- Qualified mortgage insurance premiums – Qualified homeowners with mortgage insurance can deduct 100 percent of their premium costs.
- Tuition and fees deduction – College students or parents can deduct up to $4,000 in college tuition and other education-related fees and expenses, like books and supplies, paid during 2017.
- Cancellation of mortgage debt – Individual borrowers who had their mortgage debt forgiven in 2017 do not have to pay income tax on the forgiven amount as long as the debt qualifies for the exclusion.
Congress recently extended a number of tax breaks for 2017 that include the extension of a few previously expired deductions and credits. Here’s a look at three of the key provisions that impact individuals and families.
Up until the end of 2016, taxpayers could deduct the cost of college tuition and other education-related fees and expenses for their spouses, their dependents, and themselves. The tuition and fees deduction was an adjustment to income that could be taken directly on the first page of Form 1040 or the shorter Form 1040A.
These "above the line" deductions are particularly advantageous because you don't have to itemize to claim them and they help to determine your adjusted gross income or AGI.
Several other tax breaks can depend on your AGI because they're phased out or even eliminated entirely for taxpayers whose AGIs are too high.
Alas, you'll have to depend on other above-the-line deductions if you want to try to whittle away at your AGI going forward. The tuition and fees deduction was scheduled to sunset or expire at the end of 2016 unless Congress acted to breathe new life into it, and Congress did not.
he 2018 tax filing season officially opens on Monday, Jan. 29, and will close on Tuesday, April 17, when individual tax returns and payments are due to the IRS.
The Internal Revenue Service released updated tax withholding tables for 2018 Thursday to reflect changes for the Tax Cuts and Jobs Act, amid warnings that the tables may not be accurate and will need further refinements.
Notice 1036 is only the first in a number of steps the IRS intends to take to improve the accuracy of withholding after the major changes in the new tax law, the service cautioned.
Among other things, the new tables reflect the increase in the standard deduction, the repeal of personal exemptions, and changes in tax rates and brackets.
“With this guidance, most American workers will begin to see bigger paychecks. We estimate that 90 percent of wage earners will experience an increase in their take home pay,” said U.S. Treasury Secretary Steven Mnuchin in a statement. “The administration’s monumental tax reform legislation continues to provide economic benefits for hard-working Americans. These tax cuts will ensure that American workers are able to keep more of their hard-earned income and decide how to spend, invest or save it.”
The updated withholding information shows the new rates for employers to use this year. Employers should begin using the new withholding tables as soon as possible, the IRS and the Treasury Department stressed, but no later than Feb. 15, 2018. They should continue using the 2017 withholding tables until they implement the 2018 withholding tables.
How long it will take for the changes to surface will vary, depending on how quickly the new tables are implemented by employers and how often employees are paid, whether it’s on a weekly, biweekly or monthly basis. The new withholding tables are designed to work with the Forms W-4 that workers have already filed with their employers to claim withholding allowances. That's supposed to minimize the burden on taxpayers and employers, so employees don't have to do anything at this time with their W-4.
“The IRS appreciates the help from the payroll community working with us on these important changes,” said Acting IRS Commissioner David Kautter in a statement. “Payroll withholding can be complicated, and the needs of taxpayers vary based on their personal financial situation. In the weeks ahead, the IRS will be providing more information to help people understand and review these changes."
One of the goals of the new tables is to produce the correct amount of tax withholding for people with simpler tax situations, helping them avoid over- and under-withholding of tax as much as possible.
To help taxpayers determine their withholding, the IRS is revising the withholding tax calculator on IRS.gov. It expects the calculator will be available by the end of February, and is recommending that taxpayers to use it to adjust their withholding once it’s released.
The IRS is also working on revising the Form W-4, the employee withholding allowance certificate, which has been rendered outdated by the new tax law. The form and the revised calculator will reflect additional changes in the new law, including changes in available itemized deductions, increases in the child tax credit, the new dependent credit and the repeal of dependent exemptions.
The calculator and the new Form W-4 can be used by employees who want to update their withholding in response to the new law or changes in their personal circumstances in 2018, and by taxpayers who starting a new job. Until a new Form W-4 is issued, both employees and employers should continue to use the 2017 W-4.
