IRS Notice CP14 is sent to taxpayers to inform them of an outstanding balance on their federal tax account. It serves as a bill for unpaid taxes. It includes details such as the amount owed, accrued interest, and any penalties incurred. While receiving this notice might not be a shock for many, some taxpayers impacted by a declared disaster area may be surprised to see a CP14 in their mailbox despite IRS promises of tax relief. If you are one of these taxpayers who mistakenly received IRS Notice CP14 despite being in a disaster area, don’t panic. Many erroneous CP14s have been issued by the IRS. Here is what you need to know.
Which disaster areas qualify for automatic tax extensions?
The IRS has continued to issue automatic tax extensions to those impacted by natural disasters. These areas have included impacted counties of the following 12 states:
California
Florida
Oklahoma
Indiana
Tennessee
Arkansas
Mississippi
New York
Georgia
Alabama
It also includes the impacted areas of Guam and the Mariana Islands. A full list of impacted qualified disaster areas can be found at https://www.irs.gov/newsroom/tax-relief-in-disaster-situations. All taxpayers in impacted areas were automatically given an extension of time to file. They might’ve also received an extension to pay until October 16, 2023, or another form of tax relief.
Why did I receive a CP14 if I’m in a disaster area?
IRS Notice CP14s have been sent out because the IRS is legally required to if a balance is due. However, many Californian taxpayers living or working in disaster areas have received this notice which demands payment to the IRS within 21 days. Unfortunately for Californians impacted by disaster, this sends mixed messages. The IRS has issued guidance to let these taxpayers know that they do indeed have until October 16, 2023 to file and pay their 2022 taxes.
What should I do if I received a CP14 if I’m in a disaster area?
If you received IRS Notice CP14 but you have been given an automatic tax extension due to disaster relief, you do not need to worry about submitting payment within 21 days as the notice instructs. In fact, these letters should also include a specific insert stating that the payment date indicated in the letter does not apply to anyone covered by a disaster declaration, and that the disaster dates still apply.
While it may seem counter-intuitive, affected taxpayers do not need to call the IRS for confirmation. Doing so may result in extremely long wait times. The IRS has issued an apology for the confusion this has caused. At Optima, we understand how intimidating an IRS notice can be.
In December 2022, the IRS announced that the new reporting thresholds for Form 1099-K have been delayed. The new thresholds are part of the American Rescue Plan of 2021, which will require Form 1099-K to be issued by well-known third-party settlement organizations (TPSOs) for any aggregate transactions of $600 or more. Here’s an overview of what this means for your taxes.
Old 1099-K Thresholds vs. New 1099-K Thresholds
Prior to the American Rescue Plan of 2021, taxpayers would only receive Form 1099-K if they earned an aggregate amount of $20,000 in over 200 transactions for goods and services. The plan changed the reporting requirements by drastically lowering it to any payments exceeding $600. Beginning January 1, 2023, TPSOs were supposed to be required to report third-party network transactions paid in 2022 that exceed $600 through an annual Form 1099-K. However, due to concerns about lack of guidance, the existing tax return backlog, and taxpayer confusion, the IRS will delay the requirement until 2024. In other words, the original $20,000 and 200 transaction threshold will remain in place through the rest of 2023.
What This Means for Taxpayers
It is a lot more common for taxpayers to also be freelancers or small business owners now, especially those who receive payments for goods and services via third-party payment networks. These can include PayPal, Venmo, Amazon, Square, Cash App, Stripe and many more. 1099-Ks are only generated for payments associated with goods and services, so taxpayers should not worry about receiving one for personal expenses paid via these apps. For example, you might collect rent from your roommates through Venmo, which you then send to your landlord. This is a personal expense, and you will not receive a 1099-K. However, if you are the landlord collecting rent through a third-party payment network, you should expect to receive a 1099-K.
If you are a freelancer or small business owner who collects payments with a third-party payment app, you should use the delay to become more familiar with the new reporting rules that will take effect in 2024. You can also ensure that any transactions you receive through apps like Venmo or PayPal are correctly classified as a personal transaction and not a business transaction for goods and services. With the new rules taking effect, a single large transaction of $600 accidentally marked as a business transaction could trigger Form 1099-K to be generated. While this issue is correctable, it has to be done with the third-party payment network directly and the IRS will expect to see the reported income on your return until a correction is sent to them. This process could be time-consuming and cause further delays in processing your return.
