Fall 2013 B Notices: Notice 1430 – Information about Your Form 1099-K (august 2013)

Why you are receiving this notice?
Your name and taxpayer identification number (TIN) submitted on Form 1099-K,Payment Card and
Third Party Network Transactions,
by a payment card processor or third-party settlement organization
does not match IRS records. If a payment card processor or third-party settlement organization
submits a Form 1099-K for tax year 2013 with an incorrect TIN or name for you, the payments you
receive for your payment card or third party network transactions will be subject to backup
withholding. This means the payment card processor or third-party settlement organization will be
required to withhold 28% from each payment to you beginning as early as September 2014.
If you operate as a partnership or subchapter S corporation, any monies withheld due to an incorrect
name or TIN can only be claimed by the partners and shareholders on their individual income tax
returns for their shares of the withheld amounts. The monies are not refundable to the partnership or
subchapter S corporation.
What you need to do
You need to immediately contact your payment card processor or third-party settlement organization.
Verify that the name and TIN the payment card processor or third-party settlement organization has in
its records matches the exact name and TIN on your income tax return.
For additional information on Form 1099-K reporting and backup withholding, visit our website at
www.irs.gov
and enter keywords, “Third Party Reporting Center” or “Backup Withholding.”

Penalty Relief and Schedule for ‘B’ Notices for Payment Card and Third Party Network Transactions

Internal Revenue Bulletin:  2013-39  -  Notice 2013-56

Transitional Penalty Relief and Schedule for Notices of Incorrect Name/TIN Combinations for Information Returns Relating to Payment Card and Third Party Network Transactions

Notice 2013- 56 provides transitional relief from penalties for a section 6050W filer reporting incorrect taxpayer identification number (TIN) information on information returns (Form 1099-K) and payee statements filed under section 6050W of the Internal Revenue Code. The relief provided by this notice is available for certain errors on information returns and payee statements required to be filed or furnished in 2013, based on payments made in calendar year 2012, as well as certain returns and statements that are required to be filed or furnished in 2014, based on payments made in calendar year 2013, provided that the section 6050W filer makes a good faith effort to accurately file the appropriate information return and the accompanying payee statement.

In addition, this notice informs section 6050W filers that Internal Revenue Service (IRS) notices informing payors that payee name and TIN combinations are incorrect (CP2100/CP2100A Notices) will not be sent based on incorrect name and TIN combinations on Forms 1099-K due before January 1, 2014. The first CP2100 and CP2100A Notices with respect to payments subject to section 6050W will be sent in late 2014 based on incorrect name and TIN combinations on Forms 1099-K filed in 2014 for calendar year 2013 payments.

Penalty Relief

Sections 6721 and 6722 are applicable to section 6050W payors that must file information returns for payments made in settlement of reportable payment transactions. Prior to the enactment of section 6050W, payors were not required to file the specific type of information return or to furnish the specific type of payee statement now required by section 6050W. In order to provide additional time to develop appropriate procedures for compliance with these new reporting requirements, Notice 2011-89 provided that the IRS would not impose penalties under sections 6721 and 6722 on payors that must file information returns and furnish payee statements in 2012 based on payments made in calendar year 2011, provided that they make good-faith efforts in filing accurate Forms 1099-K and furnishing the accompanying payee statements. Since that time, the IRS has been made aware that payors subject to section 6050W reporting continue to experience greater than usual difficulty in obtaining correct name and TIN information from payees and in resolving name and TIN mismatches. Payors have requested additional transition penalty relief in order to enable them to resolve these issues.

