Blog

IRS Increases 401k Limit – IR-2021-216, November 4, 2021

WASHINGTON — The Internal Revenue Service announced today that the amount individuals can contribute to their 401(k) plans in 2022 has increased to $20,500, up from $19,500 for 2021 and 2020. The IRS today also issued technical guidance regarding all of the cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2022 in Notice 2021-61 PDF, posted today on IRS.gov.

Highlights of changes for 2022

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $20,500, up from $19,500.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver’s Credit all increased for 2022.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2022:

• For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to $68,000 to $78,000, up from $66,000 to $76,000.
• For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to $109,000 to $129,000, up from $105,000 to $125,000.
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to $204,000 to $214,000, up from $198,000 to $208,000.
• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income phase-out range for taxpayers making contributions to a Roth IRA is increased to $129,000 to $144,000 for singles and heads of household, up from $125,000 to $140,000. For married couples filing jointly, the income phase-out range is increased to $204,000 to $214,000, up from $198,000 to $208,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $68,000 for married couples filing jointly, up from $66,000; $51,000 for heads of household, up from $49,500; and $34,000 for singles and married individuals filing separately, up from $33,000.

The amount individuals can contribute to their SIMPLE retirement accounts is increased to $14,000, up from $13,500.

Key employee contribution limits that remain unchanged

The limit on annual contributions to an IRA remains unchanged at $6,000. The IRA catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $6,500. Therefore, participants in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan who are 50 and older can contribute up to $27,000, starting in 2022. The catch-up contribution limit for employees aged 50 and over who participate in SIMPLE plans remains unchanged at $3,000.

Details on these and other retirement-related cost-of-living adjustments for 2022 are in Notice 2021-61 PDF, available on IRS.gov.

IRS Increases 401k Limit

Visit ATS Advisors to learn more about what we can do for you!

IR-2021-211, October 29, 2021

WASHINGTON — On Monday, November 1, the Internal Revenue Service will launch a new feature allowing any family receiving monthly Child Tax Credit payments to update their income using the Child Tax Credit Update Portal (CTC UP), found exclusively on IRS.gov.

To help families plan ahead, the IRS also announced today that in late November it will launch a new Spanish-language version of the CTC UP.

The IRS urges families to enter any significant income changes by midnight on November 1 in order for them to be reflected in their November payment, scheduled for November 15. If a family is unable to make the changes on November 1, enter them by November 29 so they are reflected in the December payment. Once the update is made, the IRS will adjust the remaining payment amounts to ensure people receive the total advance payment for the year. For married couples, if one spouse makes the income update, it will apply to both spouses and could impact both spouses’ future monthly advance payments of the Child Tax Credit.

Income feature right for some

The new income feature can help families make sure they are getting the right amount of advance Child Tax Credit payments during 2021. For that reason, it will be especially useful to any family who wants to raise or lower their monthly payments because their 2021 income has risen or fallen substantially, compared to 2020.

In many, but not all, cases a big income swing can either raise or lower a family’s monthly payments. Normally, this means that small changes in income will not impact the payment amount and need not be entered into the CTC UP.

Any change to the monthly payment amount will be reflected in both the November 15 and December 15 payments, but only if a person completes their updated income request before midnight Eastern Time on Monday, November 1. Changes made after that date, but before midnight on November 29, will only impact the December 15 payment, which is the last scheduled monthly payment for 2021. The IRS will adjust the payment amount to reflect these changes and ensure people receive their total advance payment for the year of up to $1,800 for each child under age 6 and up to $1,500 for each child ages 6 through 17.

Who qualifies for a bigger payment

In some cases, families who are currently receiving monthly payments that are below the maximum may qualify to have their payments increased. This could happen if, for example, they experienced job loss during 2021, or for some other reason are receiving substantially less income this year. If the reduction in income is large enough, reporting that change now may increase the amount of their advance CTC payments for the rest of this year.

For any family already receiving the maximum payment, a drop in income will not increase the payment amount. Normally, the maximum CTC payment is $300 per month for each qualifying child, under the age of 6, and $250 per month for each child, ages 6 to 17.

