Millions of Americans and their tax advisors are preparing their tax returns. Many have questions and will call the IRS. The peak day for IRS phone calls typically falls on the Tuesday after President's Day.
During the entire week of February 19, taxpayers may be frustrated due to long hold times on IRS phone lines. However, many taxpayers and advisors will need IRS support to complete their 2018 returns. In IR-2019-10, the Service urged taxpayers to "Avoid the Rush" by using online resources.
IRS Commissioner Chuck Rettig stated, "IRS employees are working hard to provide taxpayers the help they need. Given the high call volumes at this time of year, we encourage people to first visit our many online resources available at IRS.gov
. And when it comes time to file, we continue to encourage people to use E-File or Free File to get their refunds as quickly as possible."
There are many online services on www.IRS.gov
- Where's My Refund - This popular tool on IRS.gov and the IRS2Go smartphone app will be used several million times to check on refunds. The Service's goal is to issue refunds within 21 days from receipt of a tax return. The website and app enable taxpayers to track refunds. Refunds that include the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) can be tracked after February 23. Those refunds will start to be issued on February 27, 2019.
- Tax Questions - IRS.gov has several tools to help answer your questions. You can use the Interactive Tax Assistant, read the Tax Topics, check the Frequently Asked Questions or view the Tax Trails interactive tool.
- IRS Free File - IRS.gov offers free tax software to complete your return. Free File is accessed on www.IRS.gov. The "Help Me" tool may be useful to select the best free commercial tax program for your situation. Just use "Help Me" and enter your age, income and state to view software options. After you select a software program, you will use that company's website to complete your taxes. Individuals or families with incomes under $66,000 may use one or more of the Free File programs. Active duty military personnel with incomes under $66,000 have at least 10 available programs.
- Volunteer Income Tax Assistance (VITA) - Check the locations for VITA services on IRS.gov. Assistance is generally available for taxpayers with incomes under $55,000. Use the VITA locator tool to find a site near you.
- Tax Counseling for the Elderly (TCE) - The TCE program is generally available for taxpayers over the age of 60. TCE staff have expertise on retirement plans, required minimum distributions and similar issues of interest to seniors.
SALT Summit at the White House
On February 12, New York Governor Andrew Cuomo, President Trump and Director of the National Economic Council Lawrence Kudlow met at the White House. Governor Cuomo has been leading the opposition to the $10,000 deduction limit on state and local taxes (SALT).
On February 6, Trump stated he may consider a change on the SALT cap. However, on February 7, Senate Finance Committee Chairman Chuck Grassley (R-IA) indicated he was not willing to change the SALT cap.
After the White House meeting, Cuomo stated, "The President previously said that he was open to a change. He suggested that he was open to a change here also, because he understands: you hurt New York, you hurt California, you're hurting the economic engines of the nation."
On February 11, 2019, Sen. Bob Menendez (D-NJ) and Rep. Bill Pascrell (D-NJ) introduced a bipartisan bill to repeal the SALT deduction cap. Pascrell observed that 37% of taxpayers in his New Jersey district claimed an average SALT deduction of $18,668 in 2017. That deduction will be limited to $10,000 for their 2018 tax returns.
Both New York and New Jersey attempted to create a charitable gift credit to offset the SALT cap. In proposed regulations published by Treasury Secretary Steven Mnuchin, the charitable credit (if over 15%) is deemed a "quid pro quo" and reduces the federal charitable deduction. In essence, it is unlikely that the charitable credit (SALT substitute) plans will be effective. The Treasury has not yet published the final regulations on the SALT charitable credit plans. Tax preparers hope the final regulations on state tax credits for charitable gifts are published before April 15.
Request for 80% Withholding Safe Harbor
On February 12, House Ways and Means Oversight Subcommittee Chairman John Lewis (D-GA) and Subcommittee Member Judy Chu (D-CA) sent a request to Treasury Secretary Steven Mnuchin to create an 80% withholding safe harbor for 2018 taxes.
With the $10,000 SALT limit and other changes in the Tax Cuts and Jobs Act, it is estimated that 15% to 18% of taxpayers will pay a larger 2018 tax bill. Because taxes are complicated, many have underwithheld.
A July 2018 study by the General Accounting Office (GAO) predicted that 21% of taxpayers have underwithheld this year. Under previous tax withholding rules, if a taxpayer withheld less than 90% of the tax bill, he or she may owe both taxes and penalty.
Because Treasury recognized that many taxpayers have underwithheld this year, the previous 90% withholding safe harbor has been lowered to 85%. Lewis and Chu claim the IRS withholding tables were not accurate and are partly responsible for the underwithholding.
They state, "Many taxpayers relied on the federal tax withholding tables prepared by the Department of Treasury (Treasury) and the Internal Revenue Service (IRS) following the enactment of the Tax Cuts and Jobs Act (TCJA). As you know, when Treasury and the IRS released these tax withholding tables in 2018, the tables did not fully factor in the TCJA's reduction in itemized deductions and the TCJA's removal of personal exemptions. As a result, taxpayers likely had less tax withheld in 2018 than in prior years."
Lewis and Chu ask the Treasury to reduce the safe harbor by an additional 5% to 80% for 2018. If this change is accepted by Treasury, a taxpayer who has withheld 80% or more must pay the additional tax, but will not be subject to an added penalty amount.
Applicable Federal Rate of 3.2% for March -- Rev. Rul. 2019-7; 2019-12 IRB 1 (15 Feb 2018)
The IRS has announced the Applicable Federal Rate (AFR) for March of 2019. The AFR under Section 7520 for the month of March is 3.2%. The rates for February of 3.2% or January of 3.4% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2019, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.