2 Major FAFSA Changes You Need to Be Aware of

FAFSA Changes shocked girl

(Department of Education, Published August 2016)

There are two exciting changes coming to the Free Application for Federal Student Aid(FAFSA®) process this year.

1. The 2017–18 FAFSA will be available earlier.

You can file your 2017–18 FAFSA as early as Oct. 1, 2016, rather than beginning on Jan. 1, 2017. The earlier submission date will be a permanent change, enabling you to complete and submit a FAFSA as early as October 1 every year.

2. You’ll use earlier income and tax information.

Beginning with the 2017–18 FAFSA, you’ll be required to report income and tax info from an earlier tax year. For example, on the 2017–18 FAFSA, you—and your parent(s), as appropriate—will report your 2015 income and tax info, rather than your 2016 income and tax info.

We understand that some families’ income may have changed significantly since the 2015 tax year. If this is the case for you, you must complete the FAFSA with the info it asks for (2015). Then, after filing your FAFSA, contact the financial aid office at your school to explain your situation. The school has the ability to assess your situation and make adjustments to your FAFSA.

The following table provides a summary of key dates as we transition to using the early FAFSA submission timeframe and earlier tax information.

When a Student Is Attending College (School Year) When a Student Can Submit a FAFSA Which Year’s Income Tax Information Is Required
July 1, 2015–June 30, 2016 January 1, 2015–June 30, 2016 2014
July 1, 2016–June 30, 2017 January 1, 2016–June 30, 2017 2015
July 1, 2017–June 30, 2018 October 1, 2016–June 30, 2018 2015
July 1, 2018–June 30, 2019 October 1, 2017–June 30, 2019 2016

We know you probably have some questions. Here are some we’ve been hearing from students:

How will the changes benefit me?

You might find that the FAFSA process is easier than you expected.

  • From now on, the FAFSA will ask for older income and tax information that you will already have. This change means you won’t have to use estimates anymore, or log in later to update your FAFSA after you file taxes!
  • Because you’ll already have done your 2015 taxes by the time you fill out your 2017–18 FAFSA, you may be able to use the IRS Data Retrieval Tool (IRS DRT) to automatically import your tax information into your FAFSA.
  • Having the FAFSA available three months earlier will give you more time to meet most deadlines (although some will be early, so fill out the FAFSA right away just in case) and to explore and understand your financial aid options.

Since the 2017–18 FAFSA asks for the same tax and income information as the 2016–17 FAFSA, will my 2016–17 FAFSA info automatically be carried over into my 2017–18 renewal FAFSA?

No. Too much could have changed since you filed your last FAFSA, and there’s no way to predict what might be different, so you’ll need to enter the information again. However, keep in mind that many people are eligible to use the IRS Data Retrieval Tool to automatically import their 2015 tax information into the FAFSA, making the process of reporting tax info quick and easy.


Do I have to update my 2017–18 FAFSA with my 2016 tax information after I file my 2016 taxes?

No. The 2017–18 FAFSA asks for 2015 tax info, and only 2015. Beginning October 1, you can fully submit the FAFSA in one sitting using your 2015 tax info. No updating necessary. (Hooray!)


But what if my family’s financial situation has changed since our 2015 taxes were filed? Can we report our 2016 tax information instead?

No. You must report your 2015 tax info on the 2017–18 FAFSA. You do not have the option to report your 2016 tax info. If your family has experienced a loss of income since the 2015 tax year, talk to the financial aid office at your school. They have the ability to assess your situation and make adjustments.

Note: The FAFSA asks for marital status as of the day you fill it out. So if you’re married now but weren’t in 2015 (and therefore didn’t file taxes as married), you’ll need to add your spouse’s income to your FAFSA.

Similarly, if you filed your 2015 taxes as married but you’re no longer married when you fill out the FAFSA, you’ll need to subtract your spouse’s income.


Since I’m required to report my 2015 tax information, do I also answer all the other questions on the FAFSA using information from 2015?

No. Here’s a guide for which year’s info you should use to answer the different types of questions on the FAFSA.


Will FAFSA deadlines be earlier since the application is launching earlier?

We expect that most state and school deadlines will remain approximately the same as in 2016–17. However, several states that offer first come, first served financial aid will change their deadlines from “as soon as possible after January 1” to “as soon as possible after October 1.” So, as always, it’s important that you check your state and school deadlines so that you don’t miss out on any aid. State deadlines are on fafsa.gov; school deadlines are on schools’ websites.


Can I fill out the FAFSA before I submit my college applications?

