Tax Lawyers Minneapolis

Third Quarter 2024 IRS Interest Rates on Overpayment & Underpayment of Tax

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On May 9, 2024, the IRS announced that the Third Quarter 2024 IRS interest rates on overpayment and underpayment of tax will remain the same as in the Second Quarter of 2024.

This means that, the Third Quarter 2024 IRS interest rates will be as follows:

  • eight (8) percent for overpayments (seven (7) percent in the case of a corporation);
  • eight (8) percent for underpayments;
  • ten (10) percent for large corporate underpayments; and
  • five and a half (5.5) of a percent for the portion of a corporate overpayment exceeding $10,000.

Internal Revenue Code (“IRC”) §6621 establishes the IRS interest rates on overpayments and underpayments of tax. Under §6621(a)(1), the overpayment rate is the sum of the federal short-term rate plus 3 percentage points for individuals and 2 percentage points in cases of a corporation. There is an exception to this rule: with respect to a corporate overpayment of tax exceeding $10,000 for a taxable period of time, the rate is the sum of the federal short-term rate plus one-half of a percentage point.

Under §6621(a)(2), the underpayment rate is the sum of the federal short-term rate plus 3 percentage points. Again, there is an exception for a large corporate underpayment: in such cases, §6621(c) requires the underpayment rate to be the sum of the relevant federal short-term rate plus 5 percentage points. The readers should see §6621(c) and §301.6621-3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applicable date.

Pursuant to the IRC §6621(b)(1), the Third Quarter 2024 IRS interest rates were computed based on federal short-term rates in January of 2024. 

It is important to note that the Third Quarter 2024 IRS interest rates are relevant for a great variety of purposes. Let’s highlight three of its most important uses. Third, these rates will determine the interest a taxpayer will get on any IRS refunds.

Third ,the rates will also be used to establish the interest to be added to any additional US tax liability on amended or audited tax returns. This also applies to the tax returns that were amended pursuant to Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures.

Finally, the Third Quarter 2024 IRS interest rates will be used to calculate PFIC interest on any relevant §1291 PFIC tax. This PFIC interest will be reported on the relevant Form 8621 and ultimately Form 1040.

We at Sherayzen Law Office constantly deal with the IRS interest rates on overpayments and underpayments of tax. This is why we closely follow any changes in these IRS interest rates, including the Third Quarter 2024 IRS interest rates.

June 17 Connecticut Deadline Tax Relief | US Tax Lawyer & Attorney

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On January 22, 2024, the Internal Revenue Service announced tax relief for individuals and businesses in parts of Connecticut affected by severe storms, flooding and a potential dam breach that began on January 10, 2024.  These taxpayers now have until June 17, 2024, to file various federal individual and business tax returns and make tax payments.

June 17 Connecticut Deadline: Areas Affected by Tax Relief

The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). Currently, this includes New London County, including the Mohegan Tribal Nation and Mashantucket Pequot Tribal Nation. Individuals and households that reside or have a business in these localities qualify for tax relief.  The same relief will be available to any other Connecticut localities added later to the disaster area. The current list of eligible localities is always available on the disaster relief page on IRS.gov.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. These taxpayers do not need to contact the agency to get this relief.

It is possible an affected taxpayer may not have an IRS address of record located in the disaster area, for example, because they moved to the disaster area after filing their return. In these kinds of unique circumstances, the affected taxpayer could receive a late filing or late payment penalty notice from the IRS for the postponement period. The taxpayer should call the number on the notice to have the penalty abated.

June 17 Connecticut Deadline:  Deadlines Affected

The tax relief postpones various tax filing and payment deadlines that occurred from January 10, 2024, through June 17, 2024 (“postponement period”). As a result, affected individuals and businesses will have until June 17, 2024, to file returns and pay any taxes that were originally due during this period.

This means, for example, that the June 17, 2024, deadline will now apply to:

  • Individual income tax returns and payments normally due on April 15, 2024.
  • 2023 contributions to IRAs and health savings accounts for eligible taxpayers.
  • Quarterly estimated income tax payments normally due on January 16 and April 15, 2024.
  • Quarterly payroll and excise tax returns normally due on January 31 and April 30, 2024.
  • Calendar-year partnership and S corporation returns normally due on March 15, 2024.
  • Calendar-year corporation and fiduciary returns and payments normally due on April 15, 2024.
  • Calendar-year tax-exempt organization returns normally due on May 15, 2024.
  • In addition, penalties for failing to make payroll and excise tax deposits due on or after January 10, 2024, and before Jan. 25, 2024, will be abated as long as the deposits are made by January 25, 2024.

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for relief during the postponement period.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

June 17 Connecticut Deadline: Additional Tax Relief

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred or the return for the prior year. Taxpayers have extra time – up to six months after the due date of the taxpayer’s federal income tax return for the disaster year (without regard to any extension of time to file) – to make the election.  Be sure to write the FEMA declaration number – 3604-EM − on any return claiming a loss.

Qualified disaster relief payments are generally excluded from gross income. In general, this means that affected taxpayers can exclude from their gross income amounts received from a government agency for reasonable and necessary personal, family, living or funeral expenses, as well as for the repair or rehabilitation of their home, or for the repair or replacement of its contents.

Sherayzen Law Office continues to monitor the situation concerning IRS tax reliefs for natural disasters and other events.

Employee Retention Credit | US Tax Lawyers & Attorneys

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On March 31, 2020, the IRS launched the Employee Retention Credit. This new tax credit is designed to encourage businesses to keep employees on their payroll. Let’s discuss the Employee Retention Credit in more detail.