Tax Relief for Freelancers and Small Business Owners
If the new rules go into effect and the IRS’s numbers do not match up with your own, you risk triggering an IRS audit, which can lead to unmanageable stress. You’ll want to avoid owing taxes now more than ever as IRS interest rates have recently increased, making your balance more expensive, especially with interest and penalties. Taxpayers should also note that this delay does not change any rules regarding taxable income. If you earn money through freelancing or your small business, you should report all income on your tax return, even if you did not receive a 1099-K. Our team of qualified and dedicated tax professionals can help if you have tax debt. If you need tax help, call Optima Tax Relief at 800-536-0734 for a free consultation.
While the Fed continues to increase interest rates, other entities are adjusting their own rates accordingly, the IRS included. In fact, the first quarter of 2023 has already seen an IRS interest rate increase that took effect January 1, 2023. Here’s what it means for taxpayers.
How much did rates increase?
Both overpayment and underpayment rates with the IRS increased from 6% to 7%. These rates are per year and are compounded daily. The rate for overpayments corporations is 6%. If the corporation’s overpayment exceeds $10,000, the excess payment will accrue interest at a rate of 4.5%. However, if a corporation underpays, it will be charged interest on the balance due at a rate of 9%.
How will this affect taxpayers?
Taxpayers receive an overpayment credit when their tax payments exceed what they owe. In other words, the rate increase will be good for those still waiting for past refunds. If a taxpayer is still missing their tax refund for 2022, they will receive 7% interest from the IRS, beginning January 1, 2023. The IRS adds interest to a tax refund if it takes more than 45 days after the filing deadline to process a return and refund. As of November 18, 2022, there were still over 3 million unprocessed individual 2022 tax returns. This figure does not include unprocessed returns from the previous tax years.
Tax Relief for Those Who Owe
The rate increase will be good news for those still waiting to receive their 2022 tax refunds. However, this is bad news for those who owe a tax balance. If a taxpayer owes taxes but does not pay the balance in full, the remaining balance will be charged underpayment interest. Because underpayments just became more expensive, it is essential to pay off your tax debt as quickly as possible to avoid even more interest charges. Now more than ever, neglecting your tax bill can be very costly due to the interest rate increases accompanied by the regular penalties for underpayment. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
American households have been feeling the full effects of inflation all year with rates at their highest since early 2008. To support a healthy U.S. economy, the Federal Reserve, also known as the Fed, has raised its federal funds rate. Put simply, the federal funds rate is a suggested interest rate for banks to use when lending money. The Fed raises and lowers the rate accordingly to control the money supply and help keep inflation under control.
Fed Rate Hikes in 2022
In 2022, the fed funds rate has increased seemingly every other month. So far, the Fed has made the following adjustments:
March 2022: The Fed raised its rate from 0.25% to 0.50%
May 2022: The Fed raised its target rate range between 0.75% and 1% and announced it was reducing its holdings of Treasury and mortgage-backed securities.
June 2022: The Fed raised its target rate range between 1.5% and 1.75%, the largest rate hike in nearly 20 years.
July 2022: The Fed raised its rate to a target range between 2.25% and 2.5%
September 2022: The Fed raised its target rate range between 3% and 3.25% and announced the anticipated rate by the end of 2022 to be 4.4%.
November 2022: The Fed raised its target rate range between 3.75% and 4%, the highest level since 2008.
What’s Next For the Fed?
In October 2022, the Consumer Price Index (CPI), which is used to measure inflation, showed some signs of cooling prices in some areas. While this may sound encouraging, the Fed has announced that it does not view the small change as a victory. The option of raising their rate range in the December policy meeting is very much a possibility that Americans should prepare for. In fact, several financial institutions have predicted a rate of over 5% by March 2023.
What The Fed Rate Hikes Mean for Americans
The Fed rate hikes impact anyone who uses or is seeking financing because of rising interest rates. Home buyers have experienced higher interest rates on mortgages, meaning less buying power. On the flipside, home sellers might see a decrease in demand because it’s more expensive to purchase a home right now. Credit card debt also becomes more expensive since consumer debt interest rates rise after rate hikes. One of the few positives of rate hikes is that rates on savings accounts have increased slowly. Putting money into a high-yield savings account or a CD during inflation can result in greater interest yields.