Yes, you can fill out the FAFSA even before you’ve submitted your college applications. Add every school you’re considering to your FAFSA, even if you haven’t applied or been accepted yet. Even if you’re on the fence about applying to a particular school, add it. It will hold your place in line for financial aid in case you end up applying for admission at that school. You can always remove schools later if you decide not to apply (but you don’t have to).


Will I receive aid offers earlier if I apply earlier?

Not necessarily; some schools will make offers earlier while others won’t. If you’re applying to multiple schools or thinking of transferring to another school, you might want to look at the College Scorecard to compare costs at different schools while you wait for your aid offers to arrive. Note: You should be aware that the maximum Federal Pell Grant for 2017–18 might not be known until early 2017, so keep in mind that even if you do receive an aid offer early, it could change due to various factors.


Where can I get more information about—and help with—the FAFSA?

Visit StudentAid.gov/fafsa/filling-out; and remember, as you fill out your FAFSA atfafsa.gov, you can refer to help text for every question and (during certain times of day) chat online with a customer service representative.

Have questions about the new FAFSA deadline? Call us at 719-579-9090. We are here to help!

(Journal of Accountancy, By Sally P. Schreiber; Published September 2016)

The IRS notified tax practitioners and taxpayers who use many IRS e-services that it is strengthening the authentication process for identifying users and that the new, more stringent procedures will require existing users to re-register (Oct. 24 is the target date for the start of re-registration) (IRS website, “Important Update About Your e-Services Account” (9/22/16)).

Any current e-account holder is affected, which the IRS said includes:

  • Electronic return originators;
  • Return transmitters;
  • Large business taxpayers required to e-file;
  • Software developers;
  • Health care law insurance provider fee/branded prescription drug filers;
  • Health care law information return transmitters/issuers;
  • Reporting agents;
  • Not-for-profit (Volunteer Income Tax Assistance (VITA), Tax Counseling for the Elderly (TCE), and Low Income Taxpayer Clinic (LITC)) users;
  • States that use Transcript Delivery Service; and
  • Income Verification Express Service (IVES) participants.

E-services account holders who use only the taxpayer identification number (TIN) matching program will also need to validate their identity but will have a streamlined process because they do not exchange sensitive data. (TIN matching allows payers reporting payments on Forms 1099 to check the payee’s TIN with the IRS before filing.)

Current users who return to their accounts on or after Oct. 24 will be required to update their account information through the IRS’s “Secure Access” process, which includes proving the user’s identity, verification using financial records, and mobile phone verification. Secure Access employs a two-factor authentication process, under which returning users, once they have successfully registered, must provide their credentials (username and password) and the security code sent to their mobile phone by text. These are the same procedures that already apply to the Get Transcript process and the identity protection personal identification number (IP PIN) process for identity theft victims.

This two-factor authentication process is intended to prevent cybercriminals from accessing the accounts when they obtain usernames and passwords through phishing.

Users who have already registered through Get Transcript will not have to re-register for these other services, but they will have to change their password when they return to the website. They should be aware that they will have the same username for their personal accounts, such as a Get Transcript account, as they do for e-services. To help users with the new authentication process, the IRS is hiring additional staff to assist at the e-Help Desk.

The IRS has announced that it is working to correct erroneous failure-to-file penalty notices triggered by a programming error. The error caused some monthly and daily deposits of payroll taxes that were made timely by April 18, but after April 15, to be considered as paid late even though April 15 was a federally observed legal holiday in the District of Columbia (Emancipation Day).

Erroneous failure-to-deposit penalties will be remedied. the IRS says that, in some instances, taxpayers were assessed failure-to-deposit penalties as a result of a programming error that treated some monthly and daily deposits of payroll taxes that were made timely by April 18, but after April 15, as paid late. The IRS says it is working to resolve the issue and correct the erroneous penalty assessments in the near future. No taxpayer action is required at this time. Those affected will receive correspondence when the issue is resolved.

If you have questions regarding the penalty notices, BiggsKofford is here to help. Call us at 719-579-9090 or send us an email to info@biggskofford.com.

(Journal of Accountancy By: Sally P. Schreiber; Published March 1, 2016)

Payroll and human resources departments should beware of an email phishing scheme in which cybercriminals pose as company executives (including CEOs) and ask for confidential employee information, such as Forms W-2, Wage and Tax Statement, and employees’ Social Security numbers, address, date of birth, and salary, the IRS warned on Tuesday. Once this information has been stolen, it can be used to commit a number of crimes, including filing fraudulent tax returns to obtain refunds.

