Federal Tax News

The Per Diem Rates for 2021-2022 Are Announced

The IRS has announced the special per diem rates, which are effective Oct. 1, 2021. Taxpayers may use these per diem rates to substantiate the amount of expenses for lodging, meals and incidental expenses when traveling away from home. An employer may pay a per diem or daily amount to an employee for business-travel instead of reimbursing actual substantiated expenses for away-from-home lodging, meal and incidental expenses.

Taxpayers in the transportation industry can use a special transportation industry rate and some taxpayers may use higher rates for certain high-cost localities. Click here to see the various rates in Notice 2021-52.

COVID-19 Testing and PPE Are Eligible Medical Expenses

The IRS is reminding taxpayers that the cost of home testing for COVID-19 is an eligible medical expense. This means that the cost of at-home testing is potentially tax deductible or can be paid for or reimbursed under health Flexible Spending Arrangements (FSAs), Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs) or Archer Medical Savings Accounts (Archer MSAs).

In addition, the costs of personal protective equipment (PPE), such as masks, hand sanitizer and sanitizing wipes, used for the primary purpose of preventing the spread of COVID-19, are also eligible medical expenses. Click http://https://www.irs.gov/newsroom/irs-cost-of-home-testing-for-covid-19-is-eligible-medical-expense-reimbursable-under-fsas- for more details.

Disaster Victims May Qualify for Tax Relief

Many Americans have become victims of weather-related disasters in recent months. In a tropical storm, wildfire, earthquake or other emergency, victims may need government help. When the damage from a sudden event warrants federal assistance, the U.S. President may classify it as a federally declared disaster.

That declaration gives the IRS the authority to let affected victims postpone certain time-sensitive tasks such as filing tax returns and making tax payments. In recent months, these victims include those in parts of Alabama, California, Kentucky, Louisiana, Michigan, Mississippi, New Jersey, New York, Oklahoma, Pennsylvania, Tennessee and Texas. Click http://https://www.irs.gov/newsroom/around-the-nation for details about the specific relief in your area.

Taxpayers may also be able to claim a casualty loss on their tax returns. Who is an "affected taxpayer?" Generally, it's a taxpayer located within the disaster area, or whose necessary records or tax preparer's records are located within the area.

More Electric Vehicles Are Eligible for a Valuable Tax Break

The tax code provides a credit to purchasers of qualified plug-in electric-drive passenger vehicles and light trucks. For qualifying vehicles acquired after Dec. 31, 2009, the credit is $2,500, plus an additional amount based on battery capacity that can't exceed $5,000. Therefore, the maximum credit amount is $7,500. This credit phases out over six quarters beginning when a manufacturer has sold at least 200,000 qualifying vehicles for use in the U.S. (determined cumulatively for sales after Dec. 31, 2009).

The IRS has added more vehicles to its list of those eligible for a federal tax credit. Here are the new eligible vehicles, along with their credit amounts: The 2022 Audi e-tron Sportback, Audi e-tron, Audi A7 TFSI e Quattro, and Audi Q5 TFSI e Quattro ($7,500); the 2022 BMW 330e, BMW 330e xDrive, BMW 530e, BMW 530e xDrive, BMW 740e xDrive ($5,836); and the 2022 Lincoln Aviator Grand Touring ($6,534). For a list of all qualifying vehicles, click here.

Tax Court Rules an Ex-wife Is Entitled to "Innocent Spouse Relief"

In general, spouses filing a joint federal tax return are both liable for the tax owed. But they may qualify for "innocent spouse relief" from joint liability. In one case, the U.S. Tax Court found an ex-wife was entitled to innocent spouse relief even though she knew her joint return taxes weren't being paid while she was married.

The court cited several reasons including that she would suffer economic hardship if relief wasn't granted. In addition, she was no longer married to her ex-husband when the IRS issued its final determination. The ex-husband entered into multiple installment agreements with the IRS, but his ex-wife didn't know that he didn't make all the payments. (TC Summary Opinion 2021-29)

Parents of College Age Children May Qualify for a Tax Credit

For purposes of the Child Tax Credit for the 2021 tax year, a qualifying child is one who doesn't turn 18 before January 1, 2022, and who satisfies certain other conditions. Taxpayers who don't qualify for the Child Tax Credit because their children are too old may have an alternative.

The Credit for Other Dependents maxes out at $500 per dependent if certain conditions are met. To qualify, a dependent must:

  • Be age 17 or older;
  • Have an individual taxpayer ID number;
  • Be a qualifying relative of the taxpayer or if unrelated, must live with the taxpayer.

In addition to an older child, a taxpayer's dependent parent may also qualify.

The credit begins to phase out when income exceeds $200,000 or $400,000 for married couples who file joint tax returns. It can be claimed in addition to the Child and Dependent Care Credit and the Earned Income Credit. Click here for more information.

News about Social Security Taxes and Benefits for 2022

The Social Security Administration (SSA) announced that the Social Security "wage base" will increase to $147,000 for 2022 (up from $142,800 for 2021). Wages and self-employment income above this threshold aren't subject to Social Security tax.

The Federal Insurance Contributions Act (FICA) imposes Social Security tax and Medicare tax on employees, employers and the self-employed. There's no threshold for Medicare tax; all wages and self-employment income are subject to the tax. The FICA tax rate for employees and employers is 7.65%: 6.2% for SS and 1.45% for Medicare. The self-employed pay both the employee and employer portions. Wages or self-employment income above certain amounts are subject to an additional 0.9% Medicare tax.

Meanwhile, the SSA announced that Social Security benefits will increase by 5.9% in 2022. The increase is the largest in nearly four decades, a result of increasing inflation this year. For an average Social Security recipient, the 5.9% increase results in a monthly payment of $1,657 next year, an increase of $92 per month over 2021. The cost-of-living adjustment will begin with benefits payable to more than 8 million Supplemental Security Income beneficiaries on December 30, 2021, and 64 million Social Security beneficiaries in January 2022.

Click here for more information about 2022 Social Security taxes and benefits.

It's a Good Time to Check Withholding for the Year

Now that the last quarter of 2021 is here, the IRS is reminding taxpayers that it's a good time to check withholding from your wages or compensation. Life changes might have occurred in 2021 that can affect your taxes. Examples include: COVID-19 relief you may have received; disaster relief, such as for a wildfire or hurricane; job loss; possible gig economy income; marriage; and a new baby.

If too little is withheld, you could incur penalties at tax-filing time. (You may have to increase withholding or make quarterly estimated tax payments to the IRS.) Or, if too much is being withheld from your paychecks, you might be able to put more cash in your pocket now with a simple change. Use the IRS Tax Withholding Estimator tool in this link to determine if you need to make a change or contact us with questions. Click here for more from the IRS.

Delinquent Taxpayers May Have to Contend with Liens and Levies

If the IRS can't collect delinquent taxes, a "lien" may arise and encumber the property of an individual or entity. The Treasury Inspector General for Tax Administration (TIGTA) has released the results of its fiscal year 2021 audit of IRS compliance with lien notice filing procedures. The audit focused on whether lien notices issued by the IRS complied with federal legal requirements. After filing the first Form 668(Y)(c), Notice of Federal Tax Lien, the IRS must notify affected taxpayers in writing at their last known addresses, within 5 business days. Generally, TIGTA found that the IRS "timely and correctly" mailed the notices to the correct addresses. Click http://https://www.treasury.gov/tigta/auditreports/2021reports/202130067fr.pdf to read the lien report.

If a taxpayer doesn't pay delinquent taxes, the IRS also has the authority to work directly with financial institutions and other third parties to seize the taxpayer's assets. This action is known as a levy. TIGTA recently published the results of its fiscal year 2021 audit of IRS compliance with legal guidelines when issuing levies. It found that the IRS generally complied with legal administrative requirements. However, the audit added "there were some instances of noncompliance in which an estimated 1,306 taxpayers' rights were potentially violated and 1,186 taxpayers were potentially burdened." Click here to read the levy audit.

Check Out Material that the IRS Uses to Audit Taxpayers

The IRS publishes "Audit Techniques Guides" that IRS examiners use during audits to understand unique issues in specific industries or situations. While the guides are designed for IRS auditors, they're available to the public so they can be used to understand the audit process. The guides explain audit techniques and include information on the examination of income, interview techniques and evaluation of evidence.

The IRS recently released a guide that discusses the tax consequences of an individual's property being disposed of through foreclosure, short sale, deed in lieu of foreclosure and abandonment. It also released a revised guide about the "hobby loss rules" Click http://https://www.irs.gov/businesses/small-businesses-self-employed/audit-techniques-guides-atgs to check out these Audit Technique Guides, titled "Real Estate Property Foreclosure and Cancellation of Debt" and "Activities Not Engaged in for Profit Internal Revenue Code Section 183," along with all of the other guides.

Categories: Monthly Bulletins, October 2021

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