Last year, there were several significant tax developments that may affect federal income tax returns that individual and business taxpayers file in 2017. Here’s a quick look at 10 key changes that you should be aware of during this tax season.
1. Stand-Alone HRAs
Just over a month before leaving office, President Obama signed the 21st Century Cures Act into law on December 13, 2016. This new legislation, in addition to funding cutting-edge medical research, allows an employer with fewer than 50 employees and no other group health insurance plan to establish Health Reimbursement Arrangements (HRAs) for its employees.
Under the Affordable Care Act (ACA), these standalone HRAs aren’t subject to certain penalties and restrictions imposed by the IRS. Plan ahead because the 21st Century Cures Act applies to plan years beginning after 2016.
2. ACA Reporting
Under the ACA, employers must file information returns with the IRS and provide information to employees and other responsible individuals. Consider that the ACA might be repealed or modified in 2017.
Recently, the IRS offered some consolation: It extended to March 2, 2017, the due date for furnishing to individuals 2016 Form 1095-B, “Health Coverage,” and 2016 Form 1095-C,”Employer-Provided Health Insurance Offer and Coverage.” This gives employers an extra 30 days to get their paperwork in order.
3. Premium Tax Credits
Also under the ACA, taxpayers required to acquire health insurance may qualify for premium tax credits to offset part of the cost. There are existing regulations to include several favorable safe-harbor rules for determining eligibility, but those rules don’t apply where an individual, with reckless disregard of the facts, provides incorrect information to a health insurance exchange.
New final regulations clarify that this provision for “reckless disregard of the facts” applies only to the conduct of the individual — not to information provided by any third parties.
4. Standard Mileage Rates
The standard mileage rates that taxpayers may use in lieu of tracking actual driving expenses is adjusted by the IRS each year. The rates have been reduced for 2017 due to lower gas prices. The IRS recently announced that the flat rate for business driving is 53.5 cents per mile in 2017 (down from 54 cents per mile in 2016). Also, the rates for driving attributable to medical and moving purposes dropped to 17 cents per mile in 2017 (down from 19 cents per mile in 2016). Finally, the rate for charitable driving, which is set statutorily, remains at 14 cents per mile in 2017. In all cases, related tolls and parking fees can be added to the flat rate.
5. Valuations for Vehicles
Employees are taxed on the fair market value (FMV) of their personal use of company-provided vehicles. For convenience, the IRS permits FMV accounting methods based on the cents-per-mile rule (see “Standard Mileage Rates” above), as well as a fleet average value for employers with 20 or more vehicles, with the maximums updated annually.
Under a recent IRS Notice, the cents-per-mile thresholds in 2017 are $15,900 for automobiles (the same as in 2016) and $17,800 for trucks and vans (up from $17,700 for 2016). The thresholds for the fleet average rule in 2017 are $21,100 for a passenger auto (down from $21,200 for 2016) and $23,300 for a truck or van (up from $23,100 for 2016).
For certified professional employer organizations (CPEOs), often called leasing companies, there are now detailed requirements by the IRS for them to remain certified. In addition, the IRS has established procedures for suspending and revoking certification. Small businesses often contract with CPEOs to ensure compliance with workplace laws and regulations.
A CPEO may be treated as the sole employer of employees for purposes of paying and withholding employment taxes under the Tax Increase Prevention Act of 2014. Professional employer organizations can be certified as CPEOs effective as of January 1, 2017.
7. Delayed Refunds
Many early filers still won’t have access to their refunds until the week of February 27 or even later, because a new tax law change requires the IRS to hold refunds for tax returns claiming the Earned Income tax credit or the additional child credit until at least February 15, 2017.
The IRS is advising taxpayers that the fastest way to get a refund is to file electronically and choose the direct deposit method. Under the new rules, the IRS must delay the entire refund, even the portion that isn’t associated with the Earned Income tax credit or additional child credit.
8. ABLE Accounts
The Achieving a Better Life Experience (ABLE) Act of 2014 authorized special tax-favored savings accounts for individuals who are disabled before age 26. After the IRS issued regulations on this issue, individual states began rolling out ABLE accounts in 2016.
Contributions aren’t tax deductible with an ABLE account, b ut the amounts set aside in ABLE accounts are distributed tax-free to recipients if they’re used to pay for qualified disability expenses. Contributions to ABLE accounts may be sheltered by the annual gift tax exclusion of $14,000 for 2017 (the same as in 2016). Note, however, that if the account balance exceeds $100,000 it will impact SSI (Supplemental Security Income) eligibility.
9. Self-Certified Rollover Waivers
In general, an individual that wants to complete a tax-free rollover of a distribution from an Individual Retirement Account (IRA) or workplace retirement plan to another eligible retirement program has 60 days. If this deadline is accidently missed, the distribution is usually taxable unless you obtain a waiver from the IRS. A taxpayer can self-certify that mitigating circumstances caused the failure, thanks to a new ruling from the IRS in August of 2016.
For this purpose, a waiver may be allowed due to:
- Severe damage to the taxpayer’s home,
- A serious illness of the taxpayer or a relative,
- Death of a family member,
- The taxpayer’s incarceration,
- A distribution check being misplaced and never cashed, or
- Restrictions imposed by a foreign country.
Remember that qualifying taxpayers may still make contributions, whether deductible or nondeductible, to a traditional IRA until the day taxes are due, without extension. They also have until Tax Day to make a nondeductible contribution to a Roth IRA for 2016. The deadline for individuals to contribute to traditional or Roth IRAs for 2016 is April 18, 2017.
10. FBAR Reporting
At any time during the year that a taxpayer has over $10,000 in foreign bank accounts, generally, they must file a Report of Financial Bank and Financial Accounts (FBAR). The filing deadline was June 30 of the following year in the past, but now the FBAR due date has been moved to coincide with federal income tax filings.
Accordingly, 2016 FBARs must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) by April 18, 2017. Also, FinCEN will grant filers missing the April 18, 2017, deadline an automatic extension until October 16, 2017.
Just a Sampling
Contact Filler & Associates or your tax advisor if you have any questions, as these were just a few noteworthy tax developments in 2016. The IRS made many other changes that could affect your tax obligations, depending on your personal situation.