“This is a new twist on an old scheme using the cover of the tax season and W-2 filings to try tricking people into sharing personal data. Now the criminals are focusing their schemes on company payroll departments,” IRS Commissioner John Koskinen said in a prepared statement. The fraudulent emails use what is called “spoofing,” which makes it appear the messages are from company executives, and often contain the name of the company’s CEO. Payroll departments are warned not to respond to these emails without being sure of who they are sending this information to.

The IRS says its Criminal Investigation division is reviewing several cases in which this latest variation on phishing has tricked people into supplying confidential employee information to cybercriminals.

The IRS recently reported detecting a 400% surge in email phishing schemes and malware attacks this tax season. It reminded taxpayers to be vigilant in protecting their personal information. Phishing schemes recently made the IRS’s annual “dirty dozen” list of top tax scams (see prior coverage here).

If you have questions about any of these scams, BiggsKofford is here to help. Call us at 719-579-9090 or send us an email to info@biggskofford.com.

(Journal of Accountancy By: Paul Bonner; Published February 26, 2016)

Another 390,000 taxpayer accounts have been identified as potentially accessed by thieves that hacked into the IRS’s “Get Transcript” online application, the IRS said Friday, bringing the total number of accounts affected to approximately 724,000.

The breach was discovered last May, when the IRS initially identified possible unauthorized access of about 114,000 taxpayer accounts. Then, last August, the IRS revised that figure to 334,000. The application on the IRS website, launched in January 2014, was intended to allow taxpayers to more easily obtain records of their prior tax filings. It has remained suspended since the data breach was first discovered.

Friday’s revelation of the additional accounts potentially breached was the result of a nine-month investigation by the Treasury Inspector General for Tax Administration. In addition, the investigation revealed hackers had targeted another 295,000 taxpayer transcripts but failed to gain access to them.

As in the previous discoveries, the IRS said it will notify taxpayers whose accounts may have been accessed, allowing them to request identity protection personal identification numbers for more secure tax filings, offering free credit report fraud monitoring for a year, and more closely scrutinizing returns with those Social Security numbers.

The latest revelation also comes just days after the IRS also revealed that it had discovered and stopped an attempted attack on its e-filing personal identification number (PIN) system in January. No personal taxpayer data were compromised in that attempted breach, the IRS said.

We hope this information is helpful. If you would like more details about the hacks, please do not hesitate to call Greg Gandy or Michael McDevitt at 719-579-9090.

(Journal of Accountancy By: Sally P. Schreiber; Published February 17, 2016)

Every year, the IRS releases a list of what it calls the worst tax scams of the year. Beginning Feb. 1 and ending on Feb. 17, the IRS issued a news release each day highlighting a scam. These “dirty dozen” scams can be encountered at any time of year, but the IRS reports that they peak during tax season.

1. Identity theft

According to the IRS, the No. 1 scam this year is tax-related identity theft, which the IRS defines as when someone uses a taxpayer’s stolen Social Security number to file a tax return claiming a fraudulent refund (IR-2016-12). Although the IRS has introduced more effective screening and detection systems that are designed to detect identity theft before it issues a refund, the Service admitted that it is still a major problem. To fight the problem more effectively, over the past year, the IRS has participated in a Security Summit initiative in partnership with states and the tax-preparation industry to try to improve security for taxpayers. The participants share information of fraudulent schemes that have been detected this filing season to provide increased protection. More than 20 data elements are used, unknown to taxpayers, to verify tax return information.

In addition, the IRS urged taxpayers to protect their own information so it is harder for thieves to breach the IRS’s security systems. These efforts at taxpayer education include the Taxes. Security. Together. campaign to help taxpayers avoid the data breaches that make it easier for them to become victims.

2. Phone scams

The second scam this year is phone scams, in which criminals call, impersonating the IRS (IR-2016-14). Many times, they disguise the number they are calling from so it appears to be the IRS or another agency calling, and they may threaten arrest, deportation, or license revocation. The scammers sometimes use IRS titles and fake badge numbers to appear legitimate and use the victim’s name, address, and other personal information, which makes the call sound official.

To protect themselves, the IRS says, taxpayers should be aware the IRS will never call to demand immediate payment, call about taxes owed without first having mailed a bill, call to demand payment without the opportunity to question or appeal, require use of a specific payment method, such as a prepaid debit card or wire transfer, ask for credit or debit card numbers over the phone, or threaten to bring in local police or other law enforcement to arrest a taxpayer for not paying.

3. Phishing

Another scam that continues to appear high on the list is “phishing,” in which taxpayers get unsolicited emails seeking financial or personal information. A taxpayer who receives a suspicious email should send it to phishing@irs.gov. “The IRS won’t send you an email about a bill or refund out of the blue,” said IRS Commissioner John Koskinen (IR-2016-15). Scam emails can also infect a computer with malware without the taxpayer’s knowing it, often enabling the criminals to access sensitive files or track keyboard strokes, exposing login information.

