About “Injured Spouse” Allocation

Have you, or someone you know, been denied an income tax refund because it was funneled away by the IRS to pay toward an existing debt of one or the other persons filing a joint tax return? A little-known fact you may have missed is that if ONE spouse in the filing owns the debt [but the other person does NOT], only the portion of the refund belonging to the debtor spouse should be applied to the debt. A portion of the tax refund would be payable by the IRS.

Whether it’s for a student-loan outstanding, or other government liability [such as back income taxes unpaid], if the debtor spouse later married an “innocent” spouse (ie., a person who was not involved with incurring the original debt), then any joint income tax refund should be apportioned between the two earners’ incomes. The joint (married) taxpayers would then receive an equitable refund amount, as determined by their incomes for the year and the amount of the debt.

IRS description:
The injured spouse on a jointly-filed tax return files a form to get back their share of the joint refund when the joint overpayment is applied to a past-due obligation of the other spouse.

Advertisement

Employer Reminder: Reporting Tips vs. Service Charges

Reporting Tips of Directly- and Indirectly-Tipped Employees

Employees must report to their employer all cash tips received — except for the tips from any month that total less than $20:

  • Cash tips include tips received from customers, charged tips (for example, credit and debit card charges) distributed to the employee by his or her employer, and tips received from other employees under any tip-sharing arrangement.
  • Noncash tips (that is, tips received by an employee in any other medium than cash, such as passes, tickets, or other goods or commodities) from customers are not reported to the employer.

All cash tips and noncash tips should be included in an employee’s gross income and are subject to federal income taxes.

Both directly- and indirectly-tipped employees must report tips to their employer.

A “directly-tipped employee” is any employee who receives tips directly from customers, including one who, after receiving the tips, turns all of them over to a tip pool. Examples of directly tipped employees are waiters, waitresses, bartenders, cosmetologists and hairstylists.

An “indirectly-tipped employee” is a tipped employee who does not normally receive tips directly from customers. Examples of indirectly tipped employees are bussers, service bartenders, cooks and salon shampooers.

Key Differences Between Categories Affect Both Employees and Tax Reporting

The Internal Revenue Service reminds employers that so-called “automatic gratuities” and any amount imposed on the customer by the employer are service charges, NOT tips.

Service charges are generally wages, and they are reported to the employee and the IRS in a manner similar to other wages. On the other hand, special rules apply to both employers and employees for reporting tips. Employers should make sure they know the difference and how they report each to the IRS.

What are tips?

Tips are discretionary (optional or extra) payments determined by a customer that employees receive from customers. Tips include:

  • Cash tips received directly from customers.
  • Tips from customers who leave a tip through electronic settlement or payment. This includes a credit card, debit card, gift card, or any other electronic payment method.
  • The value of any noncash tips, such as tickets, or other items of value.
  • Tip amounts received from other employees paid out through tip pools or tip splitting, or other formal or informal tip sharing arrangements.

Four factors are used to determine whether a payment qualifies as a tip. Normally, all four must apply. To be a tip:

  • The payment must be made free from compulsion;
  • The customer must have the unrestricted right to determine the amount;
  • The payment should not be the subject of negotiations or dictated by employer policy; and
  • Generally, the customer has the right to determine who receives the payment.

If any one of these doesn’t apply, the payment is likely a service charge.

What are service charges?

Amounts an employer requires a customer to pay are service charges. This is true even if the employer or employee calls the payment a tip or gratuity.

Examples of service charges commonly added to a customer’s check include:

  • Large dining party automatic gratuity
  • Banquet event fee
  • Cruise trip package fee
  • Hotel room service charge
  • Bottle service charge (nightclubs, restaurants)

Generally, service charges are reported as non-tip wages paid to the employee. Some employers keep a portion of the service charges. Only the amounts distributed to employees are non-tip wages to those employees.

IRS Urges Travelers Requiring Passports to Pay Their Back Taxes or Enter into Payment Agreements

Some taxpayers rely upon their passport for various reasons, such as in the normal course of transacting business. If you are one of these taxpayers, please be aware of the following, which could affect issuance, renewal or revocation of your U.S. passport.

