•   The IRS has a current backlog of 35 million unprocessed individual and business tax returns that require manual processing. This is more than 5 times as many as were manually processed in 2019;

•   A little less than half of the backlog is paper tax returns awaiting processing, with most of the rest tax returns that were suspended during processing and requiring further review. Of the suspended returns, a large number were flagged because of discrepancies between recovery rebate credits claimed by taxpayers and what IRS records indicate the taxpayer qualifies for.

• Also flagged were many returns of taxpayers who elected to use their 2019 earnings instead of their 2020 earnings to claim a larger earned income tax credit or additional child tax credit as allowed by the Cares Act. Of course the very idea here was to quickly provide refunds where needed, but reality has meant that these poor taxpayers not only did not get the refund quickly, they got boomeranged into a delay and still don’t have it!

• Ms. Collins observed that all most taxpayers can do is wait for the backlog to clear!

• Adding to the backlog is a sharp increase in the number of returns flagged as suspicious: 3.7 million as of May 2021, compared with just 1.3 million in all of 2019, the report found.

• IRS received more phone calls during the 2021 filing season alone than it had ever received in a full fiscal year, with over four times as many calls as in the prior filing season.
• The IRS’s highest-volume phone line for individual income tax assistance clocked roughly 85 million calls, only 3 percent of which went through to a live IRS customer service representative.

You can read the full report here: National Taxpayer Advocate assesses tax filing season and identifies areas for IRS improvement in midyear report to Congress | Internal Revenue Service

Hi there! Are you surviving this record-breaking heat?! Make sure to stay hydrated! We have some exciting news to share with you-The Piper Team is growing! Please help me welcome Allyssa and Kim to our team! We will be introducing them and sharing with you what they will be doing for Piper in our latest social media posts. Please check out our Instagram and Facebook pages and say hello!

We’ve been getting a lot of calls and emails about the IRS processing times (they are really behind!), and clients asking about The American Rescue Plan Act (ARPA) and how the Child Tax Credit Advance works, so this update is to get you up to speed!

The American Rescue Plan Act (ARPA) was passed in March of 2021. ARPA is why you received a third stimulus payment of $1400 for every member of your household. The plan changed some tax credits and includes the advance child tax credit payments that will start paying out in July…

The child tax credit is a refundable tax credit of up to $3600 per qualifying child under 18. The credit goes from $2000 per child to $3000 per child for children over the age of six, $3600 for children under the age of 6. Starting Mid-July, those who qualify will receive six monthly payments from the US Treasury via direct deposit equal to 50% of the eligible credit. The other 50% can be claimed on your taxes later. Your most recent tax return will be used by the IRS to determine whether you qualify for the child tax credit. This will be reconciled on your 2021 tax return that is filed in 2022. This is NOT a stimulus payment. Please keep in mind, if you do not qualify for the credit, ie. your child turned 18 in 2021, you will have to pay back this credit. You can opt out of receiving the advance payments through the link below.

To assist with these Child Tax Credit payments the IRS has announced two new online portals to help you manage them. You can opt out of the advance through signing up through the following link.

https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021

For those who are not required to file a tax return but want to sign up for these advance payments, you can do that through the following link.

https://www.irs.gov/credits-deductions/child-tax-credit-non-filer-sign-up-tool

The Child and Dependent Care Tax Credit is another credit that will be refundable, but only for the 2021 tax year. This credit can get you up to 50% of up to $8,000 of childcare and similar costs for children under 13, a spouse or parent who cannot care for themselves, or another dependent so that you can work. This is up to $16,000 of expenses for two or more dependents. The percentage of allowable expenses decreases for higher-income earners at which point the value of the credit also decreases. This credit will not be paid in advance.

ARPA also increased the Earned Income Tax Credit for those without children. The credit goes from $543 to $1502. This credit will be received on your 2021 tax return that is filed in 2022.

ARPA extended unemployment benefits until September 6^th, with a weekly supplemental benefit of $300 on top of the regular benefit of $400. The first $10,200 of unemployment benefits will be tax-free for people with incomes less than $150,000.

ARPA will also lower health insurance premiums and provide 100% federal COBRA subsidy. It will lower or eliminate premiums for families enrolled in the health insurance marketplace. A family of four making $90,000 could see a savings of $200 per month on their health insurance premium!