4. Return preparer fraud

Return preparer fraud involves “dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers” (IR-2016-16). The IRS warned taxpayers to be wary of “unscrupulous preparers who prey on unsuspecting taxpayers with outlandish promises of overly large refunds,” which is why the IRS says this scam makes it onto the list every year.

“Choose your tax return preparer carefully because you entrust them with your private financial information that needs to be protected,” Koskinen said. The IRS provides a number of tips for taxpayers to choose competent preparers, including checking what the preparer’s credentials are, making sure the preparer will be available after filing season, and ensuring that the taxpayer’s refund is deposited into the taxpayer’s account, not the preparer’s. The IRS recommends avoiding preparers who base their fees on a percentage of the refund or promise larger refunds than other preparers.

5. Hiding money or income offshore

Hiding money or income offshore, which is a major focus of IRS enforcement efforts, is the next tax scam the IRS addressed (IR-2016-17). “Our continued enforcement actions should discourage anyone from trying to illegally hide money and income offshore,” Koskinen said. As the IRS explained, there are legitimate reasons that taxpayers have foreign accounts, but these accounts trigger reporting requirements. The IRS offers a number of programs, including the Offshore Voluntary Disclosure Program, for taxpayers to come into compliance with these requirements. The IRS noted that the heightened reporting required under the Foreign Account Tax Compliance Act, which went into effect in 2015, makes it even harder for taxpayers to conceal assets overseas.

6. Inflated refund claims

Another scam that is closely related to return preparer fraud is inflated refund claims, in which unscrupulous preparers set up shop to lure unsuspecting taxpayers (IR-2016-18). “Be wary of tax preparers that tout outlandish refunds based on federal benefits or tax credits you’ve never heard of or weren’t eligible to claim in the past,” Koskinen said.

Inflated refund claims often involve claims for tax credits that taxpayers are not entitled to, such as education credits, the earned income tax credit (EITC), or the American opportunity tax credit. The IRS reminds taxpayers that they are responsible for what is on their return, even if someone else prepares it, and they can be assessed penalties and interest as well as additional tax.

7. Fake charities

Next on the list is fake charities. Taxpayers are cautioned to check the Exempt Organizations Select Check on the IRS’s website to determine whether a charity is bona fide and qualifies for deductible contributions (IR-2016-20). Legitimate charities should be willing to give donors their employer identification numbers, which can then be used to check whether the charities are qualified on the IRS website. Fake charities often use names similar to well-known organizations and may set up fake websites. They also can be used for identity theft purposes. When large-scale natural disasters occur, these fraudulent organizations tend to increase, the IRS reports, and it warns that taxpayers should not make any contributions without checking first.

8. Falsely padding deductions

No. 8 on the list is falsely padding deductions (IR-2016-21), which consists of deceitfully inflating deductions or expenses on the return to pay less tax or receive a bigger refund. This item is new to the dirty dozen list this year. The IRS warns taxpayers that they should “think twice” before overstating their charitable contribution expenses or padding their business expenses, as well as avoid claiming credits they are not entitled to, such as the EITC and the child tax credit. Taxpayers who do this may be subject to substantial penalties and may, in some cases, face criminal prosecution.

9. Excessive claims for business credits

The next item on the list, excessive claims for business credits, expands on last year’s “excessive claims for fuel credits” (IR-2016-22). This scam involves two specific false claims for credits: fraudulent claims for refunds of fuel excise tax and bogus claims for the research tax credit. The IRS says that its refund fraud filters are stopping a number of fraudulent fuel excise tax refunds this year.

10. Falsifying income to claim tax credits

Tenth on the list is falsifying income to claim tax credits (IR-2016-23). This usually involves falsely claiming higher earned income to qualify for the EITC, which is a refundable credit. Unscrupulous preparers often do this to get taxpayers larger refunds than they are entitled to. Even when taxpayers are unaware of these false claims, they are, as the IRS reminds again, responsible for what is on their tax return. They can be subject to significant penalties, interest, and possibly prosecution.

11. Abusive tax shelters

No. 11 is participating in abusive tax shelters (IR-2016-25). Abusive tax shelters are defined as schemes using multiple flowthrough entities to evade taxes. They often use limited liability companies, limited liability partnerships, international business companies, foreign financial accounts, offshore credit or debit cards, and multilayer transactions to conceal who owns the income or assets.

The IRS also mentions the misuse of trusts and captive insurance companies among the types of transactions taxpayers should avoid. As in some of the other scams, the IRS warns that participating in these transactions can result in significant penalties and interest and “possible criminal prosecution.” According to Koskinen, “These schemes can end up costing taxpayers more in back taxes, penalties, and interest than they saved in the first place.”

