Though we've recently completed the 2023 tax filing season, the 2024 tax year is already progressing, making this an opportune moment to examine updates that could influence your future tax filings.
Below is a succinct summary of recent developments that may affect your personal or business tax situation. Should you have inquiries regarding the potential implications on your finances, don't hesitate to reach out to us for guidance.
Anticipation grows for a larger child tax credit
Numerous taxpayers anticipating the U.S. House of Representatives' decision were cheered by the approval of a three-year provisional increase of the child tax credit in January. Yet, the bill awaits Senate approval, leaving its future uncertain. Due to this holdup in legislation, the chances of the enhanced credit being available for the 2024 tax year are diminishing.
2024 RMD obligations are lifted for certain beneficiaries of inherited IRAs
The IRS has granted relief to non-spouse IRA inheritors regarding required minimum distributions (RMDs) after the account holder passed away while taking RMDs. In March, the IRS announced an exemption from the penalty tax related to missing an RMD for non-spousal inheritors of IRA owners who died in 2023 when they needed to start their RMDs. According to the SECURE Act of 2019, these beneficiaries have a decade to deplete the inherited IRA's assets. Although the rule initially implied yearly withdrawals over ten years, the IRS won't enforce RMDs for heirs of individuals who died in 2020, 2021, or 2022.
Delay in implementing new Form 1099-K reporting rules extended
Initially set to begin in 2022, third-party settlement organizations (TPSOs) such as PayPal, eBay, Etsy, and Venmo were expected to start sending out Form 1099-K, which documents Payment Card and Third-Party Network Transactions, for individual earnings exceeding $600. Previously, TPSOs would only issue this form when a taxpayer exceeded $20,000 in earnings and engaged in more than 200 transactions. Nevertheless, the IRS has deferred the application of the new reduction in threshold to the tax year 2023. Later in 2023, the IRS made a further announcement to delay the $600 threshold enforcement until the tax year 2025, declaring the tax year 2024 as a transitional period. For tax returns in 2024, the obligation to provide Form 1099-K arises only when transactions surpass $5,000.
Despite the deferment of the $600 limit until the tax year 2025, certain taxpayers may still receive Forms 1099-K informed by this threshold. It’s crucial to note that if you receive a Form 1099-K from any TPSO, it's obligatory to report it as income for that year, even if the TPSO was not mandated to generate one. Ignoring this requirement could prompt correspondence from the IRS.
Companies may introduce emergency savings accounts tied to pensions
Since the first of January, employers have had the option to offer pension-linked emergency savings accounts (PLESAs) to their non-highly compensated staff members. PLESAs are designed as short-term savings options that integrate into defined contribution plans, allowing qualifying employees to access funds without facing tax penalties or diminishing their retirement nest eggs. Contributions to these accounts are Roth-style, post-tax, and capped at $2,500, although companies may set a lower cap if preferred.
Should the associated defined contribution plan feature an employer match, contributions to the PLESA should be made eligible for this match correspondingly. Participants have the freedom to withdraw from these funds up to once per month without justifying financial hardship or specific emergencies.
IRS intensifies scrutiny on incorrect ERC claims
The employee retention credit (ERC) was a benefit for employers who maintained staff during pandemic shutdowns. Dishonest advisors pushed ineligible businesses to apply for the credit, and due to being understaffed, the IRS struggled to vet these submissions properly. Because of an influx of improper claims by fall 2023, the IRS halted new ERC applications and hasn't resumed yet. This pause has allowed the IRS to deny past filings and seek more details from potentially ineligible claimants. Those at risk of being deemed ineligible and whose claims are not yet finalized might avoid repercussions by retracting their applications.
Misconceptions Regarding BOI Disclosure Requirements
The recent legal dispute over the Corporate Transparency Act (CTA) and its requirements for beneficial ownership information (BOI) reporting has garnered significant media coverage. Despite the attention, the majority of U.S. companies remain obligated to adhere to the CTA’s BOI reporting stipulations. A federal judge in Alabama deemed the CTA unconstitutional in March, concluding that the BOI reporting obligations were not applicable—however, this only affects the specific plaintiffs in that case: a small Ohio enterprise and members of the National Small Business Association (NSBA) as of March 1 when the decision was made.
The Department of Justice has contested the ruling from Alabama, and the Financial Crimes Enforcement Network (FinCEN) has clearly indicated that all other entities not part of the lawsuit must comply with the reporting demands. Consequently, starting in 2024, any business that is newly established is required to submit a BOI report to FinCEN within 90 days following notification from the secretary of state regarding their formation or registration. By end of that year, existing entities formed before 2024 are expected to have filed reports. For those businesses established on or after January 1, 2025, they will have to file a BOI report to FinCEN within 30 calendar days following the official or public notice of their effective creation or registration.
Need further information or assistance?
Should you have questions about any topics covered in this newsletter, or any other tax-related issues that might affect you or your company, don't hesitate to get in touch with us. Our team is ready to assist you.