IRS offers guidance to taxpayers on identity theft involving unemployment benefits

WASHINGTON – The Internal Revenue Service today urged taxpayers who receive Forms 1099-G for unemployment benefits they did not actually get because of identity theft to contact their appropriate state agency for a corrected form.

States issue Forms 1099-G to the taxpayer and to the IRS to report what taxable income, such as refunds or unemployment benefits, were issued by state agencies.

During 2020, millions of taxpayers were impacted by the COVID-19 pandemic through job loss or reduced work hours. Some taxpayers who faced unemployment or reduced work hours applied for and received unemployment compensation from their state. Under federal law, unemployment benefits are taxable income.

However, scammers also took advantage of the pandemic by filing fraudulent claims for unemployment compensation using stolen personal information of individuals who had not filed claims. Payments made as a result of these fraudulent claims went to the identity thieves, and the individuals whose names and personal information were taken did not receive any of the payments.

Taxpayers who receive an incorrect Form 1099-G for unemployment benefits they did not receive should contact the issuing state agency to request a revised Form 1099-G showing they did not receive these benefits. Taxpayers who are unable to obtain a timely, corrected form from states should still file an accurate tax return, reporting only the income they received. A corrected Form 1099-G showing zero unemployment benefits in cases of identity theft will help taxpayers avoid being hit with an unexpected federal tax bill for unreported income.

The IRS previously issued guidance requested by states on identity theft guidance regarding unemployment compensation reporting. No Forms 1099-G should be issued to those individuals the states have identified as ID theft victims.

Know the signs of identity theft

Taxpayers do not need to file a Form 14039, Identity Theft Affidavit, with the IRS regarding an incorrect Form 1099-G. The identity theft affidavit should be filed only if the taxpayer’s e-filed return is rejected because a return using the same Social Security number already has been filed.

See Identity Theft Central for more information about the signs of identity theft and general steps that should be taken.

Additionally, if taxpayers are concerned that their personal information has been stolen and they want to protect their identity when filing their federal tax return, they can request an Identity Protection Pin (IP PIN) from the IRS.

An Identity Protection PIN is a six-digit number that prevents someone else from filing a tax return using a taxpayer’s Social Security number. The IP PIN is known only to the taxpayer and the IRS, and this step helps the IRS verify the taxpayer’s identity when they file their electronic or paper tax return.

Reminder for those receiving unemployment benefits: Report your benefits when you file your tax return.

The IRS reminds taxpayers that unemployment benefits are taxable, and they should watch their mail for a Form 1099-G. In some states, taxpayers may be able to receive the Form 1099-G by visiting their state’s unemployment website where they signed up for account benefits to obtain their account information.

Starting in January 2021, unemployment benefit recipients should receive a Form 1099-G, Certain Government Payments from the agency paying the benefits. The form will show the amount of unemployment compensation they received during 2020 in Box 1, and any federal income tax withheld in Box 4. Taxpayers report this information, along with their W-2 income, on their 2020 federal tax return. For more information on unemployment, see Unemployment Benefits in Publication 525.

Get a federal tax refund faster with direct deposit

WASHINGTON — The Internal Revenue Service today reminds taxpayers that the fastest way to get their tax refund is by filing electronically and choosing direct deposit.

Direct deposit is free, fast, simple, safe and secure. Taxpayers can even split their refund to have it deposited into one, two or three different accounts.

Eight out of 10 taxpayers get their refunds by using direct deposit. The IRS uses the same electronic transfer system to deposit tax refunds that is used by other federal agencies to deposit nearly 98% of all Social Security and Veterans Affairs benefits into millions of accounts.

Direct deposit also avoids the possibility that a refund check could be lost or stolen or returned to the IRS as undeliverable. And it saves taxpayer money. It costs more than $1 for every paper refund issued, but only a dime for each direct deposit.

Easy to use
A taxpayer simply selects direct deposit as the refund method when using tax software or working with a tax preparer, and either they or their tax preparer type in their account and routing number. It’s important to double check entries to avoid errors.

The IRS reminds taxpayers they should only deposit refunds directly into U.S. affiliated accounts that are in their name, their spouse’s name or both if it’s a joint account. Many people do not use checks and may find their routing and account numbers on their online bank account or mobile app.

Taxpayers may have a refund applied to their prepaid debit card. Many reloadable prepaid cards have account and routing numbers that could be provided to the IRS. But check with the financial institution to make sure the card can be used and verify the routing number and account number, which may be different from the card number.

There are mobile apps that may allow for direct deposit of tax refunds. They must have routing and account numbers associated with them that can be entered on a tax return. Check with the mobile app provider to confirm what numbers to use.

Have the bank routing and account number when having taxes prepared. The IRS does not have the ability to accept this information after a return is filed.

Don’t have a bank account?
Visit the FDIC website for information on where to find a bank that can open an account online and how to choose the right account. Veterans can use the Veterans Benefits Banking Program (VBBP) for access to financial services at participating banks. Tax return preparers may also offer electronic payment options.

Split refunds
By using direct deposit, a taxpayer can split their refund into up to three financial accounts, including a bank or Individual Retirement Account. Part of the refund can even be used to purchase up to $5,000 in U.S. Series I Savings Bonds.

A taxpayer can split their refund by using tax software or by using Form 8888, Allocation of Refund (including Savings Bond Purchases), if they file a paper return. Some people use split refunds as a convenient option for managing their money, sending some of their refund to an account for immediate use and some for future savings.

No more than three electronic tax refunds can be deposited into a single financial account or prepaid debit card. Taxpayers who exceed the limit will receive an IRS notice and a paper refund will be issued for the refunds exceeding that limit.