For 2019, the IRS anticipates making further changes involving withholding. The IRS will work with the business and payroll community to encourage workers to file new Forms W-4 next year and share information on changes in the new tax law that impact withholding.
Democrats have warned the withholding tables may be inaccurate. Senate Finance Committee ranking member Ron Wyden, D-Ore., released a statement Thursday on the IRS’s release of their 2018 withholding tables: “Republicans are using brute force and speed to implement a law that will deliver a financial blow to hardworking Americans all across the country,” he said. “I look forward to GAO’s independent review of these tables, which will expose whether the Trump administration is tampering with Americans’ paychecks, resulting in a whopping tax bill next year.”
Earlier this week, he and House Ways and Means Ranking Member Rep. Richard Neal, D-Mass., raised concerns that the Trump administration was politically interfering with the development of the 2018 withholding tables (see Democrats raise concerns about IRS withholding tables). They asked the Government Accountability Office to independently analyze the new tables and determine whether they might result in the systematic underwithholding of federal taxes from employee paychecks. Trump has promised his tax cuts would produce an average savings of $4,000 for taxpayers.
House Ways and Means Committee Chairman Kevin Brady, R-Texas, promised taxpayers would start to see a boost in their paychecks thanks to the new tax law he shepherded through Congress. “This is outstanding for families in Texas and taxpayers across the country,” he said in a statement. “With the new tax code provided by the Tax Cuts and Jobs Act, nine out of 10 taxpayers will see a boost in their take-home pay within the coming weeks. That comes on top of all the bonuses, wage increases, and expanded benefits that so many businesses have already provided American workers as a result of tax reform. The American people work hard to earn their paychecks and support their families. Finally, they have a tax code that allows them to keep more of their money to use as they see fit.”
Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.
2019 Medicare Advantage Part I Advance Notice – Risk Adjustment from The Centers for Medicare & Medicaid Services (CMS)
Today, the Centers for Medicare & Medicaid Services (CMS) released Part I of the 2019 Advance Notice of Methodological Changes for Medicare Advantage Capitation Rates and Part D Payment Policies (the Advance Notice), which contains key information about proposed updates to the Part C Risk Adjustment Model and the use of encounter data.
The 2019 Advance Notice is being published in two parts this year due to requirements in the 21st Century Cures Act, which mandated certain changes to the Part C risk adjustment model and a 60 day comment period for these changes. Changes to other payment methodologies proposed for the following calendar year that are typically contained in the Advance Notice only require a 30 day comment period and will be released in accordance with that statutory deadline. The payment policies for 2019, proposed in both in Part I and Part II of the Advance Notice, will be finalized in the annual Rate Announcement. To be assured consideration, comments on the proposals announced today should be submitted by March 2, 2018.
2019 Part C Risk Adjustment Model proposal
The 21st Century Cures Act amended the Social Security Act by, in part, requiring CMS to make improvements to risk adjustment for 2019 and subsequent years. In response to these requirements, we are proposing changes to the CMS-HCC Risk Adjustment model that is used to pay for aged and disabled beneficiaries enrolled in Medicare Advantage plans. These proposals reflect changes to risk adjustment required by the 21st Century Cures Act, including an evaluation of adding mental health, substance use disorder, and chronic kidney disease conditions to the risk adjustment model and making adjustments to take into account the number of conditions an individual beneficiary may have, as well as a variety of additional technical updates. Further, the 21st Century Cures Act requires that CMS fully phase in the required changes to the risk adjustment model by 2022. We are therefore proposing to begin the phase in of this new model in 2019, starting with a blend of 75% of the risk adjustment model used for payment in 2017 and 2018 and 25% of the new risk adjustment model proposed.
For 2019, CMS is proposing a model that includes additional mental health, substance use disorder, and chronic kidney disease conditions in the risk adjustment model.
With respect to taking into account the number of conditions an individual beneficiary has, in Part 1 of the Advance Notice we describe a proposed new risk adjustment model and discuss an alternative model. The model we are proposing – the “Payment Condition Count model” – takes into account the number of conditions that a beneficiary has, only among the conditions that are included in the payment model. The model discussed as an alternative – the “All Condition Count model” – takes into account all conditions that a beneficiary has, including both those in the payment model and those not in the model.