After careful consideration of these comments, the Treasury Department and the IRS have decided to extend the penalty relief provided in Notice 2011-89 to certain errors on information returns and payee statements required to be filed and furnished in 2013 and 2014. Specifically, this notice provides relief from penalties under sections 6721 and 6722 for returns and statements required to be filed and furnished in 2013 based on payments made in calendar year 2012 if they have missing TINs, obviously incorrect TINs (as described in section 3406(h)(1))[1], and incorrect name and TIN combinations. In addition, this notice provides relief from penalties under sections 6721 and 6722 for returns and statements required to be filed and furnished in 2014 based on payments made in 2013, but only in cases where the 2013 Form 1099-K contains an incorrect name and TIN combination. Limiting penalty relief for 2013 Forms 1099-K to incorrect name and TIN combinations is warranted because more expansive penalty relief (i.e., relief from penalties for missing or obviously incorrect TINs) would be inconsistent with the payor’s backup withholding obligations, which were first effective for payments made on or after January 1, 2013.

This notice does not apply to a payor who erroneously fails to file an information return or payee statement.

Schedule for CP2100/CP2100A Notices

Payors have asked for guidance regarding when the IRS will begin sending CP2100/CP2100A Notices with respect to Forms 1099-K. This notice informs payors that the IRS will not issue CP2100/CP2100A Notices based on incorrect name and TIN combinations reported on Forms 1099-K due before 2014. The IRS will begin sending CP2100/CP2100A Notices with respect to Forms 1099-K in late 2014. These CP2100/CP2100A Notices will be based on incorrect name and TIN combinations reported on Forms 1099-K required to be filed in 2014 for calendar year 2013 payments.

CP2100/CP 2100A Notices are not necessary to trigger backup withholding if the payee either did not provide a TIN or provided an obviously incorrect TIN. Payors should continue to backup withhold on calendar year 2013 payments to payees who failed to provide a TIN or who provided an obviously incorrect TIN.

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IRS CP2000 notices 2013

IRS discovered interest calculation errors in the CP2000 notices mailed the weeks of July 1 and July 8. The notices contained an incorrect calculation on the interest owed on proposed taxes from under reported income. The interest figures were lower than they should be. The IRS has corrected the issue for future mailings.

Taxpayers should follow the directions on the letter, and they will be encouraged to either call a special toll-free number or write to the IRS to receive the corrected interest amount.

A CP2000 notice shows proposed changes to income tax returns based on a comparison of the income, payments, credits and deductions reported on a tax return with information reported by employers, banks, businesses and other payers. The CP2000 also reflects any corrections made to an original tax return during processing.

Source: IRS

IRS Important Tax Dates for Small Businesses – February 2013

Fri    1    Deposit payroll tax for payments on Jan 26-29 if the semiweekly deposit rule applies.
Wed    6    Deposit payroll tax for payments on Jan 30 – Feb 1 if the semiweekly deposit rule applies.
Fri    8    Deposit payroll tax for payments on Feb 2-5 if the semiweekly deposit rule applies.
Mon    11    Employers: Employees are required to report to you tips of $20 or more earned during Jan.
Mon    11    File Forms 940, 941, 943, 944 and/or 945 if you timely deposited all required payments.
Wed    13    Deposit payroll tax for payments on Feb 6-8 if the semiweekly deposit rule applies.
Fri    15    File a new Form W-4 if you claimed exemption from income tax withholding in 2012.
Fri    15    Furnish Forms 1099-B, 1099-S and certain Forms 1099-MISC to recipients.
Fri    15    Deposit payroll tax for Jan if the monthly deposit rule applies.
Fri    15    Deposit payroll tax for payments on Feb 9-12 if the semiweekly deposit rule applies.
Sat    16    Begin withholding on employees who claimed exemption from withholding in 2012 but did not file a W-4 to continue withholding exemption in 2013.
Thu    21    Deposit payroll tax for payments on Feb 13-15 if the semiweekly deposit rule applies.
Fri    22    Deposit payroll tax for payments on Feb 16-19 if the semiweekly deposit rule applies.
Wed    27    Deposit payroll tax for payments on Feb 20-22 if the semiweekly deposit rule applies.
Thu    28    File information returns, including Forms 1098, 1099 and W-2G for payments made during 2012.
Thu    28    File Form W-3 with Copy A of all Forms W-2 issued for 2012.
Thu    28    File Form 8027 if you are a large food or beverage establishment.
Thu    28    File Form 730 and pay the tax on wagers accepted during January.
Thu    28    File Form 2290 and pay the tax for vehicles first used in January

AccuWage Software 2012

In order to run the Java version of the AccuWage/AccuW2C software, you must have the necessary Java Runtime Environment (JRE) files on your PC. Most users already have these files on their systems because Java applications are used in a wide range of computers and networks and are compatible with nearly every platform.