12. Frivolous tax arguments

The final “scam” is frivolous tax arguments, which the IRS warns taxpayers not to be talked into (IR-2016-27). Announcing the release today of the 2016 version of its webpage, “The Truth About Frivolous Tax Arguments,” the IRS explained how the courts and the IRS have treated these arguments, which involve claims such as that the only employees subject to income tax are employees of the federal government or that only foreign income is taxable. “Taxpayers should avoid unscrupulous promoters of false tax-avoidance arguments because taxpayers end up paying what they owe plus potential penalties and interest mandated by law,” Koskinen said. The IRS reminded taxpayers that they would automatically be subject to the $5,000 penalty for frivolous tax positions.

If you have any questions regarding this, please to not hesitate to contact Greg Gandy or Mike McDevitt at (719) 579-9090.

(Journal of Accountancy By: Sally P. Schreiber; Published February 10, 2016)

The IRS revealed on Tuesday that it discovered and stopped an automated cyberattack on its e-filing personal identification number (PIN) system last month. According to the IRS, the cybercriminals used information stolen “elsewhere outside the IRS” to generate e-file PINs for stolen Social Security numbers (SSNs). E-file PINs are used by some taxpayers to electronically file their tax returns.

Although no personal taxpayer data were compromised or disclosed by the breach, the IRS noted that the cybercriminals succeeded in using 101,000 SSNs to access e-file PINs (out of 464,000 attempts).

The IRS is notifying the affected taxpayers and placing tax return identity theft markers on their accounts. It is also continuing to closely monitor the Electronic Filing PIN application against further breaches.

The IRS also said it is working with other agencies and the Treasury Inspector General for Tax Administration to assess the problem and has shared information with Security Summit state and industry partners. It said the breach was not related to last week’s e-filing shutdown.

The news follows closely on last summer’s announcement that a breach of the IRS Get Transcript system resulted in the theft of some 334,000 taxpayers’ tax data (see prior coverage here).

If you have any questions regarding the IRS hack, please contact us at 719-579-9090. If you have been notified that your identity has been breached, please read here.

The Internal Revenue Service (IRS) has announced that the due date for providing the following 2015 forms have been extended from February 1, 2016 to March 31, 2016:

  • 2015 Form 1095-B – Health Coverage
  • 2015 Form 1095-C – Employer Provided Health Insurance Offer and Coverage

Also, the IRS has announced that the due date for the following forms are extended from Feb. 29, 2016, to May 31, 2016, if not filing electronically, and from March 31, 2016, to June 30, 2016, if filing electronically:

  • 2015 Form 1094-B – Transmittal of Health Coverage Information Returns,
  • 2015 Form 1095-B –Health Coverage
  • 2015 Form 1094-C – Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns
  • 2015 Form 1095-C –Employer-Provided Health Insurance Offer and Coverage

If you have any questions regarding this, please to not hesitate to contact Greg Gandy or Mike McDevitt at (719) 579-9090, and we will be happy to serve you.

Few people pay exactly the correct amount of income tax during the year. When you filed your return for 2014, you probably discovered that you paid too little (and owed more tax) or paid too much (and could request a refund). Typically, refunds are due to employees who have too much tax withheld from their paychecks.

Example 1: Arlene King is paid twice a month. From each paycheck, her employer withholds $1,000 for federal income tax, so Arlene’s tax payments for 2014 were $24,000. When Arlene filed her 2014 tax return, she learned that her tax obligation for last year was $21,000. Thus, Arlene could request a $3,000 tax refund.

Does over-withholding and getting a refund in this manner make sense financially? That depends on a taxpayer’s situation.

Positive features

The advantage of getting a tax refund is, well, who wouldn’t want to receive a large check from the federal government? Moreover, federal income tax refunds aren’t taxable. (A state or local tax refund may increase the tax you’ll owe.)

Thus, Arlene could decide to use her $3,000 refund check to invest or to pay down debt or to make a special purchase. In effect, her $3,000 of excess tax withholding becomes a form of forced saving, which she can utilize every year when the check comes in.

Now for the negatives

On the other hand, having too much money withheld for income tax has been likened to making an interest-free loan to the IRS. It’s your money—you earned it—so why wait for months to get your hands on it? This strategy can be especially unappealing if your over-withholding results from a major change in your life.

Example 2: In early 2014, Bianca and Craig Carter bought a house, using a large mortgage for the purchase. Bianca left her job to stay home with their young child. Thus, the Carters had lower income and higher deductions than in 2013, resulting in a smaller tax bill.