Tax Relief for Those Affected by Fed Rate Hikes
Just about everyone in the U.S. has been affected by fed rate hikes, either directly or indirectly. On the tax side of things, the IRS has increased their interest rates for overpayments and underpayments to 6% per year, compounded daily. This rate is up from July’s rate of 5%. Higher rates make it a worse time to fall behind on tax payments, so staying compliant is even more crucial during this time. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
President Biden has announced his three-part student loan forgiveness plan that aims to provide relief to student loan borrowers, especially those belonging to low– and mid-income levels.
Part I: Student Loan Forgiveness for Eligible Borrowers
Borrowers with individual incomes less than $125,000, or $250,000 for married couples, are eligible for student loan forgiveness up to $20,000. The Department of Education will cancel up to $20,000 in student loan debt to borrowers who received a Pell Grant and had loans held by the Department of Education. Those who did not receive a Pell Grant will receive up to $10,000 in debt cancellation. Since this plan will not benefit high-income households, the Biden administration has extended the pause on loan repayments once more until January 2023.
Part II: Manageable Loan System for All Borrowers
The Department of Education proposed a new repayment plan that will replace the current income-driven plan in place. It will prevent low-income borrowers from committing to monthly payments of more than 5% of their discretionary income, a drop from the current 10%. This would lead to an average savings of $1,000 per year for both current and future borrowers.
In addition, they will expand on the recent improvements to the Public Service Loan Forgiveness (PSLF) program. More than 175,000 public servants have had $10 billion in student loans canceled and the Department of Education expects these numbers to increase. Public servants include nonprofit workers, military members, and officials working in federal, state, local, or tribe level governments.
Part III: Reduced Cost of College
Earlier this year, President Biden approved the largest increase to Pell Grants since 2009, a bill that doubled the size of the maximum Pell Grant to $6,895. In addition to making tuition costs more manageable, the Biden administration has also taken steps to hold colleges accountable for keeping reasonable tuition costs, as well as ensuring students are receiving the value for their investments in higher education.
Assuming every eligible borrower takes advantage of this plan, it will completely cancel student loans for nearly 20 million borrowers, as well as partially cancel student loan debt for 43 million others.
Tax Debt Relief for Student Loan Borrowers
The debt relief in Biden’s Student Loan Forgiveness Plan will not be treated as taxable income for the federal income tax purposes. However, borrowers should remain mindful of available tax breaks and filing requirements. If you need tax help, give us a call at 800-536-0734 for a free consultation today.
We know that an increased budget for enforcement will lead to more audits. More audits mean more tax collection. The question that remains to be answered is exactly how much federal tax revenue the IRS expects to collect with the new Inflation Reduction Act.
How much taxes will be collected with the Inflation Reduction Act?
The Congressional Budget Office recently released a report that estimated the budgetary effects of the Inflation Reduction Act. They expect increased collections of about $203 billion over the next decade. This would raise federal revenue by almost $125 billion during that 10-year period after taking into account the $80 billion cost of the act.
Why is tougher enforcement necessary?
According to the IRS, most taxpayers pay their federal taxes willingly and on time. However, that still leaves nearly $400 billion in uncollected tax payments. They believe that tougher enforcement can help close the tax gap. In other words, stricter enforcement will help lessen the difference between the amount of taxes that is collected, and the amount taxpayers owe.
IRS enforcement, audits in particular, has been less frequent in the last decade. In fact, audit rates have dropped for all levels of income between 2010 and 2019. In fact, a tax return was three times more likely to be audited in 2010 than in 2019. However, this is not due to the IRS becoming more lenient or forgiving. The issue centers around staffing levels and funding. The IRS is expecting the new funding from the Inflation Reduction Act to help balance staffing levels in order to be able to collect more tax revenue.
Are you prepared for increased tax collection?
With increased IRS tax collection approaching, it’s important to be prepared. It’s never too late to seek tax debt relief. Get protected from the stress and burdens that come with IRS tax collection. Give us a call at 800-536-0734 for a free consultation.
