As we let the notes of Auld Lang Syne fade away into a happy memory, the dawn of a new business year breaks. At the time this article was being written, effects of an increased state minimum wage and a related mandatory sick time rule and the additional Flagstaff minimum wage hike stacked on top were being seriously debated – especially by owners of small businesses in town. Those chips are going to fall where they may, and a future article will have to address all of those issues. Yes, the propositions passed. But, as they say, nothing is certain except death and taxes. And taxes are what we do. So, let’s consider the tax calendar, at least for the beginning of this new year. Finalize your payroll reports and issue W-2 forms for your employees no later than Jan. 31. Then, of course, file your W-3 along with copy A of the W-2s with the Social Security Administration. 1099 forms are due as well if you paid over $600 to a non-employee.
If you have employees who claimed exempt from withholdings on their 2016 W-4 you are required to obtain a new W-4 by Feb. 15 or to start withholding taxes as if they filed a W-4 claiming single with no dependents. The IRS also requires employers to inform employees who have no taxes withheld due to their income levels that they may qualify for the Earned Income Tax Credit (EIC or EITC). “You must notify employees who have no federal income tax withheld that they may be able to claim a tax refund because of the EIC. Although you don’t have to notify employees who claim exemption from withholding on Form W-4 about the EIC, you are encouraged to notify any employees whose wages for 2015 were less than $47,747 ($53,267 if married filing jointly) that they may be eligible to claim the credit for 2015. This is because eligible employees may get a refund of the amount of EIC that is more than the tax they owe.” You can satisfy this requirement by using preprinted W-2s with this statement on the back or give the employee notice 797. You can also satisfy this requirement by providing a statement that contains the same language. These aren’t all the requirements placed on employers; check with your payroll service, CPA or Enrolled Agent who practices in this area for more requirements based upon your specific circumstances.
For your employees (or you if you find yourself falling into the employee category), there are some new wrinkles to filing taxes and expected refund dates due to some congressional action this year. The PATH Act (Protecting Americans from Tax Hikes Act) of 2015 will delay refunds due to the Earned Income Credit or Additional Child Tax Credit until at least Feb. 15. The increase in fraudulent refunds and identity theft is to blame for these delays. Taxpayers who file prior to this date should expect to wait for their refunds for just a little while longer if they normally file early in the filing season. This additional time is to allow the Internal Revenue Service to catch those returns filed fraudulently. It is still recommended to file your tax return when you normally would, just know that if you qualify for one of these credits you will be waiting for any refund until mid February. Of course, we can view this as a motivation to do some planning. Some simple adjustments to your W-4 can put a little extra money in your pocket throughout the year instead of having to wait until filing your tax return. If, instead, you usually owe each year, it’s also a great time to think about evening out those annual payments. Talk to your tax professional about making withholdings adjustments and tax planning.
A few other things to consider in the 20-page summary of the 2015 Act include the prohibition on filing amended returns to claim refundable credits when the qualified individual did not have an Individual Taxpayer Identification Number or ITIN. This just means that everyone should have or file for their ID numbers, whether that is a Social Security Number or the alternate ITIN. Finally, filing your tax return on time will help to smooth out your experience with the insurance marketplace and the Free Application for Federal Student Aid, or FAFSA. Both of these programs pull information from your tax returns. FAFSA has actually made the rush to file in January no longer necessary as it will collect information from the prior year – 2015 tax return information for applications filled out in 2017. The marketplace, as some have discovered, will not allow you to complete your enrollment if your tax return isn’t in the system.
We touched a lot of topics in this article and if you made it this far, you may have lingering questions, or new questions. Competent tax professionals spend many hours attending classes, reading industry publications, tax court cases and independent study. These professionals can help to answer your questions and conduct some planning. There are even things that can be done before the due date of your return in order to reduce your taxes for last year. Give us a call today for more information or to make an appointment. FBN
By Patrick Fleming, EA
Patrick Fleming, EA, is a partner at Northern AZ Financial Services CO, LLC
