BULLDAWG TAX & ACCOUNTING
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News & Important Updates
IRS Collection Launches Early Interaction Initiative
NOTE: This headliner is current through the publication date. Since changes could occur, we make no guarantees concerning the technical accuracy after the publication date.
Headliner Volume 351
August 7, 2015
In line with IRS-wide efforts to provide timely service, IRS Collection is launching an Early Interaction Initiative. The goal of the initiative is to help employers understand and meet their payroll tax responsibilities, prevent missed payments from becoming delinquencies and delinquencies pyramiding out of control.
For many years, Collection’s field staff has been assigned Federal Tax Deposit Alerts (FTD Alerts) where our records indicate that an employer’s payroll tax deposits have declined. These cases were sent to Field Collection staff near the end of the quarter but before the quarterly payroll tax return was due. Then as now, the goal was to meet the employer, determine whether there was a missed payment or delinquency, and if so, help to get it paid and the employer to sustain payroll tax compliance.
The Early Interaction Initiative will accelerate and enhance the FTD Alert process. Collection’s work plans have been adjusted to allow field officials to work more FTD Alerts more quickly.
IRS does not have the resources to visit every employer whose payroll tax deposits decline. So many will receive a letter saying that we have reviewed their federal payroll tax deposit history and their deposits appear to have decreased. The letter will ask the employer to contact us, by letter or phone, and help us understand the reason for the decrease in deposits. In addition, the letter will remind the employer of their payroll tax responsibilities, advise them of the consequences of not complying with those responsibilities and provide assistance to help them comply.
Other FTD Alerts will be assigned to Field Collection with priority given to cases where the employer has preexisting delinquencies. The number of cases assigned to Field Collection will increase under the early interaction initiative. Where the employer has an explanation for the decline in payroll tax deposits, a cut in staff or a reorganization for example, the case will be closed. Where a delinquency exists, Field Collection will work with the employer to correct the delinquent condition going forward and address the unpaid tax, penalty and interest.
Finally, IRS is currently adjusting systems to monitor federal payroll tax deposits to get FTD Alerts out even more quickly. The sooner a potential problem is identified the better the chances it can be successfully addressed and corrected for both the employer and the IRS.
Payroll taxes withheld from employees’ wages and salaries are a trust fund. Employers withhold income and Federal Insurance Contribution Act (FICA) taxes from employees’ gross pay and hold it in trust until required to deposit it, along with their share of FICA taxes, with the Treasury. When FICA taxes are not deposited, the Social Security and Medicare trust funds suffer. When withheld income taxes are not deposited, the employees still get credit for those “withholdings” on their tax return, and will get their benefits later by proving the withheld amounts, and the rest of the American taxpaying public effectively makes up the difference and pays for their refunds and benefits.
Businesses are informed about their employment tax responsibilities by IRS, SSA, SBA and others in the business community and marketplace upon their establishment and advised about the consequences of missing required payments. The reason for the advice and early alerts is that missed payments mount quickly to employment tax delinquencies, along with interest and penalties, which accumulate or pyramid beyond the ability of the business to repay the amounts owed.
Businesses, especially when encountering liquidity difficulties, may use monies withheld from employees’ pay for working capital or other purposes. This may be an innocent diversion of the employment tax funds initially but the withheld pay and matching amount owed quickly pyramid and become a liability beyond the ability of the employer to repay. By the time the employer, IRS, or other creditors realize the pyramiding condition, the options for repayment decrease and the viability of the ongoing operation comes into question. Due to privacy and disclosure laws, these pyramiding employment tax delinquencies are not known to the business community or marketplace, beyond IRS liens placed on business assets. Banks, suppliers, and others may, therefore, unwittingly continue to extend credit to the delinquent business without knowing their true repayment risk.
Applying the tax laws with fairness for all requires that the IRS address payroll tax delinquencies as soon as possible. This involves proactively precluding delinquencies where we can and keeping delinquencies to a minimum.
Employers who need information on how to comply with their payroll tax responsibilities are encouraged to explore the many resources on the IRS website, IRS.gov. A search on the phrase "employment tax" is a good start. More specifically, employers may want to visit any of the following IRS.gov pages.
Income tax may be the last thing on your mind after a divorce or separation. However, these events can have a big impact on your taxes. Alimony and a name change are just a few items you may need to consider. Here are some key tax tips to keep in mind if you get divorced or separated.
• Child Support. If you pay child support, you can’t deduct it on your tax return. If you receive child support, the amount you receive is not taxable.
• Alimony Paid. If you make payments under a divorce or separate maintenance decree or written separation agreement you may be able to deduct them as alimony. This applies only if the payments qualify as alimony for federal tax purposes. If the decree or agreement does not require the payments, they do not qualify as alimony.
• Alimony Received. If you get alimony from your spouse or former spouse, it is taxable in the year you get it. Alimony is not subject to tax withholding so you may need to increase the tax you pay during the year to avoid a penalty. To do this, you can make estimated tax payments or increase the amount of tax withheld from your wages.
• Spousal IRA. If you get a final decree of divorce or separate maintenance by the end of your tax year, you can’t deduct contributions you make to your former spouse's traditional IRA. You may be able to deduct contributions you make to your own traditional IRA.
• Name Changes. If you change your name after your divorce, notify the Social Security Administration of the change. File Form SS-5, Application for a Social Security Card. You can get the form on SSA.gov or call 800-772-1213 to order it. The name on your tax return must match SSA records. A name mismatch can delay your refund.
Health Care Law Considerations
• Special Marketplace Enrollment Period. If you lose your health insurance coverage due to divorce, you are still required to have coverage for every month of the year for yourself and the dependents you can claim on your tax return. Losing coverage through a divorce is considered a qualifying life event that allows you to enroll in health coverage through the Health Insurance Marketplace during a Special Enrollment Period.
• Changes in Circumstances. If you purchase health insurance coverage through the Health Insurance Marketplace you may get advance payments of the premium tax credit in 2015. If you do, you should report changes in circumstances to your Marketplace throughout the year. Changes to report include a change in marital status, a name change and a change in your income or family size. By reporting changes, you will help make sure that you get the proper type and amount of financial assistance. This will also help you avoid getting too much or too little credit in advance.
• Shared Policy Allocation. If you divorced or are legally separated during the tax year and are enrolled in the same qualified health plan, you and your former spouse must allocate policy amounts on your separate tax returns to figure your premium tax credit and reconcile any advance payments made on your behalf. Publication 974, Premium Tax Credit, has more information about the Shared Policy Allocation.
For more on this topic, see Publication 504, Divorced or Separated Individuals. You can get it on IRS.gov/forms at any time.
Key Tax Tips on the Tax Effects of Divorce or Separation