Most families are receiving half of the total CTC through monthly payments. This means that any changes entered into the CTC UP will increase or decrease their monthly payments to ensure they receive half of their total expected credit before the end of 2021. They will claim the remaining portion on their 2021 tax return.

Who should have their payments reduced

Any family whose income rose substantially in 2021 should consider having their payments reduced. This is especially true if they are now receiving the maximum monthly payment, and they expect to qualify for less than the full credit when they file their 2021 federal income tax return. For more information on calculating the CTC, see Topic C of the agency’s Frequently Asked Questions. In particular, where a family qualifies to receive less than the full amount, see QC 4 &  QC 5.

Using the portal to report income changes

Only families who are already eligible for and receiving advance CTC payments based on their 2020 tax return can use the CTC UP to update their income. Note that someone who filed a joint return for 2020 can only update their income if they plan to file a joint return for 2021 with the same spouse. IRS representatives cannot process income changes over the phone or at Taxpayer Assistance Centers.

After an income update is completed, the Update Portal will acknowledge a change was made but will not display the change. Likewise, IRS representatives won’t be able to confirm that an update was made.

Low-income families can still sign up

It’s not too late for low-income families to sign up for advance CTC payments.

The IRS urged any family not already receiving payments who normally isn’t required to file a tax return to explore the tools available through IRS.gov. These tools can help determine eligibility for the advance CTC or help them file a simplified tax return to sign up for these payments as well as Economic Impact Payments and the Recovery Rebate Credit.

The deadline to sign up is November 15, 2021. People can get these benefits, even if they don’t work and even if they receive no income.

Families who sign up will normally receive half of their total Child Tax Credit on December 15. This means a payment of up to $1,800 for each child, under 6, and up to $1,500 for each child, ages 6 to 17.

Get ready to file next year

Early in 2022, families will receive Letter 6419 documenting any advance payments issued to them during 2021 and the number of qualifying children used to calculate the advance payments. This letter can help them accurately reconcile the advance CTC payments they have received and claim any remaining portion of the CTC when completing their 2021 federal income tax return next year.

The income change feature joins a growing set of services available through CTC UP. Available only on IRS.gov, the portal already allows families to verify their eligibility for the payments and then, if they choose to:

• Switch from receiving a paper check to direct deposit;
• Change the account where their payment is direct deposited;
• Update their address or
• Stop monthly payments for the rest of 2021.

Latest information available on IRS.gov

The IRS has created a special Advance Child Tax Credit 2021 page designed to provide the most up-to-date information about the credit and the advance payments. It’s at IRS.gov/childtaxcredit2021.

The agency encourages partners and community groups to share information and use available online tools and toolkits to help non-filers, low-income families and other underserved groups sign up. People can check their eligibility by using the advance Child Tax Credit Eligibility Assistant.

The webpage features a set of frequently asked questions and a user guide for the Child Tax Credit Update Portal (Publication 5549) PDF. It also provides direct links to the portal, as well as two other online tools – the Non-filer Sign up Tool and the Child Tax Credit Eligibility Assistant – and other useful resources.

Visit ATS Advisors to learn more about what we can do for you

IRS Cybersecurity -2021-209, Oct. 22, 2021

WASHINGTON — The Internal Revenue Service today reminded families, teens and senior citizens about the continued importance of protecting personal and financial information PDF online. Although the IRS and its Security Summit partners continue making strides in fighting identity theft and fraudulent tax returns, help is needed.

The Security Summit works to protect taxpayers from criminals that file fraudulent returns for refunds. The Summit coalition includes representatives of the software industry, tax preparation firms, payroll and tax financial product processors as well as state tax administrators and the IRS, which work together year-round to protect taxpayers.

During National Cybersecurity Month, the IRS is asking parents, families and others to be mindful of the pitfalls that can be found by sharing devices at home, shopping online and through navigating various social media platforms. Often, those who are less experienced can put themselves and others at risk by leaving an unnecessary trail of personal information for fraudsters.

