by Corky Bradley. I believe Plans lose grandfathered status in 2014. <<Also, if you review 


Defense of Marriage Act (DOMA) changes tax rules

IRS Guidelines For 2013

When the US Supreme Court struck down parts of the Defense of Marriage Act, commonly known as DOMA, significant changes occurred in the federal filing status for some people in this country.  There is a major difference in tax calculations between filing as Single and filing as Married Filing Jointly (MFJ). Same-sex couples who are legally married can now change their filing status to reflect their marital status. The federal tax return now agrees with the way some states like California reported Registered Domestic Partners (RDPs). If a married couple lives in California, they can now list themselves on both the federal and state tax returns as married.   It is not clear, however, whether the California RDP designation is considered the same as a married couple on a federal tax return.  Ambiguities especially reconciling state and federal definitions remain even before the IRS releases guidance that will hopefully clarify tax issues relating to the prior year tax filings.

Despite the often cited “marriage penalties” especially when both partners have earned income, the MFJ filing status offers tax advantages. In general terms, the standard deduction for a married couple is double that of a single person. The IRS has not officially stated how the recent DOMA decision will affect federal income tax filings retroactively.  Couples who were legally married in a prior year should nevertheless consider amending prior year federal returns for possible refunds still available under the statute of limitations. In the case of California, the IRS allowed amended federal tax returns for prior years in order to determine community property issues pertaining to RDPs ruled by the state.

Calculate tax brackets and various floors and thresholds when to determine the lowest possible tax calculations.

There are parts of the DOMA decision that extend far beyond a fundamental determination of filing status. Recognition of marriage for all couples affects retirement plan payments, estates, and gift tax, as well as social security benefits. Many new possible tax strategies are available now that both opposite- and same-sex couples share the same filing status and potentially change how contributions and distributions can be handled.  Given the way the IRS managed changes in community property matters reported retroactively in, for example, California, guidance and clarification of tax treatment from the IRS is highly anticipated.

It is probably safe to make simple extensions of the Internal Revenue Code to new areas of tax reporting.  For example, the IRA surviving spouse beneficiary of a same-sex married couple has the same tax benefits as any other spouse; they can treat their deceased partner’s IRA as their own and postpone payouts up until required minimum distributions are due.  Similarly, when one spouse transfers assets to another or is left assets by their deceased spouse, property is not subject to taxation.  In addition, the portability election now applies between any married couple where, as of 2013, up to $10,500,000 USD in assets is excluded from estate or gift tax.

Determination and allocation of Social Security benefits are also affected by the DOMA decision.  Some benefits are determined by the earnings history of a spouse. It is not clear how the DOMA decision will be applied retroactively to qualified benefits for a divorced spouse. Many unaddressed issues remain especially in reconciling state rulings with federal statutes as well as between government agencies like the Internal Revenue Service and the Social Security Administration.  Following these recent changes in the DOMA, implementation of health care rules as stated(?) in the ‘evolving’ Affordable Care Act require greater clarity especially since tax preparers take decisive interpretive actions whenever they prepare an individual or couple’s personal income tax return. If the guidance is ambiguous or absent, how can they provide a timely and accurate service to their clients?

Other recent references to DOMA and about RDPs as of 28 July 2013:

Military Ready to Act in Response to DOMA Ruling – Hit & Run …
The Defense of Marriage Act prohibited the federal government from recognizing and extending benefits to same sex spouses. With the Supreme Court striking.

Life After DOMA: Same-Sex Marriage Fight Heads Back to the States …
One month after the Supreme Court struck down a crucial provision of the Defense of Marriage Act, gay Americans and the government alike are still sorting through the ramifications of the ruling — just…

Staver: SCOTUS DOMA Ruling Is Like Trying To Suspend The Law …
On today’s “Faith and Freedom Radio” broadcast, Mat Staver continued to directly compare the Supreme Court’s recent ruling on the Defense of Marriage Act to the Dred Scott ruling and other egregious court decisions from 

Tax Tips for Registered Domestic Partners and Same-Sex Couples …
As of 2012, the IRS follows DOMA – the Defense of Marriage Act – which only recognizes marriage between a man and woman. Domestic partners, therefore, can submit only individual 1040s; they cannot file jointly. How you handle 1040 forms 

Marital Deduction for Registered Domestic Partners after Windsor
California registered domestic partnerships may soon be converted into marriages for same-sex partners after a relatively short opt-out period as occurred in Washington state, where same-sex marriages not dissolved by 



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