[IMGCAP(1)]A large number of important tax changes go into effect this year. Many were ushered in by the Protecting Americans from Tax Hikes (PATH) Act of 2015, although legislation enacted earlier in 2015 and in 2014 also contributed a fair share. Still other changes are the result of various administrative pronouncements by the IRS.
This article reviews changes for retirement plans and employee benefits, payroll-related changes, and return preparer and compliance rules. You can read about other important tax changes in my previous articles Major Business Tax Changes for 2016 and Important Tax Changes for Partnerships and Due Dates in 2016.
The recent legislation responsible for the lion's share of the changed rules for 2016 consists of the Protecting Americans from Tax Hikes (PATH) Act of 2015, the Fixing America's Surface Transportation (FAST) Act, the Bipartisan Budget Act of 2015, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, the Trade Preference Extension Act of 2015; and the Achieving a Better Life Experience Act of 2014 (ABLE Act), part of the Tax Increase Prevention Act of 2014.
Retirement Plans and Employee Benefits:
SIMPLE accounts may accept rollovers from expanded list of retirement plans. In general, an employer with 100 or fewer employees that doesn't have a qualified plan can establish a "SIMPLE" (savings incentive match plan for employees) retirement plan, without having to meet most requirements for qualified plans. Under prior law, the only contributions allowed to a SIMPLE retirement account were contributions under a qualified salary reduction arrangement or rollovers or transfers from another SIMPLE IRA.
Penalty-free early distributions for federal public safety workers. In general, any amount paid or distributed out of an individual retirement plan is included in the gross income of the payee or distributee as provided in Code Sec. 72. Code Sec. 72(t) imposes an additional 10 percent "early withdrawal" tax on distributions from qualified retirement plans, taken before the individual reaches age 59-1/2, unless the distribution falls within a statutory exception. One such exception is for distributions from a Code Sec. 414(d) defined benefit governmental plan made to a "qualified public safety employee" who has separated from service after attaining age 50.
Receipt of medical care for service-connected disability doesn't affect HSA eligibility. Eligible individuals may, subject to statutory limits, make deductible contributions to a tax-favored health savings account (HSA). Other persons (e.g., family members) also may contribute on behalf of eligible individuals. Eligible individuals are those who are covered under a high deductible health plan (HDHP) and are not covered under any other health plan which is not a HDHP, unless the other coverage is permitted insurance (for worker's compensation, torts, ownership and use of property such as auto insurance, insurance for a specified disease or illness, or providing a fixed payment for hospitalization) or coverage for accidents, disability, dental care, vision care, or long-term care. There's no deduction for an HSA contribution for any month an individual is eligible for and enrolled in Medicare.
Extended deadlines for Affordable Care Act (ACA) information returns. Under Code Sec. 6055, beginning with calendar year 2015, health insurance issuers, certain employers, and others that provide "minimum essential coverage" to individuals must file information returns with the government and furnish related information statements to covered individuals. Entities that are only subject to the Code Sec. 6055 information reporting requirements file Forms 1094-B, Transmittal of Health Coverage Information Returns, and 1095-B, Health Coverage. Under Code Sec. 6056, applicable large employers (generally, employers with at least 50 full-time employees) must report to IRS information about the health care coverage, if any, they offered to full-time employees (i.e., an employee who is employed on average for at least 30 hours of service per week). The reporting is done on Form 1094-C, Transmittal of Employer Provided Health Insurance Offer and Coverage Information Returns, and Form 1095-C, Employer Provided Health Insurance Offer and Coverage.
Revised rules for developing alternative mortality tables. Private sector defined benefit pension plans generally must use mortality tables prescribed by the Treasury for purposes of calculating pension liabilities. Plans may apply to the Treasury to use a separate mortality table. Under prior rules, plans qualify to use a separate table only if (1) the proposed table reflects the actual experience of the pension plan maintained by the plan sponsor and projected trends in general mortality experience, and (2) there are a sufficient number of plan participants, and the plan was maintained for a sufficient period of time, to have credible information necessary for that purpose.
