In a significant development, the IRS has announced the resumption of collections in 2024. This marks a crucial phase in the aftermath of the global economic challenges posed by the COVID-19 pandemic. This decision has implications for taxpayers across the United States, as the IRS seeks to address the mounting financial pressures faced by the government. However, the IRS is providing penalty relief to nearly 5 million taxpayers. In this article, we’ll discuss the details of IRS collections in 2024 and tax relief options available for those with tough tax situations.
The temporary halt on IRS collections was initiated in February 2022 as a response to the economic downturn caused by the pandemic. It provided relief to countless individuals and businesses struggling to meet their tax obligations. The suspension aimed to alleviate immediate financial burdens and stimulate economic recovery. Although taxpayers should note that the failure-to-pay penalty continues to accrue during nonpayment. However, as the nation slowly recovers, the IRS has deemed it necessary to reinstate collections to ensure the sustained functioning of essential government services.
Key Changes in IRS Collections
The IRS will send out collection notices again beginning in January 2024. The IRS is focusing on taxpayers with taxes bills for tax years before 2022. They will also send notices to businesses, tax-exempt organizations, trusts, and estates with tax bills from before 2023. The specific IRS notice being sent out will be IRS LT38, which is a notice of resumption. Taxpayers who receive this letter should contact the IRS about payments or other options available to them. If action is not taken, the next notice they receive will involve more serious action leading to IRS collections.
As collections resume, the IRS will also ramp up its enforcement efforts to address outstanding tax debts. This may involve increased audits, investigations, and legal actions against non-compliant taxpayers. It is crucial for individuals and businesses to ensure compliance with tax obligations to avoid potential legal consequences.
IRS Penalty Relief
To ease the new collections process, the IRS is offering penalty relief to nearly 5 million taxpayers, including businesses and tax-exempt organizations. The IRS did not send these taxpayers automated notices during the pandemic. The relief will come in the form of waivers for failure-to-pay penalties, adding up to $1 billion. Eligible taxpayers will automatically receive penalty abatement in their online accounts with no further action needed. If the taxpayer already paid their penalties for tax years 2020 and 2021, they would receive a refund. Alternatively, the IRS may credit the payment towards another tax bill. Refunds and credits will be sent out beginning in January 2024. More information can be found in IRS Notice 2024-7 on their website.
To be eligible for penalty relief, taxpayers must have a tax balance of less than $100,000 for each return and each entity. They also must have received an initial balance due notice between February 5, 2022, and December 7, 2023. The IRS will resume the failure-to-pay penalty for eligible taxpayers on April 1, 2024.
Preparing for IRS Collections Resumption
As the IRS gears up to resume collections, taxpayers are encouraged to take proactive steps to manage their tax liabilities effectively:
Review Financial Situation: Assess your current financial situation and evaluate your ability to meet tax obligations. Understanding your financial standing will help you make informed decisions and explore available options.
Explore Payment Plans: Investigate installment plans and other payment options offered by the IRS. Engage with the agency to negotiate a plan that aligns with your financial capacity.
Seek Professional Guidance: Consult with tax professionals or financial advisors to navigate the complexities of tax obligations. They can provide valuable insights into available options and help you make informed decisions.
Stay Informed: Stay updated on IRS communications and guidelines regarding the resumption of collections. The IRS website and official announcements will be valuable sources of information during this period.
More Relief Options for Taxpayers Who Owe
The IRS resuming collections in 2024 marks a pivotal moment for taxpayers in the United States. While it signifies a return to normalcy for government revenue collection, the penalty relief demonstrates a commitment to supporting individuals and businesses still recovering from the economic impact of the pandemic. By staying informed and proactively managing their tax obligations, taxpayers can navigate the challenges posed by the resumption of collections and work towards financial stability. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
Years ago, a study showed that the IRS may might be able to complete nearly half of the nation’s tax returns automatically. The study was conducted by researchers from the U.S. Department of the Treasury, Minneapolis Federal Reserve and Dartmouth College. Random samples of 344,400 individual tax returns from 2019 were used in this study. The results show that the accuracy is higher for low- and moderate-income taxpayers. However, itemized deductions were more likely to have errors. The final impression was that an estimated 62 to 73 million pre-populated tax returns can be correctly auto filled with information that the IRS previously collected. Now, with the IRS rolling out their free direct filing system, the topic of pre-populated returns has resurfaced. In this article, we’ll explain the concept of pre-populated tax returns and which taxpayers would find this useful.
What are pre-populated tax returns?
Pre-populated tax returns refer to tax forms that are partially or fully completed by tax authorities or other relevant entities before being sent to taxpayers for review and submission. Among the information that will be pre-populated is income, deductions, and tax credits. The idea behind pre-populated tax returns is to simplify the tax filing process, reduce errors, and make it more convenient for taxpayers.
What would automatic filing mean for the U.S.?