Staying safe online

Here are a few common-sense suggestions that can make a difference for children, teens and other vulnerable groups to potential dangers to protect their personal data:

• Teach them to recognize and avoid scams. Phishing emails, threatening phone calls and texts from thieves posing as the IRS or legitimate organizations pose ongoing risks. Do not click on links or download attachments from unknown or suspicious emails.
• Remind them why security is important. Be careful not to reveal too much personal information. Keeping data secure and only providing what is necessary minimizes online exposure to scammers and criminals. Birthdates, addresses, age, financial information such as bank account and Social Security numbers are among things that should not be shared freely.
• Teach them about public Wi-Fi networks. Connection to Wi-Fi in a mall or coffee shop is convenient but it may not be safe. Hackers and cybercriminals can easily intercept personal information. Always use a virtual private network when connecting to public Wi-Fi.
• Always use security software with firewall and anti-virus protections. Make sure the security software is always turned on and can automatically update. Remember, to encrypt sensitive files such as tax records stored on computers. Be sure all family members have comprehensive protection especially if devices are being shared. Use strong, unique passwords for each account.

Remember, the IRS does not use text messages or social media to discuss personal tax issues, such as those involving tax refunds, stimulus payments or tax bills.

Visit ATS Advisors to find out what we can do for you.

JOURNAL OF ACCOUNTANCY

The IRS announced on Friday that if a taxpayer relies in good faith on frequently asked questions (FAQs) that the Service posts to its website, and if that reliance is reasonable, then the taxpayer will have a reasonable-cause defense against any negligence penalty or other accuracy-related penalty if it turns out that the FAQ does not correctly state the law as it applies to the taxpayer’s situation. This new policy applies to all FAQs, including those released by the IRS before the policy was announced.

The IRS updated its “General Overview of Taxpayer Reliance on Guidance Published in the Internal Revenue Bulletin and FAQs” webpage to reflect this new stance.

The IRS also says that it plans to append this lengthy disclaimer to all FAQs:

These FAQs are being issued to provide general information to taxpayers and tax professionals as expeditiously as possible. Accordingly, these FAQs may not address any particular taxpayer’s specific facts and circumstances, and they may be updated or modified upon further review. Because these FAQs have not been published in the Internal Revenue Bulletin, they will not be relied on or used by the IRS to resolve a case. Similarly, if an FAQ turns out to be an inaccurate statement of the law as applied to a particular taxpayer’s case, the law will control the taxpayer’s tax liability. Nonetheless, a taxpayer who reasonably and in good faith relies on these FAQs will not be subject to a penalty that provides a reasonable cause standard for relief, including a negligence penalty or other accuracy-related penalty, to the extent that reliance results in an underpayment of tax. Any later updates or modifications to these FAQs will be dated to enable taxpayers to confirm the date on which any changes to the FAQs were made. Additionally, prior versions of these FAQs will be maintained on IRS.gov to ensure that taxpayers, who may have relied on a prior version, can locate that version if they later need to do so.

FAQ archive and transparency about changes

The IRS also announced that it is updating its process for issuing FAQs following the enactment of new tax legislation. Under the new process, FAQs addressing new legislation, as well as any revisions or updates to those FAQs, will be announced in an IRS news release and posted on the IRS website in a separate fact sheet. Older versions of FAQ fact sheets will be kept on IRS.gov so that taxpayers can refer to any prior version that they may have relied on. The IRS says this process addresses taxpayer concerns about transparency and the potential impact on taxpayers when FAQs are amended.

Some of those taxpayer concerns were voiced by National Taxpayer Advocate Erin Collins in a July blogpost, in which she recommended that the IRS (1) “should never assess a penalty against a taxpayer for taking a position consistent with an FAQ posted on the IRS website at the end of a taxpayer’s taxable year or at the time of return filing unless the IRS has convincing evidence the taxpayer knew the FAQ had been changed” and (2) “should include the versions and dates of each FAQ on its website or create an archive of obsolete or modified FAQs, including applicable dates, so that taxpayers can locate an FAQ that was in effect at the time they filed their returns.”

