Category Archives: Tax Return

Checking Refunds Are Fast, Easy When Using Direct Deposit

Checking refunds are Fast and Easy. Direct Deposit is even Faster

Checking refunds are fast and easy when you use direct deposit. Did you file your 2016 federal return? Are you due a refund? You can check the status of your refund online. Continue reading

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Unpaid Debt Can Take Your Tax Refund

Do you have unpaid debt?

Unpaid DebtAs the tax season approaches, you may be get excited about your potential tax refund. But you never thought your unpaid debt would take a chunk out your tax refund. That excitement may be premature if you have outstanding federal or state debts. The Treasury Department’s Bureau of the Fiscal Service (BFS) issues federal tax refunds, and Congress authorizes BFS to reduce your refund through its Treasury Offset Program (TOP) to pay:

  • Past-due child and parent support;
  • Federal agency non-tax debts;
  • Unpaid debt for a student loan
  • State income tax obligations; or
  • Certain unemployment compensation debts owed to a state.

So, if you owe a debt that is past-due, it can reduce your federal tax refund. All or part of your refund may go to pay your outstanding federal or state debt. That is if it has been submitted for tax refund offset by an agency of the federal or state government.

If you have an outstanding debt and want to be proactive, contact the agency with which you have a debt. They can help you figure out if your debt was submitted for a tax refund offset. You may call BFS’s TOP call center at 800-304-3107 or TDD 866-297-0517, Monday through Friday, 8:30 a.m. to 6 p.m. ET.

If your debt was submitted for offset, BFS will reduce your refund as needed to pay off the debt and send it to the agency you owe. Any portion of your remaining refund after offset is issued in a check or direct deposited as originally requested on the return.

What if I wait to see what happens with my unpaid debt?

If you choose to wait and see what happens when you file your return, BFS will send you a notice if an offset occurs. If you wish to dispute the amount taken from your refund, you will have to contact the agency that submitted the offset claim. It will show on the notice you receive from the BFS.

What if I have unpaid debt and filed a joint return?

If you filed a joint tax return, and only one spouse is responsible for the debt, the other spouse may be entitled to part of or all the refund. To request the refund of the spouse that is not responsible for the offset, you can file Form 8379, Injured Spouse Allocation. The benefits provided under the injured spouse allocation will generally not apply if you reside in a community property state.

Please contact this office if have you have questions about refund offsets.

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Tips Earned Can Be Taxing

Tips are income too. Do you get tipped? Do you work in an occupation where tips are part of your total compensation? If so, you need to be aware of several facts relating to your federal income taxes.

Tips, tip splitting, tip reporting

Tips are Taxable

Tip income is subject to federal, social security, and Medicare taxes. The value of non-cash tip income, such as tickets, passes, or other items of value, is also income and subject to taxation.

Include Tips on Your Tax Return

You must include in gross income all the cash you received directly from customers. This includes tips added to credit cards, and your share of any tip received under a tip-splitting arrangement with fellow employees. This is regardless if your employer records the tips or not. Reporting is the responsibility of the person who ultimately receives them.

Report Tips to Your Employer

If you receive $20 or more in tip income in that month, you should report all of your tips to your employer. Your employer is required to withhold federal income, social security, and Medicare taxes. If the tips received are less than $20 in any month, they need not be reported to the employer. However, these tips are still taxable and must be reported on your tax return, as they are subject to income and social security taxes.

Tip-Splitting and Cover Charges

Under a tip-splitting arrangement are not subject to the reporting requirement. You should report to your employer only the net tip income you receive. Service or cover charges, which are randomly added by the business establishment, are excluded from the tip reporting requirements. The employer should add each employee’s share of service charges to each employee’s wages.

Employer Allocation of Tips

Tip allocation is applicable to “large food and beverage establishments.” These are food service businesses where tipping is customary and that have 10 or more employees. These establishments must allocate a portion of their gross receipts as tip income to those employees who “underreport.” Under reporting occurs if an employee reports tips that are less than 8% of the employee’s applicable share of the employer’s gross sales. The employer must allocate to those underreported employees the difference between what the employee reported and the 8%. If you are in this situation, your allocation amount will be noted on your W-2 form. These allocated tips will not have been included in the total wages box on your W-2, so they must be accounted for as additional wage income on your return, unless you have adequate records to show that the amount is incorrect. Because social security, Medicare, and Additional Medicare taxes were not withheld from the allocated tip income, to the extent these tips are included in your income, you must report those taxes as additional tax on your return. The IRS frequently issues inquiries when the taxpayer’s W-2 shows an allocation of tips and a lesser amount is reported on the tax return.

Keep a Running Daily Log of Tip Income

Tips are a frequently audited item and it is a good practice to keep a daily log of your tips. The IRS provides a log in Publication 1244 that includes an Employee’s Daily Record of Tips and a Report to Employer for recording your tip income. Here is an IRS Publication 1244 that can help you with the daily recording of tips.

Maybe you are a restaurant or service employer or employee who receives tips, read more about the IRS handling of tips here. If you are receiving tips and have any questions about their taxation, please feel free to call Alex Franch, BS EA at 781-849-7200.

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photo credit: American dollars in a cup via photopin (license)

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