The IRS is alerting certain veterans that they may be due a credit or refund. This is a result of the Combat-Injured Veterans Tax Fairness Act passed in 2016. It affects veterans who received disability severance payments after January 17, 1991, and included that payment as income.
Here is what these veterans should know:
Veterans who included their disability severance payments as income should file Form 1040X, Amended U.S. Individual Income Tax Return.
The veterans will file Form 1040X to claim a credit or refund of the overpayment attributable to the disability severance payment.
These veterans received a one-time, lump-sum disability severance payment when they separated from their military service.
Most of these veterans will have recently received a letter from the Department of Defense with information explaining how they should claim the related tax refunds.
Veterans can submit a claim based on the actual amount of their disability severance payment. However, there is a simplified method where veterans can instead choose to claim a standard refund amount. This amount is based on the calendar year in which they received the severance payment:
$1,750 for tax years 1991 – 2005
$2,400 for tax years 2006 – 2010
$3,200 for tax years 2011 – 2016
Claiming the standard refund amount is the easiest way for veterans to claim a refund, because they do not need to access the original tax return from the year of their lump-sum disability severance payment.
The veteran must mail the claim generally by the later of these dates:
One year from the date of the Department of Defense notice
Three years after the due date for filing the original return for the year the disability severance payment was made
Two years after tax was paid for the year the disability severance payment was made.
The IRS and its community partners are looking for people around the country to become IRS-certified volunteers at their free tax preparation sites. Volunteers can start now to join one of these programs that offer invaluable help to America’s taxpayers:
Volunteer Income Tax Assistance: VITA offers free tax return preparation to eligible taxpayers who generally earn $55,000 or less.
Tax Counseling for the Elderly: TCE is mainly for people age 60 or older. Although the program focuses on tax issues unique to seniors, all taxpayers can generally get assistance. AARP participates in the TCE program through AARP Tax-Aide.
Last year, VITA and TCE volunteers prepared more than 3.5 million federal tax returns for qualified taxpayers at no cost. Anyone interested in volunteering can visit the sign-up page on IRS.gov.
Many volunteers return to the program year after year. Here are several reasons why:
Volunteers can work flexible hours. Volunteers can generally choose their own hours and days to volunteer. The programs are usually open from mid-to-late-January through the tax filing deadline in April. Some sites are even open all year.
VITA and TCE sites are often close to home. More than 11,000 sites were set up in neighborhoods all over the country for 2018. These free tax help sites are in places like community centers, libraries, schools and shopping malls.
No prior experience needed. Volunteers receive specialized training to become IRS-certified and can choose from a variety of roles to serve. VITA and TCE programs want volunteers of all backgrounds and ages, as well as individuals who are fluent in other languages.
The IRS provides free tax law training and materials. Volunteers receive training materials at no charge. The tax law training covers how to prepare basic federal tax returns electronically. The training also covers tax topics like deductions and credits.
Tax pros can earn continuing education credits. Enrolled agents and non-credentialed tax return preparers can earn continuing education credits when volunteering as a VITA/TCE instructor, quality reviewer or tax return preparer.
Eligible employers who provide paid family and medical leave to their employees during tax years 2018 and 2019 might qualify for a new business tax credit. This new employer credit for family and medical leave is part of tax reform legislation passed in December 2017. Here are some facts about the credit to help employers find out if they might be able to claim it.
To be eligible, an employer must:
Have a written policy that meets several requirements, as detailed in Notice 2018-xx [ADD LINK].
At least two weeks of paid family and medical leave to full-time employees.
A prorated amount of paid leave for part-time employees.
Provide pay for leave that is at least 50 percent of the wages normally paid to that employee.
The credit applies to these dates:
It is available for wages paid in taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2020.
The amount of the credit:
The credit is generally equal to 12.5 to 25 percent of paid family and medical leave for qualifying employees.
Here’s what kind of leave qualifies:
The leave can be for any or all of the reasons specified in the Family and Medical Leave Act:
Birth of an employee’s child.
Care for the child.
Placement of a child with the employee for adoption or foster care.