However, Craig did not adjust his tax withholding at work. Thus, he paid more tax than necessary throughout the year. It’s true that the Carters got back the overpayment with a 2015 tax refund, but they went through 2014 with less cash flow than required, forcing them to struggle to cover the costs of a new home and a growing family.

Winning the numbers game

If you feel that you need the disciplined forced savings of over-withholding, then relying on an annual tax refund may make sense. Conversely, if you prefer to get your money as you earn it, you can reduce the amount withheld by filling out IRS Form W-4, Employee’s Withholding Allowance Certificate, and submitting it to your employer. Our office can help you fill out Form W-4 so you get the right amount withheld, avoiding either a large refund or a large tax obligation with next year’s tax return.

Trusted Advice – Adapting Allowances

  • On IRS Form W-4, employees can claim a number of personal allowances.
  • The more allowances you claim, the lower your withholding and the more income you’ll receive with each paycheck.
  • Two income couples can calculate the total number of allowances to which they’re entitled.
  • For such couples, withholding usually will be most accurate when all allowances are claimed on the Form W-4 for the higher earning spouse.
  • The lower earning spouse then can claim zero allowances on his or her Form W-4.

(Retirement Planning Solutions, By Nathan O. Carlson; October 2015)

All plan documents MUST be periodically rewritten to reflect changes in ERISA law. The timetable varies based upon the type of plan document. Usually they must be rewritten once every six years. Most common plan documents must be rewritten by 4/30/2016.

  1. Deadline does not include: Governmental, Church, ESOPs, 403(b), and individually designed retirement plans.
  2. Does include: Master & Prototype, and volume submitter plan documents.
  3. It is a good time to make sure all historical documents are in place and properly signed and dated. If not, submit to Voluntary Correction Program. If audited by the IRS or DOL and the error is found, the fine is considerable.

For questions, call BiggsKofford at 719-579-9090 or visit RPS here.

(Five Minute Tax Briefing, Thompson Reuters; Published October 2016)

The IRS can levy property owned by taxpayers who owe back taxes [IRC Sec. 6331(a) ]. Furthermore, under IRC Sec. 6331(h)(1) , with regards to certain specified payments, including SSA disability insurance payments, the IRS can levy (withhold) up to 15% of the payment each month until the debt is paid. Nevertheless, in a memo to its Collection staff, the IRS’s Small Business/Self-Employed (SB/SE) Division announced a new policy decision under which it will no longer levy SSA disability insurance payments beginning with payments payable after 10/3/15.

IRS Releases Final 2015 ACA Reporting Forms and Instructions

On September 16th, the Internal Revenue Service (IRS) published final Forms 1094-B and 1095-B, Forms 1094-C and 1095-C, and corresponding form instructions for tax year 2015. Forms 1094-C and 1095-C will be used by employers to report offers of health insurance coverage made to their full-time employees. The final forms did not include any major changes from the prior draft versions; however, the final instructions provide some clarification on reporting.

Background
Internal Revenue Code (IRC) Section 6056 under the Affordable Care Act (ACA) requires applicable large employers (ALEs) to report to the IRS whether they offer their full-time employees and their employees’ qualified dependents the opportunity to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan.  An ALE is an employer that employed (any combination of workers within a controlled group) an average of at least 50 full-time employees (including full-time equivalent employees) during the preceding calendar year. Employees are considered full-time in any month that they are credited with at least 30 hours of service per week, on average, or 130 hours of service in the month.

Form 1094-C is the transmittal report which accompanies and summarizes Forms 1095-C.

Form 1095-C will identify each employee who was full-time for one or more months, and report for each month the details of any health care coverage offered. For self-insured plans, Form 1095-C will also be provided to covered individuals. The first Forms 1095-C must be furnished to employees by January 31, 2016 (covering 2015), and must be filed with the IRS in accordance with existing deadlines for Forms W-2. Electronic filing is required if at least 250 forms are filed.

Form 1095-B generally identifies each covered individual (including any spouse and qualified dependents) and their respective months of coverage. Insurers and other providers of health care coverage, including multiemployer plans, will file and furnish Forms 1095-B to report details of all individuals with insured health coverage to the IRS, as required by IRC Section 6055. Self-insured ALEs will issue and file a combined Section 6055/6056 report using Form 1095-C, Part III.

The ACA information on Form 1095-C is arranged in three rows of coded information, by month, for each full-time employee.