Businesses can shift payroll-tax liability to certified professional employer organizations. When a business contracts with a professional employer organization, or PEO, to administer its payroll functions, the business customer remains responsible for all withholding taxes with respect to its employees. Thus, even though the PEO pays the employees, the customer remains liable if the PEO fails to withhold or remit the taxes or otherwise comply with related reporting requirements.
New payroll rules for motion picture project employers. Beginning Jan. 1, 2016, all wages paid by a motion picture project employer to a motion picture project worker during a calendar year are subject to a single social security tax wage base ($118,500 for 2016) and a single FUTA tax wage base ($7,000 for 2016). This is so regardless of the worker's status as a common law employee of multiple clients of the motion picture project employer.
Accelerated due date for W-2, 1099, etc. Effective for returns and statements relating to calendar years after Dec. 18, 2015 (e.g., filed in 2017 for calendar year 2016), the PATH Act requires forms W-2, W-3, and returns reporting non-employee compensation (e.g., Form 1099-MISC), to be filed on or before January 31 of the year following the calendar year to which such returns relate. Those returns are no longer eligible for the extended filing date for electronically filed returns.
Increased penalties for failure to file correct information returns. A penalty applies to taxpayers that fail to file correct information returns (e.g., IRS Form 1099) with IRS, and there's a separate, but parallel, penalty on taxpayers that fail to provide the payee with a correct copy of the information return filed with IRS. The penalties are based on the duration of the delinquency and whether the delinquency was intentional and are subject to maxima that depend on the size of the taxpayer.
Return Preparer and Compliance Rules:
Tax return preparer due diligence penalty rules revised. Effective for tax years beginning after Dec. 31, 2015, the penalty for lack of due diligence by a return preparer is extended to tax return preparers who prepare federal income tax returns on which a child (or additional child) tax credit is claimed or on which the American Opportunity tax credit (AOTC) is claimed. (Code Sec. 6695(g)) Due diligence requirements similar to those applicable to returns claiming an earned income tax credit apply for these purposes.
Increase in tax return preparer willful or reckless conduct penalty. Under prior law, any tax return preparer who prepared any return or claim for refund for which any part of an understatement of the taxpayer's liability was due to the preparer's willful or reckless conduct, was subject to a penalty in an amount equal to the greater of $5,000 or 50 percent of the income derived (or to be derived) by the tax return preparer as to the return or claim.
Representation rights limited for unenrolled preparers. Unenrolled preparers (i.e., not enrolled agents, CPAs or attorneys) may only represent clients whose returns they prepared and signed, but only before revenue agents, customer service representatives and similar IRS employees, including the Taxpayer Advocate Service. They cannot represent clients whose returns they did not prepare and they cannot represent clients regarding appeals or collection issues even if they did prepare and sign the return in question. IR 2015-124, reminds taxpayers that, for returns prepared beginning Jan. 1, 2016, only those unenrolled preparers that participate in IRS's Annual Filing Season Program (AFSP, a voluntary program requiring a certain number of continuing education hours) will have those limited representation rights. Unenrolled preparers that do not participate in the AFSP will no longer have these rights.
Seriously delinquent taxpayers face revocation or denial of passport. Effective Jan. 1, 2016, the Fixing America's Surface Transportation (FAST) Act provides that having a "seriously delinquent tax debt" is, unless an exception applies, grounds for denial, revocation or limitation of a passport.
Revised due date for FinCen report. FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), is used to report a financial interest in or signature authority over a foreign financial account. The FBAR must be received by the Department of the Treasury on or before June 30th of the year immediately following the calendar year being reported. The June 30 filing date may not be extended.
Under Sec. 2006(b)(11) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, for returns for tax years beginning after Dec. 31, 2015, Treasury is directed to modify appropriate regs to provide that the due date of FBAR will be April 15 with a maximum extension for a 6-month period ending on October 15 and with provision for an extension under rules similar to the rules in Reg. § 1.6081-5. For any taxpayer required to file Form 114 for the first time, any penalty for failure to timely request for, or file, an extension, may be waived by the Treasury Secretary.
Robert Trinz is senior analyst with Thomson Reuters Checkpoint within the Tax & Accounting business of Thomson Reuters.
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