Combining Electronic Filing plus direct deposit yields fastest refunds
The safest and most accurate way to file a tax return is to file electronically. Many people may be eligible to file electronically for Free. Most refunds are issued in less than 21 days, but some returns may take longer. Taxpayers can track their refund using “Where’s My Refund?” on IRS.gov or by downloading the IRS2Go mobile app.

“Where’s My Refund?” is updated once daily, usually overnight, so there’s no reason to check more than once per day or call the IRS to get information about a refund. Taxpayers can check “Where’s My Refund?” within 24 hours after the IRS has received their e-filed return or four weeks after mailing a paper return. “Where’s My Refund?” has a tracker that displays progress through three stages: (1) Return Received, (2) Refund Approved, and (3) Refund Sent.

Whether through IRS Free File, commercially available software, or a tax preparer, electronic filing vastly reduces tax return errors, as the tax software does the calculations, flags common errors and prompts taxpayers for missing information.

 

Taxpayers can start the new tax year off right by checking their withholding

A new year means a fresh start. One way people can get the new tax year off to a good start is by checking their federal income tax withholding. They can do this using the Tax Withholding Estimator on IRS.gov.

This online tool helps employees avoid having too much or too little tax withheld from their wages. It also helps self-employed people make accurate estimated tax payments. Having too little withheld can result in an unexpected tax bill or even a penalty at tax time. Having too much withheld results in less money in their pocket.

All taxpayers can use the results from the Tax Withholding Estimator to determine if they should:
• Complete a new Form W-4, Employee’s Withholding Allowance Certificate and submit it to their employer.
• Complete a new Form W-4P, Withholding Certificate for Pension or Annuity Payments and submit it to their payer.
• Make an additional or estimated tax payment to the IRS.

The Tax Withholding Estimator asks taxpayers to estimate:
• Their 2021 income.
• The number of children to be claimed for the child tax credit and earned income tax credit.
• Other items that will affect their 2021 taxes.

The Tax Withholding Estimator does not ask for personally-identifiable information, such as a name, Social Security number, address and bank account numbers. The IRS doesn’t save or record the information entered in the Estimator

Before using the Estimator, taxpayers should gather their 2019 tax return, most recent pay stubs and income documents including:
• Form W-2 from employers.
• Form 1099 from banks and other payers.
• Forms 1095-A from the marketplace for those claiming the premium tax credit.
• Form 1099-NEC, Nonemployee Compensation.

Most income is taxable, including unemployment compensation, refund interest and income from the gig economy and virtual currencies. Therefore, taxpayers should also gather any documents from these types of earnings. These documents will help taxpayers estimate 2021 income and answer other questions asked during the process.

The Tax Withholding Estimator results will only be as accurate as the information entered by the taxpayer. People with more complex tax situations should use the instructions in Publication 505, Tax Withholding and Estimated Tax. This includes taxpayers who owe alternative minimum tax or certain other taxes, and people with long-term capital gains or qualified dividends.

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Eligible Paycheck Protection Program expenses now deductible

WASHINGTON – The Treasury Department and the Internal Revenue Service issued guidance today allowing deductions for the payments of eligible expenses when such payments would result (or be expected to result) in the forgiveness of a loan (covered loan) under the Paycheck Protection Program (PPP).

Today’s guidance, Revenue Ruling 2021-02, reflects changes to law contained in the COVID-related Tax Relief Act of 2020, enacted as part of the Consolidated Appropriations Act, 2021 (Act), Public Law 116-260, which was signed into law on Dec. 27, 2020.

The COVID-related Tax Relief Act of 2020 amended the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to say that no deduction is denied, no tax attribute is reduced, and no basis increase is denied by reason of the exclusion from gross income of the forgiveness of an eligible recipient’s covered loan. This change applies for taxable years ending after March 27, 2020.

Revenue Ruling 2021-02 obsoletes Notice 2020-32 and Revenue Ruling 2020-27. This obsoleted guidance disallowed deductions for the payment of eligible expenses when the payments resulted (or could be expected to result) in forgiveness of a covered loan.

For more information about this, the COVID-related Tax Relief Act of 2020, and other tax changes, visit IRS.gov.

 

February 1 is the deadline for employers to issue and file wage statements

Employers must file Form W-2 and other wage statements by Monday, February 1, 2021. This is also the date Form W-2s are due to employees.

By law, employers are required to file copies of their Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration by January 31. However, since January 31 falls on a Sunday in 2021, the deadline is the next business day, Monday, February 1.

Form 1099-MISC, Miscellaneous Income and Form 1099-NEC, Nonemployee Compensation, are also due to recipients on February 1, 2021, with some exceptions. Other due dates related to Form 1099 are listed in the instructions for these forms.

Timely filing helps prevent fraud.
Filing wage statements on time and without errors is beneficial to employers and the IRS. The employer avoids penalties, and the IRS has time to verify income taxpayers report on their tax returns, which helps prevent fraud.

E-file is the quickest, most accurate and convenient way to file these forms. The law requires certain filers who file 250 or more information returns for any calendar year to file electronically.

Employers should plan and prepare early.
Good preparation now can help employers avoid problems later. For instance, employers can start by verifying or updating employee information, such as:
• Names
• Addresses
• Social Security numbers
• Individual Taxpayer Identification Numbers

Employers should be sure their account information is current and active with the Social Security Administration as soon as possible. Lastly, employers should order paper Form W-2s, if needed.

Automatic extensions of time to file Form W-2s are not available. The IRS will only grant extensions for very specific reasons. For details, employers should read the instructions for Form 8809, Application for Extension of Time to File Information Returns.

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NATP

National Association of Tax Professionals