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IRS Announces Interest Rates for Q3 of 2024

IRS Announces Interest Rates for Q3 of 2024

The IRS has announced that interest rates for the third quarter of 2024 will remain consistent with the previous quarter. This decision comes amidst ongoing economic evaluations and reflects the IRS’s commitment to stability in the financial landscape. Here’s an overview of the IRS interest rates for Q3 of 2024.

What Are the 2024 Q3 Interest Rates? 

The IRS has confirmed that the interest rates for Q3, beginning on July 1 of 2024, will be as follows: 

  • 8% for overpayments (7% for corporations) 
  • 8% for the underpayment of taxes 
  • 5.5% for the portion of a corporate overpayment exceeding $10,000 
  • 10% for large corporate underpayments 

Overpayments are payments made that exceed the amount owed. Underpayments are taxes that are owed but not paid in full. These rates are based on the federal short-term rate determined during the second month preceding the beginning of the quarter. The IRS regularly reviews and adjusts these rates to align with economic conditions, ensuring fairness and consistency in tax administration. 

How Do Underpayments Affect My Taxes? 

Since the rates have not changed, it’s still an expensive time to owe the IRS. Underpayment interest rates play a crucial role in determining the financial consequences of not paying taxes on time. This also applies if you underpay taxes owed to the government. If you fail to pay the full amount you owe by the due date, you’ll be subject to underpayment penalties. You may also owe interest charges at the above rates. This interest accrues daily from the original due date of the tax return. It will continue to accrue until the date the full payment is made. Underpayment interest rates can significantly impact your overall tax liability. This is especially true if the amount owed is substantial or if payment is delayed for an extended period. Over time, interest charges can add up, resulting in a larger total payment. 

How Do Overpayments Affect My Taxes? 

Overpayment interest rates influence the financial outcomes when taxpayers overpay their taxes to the government. When you overpay the required amount of taxes owed, you’re entitled to receive interest payments on the excess amount. However, this is only if the IRS is late to send your tax refund. The IRS has 45 days to issue your refund. If they fail to issue it by this timeframe, they will owe interest. Also, like underpayment interest, the interest calculation for overpayments is straightforward. It is calculated by multiplying the amount of overpayment by the daily interest rate. Remember, it’s calculated for each day the excess amount is held by the government.  

Tax Help for Those Who Owe 

Taxpayers and businesses are encouraged to stay informed about IRS updates and announcements. By staying abreast of these developments, individuals can effectively plan and navigate their tax responsibilities in accordance with applicable regulations. It may be best to seek the help of a credible tax professional to look at your tax situation. Optima Tax Relief has a team of dedicated and experienced tax professionals with proven track records of success.   

If You Need Tax Help, Contact Us Today for a Free Consultation 

14 States That Cut Their Income Tax Rates in 2024

14 States That Cut Their Income Tax Rates in 2024

In a move signaling a significant shift in fiscal policy, 14 states across the United States implemented cuts to individual income taxes in 2024. This development comes as states reassess their tax structures amid changing economic landscapes and evolving political priorities. Here’s a breakdown of the 14 states that cut their income tax rates in 2024.  

Which States Cut Their Tax Rate? 

The decision to reduce individual income taxes reflects a broader trend among state governments. They are aiming to stimulate economic growth, attract investment, and provide relief to taxpayers. The states undertaking these tax cuts span various regions, indicating a diverse range of approaches to fiscal policy. 

Among the states implementing income tax cuts are Arkansas, Connecticut, Georgia, Indiana, Iowa, Kentucky, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Carolina, Ohio, and South Carolina. For residents of these states, the impending tax cuts offer the prospect of increased disposable income and potentially bolstered economic activity. 

Arkansas 

Governor Sanders signed the latest Arkansas tax cut bill into law on September 14, 2023. It decreases the state’s highest income tax rate from 4.7% to 4.4%. This adjustment follows a prior reduction from 4.9% in April 2023. Arkansas taxpayers who earn over $87,000 will reap the benefits of this tax break. In addition, the corporate tax rate was reduced from 5.1% to 4.8% for those earning over $11,000.  