  • The first row (Line 14) on the form identifies whether the ALE offered minimum essential coverage (MEC) to the employee and any spouse and qualified dependents, and whether such coverage provided minimum value.
  • The second row (Line 15) reports the employee’s share of the lowest-cost monthly premium for self-only minimum value coverage.
  • The third row (Line 16) includes any information needed to determine whether the employer may be liable for a shared responsibility payment. For example, codes are entered to identify employees who were not employed or who were not full-time during a month, or who enrolled in coverage offered. Other codes identify transitional or “safe-harbor” relief (e.g., employees in limited non-assessment periods or coverage meeting affordability safe-harbor tests).

Revisions to Form Instructions
Using Multiemployer Arrangement Interim Guidance – The final instructions for Form 1095-C clarify that Codes 1H (no offer of coverage) and 2E (multiemployer interim rule relief) can be used on Lines 14 and 16, respectively, without regard to whether the employee was eligible to enroll or enrolled in coverage under the multiemployer plan for 2015. In future years, ALE members relying on the multiemployer arrangement interim guidance may be required to report offers of coverage made through a multiemployer plan in a different manner.

Reporting on Offers of COBRA – These final instructions removed the requirement to report an offer of COBRA on Form 1095-C made to a former employee upon termination, even when the employee enrolled in that coverage.  The requirement remains to report an offer of COBRA that is made to an active employee due to a reduction in hours.

Total Employee Count for ALE Member – A fifth option was added to the instructions for ALE members to use when calculating their total employees on a monthly basis for Form 1094-C, Part III, Column (c).  The option to use the 12th day of each month is now permitted in addition to the existing methods of using the first or last day of each month,  the first day of the first payroll period that starts during each month, or the last day of the first payroll period that starts each month.

Applicable Large Employer (ALE) Definition – The definition of ALE was updated with regards to determining whether or not an employer is an ALE for a given year and therefore subject to IRC Section 4980H. Instructions clarify that employers may disregard an employee for any month in which the employee has coverage under a plan described in Section 4980H(c)(2)(F) – generally, TRICARE or Veterans Administration coverage.  However, if an employer qualifies as an ALE, such employees are treated as any other employee;  e.g., they should be included in full-time employee determinations, and subject to reporting on Forms 1095-C, etc.

Reporting Health Reimbursement Arrangements (HRA) as Minimum Essential Coverage (MEC) – The final instructions provided direction on when an HRA should be reported as MEC.  An ALE member with a self-insured major medical plan and an HRA is required to report the coverage of an individual enrolled in both types of MEC under only one of the arrangements.   An ALE member with an insured major medical plan and an integrated HRA is not required to report the HRA coverage, if the individual is eligible for the HRA because the individual enrolled in the insured major medical plan.  An ALE member with an HRA must report coverage under the HRA on Form 1095-C, Part III for any individual that is not enrolled in a major medical plan of the ALE member (for example, if the individual is enrolled in a group health plan of another employer, such as spousal coverage).

For more information on the changes discussed, please review the 2015 Instructions for Forms 1094-C and 1095-C at http://www.irs.gov/pub/irs-pdf/i109495c.pdf.

ADP Compliance Resources
ADP maintains a staff of dedicated professionals who carefully monitor federal and state legislative and regulatory measures affecting employment-related human resource, payroll, tax and benefits administration, and help ensure that ADP systems are updated as relevant laws evolve. For the latest on how federal and state tax law changes may impact your business, visit the ADP Eye on Washington Web page located at www.adp.com/regulatorynews.

ADP is committed to assisting businesses with increased compliance requirements resulting from rapidly evolving legislation. Our goal is to help minimize your administrative burden across the entire spectrum of employment-related payroll, tax, HR and benefits, so that you can focus on running your business. This information is provided as a courtesy to assist in your understanding of the impact of certain regulatory requirements and should not be construed as tax or legal advice. Such information is by nature subject to revision and may not be the most current information available. ADP encourages readers to consult with appropriate legal and/or tax advisors. Please be advised that calls to and from ADP may be monitored or recorded.

For a complete infographic chart provided by ADP, click the following: ACA Reporting Requirements Infographic

For questions, call BiggsKofford at 719-579-9090. 

As business owners know all too well, hiring an employee costs more than just paying a salary. Employers generally provide benefits to employees, which can be expensive. Moreover, employers must pay a share of Medicare, Social Security, and state unemployment taxes.

None of the above applies when your company hires an independent contractor—a publicist to get your company’s name in the news, for example, or a freelance website designer. You pay these people the agreed-upon amount and let them worry about funding their retirement or handling payroll tax. If that’s the case, why not just use a group of independent contractors to work for your company and do with few or even no employees?

Defining the difference

The answer is that the IRS is well aware of the advantages of using contractors. Therefore, the IRS has established rules governing how independent contractors are classified, as opposed to employees. Drilling down, the major difference is a matter of control.