Accuwage software 2012 download links

Main Accuwage sotware download page

AccuWage/AccuW2C is free software from Social Security. It allows you to check W-2 (Wage and Tax Statement) and W-2c (W-2 correction) reports for correctness before you send them to Social Security. Using AccuWage and AccuW2C greatly reduces submission rejections. Download the latest version of AccuWage software as you prepare your wage reports each year.

AccuWage and AccuW2C software for 2012 are designed to test wage reports in the current EFW2 – EFW2C formats. The most current versions of AccuWage and AccuW2C work with current and prior year wage submissions.

    • A new version of AccuWage and AccuW2C software for 2012 (1.1.0) are now available for download.

 

      • This version corrects the problem in the RA records for the Contact E-mail/Internet field. If an invalid E-mail address comprised of over 35 characters was entered in the field, the software could potentially run in endless loops.

 

    • This version also corrects the problem in the RE records for the three keyboard characters ‘[‘, ‘ ]’ and ‘\’. The fields that allow keyboard characters were receiving error messages when any of the keyboard characters were used.
  • Previous versions of the AccuWage and AccuW2C software have been removed from the AccuWage website. We recommend that wage submitters uninstall prior versions of AccuWage and AccuW2C before they download the software for the current tax year.

The AccuWage application allows the Annual Wage Report (AWR) submitters to test the format accuracy of wage reports prior to sending them to the Social Security Administration (SSA) for processing. The AccuWage application checks the W-2 wage reports to ensure they comply with Publication 42-007: Specifications for Filing Forms W-2 Electronically (EFW2) and provides reports listing all errors found in the wage report. The wage report cannot be edited using the AccuWage software. The submitter can create a new EFW2 test file or correct the existing EFW2 test file that generated the errors. The wage report can be repeatedly retested until all the errors have been corrected.

The AccuWage application identifies many, but not all, wage submission errors. For example, AccuWage does not verify names and Social Security Numbers (SSNs). The likelihood of submission rejection, though not eliminated, is greatly reduced when using this application.

Source

 

2013 Health Flexible Spending Arrangements

Health flexible spending arrangements not subject to $2,500 limit on salary reduction contributions for plan years beginning before 2013 and comments requested on potential modification of use-or-lose rule.

Notice 2012-40

I. PURPOSE AND OVERVIEW
This notice provides guidance on the effective date of the $2,500 limit (as indexed for inflation) on salary reduction contributions to health flexible spending arrangements (health FSAs) under § 125(i) of the Internal Revenue Code (Code) (the $2,500 limit) and on the deadline for amending plans to comply with that limit. This notice also provides relief for certain contributions that mistakenly exceed the $2,500 limit and that are corrected in a timely manner. Finally, the notice requests comments on whether to modify the use-or-lose rule that is currently set forth in the proposed regulations with respect to health FSAs.

Specifically, this notice provides that –
-the $2,500 limit does not apply for plan years that begin before 2013;
-the term “taxable year” in § 125(i) refers to the plan year of the cafeteria plan as this is the period for which salary reduction elections are made;
-plans may adopt the required amendments to reflect the $2,500 limit at any time through the end of calendar year 2014;
-in the case of a plan providing a grace period (which may be up to two months and 15 days), unused salary reduction contributions to the health FSA for plan years beginning in 2012 or later that are carried over into the grace period for that plan year will not count against the $2,500 limit for the subsequent plan year; and
-relief is provided for certain salary reduction contributions exceeding the $2,500 limit that are due to a reasonable mistake and not willful neglect and that are corrected by the employer.