WASHINGTON ─ The Internal Revenue Service strongly encourages taxpayers [who are seriously behind on their tax debt] to pay what they owe, or enter into a payment agreement with the IRS, to avoid putting their passports in jeopardy.

This month, the IRS will begin implementation of new procedures affecting individuals with “seriously delinquent tax debts.” These new procedures implement provisions of the Fixing America’s Surface Transportation (FAST) Act, signed into law in December 2015. The FAST Act requires the IRS to notify the State Department of taxpayers the IRS has certified as owing a seriously delinquent tax debt. The FAST Act also requires the State Department to deny their passport application or deny renewal of their passport. In some cases, the State Department may revoke their passport.

There are several ways taxpayers can avoid having the IRS notify the State Department of their seriously delinquent tax debt. They include the following:

  • Paying the tax debt in full
  • Paying the tax debt timely under an approved installment agreement,
  • Paying the tax debt timely under an accepted offer in compromise,
  • Paying the tax debt timely under the terms of a settlement agreement with the Department of Justice,
  • Having requested or have a pending collection due process appeal with a levy, or
  • Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief.

A passport won’t be at risk under this program for any taxpayer:

  • Who is in bankruptcy
  • Who is identified by the IRS as a victim of tax-related identity theft
  • Whose account the IRS has determined is currently not collectible due to hardship
  • Who is located within a federally-declared disaster area
  • Who has a request pending with the IRS for an installment agreement
  • Who has a pending offer in compromise with the IRS
  • Who has an IRS-accepted adjustment that will satisfy the debt in full

For taxpayers serving in a combat zone who owe a seriously delinquent tax debt, the IRS postpones notifying the State Department and the individual’s passport is not subject to denial during this time.

In general, taxpayers behind on their tax obligations should come forward and pay what they owe, or enter into a payment plan with the IRS. Frequently, taxpayers qualify for one of several relief programs, including the following:

  • Taxpayers can request a payment agreement with the IRS by filing Form 9465.
  • Some taxpayers can use the online payment agreement to set up a monthly payment agreement for up to 72 months.
  • Some financially-distressed taxpayers may qualify for an offer in compromise. This is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. The IRS looks at the taxpayer’s income and assets to determine the taxpayer’s ability to pay.

2018 Tax Filing Season Begins Jan. 29, Tax Returns Due April 17; Help Available for Taxpayers

The Internal Revenue Service announced today that the nation’s tax season will begin Monday, Jan. 29, 2018 and reminded taxpayers claiming certain tax credits that refunds won’t be available before late February.

The IRS will begin accepting tax returns on Jan. 29, with nearly 155 million individual tax returns expected to be filed in 2018. The nation’s tax deadline will be April 17 this year – so taxpayers will have two additional days to file beyond April 15.

Many software companies and tax professionals will be accepting tax returns before Jan. 29 and then will submit the returns when IRS systems open. Although the IRS will begin accepting both electronic and paper tax returns Jan. 29, paper returns will begin processing later in mid-February as system updates continue. The IRS strongly encourages people to file their tax returns electronically for faster refunds.

The IRS set the Jan. 29 opening date to ensure the security and readiness of key tax processing systems in advance of the opening and to assess the potential impact of tax legislation on 2017 tax returns.

The IRS reminds taxpayers that, by law, the IRS cannot issue refunds claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) before mid-February. While the IRS will process those returns when received, it cannot issue refunds related to these credits prior to mid-February. The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards starting on Feb. 27, 2018, if they chose direct deposit and there are no other issues with the tax return.

The IRS also reminds taxpayers that they should keep copies of their prior-year tax returns for at least three years. Taxpayers who are using a tax software product for the first time will need their adjusted gross income from their 2016 tax return to file electronically. Taxpayers who are using the same tax software they used last year will not need to enter prior-year information to electronically sign their 2017 tax return. Using an electronic filing PIN is no longer an option.

Accu-Tax Services offers a new option for its clients this year who wish to learn to file their income taxes using low-cost electronic software in order to do so.  ATS will prepare your income taxes, as usual, this year, so that your relevant information is entered correctly. You then may log into this same software in 2019, recall the data stored there for this year, and complete new entry of required information yourself.  And, as always ATS is here, if you have questions during your self-entering process.