To care for the employee’s spouse, child, or parent who has a serious health condition.
A serious health condition that makes the employee unable to perform the functions of his or her position.
Any qualifying exigency due to an employee’s spouse, child, or parent being on covered active duty – or having been notified of an impending call or order to covered active duty – in the Armed Forces.
To care for a service member who is the employee’s spouse, child, parent, or next of kin.
However, leave paid by a state or local government, or that is required to be provided by state or local law, does not count toward the 50 percent.
Some employers are eligible to claim the credit retroactively to the beginning of their taxable year:
Normally employers can only claim the credit based on eligible leave taken after their new or amended policy goes into effect.
Read Notice 2018-71 for a description of special rules for when an employer can claim the credit retroactively.
To claim the credit, employers will:
Attach Form 8994 to their return. The IRS expects to have this new form available later in 2018.
The Notice sets out special rules and limitations that apply:
For example, only paid family and medical leave provided to employees whose prior-year compensation was at or below a certain amount qualify for the credit.
Generally, for tax-year 2018, the employee’s 2017 compensation from the employer must be $72,000 or less.
Tax professionals should be alert to the subtle signs of data theft. The IRS and its Security Summit partners note that there are many cases where preparers are victims of theft and don’t even know it.
Cybercriminals often leave very few signs of their intrusion. A tax preparer might not even realize that the cybercriminal stole client data until a fraudulent tax return was filed with the information, and their client becomes an ID theft victim. This is one more reason tax professionals should use strong security protections to prevent data theft from occurring.
Here are some warning signs that a preparer’s office may have experienced a data theft:
Client e-filed returns that were filed electronically begin to be rejected by the IRS. The reason given is that someone already filed a tax return with the same Social Security number.
Clients who haven’t filed tax returns begin to receive taxpayer authentication letters from the IRS. These letters include the 5071C, 4883C and 5747C.
Clients who haven’t filed tax returns receive refunds.
Clients receive tax transcripts that they did not request.
Clients who created an IRS online services account receive an IRS notice that their account was accessed. They might also receive an IRS email saying their account has been disabled.
Clients unexpectedly receive an IRS notice that an online account was created in their names.
The number of returns filed with the tax professional’s Electronic Filing Identification Number exceeds their number of clients.
Tax professionals or clients are responding to emails that the firm did not send or does not remember sending.
Network computers are running slower than normal.
Computer cursors moving or changing numbers without someone touching the keyboard.
Network computers lock out employees.
The IRS and its partners in the Security Summit are alerting tax preparers about the signs of an ID theft as part of the Tax Security 101 awareness initiative. The goal is to provide tax professionals with the basic information they need to better protect taxpayer data and to help prevent the filing of fraudulent tax returns.
Taxpayers don’t typically think about their filing status until they file their taxes. However, a taxpayer’s status could change during the year, so it’s always a good time for a taxpayer to learn about the different filing statuses and which one they should use.
It’s important a taxpayer uses the right filing status because it can affect the amount of tax they owe for the year. It may even determine if they must file a tax return at all. Taxpayers should keep in mind that their marital status on Dec. 31 is their status for the whole year.
Sometimes more than one filing status may apply to taxpayers. When that happens, taxpayers should choose the one that allows them to pay the least amount of tax.
Here’s a list of the five filing statuses and a description of who claims them:
Single. Normally this status is for taxpayers who aren’t married, or who are divorced or legally separated under state law.
Married Filing Jointly. If taxpayers are married, they can file a joint tax return. When a spouse passes away, the widowed spouse can usually file a joint return for that year.
Married Filing Separately. A married couple can choose to file two separate tax returns. This may benefit them if it results in less tax owed than if they file a joint tax return. Taxpayers may want to prepare their taxes both ways before they choose. They can also use this status if each wants to be responsible only for their own tax.
Head of Household. In most cases, this status applies to a taxpayer who is not married, but there are some special rules. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person. Taxpayers should check all the rules and make sure they qualify to use this status.
Qualifying Widow(er) with Dependent Child. This status may apply to a taxpayer if their spouse died during one of the previous two years and they have a dependent child. Other conditions also apply.