The statutory $2,500 limit under § 125(i) applies only to salary reduction contributions under a health FSA, and does not apply to certain employer non-elective contributions (sometimes called flex credits), to any types of contributions or amounts available for reimbursement under other types of FSAs, health savings accounts, or health reimbursement arrangements, or to salary reduction contributions to cafeteria plans that are used to pay an employee’s share of health coverage premiums (or the corresponding employee share under a self-insured employer-sponsored health plan).

II. BACKGROUND
A § 125 cafeteria plan is a written plan that allows employees to elect between permitted taxable benefits (such as cash) and certain qualified benefits. Section 125(a), (d)(1). If an employee makes the election before the start of the plan year, and other § 125 requirements are satisfied, the employee’s election of one or more qualified benefits does not result in gross income to the employee.
In 2007, the Treasury Department and the Internal Revenue Service (IRS) published proposed regulations under § 125. 72 Fed. Reg. 43938 (Aug. 6, 2007). Taxpayers may rely on the proposed regulations. The proposed regulations require a written cafeteria plan providing a health FSA to specify the maximum salary reduction contribution as a maximum dollar amount, a maximum percentage of compensation, or other method of determining the maximum salary reduction contribution. See Prop. Treas. Reg. § 1.125-1(c). If a cafeteria plan fails to operate in compliance with § 125 or fails to satisfy any of the written plan requirements for health FSAs, the plan is not a § 125 cafeteria plan and an employee’s election of nontaxable benefits results in gross income to the employee. For additional guidance, see Prop. Treas. Reg. § 1.125-1(c)(1), (c)(6) and (c)(7).

A cafeteria plan may include a grace period of up to two months and 15 days immediately following the end of a plan year. If the plan provides for a grace period, an employee may use amounts remaining from the previous plan year (including amounts remaining in a health FSA) to pay for expenses incurred for certain qualified benefits during the grace period. See Notice 2005-42, 2005-1 C.B. 1204, and Prop. Treas. Reg. § 1.125-1(e).
Section 125(i) was added by § 9005 of the Patient Protection and Affordable Care Act (the Act), Pub. L. No. 111-148 (as amended by § 10902 of the Act, and further amended by § 1403(b) of the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152). Section 125(i) is effective for “taxable years” beginning after December 31, 2012. Prior to the effective date of § 125(i), plan sponsors imposed limits on the amount of salary reduction contributions that employees may elect to health FSAs, but there has been no statutory limit.

III.
COMPLIANCE WITH THE $2,500 LIMIT ON SALARY REDUCTION CONTRIBUTIONS TO HEALTH FSAS
Section 125(i) provides that a health FSA is not treated as a qualified benefit unless the cafeteria plan “provides that an employee may not elect for any taxable year to have salary reduction contributions in excess of $2,500 made to such arrangement.”
Because employees make salary reduction contribution elections for health FSAs only on a plan year basis (see Prop. Treas. Reg. § 1.125-2), the term “taxable year” in § 125(i) (which does not specify that it refers, for example, to the employee’s taxable year or to the employer’s taxable year) refers to the plan year of the cafeteria plan. Similarly, the reference to “taxable year” in the effective date provision of § 125(i) refers to the plan year of the cafeteria plan. Accordingly, the $2,500 limit on health FSA salary reduction contributions applies on a plan year basis and is effective for plan years beginning after December 31, 2012. Also, the $2,500 limit will be indexed for cost-of-living adjustments for plan years beginning after December 31, 2013. See General Explanation of Tax Legislation Enacted in the 111th Congress (2011), Joint Committee on Taxation, at 317.

A § 125 cafeteria plan may offer only qualified benefits. A plan that offers a nonqualified benefit is not a § 125 cafeteria plan. Section 125(d)(1)(B); see also Prop. Treas. Reg. § 1.125-1(q). Accordingly, a cafeteria plan that fails to comply with § 125(i) for plan years beginning after December 31, 2012 is not a § 125 cafeteria plan and the value of the taxable benefits that an employee could have elected to receive under the plan during the plan year is includible in employee’s gross income, regardless of the benefit elected by the employee. See Prop. Treas. Reg. § 1.125-1(b). As explained below, the cafeteria plan must be amended to reflect the $2,500 limit, and must also comply with the $2,500 limit in operation.
Consistent with Prop. Treas. Reg. § 1.125-1(d)(2), a plan year is permitted to be changed only for a valid business purpose. If a principal purpose of changing from a calendar year to a fiscal year is to delay the application of the $2,500 limit, the change is
not for a valid business purpose. If a change in the plan year does not satisfy this valid business purpose requirement, the plan year for the cafeteria plan remains the plan year that was in effect prior to the attempted change.

