News & Updates

The Child and Dependent Care Credit is expanded for tax year 2021. This means that more taxpayers will qualify this year than ever before, and the credit will be worth more. Taxpayers with an adjusted gross income of more than $438,000 are not eligible for this credit.

"There are many important tax credits available for families, and we don't want anyone to overlook the Child and Dependent Care Credit," said IRS Commissioner Chuck Rettig. "We encourage families and others who may qualify for this credit to carefully review the criteria to make sure they receive the maximum amount they're entitled to. We also encourage the tax professional communities and others to share this important information."

Depending on their income, taxpayers can get a credit worth 50% of their qualifying childcare expenses. For tax year 2021, the maximum eligible expense for this credit is $8,000 for one qualifying person and $16,000 for two or more.

For the purposes of this credit, the IRS defines a qualifying person as:

• A taxpayer's dependent who is 12 or younger (no age limit if incapacitated) when the care is provided.
  
• A taxpayer's spouse who is physically or mentally unable to care for themselves and lived with the taxpayer for more than half the year.
  
• Someone who is physically or mentally unable to take care of themselves and lived with the taxpayer for six months and is either:
  
• the taxpayer's dependent or
• would have been the taxpayer's dependent except for one of the following:
  
• The qualifying person received gross income of $4,300 or more
• The qualifying person filed a joint return
• The taxpayer or spouse, if filing jointly, could be claimed as a dependent on someone else's return

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Gig economy earnings are taxable

Generally, income earned from the gig economy is taxable and must be reported to the IRS. The gig economy is activity where people earn income providing on-demand work, services or goods. Often, it's through a digital platform like an app or website. Taxpayers must report income earned from the gig economy on a tax return, even if the income is:

• From part-time, temporary or side work,
• Not reported on an information return form - like a Form 1099-K, 1099-MISC, W-2 or other income statement or
• Paid in any form, including cash, property, goods or virtual currency.

For more information on the gig economy, visit the gig economy tax center.

Understand virtual currency reporting and tax requirements

The IRS reminds taxpayers that once again there is a question at the top of Form 1040 and Form 1040-SR asking about virtual currency transactions. All taxpayers filing these forms must check the box indicating either "yes" or "no." A transaction involving virtual currency includes, but is not limited to:

• The receipt of virtual currency as payment for goods or services provided;
• The receipt or transfer of virtual currency for free (without providing any consideration) that does not qualify as a bona fide gift;
• The receipt of new virtual currency as a result of mining and staking activities;
• The receipt of virtual currency as a result of a hard fork;
• An exchange of virtual currency for property, goods or services;
• An exchange/trade of virtual currency for another virtual currency;
• A sale of virtual currency; and
• Any other disposition of a financial interest in virtual currency.

If an individual disposed of any virtual currency that was held as a capital asset through a sale, exchange or transfer, they should check "Yes" and use Form 8949 to figure their capital gain or loss and report it on Schedule D (Form 1040).

If they received any virtual currency as compensation for services or disposed of any virtual currency they held for sale to customers in a trade or business, they must report the income as they would report other income of the same type (for example, W-2 wages on Form 1040 or 1040-SR, line 1, or inventory or services from Schedule C on Schedule 1). More information on virtual currency can be found in the instructions for Form 1040 and on the Virtual Currencies page on IRS.gov.

Report Foreign Source Income

A U.S. citizen or resident alien's worldwide income is generally subject to U.S. income tax, regardless of where they live. They're also subject to the same income tax filing requirements that apply to U.S. citizens or resident aliens living in the United States.

U.S. citizens and resident aliens must report unearned income, such as interest, dividends, and pensions, from sources outside the United States unless exempt by law or a tax treaty. They must also report earned income, such as wages and tips, from sources outside the United States. An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income Exclusion or the Foreign Tax Credit, which substantially reduce or eliminate U.S. tax liability. These tax benefits are only available if an eligible taxpayer files a U.S. income tax return.

A taxpayer is allowed an automatic 2-month extension to June 15 if both their tax home and abode are outside the United States and Puerto Rico. Even if allowed an extension, a taxpayer will have to pay interest on any tax not paid by the regular due date of April 18, 2022.

Those serving in the military outside the U.S. and Puerto Rico on the regular due date of their tax return also qualify for the extension to June 15. IRS recommends attaching a statement if one of these two situations apply. More information can be found in the instructions for Form 1040 and 1040-SR PDF, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad and Publication 519, U.S. Tax Guide for Aliens.