Automatic filing would allow your taxes to be filed without you preparing a return. Many other countries achieved return-free filing, but under certain circumstances. For example, exact withholding is typically used. Exact withholding refers to the accurate and precise amount of money that is withheld from an individual’s paycheck to closely match the individual’s anticipated tax liability. To achieve this, employers take into account the individual’s income, filing status, dependents, and additional withholding. In addition, other countries have been able to successfully auto-fill returns by using tax agency reconciliation. This process requires the taxpayer, approving to approve their tentative pre-filled return.
What are the benefits of automatic, pre-filled tax returns?
Pre-filled tax returns would allow more people to file. Non-filers would claim refunds or pay due taxes with automatic filing. Automated returns also have the potential to save taxpayers time and money, which is the point this research suggests. There are billions of dollars in tax refunds, waiting to be claimed by people who can’t afford to file, or may be missing a document to file.
What are the potential risks of automatic, pre-filled tax returns?
The IRS would rely on third-party information returns to pre-fill returns. That said, the current due date of January 31 for these tax forms might not leave a sufficient amount of time to complete all tax returns by the April 15 deadline. Another potential issue with this system is ensuring the proper filing status is selected for taxpayers. This small selection can make the largest difference in an individual’s tax refund or liability. Of course, the IRS will always want to ensure that taxpayer compliance is a priority with any new system.
Need Tax Help? Call Optima Tax Relief
Pre-populated tax returns aim to streamline the tax filing process, saving taxpayers time and effort. Advocates argue that pre-populated tax returns can improve compliance, reduce errors, and simplify the tax-filing experience. Critics, on the other hand, raise concerns about data accuracy, privacy, and the potential for taxpayers to overlook errors in the pre-filled information. However, it is still too early to determine if the IRS will test pre-populated returns. In the meantime, Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
We often discuss federal taxes here, from tax filings to deductions and credits. However, it’s important to note that federal taxes are typically only one half of a taxpayer’s responsibility. In addition to filing and paying federal taxes each year, taxpayers must also stay on top of their state tax responsibilities if they have any. Here we will discuss the different types of state tax systems, as well as the rates and brackets for each in 2023.
State Tax Systems
Not every state taxes their residents the same. In fact, some states don’t tax at all. These states include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire does not tax regular income, but it does have a 5% tax on dividend and interest income. All other states either use a flat tax system or a progressive tax structure.
Flat Tax System
The flat tax system is the simpler of the two and involves one tax rate for most types of income. The factor that could change state to state is which income is considered taxable. Some states alternatively tax according to AGI instead of taxable income. States that have a flat tax rate in 2023 are:
Arizona – 2.5% of taxable income
Colorado – 4.4% of taxable income
Idaho – 5.8% of taxable income
Illinois – 4.95% of taxable income
Indiana – 3.15% of taxable income
Kentucky – 4.5% of taxable income
Michigan – 4.05% of taxable income
New Hampshire – 4% on dividends and interest income only
The remaining states use a progressive tax system, in which higher incomes are taxed at higher rates. In 2023, states that use a progressive tax system are:
Number of Brackets
District of Columbia
Taxpayers should ensure that they stay on top of their state tax obligations as well as their federal. We often hear horror stories about what happens if the IRS begins to take collection action against you, but state tax agencies can be just as intimidating. Like the IRS, your state’s department of revenue can levy and penalize you. In addition, they can revoke or refuse to renew any state-issued licenses, including driver’s licenses and professional licenses you may need to operate a business. If you’re behind on your state taxes, Optima Tax Relief can help.
Social Security, a cornerstone of America’s safety net, has been providing financial support to millions of retirees, disabled individuals, and surviving family members for decades. However, as our society undergoes demographic shifts and economic challenges, it has become increasingly evident that the current Social Security system requires substantial reform to remain viable for future generations. Here we will break down why reform is becoming necessary and what political leaders are suggesting we do to improve the current situation as of July 2023.
The Challenge with Social Security
The Social Security program was established in 1935 during a different era when life expectancy was lower, birth rates were higher, and the ratio of workers to retirees was far more favorable. Now, some of the latest projections show that the programs combined funds could run out in 2034. Today, the system faces numerous challenges that threaten its long-term viability, including:
Aging Population: The baby boomer generation, a substantial portion of the population, is rapidly reaching retirement age, putting immense pressure on the system. With fewer workers contributing to support a growing number of retirees, the sustainability of the current pay-as-you-go model is at risk.
Declining Birth Rates: Modern societies are experiencing declining birth rates, resulting in a shrinking workforce. This trend further exacerbates the strain on the system as there are fewer future contributors to Social Security.
Economic Uncertainty: Economic downturns, like the 2008 financial crisis and the COVID-19 pandemic, have weakened the economy and reduced government revenue, leading to concerns about the long-term funding of Social Security.
To ensure the long-term viability of Social Security, policymakers and experts have put forth various reform proposals. While no single solution can address all challenges, a combination of measures can create a more sustainable system:
Gradual Retirement Age Increase
One option is to gradually raise the full retirement age. People are living longer and staying healthier, so adjusting the retirement age to reflect longer life expectancies can help maintain a balanced system. For example, one proposal includes raising the full retirement age to 68 and another suggests raising the retirement age to 70. However, such a change should be implemented gradually to allow people to adjust their retirement plans accordingly.