Visit ATS Advisors Services to learn more about what we can do for you.

IR-2021-199, October 8, 2021

WASHINGTON — The Internal Revenue Service reminds taxpayers today that the last quarter of 2021 is a good time to check withholding.

Life brings constant changes to individual financial situations. Events like marriage, divorce, a new child or home purchase can all be reasons to adjust withholding.

The convenient Tax Withholding Estimator, also available in Spanish, will help taxpayers determine if they have too much withheld and how to make an adjustment to put more cash into their own pocket now. In other cases, it will help taxpayers see that they should withhold more or make an estimated tax payment to avoid a tax bill when they file their tax return next year.

Items that may affect 2021 taxes

Things to consider when adjusting withholding for 2021 are:

• Coronavirus tax relief – Tax help for taxpayers, businesses, tax-exempt organizations and others – including health plans – affected by coronavirus (COVID-19).
• Disasters such as wildfires and hurricanes – Special tax law provisions may help taxpayers and businesses recover financially from the impact of a disaster, especially when the federal government declares their location to be a major disaster area.
• Job loss – IRS Publication 4128, Tax Impact of Job Loss PDF, explains how this unfortunate circumstance can create new tax issues.
• Workers moving into the gig economy due to the pandemic – IRS advises people earning income in the gig economy to consider estimated tax payments to avoid a balance or penalties when they file.
• Life changes such as marriage or childbirth – Getting married or having a child are just a couple of life events that can affect your refund or how much you owe.

Pay as you go

Taxes are generally paid throughout the year whether from salary withholding, quarterly estimated tax payments or a combination of both. About 70% of taxpayers, however, over withhold their taxes every year, which typically results in a refund. The average refund in 2021 was more than $2,700.

Taxpayers can pay online, by phone or from the IRS2Go app. They can schedule payments for future dates, which can be useful during filing season, for payment plan payments or for estimated tax payments.

Taxpayers can also log into their IRS.gov/account to view the amount they owe, their payment plan details and options, their payment history (up to 5 years), any scheduled or pending payments, and key tax return information from their most recent tax return.

Tax Withholding Estimator

The IRS Tax Withholding Estimator makes it easier for everyone to have the right amount of tax withheld. This is especially important for anyone who faced an unexpected tax bill or a penalty when they filed this year, or whose jobs or tax circumstances have changed during the year.

The tool offers workers, as well as retirees, self-employed individuals and other taxpayers, a user-friendly, step-by-step tool for effectively tailoring the amount of income tax they have withheld from wages and pension payments.

For more information about taxes, estimated taxes and tax withholding, see Tax Withholding at IRS.gov.

Visit ATS’s Services page to learn more about the services we offer!

IR-2021-198, October 5, 2021

WASHINGTON —

The Free File Program is the IRS’ public-private partnership with tax preparation software industry leaders to provide their brand-name products for free.

The Free File Program provides two ways for taxpayers to prepare and file their federal income tax online for free:

• Traditional IRS Free File provides free online tax preparation and filing options on IRS partner sites. Taxpayers whose adjusted gross income (AGI) is $72,000 or less qualify for any IRS Free File partner offers.

• For taxpayers whose income (AGI) is greater than $72,000, there’s the Free File Fillable Forms option. It provides electronic federal tax forms that can be filled out and filed online for free. To use this option taxpayers should know how to prepare their own tax return.

Always start at IRS.gov:

• From the homepage select File Your Taxes for Free
• Pick an option based on income
• Follow links to the chosen Free File provider’s website

Taxpayers who requested the six-month filing extension should complete their tax returns and file on or before the Oct. 15 deadline.

Only current year tax returns can be filed using IRS Free File. The IRS does not allow electronic filing for prior year returns through self-preparation websites.

Prior year returns can only be filed electronically by registered tax preparers for the two previous tax years. Otherwise, taxpayers must print, sign and mail prior year returns.

The IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications lists qualified local preparers.

Visit Our Services to learn how you can file.