Reporting required for foreign accounts and assets

Federal law requires U.S. citizens and resident aliens to report their worldwide income, including income from foreign trusts and foreign bank and other financial accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

Further, separate from reporting specified foreign financial assets on their tax return, taxpayers with an interest in, or signature or other authority over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2020, must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is only available through the BSA E-filing System website.

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The rates will be:

• 4% for overpayments (3% in the case of a corporation);
• 1.5% for the portion of a corporate overpayment exceeding $10,000;
• 4% for underpayments; and
• 6% for large corporate underpayments.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during January 2022 to take effect February 1, 2022, based on daily compounding.

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Taxpayers can pay from their bank account using their Online Account or they can schedule payments in advance using IRS Direct Pay.

Farmers and fishers who decided to forgo making estimated tax payments have the option to pay the entire tax due on or before March 1. Normally, this special rule applies when income from farming or fishing made up at least 2/3 of the total gross income in either the current or the preceding tax year. Those opting to file by the regular April 18 deadline should have made an estimated tax payment by January 15 to avoid an estimated tax penalty. For more information on estimated tax, see Publication 505, Tax Withholding and Estimated Tax.

Those in the farming business report income and expenses on Schedule F (Form 1040), Profit or Loss From Farming. Additionally, they use Schedule SE (Form 1040), Self-Employment Tax to figure self-employment tax if their net earnings from farming are $400 or more. For more information refer to Topic No. 554, Publication 225, Farmer's Tax Guide and Agriculture Tax Center.

Those in the fishing business report income and expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship). They also use Schedule SE (Form 1040) to figure self-employment tax if their net earnings from fishing are $400 or more. For general information about the rules applying to individuals, including commercial fishermen who file Schedule C, refer to Publication 334, Tax Guide for Small Business.

Those whose trade or business is a partnership or corporation see Publication 541, Partnerships or Publication 542, Corporations.

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The Security Summit partners warned these scams serve as a reminder that tax professionals remain prime targets for thieves. These thieves try to steal client data and tax preparers' identities in an attempt to file fraudulent tax returns for refunds.

The latest phishing email uses the IRS logo and a variety of subject lines such as "Action Required: Your account has now been put on hold." The IRS has observed similar bogus emails that claim to be from a "tax preparation application provider." One such variation offers an "unusual activity report" and a solution link for the recipient to restore their account.

"Scams continue to evolve, and this one is especially sinister since it threatens tax professional's accounts," said IRS Commissioner Chuck Rettig. "Tax professionals must remain vigilant in identifying and staying clear of these IRS impersonation emails. A little extra care can protect the tax professionals and their clients."

Emails claiming "Your account has been put on hold" are scams

The IRS has observed similar bogus emails that claim to be from tax software providers. The scam email will send users to a website that shows the logos of several popular tax software preparation providers. Clicking on one of these logos requests tax preparer account credentials.

The IRS warns tax pros not to respond or take any of the steps outlined in the email. Similar emails include malicious links or attachments that are set up to steal information PDF or to download malware onto the tax professional's computer.

In this case, if recipients enter their credentials into the pop up window, thieves can use this information to file fraudulent returns by using credentials that were provided by the tax professional.

An example of this type of bogus email states:

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Your account has now been put on hold

ALL preparers are required to apply security feature to their Tax Pro account towards 2021 Tax Returns processing.

You have failed to apply new update before expiry date

You are restore and update your account immediately.

Please Click Here to update your account now.

Important

Failure to update your account within the next 24hours will lead to you account being terminated and be barred from filing tax returns claims for 2021 tax season Your access will be restored once you have updated your details.

Sincerely,

IRS.gov eServices

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Tax professionals who clicked on one of the URLs and then entered in their account information should contact their tax software preparation provider's support hotline.

Tax professionals who get a scam email should save the email as a file and then send it as an attachment to phishing@irs.gov. They should also notify the Treasury Inspector General for Tax Administration at www.tigta.gov to report the IRS impersonation scam. Both TIGTA and the IRS Criminal Investigation division are aware of this scam.

The IRS, state tax agencies and the nation's tax industry – working together in the Security Summit initiative – have taken numerous steps since 2015 to protect taxpayers, businesses and the tax system from identity thieves. Summit partners continue to warn people to watch out for common scams and schemes this tax season.

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