Adjusting Cost-of-Living Adjustments (COLAs)
The automatic annual increase in Social Security benefits, based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), can be revised to better reflect the changing cost of living for retirees. A more accurate COLA calculation would ensure beneficiaries receive sufficient support while easing the financial burden on the program.
Increasing Payroll Taxes
Another consideration is raising the payroll tax cap, which currently limits the amount of income subject to Social Security taxes. Currently, the maximum amount of income that is subject to Social Security taxes is $160,200. Many are proposing raising the minimum to either $250,000 or $400,000. Increasing this cap would require higher-income earners to contribute more to the system, bolstering its financial health.
Introducing means-testing for Social Security benefits could help direct assistance to those who need it most. By reducing or eliminating benefits for higher-income retirees, the system can allocate resources more efficiently to support vulnerable populations. Some are proposing to reduce benefits if a taxpayer has an AGI within a certain threshold, and even cut benefits completely if their AGI enters a higher threshold.
Finding the Balance
While reform is essential for the sustainability of Social Security, any changes must be made with careful consideration of the program’s fundamental purpose: to provide economic security for vulnerable populations. Policymakers should balance the need for fiscal responsibility with compassion for those who heavily rely on Social Security for their basic needs. On the other hand, some Social Security income is taxable, so taxpayers should prepare for possible reform that could affect their taxes. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
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 and 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 around the country and its territories. These areas have included impacted counties of the following 12 states:
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 and time 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 as long as 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.
Tax scams have become one of the most popular ways criminals steal money and identities. The IRS flagged over $5.7 billion in tax fraud last year and 2023 is not looking any better with so many tax scams circulating. Luckily, there are ways to help avoid tax scams and fraud. Here are the most common tax scams in 2023 and how you can avoid them.
What Are Tax Scams & Fraud?
Tax scams are when criminals use stolen information, like your name, address, birthdate or Social Security Number (SSN), to file a phony tax return. The criminals then steal your refund and leave you with the burden of dealing with the IRS. Tax scams happen all year long but especially during tax season.
Most Common Tax Scams in 2023
According to the IRS, there are a handful of popular scams that you should be wary of in 2023.
IRS Impersonation Scams: Criminals will ask for personal or financial information through unsolicited emails, phone calls, or text messages. Sometimes, scammers will send malicious links via email that entices you to click on it. This action prompts a download of identity-stealing malware onto your computer.
Ghost Tax Preparer Scams: Scammers pose as tax preparers and file your tax returns but do not sign the return or include a preparer tax ID number (PTIN). During the process, they can steal your identity and/or your tax refund.
Social Media Tax Scams: Criminals use your social media information to get other personal information. They might pose as a friend or relative to ask for money or donations. Alternatively, they can send messages that contain malware to steal your identity.
Fraudulent Unemployment Claim Scams: Scammers attempt to steal personal information to claim unemployment benefits on your behalf. You may not realize you were scammed until you receive a Form 1099-G at the end of the year.
Phony Charity Request Scams: Thieves set up phony charities to steal personal information or donations. These fake charities will not have an actual employer identification number (EIN), which is required to verify the existence of a charity.
Economic Impact Payment Scams: COVID-19 stimulus checks have stopped being sent out, but scammers are still sending malicious text messages, phone calls, and emails to request bank account information. They lead you to believe you will receive a new stimulus check, when really they are stealing your personal and financial information.
How to Avoid Tax Scams & Fraud
Knowing how the IRS operates can be the best way to protect yourself against tax scams and fraud. For example, the IRS will reach out to you initially through regular mail through the U.S. Postal Service. If your IRS notice looks suspicious, you can go on the IRS website to search for the letter or notice and confirm its authenticity. The IRS does make phone calls to taxpayers but never threatens legal action or requests payment information over the phone. If you receive a suspicious email or text claiming to be from the IRS, do not reply, click on any links, or open any attachments. If in doubt, you can call the IRS yourself to communicate your concerns.
Most importantly, you should report all tax scams. Just because you might recognize the scam immediately, it does not mean everyone else will. Reporting the scams can potentially help thousands of other taxpayers. Here’s a breakdown of what to do if you think you are being scammed.
If you receive a suspicious email about your taxes, forward the email to firstname.lastname@example.org.
If you receive a phony call, email a summary of the occurrence to email@example.com.
If you clicked on a link within a suspicious email, or entered personal information, report the incident on the IRS Identity Theft Central webpage.
If you receive a suspicious text message about your taxes, you can forward it to 202-552-1226.
If you were scammed by your tax preparer, or believe your tax preparer is not following IRS rules, you can report them with Form 3949-A, Information Referral.
If you receive a bogus form from a financial institution, you should report the incident to the financial institution directly.
It’s better to be safe than sorry in these scenarios, so always report when in doubt. Not doing so can lead to several issues with the IRS that can take months to correct. Dealing with the IRS under any circumstances can be tough. If you need tax help, Optima and our team of experts are here. Contact us for a free consultation.