If a cafeteria plan has a short plan year (that is, fewer than 12 months) that begins after 2012, the $2,500 limit must be prorated based on the number of months in that short plan year.
The $2,500 limit on salary reduction contributions to a health FSA applies on an employee-by-employee basis. Thus, $2,500 (as indexed for inflation) is the maximum salary reduction contribution each employee may make for a plan year, regardless of the number of other individuals (for example, a spouse, dependents, or adult children (see § 105(b)) whose medical expenses are reimbursable under the employee’s health FSA. Consistent with this rule, if each of two spouses is eligible to elect salary reduction contributions to an FSA, each spouse may elect to make salary reduction contributions of up to $2,500 (as indexed for inflation) to his or her health FSA, even if both participate in the same health FSA sponsored by the same employer.
All employers that are treated as a single employer under § 414(b), (c), or (m), relating to controlled groups and affiliated service groups, are treated as a single employer for purposes of the $2,500 limit. If an employee participates in multiple cafeteria plans offering health FSAs maintained by members of a controlled group or affiliated service group, the employee’s total health FSA salary reduction contributions under all of the cafeteria plans are limited to $2,500 (as indexed for inflation). Section 125(g)(4). However, an employee employed by two or more employers that are not
members of the same controlled group may elect up to $2,500 (as indexed for inflation) under each employer’s health FSA.

As noted, the $2,500 limit applies only to salary reduction contributions and not to employer non-elective contributions, sometimes called flex credits. Generally, an employer may make flex credits available to an employee who is eligible to participate in the cafeteria plan, to be used (at the employee’s election) only for one or more qualified benefits. For further information on flex credits, see Prop. Treas. Reg. § 1.125-5(b). For example, if an employer contributes a $500 flex credit to each employee’s health FSA for the 2013 plan year, each employee may still elect to make salary reduction contributions of $2,500 (as indexed for inflation) to a health FSA for that plan year. However, if an employer provides flex credits that employees may elect to receive as cash or as a taxable benefit, those flex credits are treated as salary reduction contributions for purposes of § 125(i).

The statute imposes the $2,500 limit only on salary reduction contributions to a health FSA in a cafeteria plan and does not limit the amount permitted for reimbursement under other employer-provided coverage, such as employee salary reduction contributions to an FSA for dependent care assistance or adoption care assistance. The limit also does not apply to salary reduction contributions to a cafeteria plan that are used to pay an employee’s share of health coverage premiums (or the corresponding employee share under a self-insured employer-sponsored health plan) — sometimes referred to as “premium conversion” salary reduction contributions — nor does it apply to salary reduction or any other contributions to a health savings account
(HSA) or to amounts made available by an employer under a health reimbursement arrangement (HRA).
If a plan provides for a grace period (which, as noted above, can be no longer than two months and 15 days) for a plan year, unused salary reduction contributions to the health FSA for the plan year that are carried over into the grace period do not count against the $2,500 limit applicable for the subsequent plan year.
If a cafeteria plan timely complies with the written plan requirement limiting health FSA salary reduction contributions as set forth in section IV, below, but one or more employees are erroneously allowed to elect a salary reduction of more than $2,500 (as indexed for inflation) for a plan year, the cafeteria plan will continue to be a § 125 cafeteria plan for that plan year if (1) the terms of the plan apply uniformly to all participants (consistent with Prop. Treas. Reg. § 1.125-1(c)(1)); (2) the error results from a reasonable mistake by the employer (or the employer’s agent) and is not due to willful neglect by the employer (or the employer’s agent); and (3) salary reduction contributions in excess of $2,500 (as indexed for inflation) are paid to the employee and reported as wages for income tax withholding and employment tax purposes on the employee’s Form W-2, Wage and Tax Statement (or Form W-2c, Corrected Wage and Tax Statement) for the employee’s taxable year in which, or with which, ends the cafeteria plan year in which the correction is made.
The relief provided in this section III with respect to erroneous excess contributions is not available for an employer if a federal tax return of the employer is under examination with respect to benefits provided under a cafeteria plan with respect to any cafeteria plan year during which the failure to comply with § 125(i) occurred. For
this purpose, an employer is treated as under examination if the employer receives written notification (for example, by plan examination, information document request (IDR), or notification of proposed adjustments to a federal tax return) from the examining agent(s) specifically citing § 125(i) as an issue under consideration.