Hiring an independent contractor to do a specific task is fine. You tell the contractor what you want done, and you pay for results. However, if you tell the worker how and when and where the work is to be done, you risk having that worker re-cast as an employee by the IRS.

In some cases, common sense will apply. If that freelancer works on your website while doing other paying jobs for other companies, chances are the IRS will go along with independent contractor classification. On the other hand, if you have a person who works from home as a freelancer but works only on your website, does it more or less full time, and takes direction from your IT people, you may have a difficult time treating him or her as a contractor.

If you have been misclassifying employees as contractors, the penalties can be steep. Our office can discuss your workers with you, letting you know how to proceed in order to legitimately treat them as independent contractors.

(AICPA By: Sally P. Schreiber; Published September 2015)

On Wednesday, the IRS issued its annual update of special per-diem rates for use in substantiating certain business expenses taxpayers incur when traveling away from home in 2015 and 2016 (Notice 2015-63).The notice provides the transportation industry meal and incidental expenses rates, the rate for the incidental-expenses-only deduction, and the rates and list of high-cost localities for purposes of the high-­low substantiation method.

Four years ago, the IRS provided, in Rev. Proc. 2011-47, the general rules for using a federal per-diem rate to substantiate the amount of ordinary and necessary expenses for lodging, meals, and incidental costs paid or incurred for business-related travel away from home. Taxpayers using the rates and the list of localities in Notice 2015-63 must comply with the rules in Rev. Proc. 2011-47.

The updated rates are effective for per-diem allowances paid to any employee on or after Oct. 1, 2015, for travel away from home on or after that date, and supersede the rates in Notice 2014-57, which provided the rates for Oct. 1, 2014, through Sept. 30, 2015.

Incidental expenses

Since 2012, incidental expenses have included only fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. The per-diem rate for the incidental-expenses-only deduction remains unchanged at $5 per day for any locality of travel.

Transportation industry

The special meals and incidental expenses rates for taxpayers in the transportation industry are $63 for any locality of travel in the continental United States and $68 for any locality of travel outside the continental United States.

High/low substantiation method

For purposes of the high/low substantiation method, the per-diem rates are $275 for travel to any high-cost locality and $185 for travel to any other locality within the continental United States. The amount of these rates that is treated as paid for meals for purposes of Sec. 274(n) is $68 for travel to a high-cost locality and $57 for travel to any other locality within the continental United States. The notice contains a list of the localities that are high-cost localities (localities that have a federal per-diem rate of $230 or more) for all or part of the calendar year.

(KOAA; Published August 17, 2015)

WASHINGTON (AP) – The IRS says thieves used an agency webs6523573_Gite to steal tax information from as many as 220,000 additional taxpayers.

The agency first disclosed the breach in May. Monday’s revelation more than doubles the total number of potential victims, to 334,000.

The thieves accessed a system called “Get Transcript,” where taxpayers can get tax returns and other filings from previous years. In order to access the information, the IRS said the hackers already had information about the taxpayers, including Social Security numbers and dates of birth.

The IRS believes the breach was part of a sophisticated scheme to use stolen identities to claim fraudulent tax refunds in future years.

The IRS said it will begin notifying newly discovered victims in the next few days. The agency will offer credit protection.

As many of our clients have observed, IRS notices to verify payments are up astronomically this year. Why is this the case when it seems nearly impossible to communicate with an actual agent? Due to $10.9 billion in budget cuts and short-handed staffing issues, the agency has had to rely more on technology than ever before.

According to the IRS Newswire, hackers were able to breach the IRS’s Get Transcript Online service, and were able to obtain past tax return data for more than 104,000 individuals while attempting to access the information of more than 200,000 taxpayers.  The tax hackers were able to obtain enough data from an outside source to allow them access without having to clear a multistep verification process. The IRS said that the data gathered would help criminals to file more credible seeming false returns that are more likely to evade IRS antifraud filters.

After learning about the hack, the IRS promptly shut down the Get Transcript Online service that is primarily used by individuals to obtain past tax data for mortgage and college applications. Because of this breach, the 200,000 affected taxpayers should have received and official IRS letter indicating that the criminals had their tax information, and the IRS would offer credit monitoring services to the 104,000 who had their data stolen.

Results from this hack were felt by millions as refund turnaround was much slower and verification notices from the IRS skyrocketed, making numerous clients nervous. Although numerous clients experienced identity theft issues this year, please note that BiggsKofford has not experienced any security breaches.

If you have any questions regarding the IRS hack, please contact us at 719-579-9090. If you have been notified that your identity has been breached, please read here.