Connecticut 

On January 1, 2024, Connecticut implemented its first income tax rate reduction since the mid-1990s. Additionally, it was the largest cut in state history. The state’s progressive tax structure saw decreases in the two lowest rates. Single filers now pay 2% on the first $10,000 earned and 4.5% on the next $40,000, down from 3% and 5% respectively. Joint filers now pay 2% on the first $20,000 earned and 4.5% on the next $80,000, down from 3% and 5% respectively. 

Georgia 

Georgia Governor Brian Kemp signed HB 1437 into law on April 26, 2022. It replaced the state’s graduated personal income tax with a flat rate of 5.49% starting January 1, 2024. Subsequent gradual reductions will bring the flat rate down to 4.99% by January 1, 2029. However, these reductions may be postponed by one year for each year that specific budget conditions are not fulfilled.  

Indiana 

Indiana’s House Bill 1001 speeds up the state’s scheduled rate cuts by lowering the individual income tax rate from 3.15% to 3.05% in 2024. It also removes related tax triggers associated with state revenue increases. The bill outlines additional reductions to 3.0% in 2025, 2.95% in 2026, and 2.9% from 2027 onwards. 

Iowa 

Iowa’s tax relief efforts persist in 2024. Corporate taxpayers will face a contingent flat tax plan with rates of 5.5% on income below $100,000 and 7.1% on income exceeding $100,000. Individual taxpayers will see a gradual move towards a flat income tax rate of 3.9% by 2026, with the top marginal tax rate reaching 5.7% in 2024. 

Kentucky 

In February 2023, Kentucky passed House Bill 1. This bill lowers the state’s flat income tax rate from 4.5% to 4.0%, which took effect in 2024. 

Mississippi 

The state implemented a single rate for individual tax purposes on income surpassing $10,000. In 2024, this rate will decrease to 4.7% from the initial rate of 5% established in 2023. The rate is scheduled to decrease to 4.0% by 2026. Additionally, the franchise tax is slated to diminish to zero by 2028. 

Missouri 

In July 2023, Missouri Governor Parson signed Senate Bill 190, eliminating the income threshold for deductibility and effectively exempting Social Security payments from state income tax. Consequently, federal Social Security payments will not be taxed. Additionally, for 2024, the top individual income tax rate was reduced to 4.8%, down from 4.95%. 

Montana 

In 2021, Montana enacted Senate Bill 399, initiating changes to the state’s tax code effective in 2024. The law consolidated seven individual income tax brackets into two, lowering the top marginal rate from 6.75% to 6.5%. Additionally, in 2023, the legislature further reduced this rate to 5.9%. Montana will also implement lower tax rates for capital gains income, taxing them at either 3% or 4.1%. 

Nebraska 

Nebraska expedited previously planned reductions to both individual and corporate tax rates, lowering the top marginal tax rate earlier than initially projected. For corporations, the aim is to achieve a flat income tax rate of 3.99% by 2027. In 2024, the top marginal tax rate will decrease from 7.25% to 5.84% on income exceeding $100,000. Similarly, for individual taxpayers, the goal is to reach a top rate of 3.99% by 2027. However, in 2024, this rate will be 5.84%, achieved three years ahead of schedule. 

New Hampshire 

Through S.B. 189, New Hampshire lawmakers have disconnected the state’s tax code from the federal business net interest limitation under IRC § 163(j), enabling businesses to fully deduct interest expenses in the year incurred. Additionally, taxpayers can now deduct any previously disallowed business interest expenses carryforwards over three years. The state’s budget (H.B. 2), enacted in June 2023, hastens the phaseout of the tax on interest and dividends income, now slated for elimination in 2025 instead of 2027. In 2024, the rate will be reduced to 3%, down from 4%. 

North Carolina 

The state’s budget, Session Law 2023-134, sets the individual income tax rate at 4.5% for 2024, down from 4.75%. Further reductions in subsequent years are dependent on meeting revenue targets. 

Ohio 

Ohio’s biennial budget, signed in July 2023, merges the top two marginal tax rates for individual income into a single rate of 3.5%, reduced from 3.75% in 2023. 

South Carolina 

In recent years, South Carolina has lowered personal income tax rates from 7% in 2022 to 6.5% in 2023. It reduced its top individual income tax rate to 6.4% in 2024. Further, the state aims to decrease the tax by .1% each year until it is 6%. However, this will be contingent upon revenue triggers. 

Implications of State Income Tax Cuts 

While the implementation of income tax cuts is poised to deliver tangible benefits to residents and businesses in these states, it also raises pertinent questions about revenue implications and budgetary trade-offs. Policymakers must navigate these challenges adeptly to ensure that tax cuts are sustainable and do not compromise essential public services or fiscal stability. For instance, in 2012, Kansas cut income tax rates by nearly a third and almost eliminated business taxes hoping for a rejuvenated economy. Unfortunately, this resulted in the need to cut some social services and the cuts were eventually reversed. 

Moreover, the efficacy of income tax cuts in stimulating economic growth and generating long-term prosperity remains a subject of debate among economists and policymakers. While proponents argue that lower taxes incentivize work, investment, and entrepreneurship, skeptics caution against potential revenue shortfalls and widening income inequality. 

State Tax Help for Taxpayers 

The 14 states that cut their income tax rates in 2024 signal a significant development in state fiscal policy, with implications for residents, businesses, and policymakers alike. As these states embark on their respective tax relief efforts, the outcomes will be closely scrutinized, offering valuable insights into the interplay between taxation, economic growth, and public welfare in the United States. Optima Tax Relief has a team of dedicated and experienced tax professionals with proven track records of success who may be able to help with your state tax issues. You can contact one of our tax professionals to see if they can help in your state.  

If You Need Tax Help, Contact Us Today for a Free Consultation 

Hoping for the Child Tax Credit? Don’t Wait to File

Hoping for the Child Tax Credit? Don’t Wait to File

In a recent update, the U.S. House of Representatives has approved a bill that has the potential to grant families significant tax benefits. The aim is to strengthen tax breaks, offering substantial financial support to American households and leading to significant savings. Among the many items addressed in the bill is the expansion of the Child Tax Credit (CTC), a tax benefit designed to assist families with the cost of raising children. In this article, we’ll review the details of the CTC expansion and the next steps needed to pass the bill. 

What is the Child Tax Credit? 

The Child Tax Credit is a tax benefit provided to eligible families for each qualifying child under 17. It’s designed to help families with the cost of raising children by reducing their federal income tax liability. Eligible families can receive a credit of up to a certain amount per child. The amount may vary depending on factors such as income level and number of children. In some cases, the credit is partially refundable, meaning that families may receive a refund even if they owe no taxes. 

Eligibility Criteria  

The eligibility requirements for the Child Tax Credit (CTC) typically include the following criteria: 

  1. Age of Child: The child must be under the age of 17 at the end of the tax year for which the credit is being claimed. 
  1. Relationship: The child must be the taxpayer’s son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (such as a grandchild, niece, or nephew). 
  1. Dependent Status: The child must qualify as a dependent on the taxpayer’s federal income tax return. 
  1. Residency: The child must have lived with the taxpayer for more than half of the tax year. Certain exceptions apply for temporary absences, such as for school, vacation, medical care, or military service. 
  1. Citizenship: The child must be a U.S. citizen, U.S. national, or resident alien. 
  1. Support: The child must not provide more than half of their own support during the tax year. 
  1. Filing Status: The taxpayer must file as Single, Head of Household, Married Filing Jointly, or Qualifying Widow(er) with Dependent Child. 
  1. Income Limits: The taxpayer must have earned at least $2,500 but not more than $200,000 ($400,000 if filing jointly) to claim the full tax credit. Income over this amount will result in a partial credit. 

Proposed Expansion 

Under the proposed changes, the tax credit would remain fixed at $2,000 per child. However, the portion of the credit that is refundable would see an increase, potentially benefiting numerous families nationwide. The maximum refundable portion per child would rise from $1,600 to $1,800 in 2023, then to $1,900 in 2024, ultimately becoming fully refundable by 2025. Furthermore, the credit would be adjusted annually to account for inflation. When the House of Representatives voted on the bill in January 2023, it passed with overwhelming support from both Democrats and Republicans. The bill is waiting to see a vote from the Senate, which has yet to be scheduled.  

Don’t Wait to File Your 2024 Taxes 

The 2024 tax season is underway. However, the IRS has reported reduced tax filing activity compared to this time last year. That said, there are suspicions that this is because taxpayers are waiting to see what happens with the Child Tax Credit. Taxpayers are urged to file anyway. The IRS has publicly stated that if the Senate does pass the bipartisan bill, it could take anywhere from six to 12 weeks to implement the changes for the 2023 tax year. This means waiting could result in a late tax return, which means penalties and possible interest. Taxpayers can find relief in knowing that the IRS plans to issue additional refunds later for those who have filed if the bill is passed. No additional actions will be needed on the taxpayer’s end.  

Tax Help with the Child Tax Credit 

Taxpayers should not delay filing their taxes while waiting for the Child Tax Credit bill to be passed. It’s crucial to file taxes in a timely manner to avoid potential penalties or late fees. Additionally, the tax filing process can take time. Waiting until the last minute could lead to rushed or incomplete submissions. Furthermore, if the CTC bill is passed, the IRS will make sure eligible taxpayers receive their due refunds. Therefore, taxpayers should proceed with filing their taxes promptly, ensuring accuracy and compliance with current tax regulations, while remaining vigilant for any updates or changes in tax laws that may affect their eligibility for credits or deductions. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.  

If You Need Tax Help, Contact Us Today for a Free Consultation 

The IRS is Restarting Collections in 2024 

The IRS is Restarting Collections in 2024

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. 

Background 

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: 

  1. 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. 
  1. 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. 
  1. 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. 
  1. 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. 

If You Need Tax Help, Contact Us Today for a Free Consultation 

Can the IRS Automatically Complete Tax Returns?

IRS and the future of filing taxes

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. 

If You Need Tax Help, Contact Us Today for a Free Consultation 

2023 State Income Tax Rates and Brackets

2023 state income tax rates and brackets

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 2023 state income tax rates and brackets.  

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 
  • Pennsylvania – 3.07% of taxable income 
  • Utah – 4.65% of taxable income 

Progressive Tax Structure 

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:  

State Tax Rates Number of Brackets 
Alabama 2%-5% 3 
Arkansas 2%-4.9% 3 
California 1%-12.3% 9 
Connecticut 3%-6.99% 7 
Delaware 0%-6.6% 7 
District of Columbia 4%-10.75% 7 
Georgia 1%-5.75% 6 
Hawaii 1.4%-11% 12 
Iowa 4.4%-6% 4 
Kansas 3.1%-5.7% 3 
Louisiana 1.85%-4.25% 3 
Maine 5.8%-7.15% 3 
Maryland 2%-5.75% 8 
Massachusetts 5%-9% 2 
Minnesota 5.35%-9.85% 4 
Mississippi 0%-5% 2 
Missouri 1.5%-4.95% 8 
Montana 1%-6.75% 7 
Nebraska 2.46%-6.64% 4 
New Jersey 1.4%-10.75% 7 
New Mexico 1.7%-5.9% 5 
New York 4%-10.9% 9 
North Dakota 1.1%-2.9% 5 
Ohio 0%-3.99% 5 
Oklahoma 0.25%-4.75% 6 
Oregon 4.75%-9.9% 4 
Rhode Island 3.75%-5.99% 3 
South Carolina 0%-6.4% 3 
Vermont 3.35%-8.75% 4 
Virginia 2%-5.75% 4 
West Virginia 3%-6.5% 5 
Wisconsin 3.54%-7.65% 4 

Conclusion 

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.  

If You Need Tax Help, Contact Us Today for a Free Consultation