IV. WRITTEN CAFETERIA PLAN AMENDMENT
A cafeteria plan offering a health FSA must be amended to set forth the $2,500 limit (or, at the employer’s option, a lower limit specified in the plan). Cafeteria plan amendments may be effective only prospectively. See Prop.Treas. Reg. § 1.125-1(c). Notwithstanding this rule against retroactive amendments, an amendment to conform a cafeteria plan to the requirements of § 125(i) that is adopted on or before December 31, 2014, may be made effective retroactively, provided that the cafeteria plan operates in accordance with the requirements of § 125(i) (including the guidance under this notice) for plan years beginning after December 31, 2012. This amendment to the written cafeteria plan may be expressed as a maximum dollar amount or by another method of determining the maximum dollar amount of salary reduction contributions to a health FSA, but in no case may the plan permit a participant to make salary reduction contributions, for a plan year beginning after December 31, 2012, exceeding the $2,500 limit.

V. EXAMPLES
The rules of this notice are illustrated by the following examples. For all examples, it is assumed that the cafeteria plan otherwise satisfies all of the requirements of § 125 and the proposed regulations, and that the employer is not a member of a controlled group or affiliated service group.
Example 1. (i) Employer W offers a calendar year cafeteria plan including a health FSA. Employer W amends its written cafeteria plan by December 31, 2014, to provide that, effective for the plan year beginning on January 1, 2013, employee salary reduction contributions to a health FSA are limited to $2,500 (as indexed for inflation).
(ii) Employer W’s written cafeteria plan satisfies the requirements of § 125(i).
Example 2. (i) Employer X offers a calendar year cafeteria plan including a health FSA with a grace period of two months and 15 days that complies with Notice 2005-42 and the proposed regulations. Effective for the 2012 plan year, the written plan provides that employee salary reduction contributions for the health FSA are limited to $5,000. Effective for the 2013 plan year, the written plan provides that employee salary reduction contributions to the health FSA are limited to $2,500 (as indexed for inflation). Some employees have unused amounts from their 2012 health FSA salary reduction contributions that remain available during the grace period in the first two months and 15 days of 2013.
(ii) The availability during the grace period of amounts attributable to 2012 health FSA salary reduction contributions does not cause Employer X’s cafeteria plan to fail to satisfy the $2,500 limit.

VI. EFFECTIVE DATES
Under the guidance provided in this notice, section 125(i) applies to plan years beginning after December 31, 2012. Indexing of the $2,500 limit applies to plan years beginning after December 31, 2013.

Notice 2012-40 – Internal Revenue Service

2013 Transit Benefit Cap

To reflect a statutory amendment made by ATRA to § 132(f)(2), section 3.12 of Rev. Proc. 2011-52 is modified to read as follows:
.12 Qualified Transportation Fringe Benefit. For taxable years beginning in 2012, the monthly limitation under § 132(f)(2)(A) regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $240. The monthly limitation under § 132(f)(2)(B) regarding the fringe benefit exclusion amount for qualified parking is $240 for 2012.

IRS Revenue Procedure 2013-15.- SECTION 3. MODIFICATION OF REV. PROC. 2011-52

Simplified Option for Claiming Home Office Deduction for Home-Based Businesses (2013)

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

The new simplified option is available starting with the 2013 return most taxpayers file early in 2014. Further details on the new option can be found in Revenue Procedure 2013-13 .

The new option provides eligible taxpayers an easier path to claiming the home office deduction. Currently, they are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming the optional deduction will complete a significantly simplified form.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.

Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

IRS

 

Annual Inflation Adjustments for Tax Year 2013

IRS announced  annual inflation adjustments for tax year 2013, including the tax rate schedules, and other tax changes from the recently passed American Taxpayer Relief Act of 2012.  The tax items for 2013 of greatest interest to most taxpayers include the following changes.

  • Beginning in tax year 2013 (generally for tax returns filed in 2014), a new tax rate of 39.6 percent has been added for individuals whose income exceeds $400,000 ($450,000 for married taxpayers filing a joint return). The other marginal rates — 10, 15, 25, 28, 33 and 35 percent — remain the same as in prior years. The guidance contains the taxable income thresholds for each of the marginal rates.
  • The standard deduction rises to $6,100 ($12,200 for married couples filing jointly), up from $5,950 ($11,900 for married couples filing jointly) for tax year 2012.
  • The American Taxpayer Relief Act of 2012 added a limitation for itemized deductions claimed on 2013 returns of individuals with incomes of $250,000 or more ($300,000 for married couples filing jointly).
  • The personal exemption rises to $3,900, up from the 2012 exemption of $3,800. However beginning in 2013, the exemption is subject to a phase-out that begins with adjusted gross incomes of $250,000 ($300,000 for married couples filing jointly). It phases out completely at $372,500 ($422,500 for married couples filing jointly.)
  • The Alternative Minimum Tax exemption amount for tax year 2013 is $51,900 ($80,800, for married couples filing jointly), set by the American Taxpayer Relief Act of 2012, which indexes future amounts for inflation. The 2012 exemption amount was $50,600 ($78,750 for married couples filing jointly).
  • The maximum Earned Income Credit amount is $6,044 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $5,891 for tax year 2012.
  • Estates of decedents who die during 2013 have a basic exclusion amount of $5,250,000, up from a total of $5,120,000 for estates of decedents who died in 2012.
  • For tax year 2013, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transit passes and transportation in a commuter highway vehicle is $245, up from $240 for tax year 2012 (the legislation provided a retroactive increase from the $125 limit that had been in place).

Details on these inflation adjustments and others are contained in Revenue Procedure 2013-15, which will be published in Internal Revenue Bulletin 2013-5 on Jan.28, 2013. Other inflation adjusted items were published in October 2012 in Revenue Procedure 2012-41.

IRS

 

IRS Updated Withholding Guidance for 2013

Jan. 3, 2013

The Internal Revenue Service released updated income-tax withholding tables for 2013 reflecting this week’s changes by Congress.

The updated tables, issued today after President Obama signed the changes into law, show the new rates in effect for 2013 and supersede the tables issued on December 31, 2012. The newly revised version of Notice 1036 contains the percentage method income-tax withholding tables and related information that employers need to implement these changes.

In addition, employers should also begin withholding Social Security tax at the rate of 6.2 percent of wages paid following the expiration of the temporary two-percentage-point payroll tax cut in effect for 2011 and 2012. The payroll tax rates were not affected by this week’s legislation.

Employers should start using the revised withholding tables and correct the amount of Social Security tax withheld as soon as possible in 2013, but not later than Feb. 15, 2013. For any Social Security tax under-withheld before that date, employers should make the appropriate adjustment in workers’ pay as soon as possible, but not later than March 31, 2013.

Employers and payroll companies will handle the withholding changes, so workers typically won’t need to take any additional action, such as filling out a new W-4 withholding form.

As always, however, the IRS urges workers to review their withholding every year and, if necessary, fill out a new W-4 and give it to their employer. For example, individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or large refund at the end of the year may want to consider submitting revised W-4 forms.

Source