The charts below indicate the range of contract-level impacts of each of these CMS-HCC Risk Adjustment models on Medicare Advantage risk scores. Overall, while the experience of individual plans would vary, the Payment Condition Count model is projected to increase MA risk scores by 1.1%, while the All Condition Count model would decrease MA risk scores by -0.28%. Under the Payment Condition Count model, the change in MA contracts’ risk scores is generally positive and less varied than the All Condition Count model. The change in MA contracts’ risk scores under the All Condition Count model is more varied, with both negative and positive changes.
Payment Condition Count model – Percent change in MA contract-level risk scores
This graph displays the estimated percent change in payment for 446 Medicare Advantage contracts. Each line indicates the Payment Condition Count model’s estimated impact on payment for 1 contract.
All Condition Count model – Percent change in MA contract-level risk scores
This graph displays the estimated percent change in payment for 446 Medicare Advantage contracts. Each line indicates the All Condition Count model’s estimated impact on payment for 1 contract.
Using Encounter Data
The model we are proposing in Part 1 of the Advance Notice also makes technical updates, including calibrating the model with more recent data, selecting diagnoses with the same method used for encounter data, and supplementing encounter data used in payment with inpatient data submitted to the historical risk adjustment data collection system (the Risk Adjustment Processing System (RAPS)).
CMS calculates risk scores using diagnoses submitted by Medicare FFS providers and by Medicare Advantage organizations. Historically, CMS has used diagnoses submitted into CMS’ RAPS by Medicare Advantage organizations. In recent years, CMS began collecting encounter data from Medicare Advantage organizations, which also includes diagnostic information. In 2016, CMS began using diagnoses from encounter data to calculate risk scores, by blending 10% of the encounter data-based risk scores with 90% of the RAPS-based risk scores. For 2017 and 2018, CMS continued to use a blend to calculate risk scores, by calculating risk scores with 25% encounter data and 75% RAPS in 2017, and 15% encounter data and 85% RAPS in 2018. For 2019, CMS proposes to calculate risk scores by adding 25% of the risk score calculated using diagnoses from encounter data and FFS diagnoses with 75% of the risk score calculated with diagnoses from RAPS and FFS diagnoses. CMS is also proposing to implement the phase-in of the new risk adjustment model by calculating the encounter data-based risk scores exclusively with the new risk adjustment model, while maintaining use of the current 2018 risk adjustment model for calculating risk scores with RAPS data.
Early Due Dates for W-2, W-3 and Form 1099-MISC
Employers face a January 31, 2018, due date for filing 2017 Forms W-2 and W-3 with the Social Security Administration. This date applies to both electronic and paper filers.
Form 1099-MISC is due to the IRS and individuals by January 31 when reporting non-employee compensation payments in box 7.
Penalties for failure to file correct information returns or furnish correct payee statements have increased and are now subject to inflationary adjustments. These increased penalties are effective for information returns required to be filed after December 31, 2015.
IRS - Special Instructions for Individuals Claiming Disaster Losses from Hurricanes Harvey, Irma or Maria
The Disaster Tax Relief and Airport and Airway Extension Act of 2017 provides additional relief to many, but not all, victims of Hurricanes Harvey, Irma, or Maria. Under the Act, victims may deduct greater portions of hurricane disaster losses that occurred in Florida, Georgia, Texas, Puerto Rico, or the U.S. Virgin Islands because part of the usual casualty loss limit does not apply. As an alternative to claiming hurricane disaster losses by reporting them on their 2017 federal tax return, many victims can choose to claim hurricane disaster losses sooner by reporting them on their 2016 federal tax return if they have not yet filed or by amending their 2016 tax return if they already filed it in 2017.
Shared by C. Cheryl Tobin
Warning: Tax Rant- but you should care!!
As a CPA, I regularly get tax updates. As I read the current tax bill provisions, it makes me very sad that more people are not outraged about this. It takes away so much from families. You get a little more child tax credit (assuming you have children that qualify) but lose all the personal exemptions, which this year was scheduled to be $4150/person. For a family of 4, that means $16,600 of additional taxable income. Do you really think the little bump in child tax credit is going to negate that?? If you itemize, the increase in the standard deduction does nothing for you. I haven’t even started to address the changes to itemized deductions, the loss of interest deduction on home equity loans (remember that home improvement you financed with a HELOC??), or the change to gain on sale of residence and many other provisions lost. I could go on and on.