Employee Retention Credit: Eligibility Criteria

Two categories of employers are not eligible to apply for the Employee Retention Credit: (a) state and local governments and their instrumentalities; and (b) small businesses who take certain small business loans.

The rest of the employers (including tax-exempt organizations) regardless of size can apply as long as they fall within one of the following two categories.

The first category includes all businesses which were fully or partially suspended by government order due to COVID-19 during the calendar quarter. It appears that this category applies to the state “shelter-in-place” orders.

The second category includes businesses with gross receipts below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.

Employee Retention Credit: Credit Calculation

The amount of the credit is 50% of qualifying wages paid up to $10,000 in total. Wages paid after March 12, 2020, and before January 1, 2021, are eligible for the credit. The definition of wages includes not only cash payments, but also a portion of the cost of employer-provided health care insurance.

Employee Retention Credit: Qualified Wages

Qualifying wages are based on the average number of employees in 2019. There is an important difference, however, in the calculation of qualified wages based on the size of an employer.

With respect to employers with less than 100 employees: the credit is based on wages paid to all employees, regardless if they worked or not. If the employees worked full time and were paid for full time work, the employer still receives the credit.

With respect to employers with more than 100 employees: if the employer had more than 100 employees on average in 2019, then the credit is allowed only for wages paid to employees who did not work during the calendar quarter.

Employee Retention Credit: Application Process

Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.

Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns or Form 941 beginning with the second quarter of 2020. If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19. Eligible employers can also request an advance of the Employee Retention Credit by submitting Form 7200.

Sherayzen Law Office will continue to follow closely the tax developments concerning the COVID-19 tax relief.

IRS Announces 2018 Pension Plan Limitations | Tax Lawyer Update

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On October 27, 2017, the IRS announced the cost of living adjustments affecting 2018 Pension Plan limitations.

2018 Pension Plan Limitations: Summary of Main Changes

1. The first main change in 2018 Pension Plan Limitations affects all employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. In 2018, employees can contribute up to $18,500 into these plans. This amount represents a $500 increase from the 2017 contribution limitation of $18,000.

2. The second major change in 2018 Pension Plan Limitations is the modification of income ranges concerning eligibility to make deductible contributions to traditional IRAs. Here are the new 2018 phase-out ranges:

Single Taxpayers (covered by a workplace retirement plan): $63,000 to $73,000 (up from the 2017 range of $62,000 to $72,000);
Married Filing Jointly (covered by a workplace retirement plan): $101,000 to $121,000 (up from the 2017 range of $99,000 to $119,000).
Taxpayer not covered by a workplace retirement plan, but who is married to someone who is covered: $189,000 and $199,000 (up from the 2017 range of $186,000 and $196,000).

No changes for a married individual filing a separate return, but who is covered by a workplace retirement plan. The phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

3. The third change in 2018 Pension Plan Limitations affects the modification of income ranges concerning eligibility to make contributions to Roth IRA. Here are the new 2018 phase-out ranges:

Single and Head of Household Taxpayers: $120,000 to $135,000 (up from the 2017 range of $118,000 to $133,000);
Married Couples Filing Jointly: $189,000 to $199,000 (up from the 2017 range of $186,000 to $196,000).

No change in the phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA. Such contributions are not subject to an annual cost-of-living adjustment and remain at the range of $0 to $10,000.

4. The fourth change in 2018 Pension Plan Limitations affects the modification of income range concerning eligibility for the Retirement Savings Contributions Credit. In 2018, the income limits will be:

Married Couple Filing Jointly: $63,000 (up from $62,000 in 2017);
Heads of Household: $47,250 (up from $46,500 in 2017);
Singles and Married Individuals Filing Separately: $31,500 (up from $31,000 in 2017).

2018 Pension Plan Limitations: Summary of Main Unchanged Limitations from 2017

1. IRA Annual Contribution Limit: remains unchanged at $5,500.

2. IRA additional catch-up contribution for individuals aged 50 and over: remains at $1,004.40 (not subject to annual cost-of-living adjustment).

3. 401(k), 403(b) and most 457 plans and the federal government’s Thrift Savings Plan catch up contribution limit for employees aged 50 and over: remains unchanged at $6,000.

2015 Second Quarter IRS Underpayment and Overpayment Interest Rates

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On March 13, 2015, the IRS announced that the underpayment and overpayment interest rates for the calendar quarter beginning April 1, 2015, will remain unchanged. The rates will be:

three (3) percent for overpayments [two (2) percent in the case of a corporation];
three (3) percent for underpayments;
five (5) percent for large corporate underpayments; and
one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

How are the IRS Underpayment and Overpayment Rates Determined?

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

What do the IRS Underpayment and Overpayment Rates Affect?

The most important impact of the IRS underpayment and overpayment rates is felt whenever the tax liability of a US taxpayer changes from the liability indicated on the original tax return. Most often, this happens as a result of an amended tax return filed voluntarily by the taxpayer or as a result of an IRS audit.

If, as a result of an audit or an amended tax return, the taxpayer is assessed with additional tax liability, the underpayment interest rate will be applied from the due date of the original tax return (usually, April 15) through the date of assessment of additional tax liability (or the date the amended tax return is filed). Conversely, if an amended tax return or an IRS audit produces a refund, then, the IRS is obligated to pay the overpayment interest rate on the refund due.

IRS Underpayment Rate and PFIC Calculations

The IRS Underpayment Rate has a surprising additional affect on a taxpayer’s liability. If a taxpayer owns a PFIC that is considered a Section 1291 fund, then, under the default PFIC method, he will need to calculate PFIC interest on the PFIC tax due. This PFIC interest is calculated at the IRS underpayment rates.