I have received several calls and emails regarding refunds that haven’t been received and checks that haven’t been cashed. The IRS is extremely behind, and the campuses are overloaded. Work is being shifted to IRS campuses that have more staff available to help with the backlog. The following comes directly from the IRS liaison:

“The IRS understands the importance of timely processing of tax returns and refund issuance. We have processed all error free returns received prior to 2021 and continue to work the returns that need to be manually reviewed due to errors. We are rerouting tax returns and taxpayer correspondence from locations that are behind to locations where more staff is available, and we are taking other actions to minimize any delays. Tax returns are opened and processed in the order received. As the return is processed, it may be delayed because it has a mistake including errors concerning the Recovery Rebate Credit, is missing information, or there is suspected identity theft or fraud. If we can fix it without contacting you, we will. If we need more information or need you to verify that it was you who sent the tax return, we will write you a letter. The resolution of these issues depends on how quickly and accurately you respond, and the ability of IRS staff trained and working under social distancing requirements to complete the processing of your return…If you filed electronically and received an acknowledgement, you do not need to take any further action other than promptly responding to any requests for information. If you filed on paper, check ‘Where’s my refund?’ on IRS.gov. If it tells you we have received your return or are processing or reviewing it, we are processing your return, but it may be under review. We’re working hard to get through the backlog. Please don’t file a second tax return or contact the IRS about the status of your return.”

As always, we appreciate your business and will be back with another update soon! In the meantime, Stay cool and check out our updated “About us” page, as well as new updates on our Facebook, Instagram, and other social media!

Did you know that Felisha is required to take 72 hours of Continuing Education, over a three-year period, in order to maintain her Enrolled Agent status with the IRS? But Felisha highly values education, not only for herself, but also for her team here at Piper, as well as for you. Last year Felisha had 50 Continuing Education hours and so far, this year, just in January, she’s already taken 25! She sifted through all the tax updates and law changes for 2019 that would be most relevant to you, our client. See all the changes below.

Individual Taxpayer Changes

• You can now opt-in for an Identity Theft Pin with the IRS. If you are worried about ID theft with your tax return, this is a great option. The IRS would issue you a new six-digit pin number each year that would be necessary to efile your tax return. It’s an additional level of protection for your identity.
• Arizona has conformed to the Federal Tax Update. Beginning in 2020, Arizona income tax returns for tax year 2019 will include a matching federal standard deduction ($12,200 single, $18,350 head of household, $24,400 married filing joint), the exemptions for individuals and dependents have been removed, there is a $100 child tax credit for dependents under 17 years of age and $25 for dependents 17 and older, and it allows taxpayers to increase their standard deduction by 25% of the charitable deductions that would have been claimed as an itemized deduction.
• The age for Required Distributions from your IRAs has changed from 70 ½ to 72 going forward. Meaning if you turn 70 ½ this year, you don’t need to worry about making the minimum withdrawal. If you turned 70 ½ in 2019, the old rule still applies.
• There is no longer a max age for IRA contributions as long as you have income!
• The new alimony rule is in effect for any divorces that happened after 12/31/2018. If you pay alimony to your ex or you receive alimony, it’s not longer a deduction to the payer or income to the receiver.
• The medical deduction threshold is now permanently at 7.5%.
• The health insurance shared responsibility payment penalty is gone!

Business Changes

• If your company offers high-deductible health plans you can contribute to your employee’s Health savings accounts (HSAs). This benefit, which is tax-free to employees and exempt from employment taxes, is capped in 2019 at $3,500 for self-only coverage and $7,000 for family coverage. Proc. 2019-25 shows 2020 amounts as $3,550 single and $7,100 family.
• If you aren’t subject to the employer mandate, you can reimburse employees for their individually obtained health coverage up to a set amount for the year through a Qualified small employer health reimbursement arrangements (QSEHRAs). In 2019, this is a maximum $5,150 for self-only coverage and $10,450 for family coverage.
• Form W-4 for 2019, which is used by employees to indicate their withholding allowances, is essentially unchanged from the 2018 version. The value of a withholding allowance in 2019 is $4,200 (it was $4,100 in 2018). Employees do not need to submit new forms for this year unless they want to change their withholding allowances or claim exemption from withholding or if they didn’t change it from 2017.
• In the aftermath of last year’s Wayfair US Supreme Court case allowing individual states to apply “nexus” rules to internet-based sales, the fall-out for small business continues for online retailers selling out of state. In most cases (24 states), the states have imposed a nexus application once sales have exceeded $100,000 OR 200 transactions. For the small business selling many inexpensive items this
• nightmare of compliance may be one of the forbidding aspects of small business growth in our country’s history. Because 48% of our GDP comes from small business according to the SBA, the long-term negative effects of this legislation are chilling. One state, Washington, has become a leader in anti-small business activity with their $10,000 threshold! This is MAJOR law change and does effect everyone!
• We can now efile your Arizona business tax return! No more mailing!

There is a lot more! But it’s too much to list here. Please make note of any questions you might have for us and we will answer all your questions at your tax appointment.

Team Piper took some time when the office opened up after the holidays to shake off some post-vacation dust! THE Nerf war of the year went down.  We created a video for your viewing pleasure!  Follow us on Facebook, Instagram, and LinkedIn to keep up with useful information, but mostly with the awesome office shenanigans that occur on any given day at Piper Accounting Solutions!  Thank you for reading and enjoy.