Many small business are organized as S-corps, meaning they are taxed at their individual rate vs the corp rate which was typically higher. If the corp tax rate is now going to be lower than some individual rates, how does this benefit small business?
Wake up people!! Contact your legislators. They are still trying to reconcile what ends up being the “final” version. And if this passes and gets implemented, remember this at the ballot box in 2018.
The centerpiece of the Republicans' proposed "Tax Cuts and Jobs Act" is its claim to reduce taxes for middle-income Americans by lowering tax rates and increasing the standard deduction. However, for some taxpayers, particularly those who don't itemize deductions but do claim some special deductions on the front of their tax return, the promise of lower taxes may be elusive.
The plan drops the number of tax brackets from seven to four. Individuals with taxable income up to $200,000 will have the first $45,000 taxed at 12 percent and the remainder at 25 percent. Married filers with taxable income up to $260,000 will have $90,000 of their income taxed at 12 percent and the rest at 25 percent.
Currently, individuals and married filers with taxable income at these levels are taxed at four rates ranging from 15 percent to 33 percent.
In keeping with the theme of simplification -- and to pay for some of the plan's revenue-losing provisions, such as a lower corporate tax rate -- the proposal aims to remove a lot of deductions and tax credits. It also eliminates the personal exemption. In return, individuals and married fillers would get a significant increase in the standard deduction.
The current standard deduction is $6,350 for a single filer, and the personal exemption is $4,050, for a total deduction of $10,400. For married filers, the current standard deduction is $12,700, and when combined with the personal exemption ($4,050 x 2), their total deduction is $20,800.
Under the GOP plan, the standard deduction nearly doubles to $12,200 for single filers and $24,400 for a married couple filing jointly. About 75 percent of filers now claim the standard deduction and don't itemize, so many could see some benefit from these changes.
However, the plan also aims to eliminate several deductions that many middle-income taxpayers can now claim. These are are commonly known as "above-the-line" deductions because you can claim even if you don't qualify to claim itemized deductions. The most commonly claimed itemized deductions are for state and local taxes, mortgage interest and charitable donations, the first two of which could also go away or be severely limited.
The four above-the-line deductions eliminated under the tax plan are:
Moving expenses: If you meet specific IRS criteria and have moving expenses relating to a change in job or business location, those expenses are currently deductible. In 2015 (the last year with available data), approximately 1.1 million taxpayers claimed this deduction, which saved them about $3.7 billion. But the GOP tax plan eliminates it.
Alimony: Nearly 600,000 taxpayers claimed a deduction for alimony paid to an ex-spouse, saving them nearly $12.3 billion. The Republican tax plan also ends this deduction.
Student loan interest: Single filers with income of up to $65,000, or joint filers with income of $130,000 or less, can now deduct interest of up to $2,500 annually on student loans. Considering that the aggregate student loan debt in the US is over $1 trillion and about 13.4 million Americans claimed this deduction, its loss would affect lots of people.
Tuition and fees: This special deduction currently allows taxpayers to deduct up to $4,000 of qualified education expenses. The income levels that allow full or partial deductibility of these expenses is the same as for the student loan interest deduction above. Eliminating this deduction could especially hit those getting training for new jobs.
The takeaway is that while most of middle-income Americans would see a tax cut from a few hundred to a few thousand dollars (depending on the amount of income), many others wouldn't see as much, and others would see some increase in taxes. But remember, under the current GOP plan, the lower tax rates would be in effect for just 10 years, so come 2027 all bets would be off.
During the holiday shopping season, shoppers are looking for the perfect gifts. At the same time, criminals are looking for sensitive data. This data includes credit card numbers, financial accounts and Social Security numbers. Cybercriminals can use this information to file a fraudulent tax return.
This tip is part of National Tax Security Awareness Week. The IRS is partnering with state tax agencies, the tax industry and groups across the country to remind people about the importance of data protection.
Anyone with an online presence can do a few simple things to protect their identity and personal information. Following these eight steps can also help taxpayers protect their tax return and refund in 2018: