With a 357-70 vote under the suspension of rules, the House passed the Tax Relief for American Families and Workers Act of 2024 (HR 7024), a $78 billion bipartisan tax deal between the head taxwriters in both chambers.
The bill will now head to the Sentate and faces an uncertain outcome. More details to come…
For a summary of the Act, click here.
The Internal Revenue Service provided the annual inflation adjustments for tax year 2024, including increases in the standard deduction and changes in tax brackets.
Revenue Procedure 2023-34 spells out detailed information about approximately 60 tax provisions for next year, including the tax rate schedules along with other tax changes.
The tax year 2024 adjustments typically apply to income tax returns filed in 2025. Items of major interest to most taxpayers include the following:
The annual exclusion for gifts increases to $18,000 for calendar year 2024, increased from $17,000 for calendar 2023.The maximum credit allowed for adoptions for tax year 2024 is the amount of qualified adoption expenses up to $16,810, increased from $15,950 for 2023.
Business Travel Per Diem Rates: The IRS has released the 2023-2024 per diem rates for substantiating employee business expenses under IRC Sec. 274(d) for lodging, meals, and incidental expenses incurred while traveling away from home. The Meal and Incidental Expense (M&IE) rates for the transportation industry are $69 for travel in the continental U.S. and $74 for travel outside the continental U.S. The per diem for travel to high-cost localities has increased from $297 to $309 ($74 for M&IE), while the rate for travel to other localities has increased from $204 to $214 ($64 for M&IE). The incidental-expenses-only rate remains at $5 per day. The updated rates and list of high-cost locations apply to per diem allowances paid to employees after 9/30/23. Notice 2023-68.
On September 14, the IRS made the unprecedented announcement to place a moratorium on Employee Retention Credit (ERC) claims, sending a clear message to ERC mills and helping small businesses.
Effective September 14, 2023, the IRS will not review or process any ERC claims received on or after September 14 through at least the end of 2023. Furthermore, the IRS is encouraging taxpayers with existing claims to withdraw them if they believe they are ineligible. The IRS has provided an ERC Eligibility Checklist to help small businesses better understand if they qualify. For those businesses that already have a processed claim and are ineligible, the IRS will initiate a settlement program.
Advance version of Notice 2023-54 [PDF 141 KB] providing transition relief for plan administrators, payors, plan participants, individual retirement account and annuity (IRA) owners, and beneficiaries in connection with the change in the required beginning date for required minimum distributions (RMDs) under section 401(a)(9) pursuant to section 107 under Division T of the Consolidated Appropriations Act, 2023, titled “SECURE 2.0 Act of 2022” (SECURE 2.0 Act).
Notice 2023-54 also:
Section 107 of the SECURE 2.0 Act amended section 401(a)(9)(C) to delay the required beginning date applicable to section 401(a) plans and other eligible retirement plans described in section 402(c)(8), including IRAs.
By Greg Saul, Esq., CAE, OSCPA tax director
On June 30, the Ohio House by a bipartisan vote of 67-30 and the Ohio Senate on a party-line vote of 25-6 adopted their agreed-upon conference committee changes to House Bill 33, Ohio’s biennial budget legislation for fiscal years 2024-2025. Gov. DeWine then signed H.B. 33 into law early in the morning on the 4th of July after issuing 44 line-item vetoes.
To address Ohio’s broader workforce challenges, significant funding was included to support workforce education and training, affordable housing to address shortages, income-based childcare support, greater broadband support, economic development resources to create shovel-ready sites, and more.
Numerous tax changes outlined below of note to Ohio CPAs have now been enacted, including:
Personal Income Tax (TAXCD68): Phases in a two-year income tax reduction taking Ohio from four brackets to just two – the marginal rates will be 2.75% for incomes over $26,050 and 3.5% for incomes over $100,000. Ohioans making $26,050 or less would pay no income taxes.
Commercial Activity Tax (TAXCD81): Exempts from CAT all taxable gross receipts of $3 million or less (for tax periods beginning in 2024), and then exempts taxable gross receipts of $6 million or less (for tax periods beginning in 2025). Amounts above that will remain at the existing 0.26% rate. This is the first major change to the CAT since its 2005 inception.
The new exemption applies to all businesses and is a substantial increase to the current exemption for taxable gross receipts ($150,000 or less), which has remained unchanged for the past 18 years. After the two-year phase-in, nearly 90% of all Ohio-based businesses will no longer pay CAT (roughly 145,000 of the current 163,000 CAT payers). Businesses with taxable gross receipts exceeding the exemption amount will pay the current CAT rate of 0.26% only on the excess.
Included in the vetoes (see Item Number 39) was one impacting the CAT as the Governor struck the inflationary adjustment to those thresholds and he also vetoed the provision enabling businesses with over $150,000 but less than $6 million in annual gross receipts to avoid filing annual zero-dollar returns. This means that while a wide majority of taxpayers will not owe CAT, those taxpayers having more than $150K of gross receipts must still file quarterly tax returns.
OSCPA is awaiting guidance from the Ohio Department of Taxation to see if they offer any administrative relief from that requirement. OSCPA also will be discussing this zero-dollar filing requirement with legislators who voted to adopt the provision to further explore filing relief for taxpayers who will not owe any tax.
Other OSCPA tax policy priorities that were passed in the final bill include:
Resident Tax Credit for SALT Cap Deduction from Other States (TAXCD92): Permits Ohioans who are currently subject to double taxation to get back to a status quo position. Senate Bill 246 (134th GA) authorized pass-through entity (PTE) owners to “elect” to file a new form IT 4738 and be subject to a new entity-level tax in response to the federal $10,000 SALT deduction cap limit placed on individuals, but Ohio was one of the only states that authorized a PTE tax (see the map of states), but did not allow a credit for taxes paid to another state. This change authorizes an Ohioan to use our resident credit (in existence since at least 1991) for PTE taxes paid to other states while requiring an add-back of taxes deducted from that individual’s federal adjusted gross income. These provisions are effective for taxable years ending on or after Jan. 1, 2023, but taxpayers are allowed to apply, at their option, the provisions to taxable years ending on or after Jan. 1, 2022, with an amended or original return.
Municipal Notices and Late Filing Fees (TAXCD61 and 62): Limits late fees and penalties that may be imposed on a taxpayer for failing to timely file municipal income tax returns by (1) limiting the late filing penalty to $25 vs. the current $150 cap; (2) requiring any late filing penalty assessed on a taxpayer’s first late filing to be refunded or abated once the taxpayer files the overdue return; and (3) extending the due date for filing municipal net profits tax returns from Oct. 15 to Nov. 15. These new laws apply to taxable years ending on or after January 1, 2023.
Minors Exempt from Owing Municipal Income Tax (TAXCD58): Exempts the income from individuals under the age of 18 from Ohio municipal income tax, for taxable years beginning on or after January 1, 2024.
Municipal Net Profits Tax Safe Harbor (TAXCD84): Effective for tax years ending after 2023, allows businesses with remote/hybrid employees or owners to elect to use a modified apportionment formula to limit compliance costs when an employee or owner works at a remote work location. The business may elect to apportion any property, payroll, or sales (gross receipts) attributable to that employee or owner to a designated location owned or controlled either by the business or one of its customers. This optional change allows situsing the municipal net profits tax to the remote/hybrid worker’s reporting location at the employer’s place of business. This only applies to the net profits tax and does not impact the withholding tax.
More details on these tax provisions can be found here – references above to TAXCD## are to the comparison document.
IRS—Unusual Delivery Service Mailing Scam: The IRS and the Security Summit warned taxpayers to be on the lookout for a new scam mailing that tries to mislead people into believing they are owed a refund. The new scheme involves a mailing that comes in a cardboard envelope from a delivery service. The enclosed letter includes the IRS masthead and wording that the notice is “in relation to your unclaimed refund.” The letter includes contact information and a phone number that do not belong to the IRS. It also seeks a variety of sensitive personal information from taxpayers, including pictures of driver’s licenses, that can be used by identity thieves to try to obtain a tax refund and other sensitive financial information. The poorly written letter asks for filing information from a taxpayer’s tax return and asks for their cellphone number, bank routing information, Social Security number, and bank account type. News Release IR 2023-123.
Homeowners who make improvements like replacing old doors and windows, installing solar panels or upgrading a hot water heater may qualify for home energy tax credits. They should know what these credits can do for them – and be careful of exaggerated claims companies trying to get their business may make.
There are two tax credits to help defray costs for homeowners making energy efficient improvements to their primary or secondary residence. In some cases, renters may also be able to claim specific costs. Landlords can’t use these credits for improvements made to any homes they rent out.
Energy Efficient Home Improvement CreditTaxpayers can claim the Energy Efficient Home Improvement Credit only for improvements, additions or renovations to an existing home. It doesn’t apply to newly constructed homes. Qualifying costs may include:
The amount of the credit taxpayers can take is a percentage of the total improvement expenses in the year of installation:
Residential Clean Energy CreditTaxpayers can also claim the Residential Clean Energy Credit for qualifying costs for either an existing home or a newly constructed home. Qualifying costs may include:
The amount of the credit taxpayers can take is a percentage of the total improvement expenses in the year of installation:
To claim these credits, taxpayers should file Form 5695, Residential Energy Credits, with their tax return.
Inflation-adjusted Health Savings Account (HSA) Figures for 2024: HSAs allow eligible individuals to make deductible contributions that can be withdrawn tax free for reimbursement of eligible medical expenses. For 2024, the limitation on HSA deductions is $4,150 (up from $3,850 for 2023) for an individual with self-only coverage under a High Deductible Health Plan (HDHP) or $8,300 (up from $7,750 for 2023) for family coverage. An HDHP is defined under IRC Sec. 223(c) as a health plan with an annual deductible not less than $1,600 (up from $1,500 for 2023) for self-only coverage or $3,200 (up from $3,000 for 2023) for family coverage, with annual out-of-pocket expenses (deductibles, copayments, and other amounts, but not premiums) not exceeding $8,050 (up from $7,500 for 2023) for self-only coverage or $16,100 (up from $15,000 for 2023) for family coverage. Rev. Proc. 2023-23 .
The IRS has modified the lookback period for refund claims on returns with due dates that were postponed due to Covid-19 in Notice 2021-21 or Notice 2020-23. (Notice 2023-21, 2023-11 IRB)
Disaster relief creates a problem. In response to the Covid-19 pandemic, the IRS used its disaster relief authority to postpone certain return filing due dates for tax years 2019 and 2020. See IRS extends more tax deadlines to cover individuals, trusts, estates, corporations (04/10/2020) and IRS extends additional tax deadlines for individuals to May 17 (03/30/2021).
However, when postponing these due dates, the IRS failed to extend the lookback period for refunds claimed on returns filed after April 15. Generally, a taxpayer’s claim for refund must be filed by the later of three years from the date the taxpayer filed the return to which the claim relates or two years from the date the tax to which the claim relates was paid. This is referred to as the “lookback rule.” A taxpayer can only get a refund of amounts paid within the lookback period.
Since the IRS didn’t extend the lookback period some taxpayer payments, including estimated and withheld taxes deemed paid on April 15, fell outside the lookback period for taxpayers who didn’t file by April 15. This meant that taxpayers who filed a timely refund claim could not be refunded those payments.
This problem was identified early on by the National Taxpayer Advocate (NTA). The NTA noted that both Notice 2020 -23 and Notice 2021-21 only postpone the deadline for filing returns, they did not extend the time for filing for purposes of the lookback rule. So, taxpayers would normally only have until April 18, 2023, to receive a refund of taxes withheld on wages for 2019, which is less than three years from the date they filed their return if they took advantage of the postponement for filing their return.
Similarly, if a taxpayer filed a 2020 return on May 17, 2021, pursuant to Notice 2021-21, the taxpayer could file a timely claim for refund by May 17, 2024, but if they did so, they would not get a refund of the withholding deemed paid on April 15, 2021, as the withholding would be outside the look-back period. See NTA warns about refund claim trap for 2019 and 2020 returns filed after April 15 (05/26/2021).
Fixing the problem. The IRS has now fixed this problem by issuing new guidance. This new guidance, found in Notice 2023-21, disregards the periods from April 15, 2020, to July 15, 2020 (for 2019 returns), and from April 15, 2021, to May 17, 2021 (for 2020 returns), when determining the beginning of the lookback period. Now both lookback periods align with the postponed return filing due dates for those years.