Tax

In yet another new twist on an old scam–this time affecting non-resident aliens and international taxpayers–criminals are using a fake IRS Form W-8BEN to solicit detailed personal identification and bank account information from victims. Here’s how the scam works:

1. Criminals mail or fax a letter indicating that although individuals are exempt from withholding and reporting income tax, they still need to authenticate their information by filling out a phony version of Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting.

2. Recipients are then asked to fax the information back to the scammers.

3. While Form W-8BEN is a legitimate U.S. tax exemption document, it can only be submitted through a withholding agent. A withholding agent may be an individual, corporation, partnership, trust, association, or any other entity, including any foreign intermediary, foreign partnership, or U.S. branch of certain foreign banks and insurance companies.

4. In the past, fraudsters have targeted non-residents of the U.S. using Form W-8BEN as a lure to get personal details such as passport numbers and PIN codes. IRS Form W-8BEN does not ask for any of that information. The phony letter or fax also refers to a Form W9095, which does not exist. Furthermore, the IRS doesn’t require recertification of foreign status.

Scam variations

Non-resident alien and international taxpayers should be alert to bogus letters, emails, and letters that appear to come from the IRS or your tax professional requesting information. Scam letters, forms, and e-mails are designed to trick taxpayers into thinking these are official communications from the IRS or others in the tax industry, including tax software companies. These phishing schemes may seek personal information, including mother’s maiden name, passport, and account information in order steal the victim’s identity and their assets.

Remember, the IRS does not:

• Demand that people use a specific payment method, such as a prepaid debit card, gift card or wire transfer.
• Ask for debit or credit card numbers over the phone.
• Demand immediate tax payment. Normal correspondence is a letter in the mail and taxpayers can appeal or question what they owe.
• Threaten to bring in local police, immigration officers or other law enforcement to arrest people for not paying.
• Revoke a license or immigration status. Threats like these are common tactics scam artists use to trick victims into believing their schemes.

If you have been a victim of an IRS phone scam or any IRS impersonation scam, please contact the office immediately. You should also report it to the Treasury Inspector General for Tax Administration at its IRS Impersonation Scam Reporting site and to the IRS by emailing phishing@irs.gov with the subject line “IRS Impersonation Scam.”

• By Leon Clinton
• June 16, 2018

Contributions to a Health Savings Account (HSA) are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent and are adjusted annually for inflation. For 2019, the annual inflation-adjusted contribution limit for a Health Savings Account (HSA) increases to $$3,500 for individuals with self-only coverage (up $50 from 2018) and $7,000 for family coverage (up $100 from 2018).

To take advantage of an HSA, individuals must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care. Medical expenses such as deductibles, copayments, and other amounts (but excluding premiums) must not be reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return.

For calendar year 2019, a qualifying HDHP must have a deductible of at least $1,350 for self-only coverage or $2,700 for family coverage (same as 2018) and must limit annual out-of-pocket expenses of the beneficiary to $6,750 for self-only coverage (up $100 from 2018) and $13,500 for family coverage (up $13,300 from 2018). As with contribution limits, deductibles and out-of-pocket expenses are adjusted for inflation annually.

Please call if you have any questions about Health Savings Accounts.

• By Leon Clinton
• June 13, 2018

Many businesses hire part-time or full-time workers, especially in the summer. These types of employees are referred to as seasonal workers, which the IRS defines as an employee who performs labor or services on a seasonal basis (i.e., six months or less). Examples of this kind of work include retail workers employed exclusively during holiday seasons, sports events, or during the harvest or commercial fishing season. Part-time and seasonal employees are subject to the same tax withholding rules that apply to other employees.

All taxpayers fill out a W-4 when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck; however, Form W-4 worksheets filled out by many employees do not distinguish between part-year jobs and full-year jobs. Taxpayers (including students–more about this topic below) with multiple summer jobs will want to make sure all their employers are withholding an adequate amount of taxes to cover their total income tax liability.

Changes to Withholding under Tax Reform

The Tax Cuts and Jobs Act made changes to the tax law, including increasing the standard deduction, eliminating personal exemptions, increasing the child tax credit, limiting or discontinuing certain deductions and changing the tax rates and brackets starting in 2018.

Many taxpayers working part-time or who have seasonal jobs may not be aware of the changes in tax law that could affect their paycheck–and their 2018 tax returns when they file next year. Of note is that any changes a part-year employee makes to their withholding amount has a more significant impact on their paycheck than it does for employees who work year-round.

As such, now is a good time to perform a “paycheck check-up” using the Withholding Calculator, a special tool on the IRS website that can help taxpayers with part-year employment estimate their income, credits, adjustments, and deductions more accurately. It also checks to see whether a taxpayer is having the correct amount of tax withheld for their financial situation.

Using the withholding calculator

• First, the calculator asks about the dates of a taxpayer’s employment and accounts for a part-year employee’s shorter employment rather than assuming that their weekly tax withholding amount would be applied to a full year.
• Next, the calculator makes recommendations for part-year employees accordingly. If a taxpayer has more than one part-year job, the Withholding Calculator can account for this as well.

Taxpayers should have a completed 2017 tax return available and will also need their most recent pay stub before using the Withholding Calculator.

Calculator results depend on the accuracy of information entered. If a taxpayer’s personal circumstances change during the year, they should return to the calculator to check whether their withholding should be adjusted. For taxpayers who work for only part of the year, it’s best to do a “paycheck check-up” early in their employment period, so their tax withholding is most accurate from the start.

The Withholding Calculator does not request personally-identifiable information, such as name, Social Security number, address or bank account numbers. The IRS does not save or record the information entered on the calculator. As always, taxpayers should watch out for tax scams, especially via email or phone and be especially alert to cybercriminals impersonating the IRS. Remember, the IRS does not send emails related to the calculator or the information entered.

If you need to adjust your withholding

If the calculator results indicate a change in withholding amount, the employee should complete a new Form W-4 and should submit it to their employer as soon as possible. Employees with a change in personal circumstances that reduces the number of withholding allowances should submit a new Form W-4 with corrected withholding allowances to their employer within 10 days of the change.

As a general rule, the fewer withholding allowances an employee enters on the Form W-4, the higher their tax withholding will be. Entering “0” or “1” on line 5 of the W-4 means more tax will be withheld. Entering a bigger number means less tax withholding, resulting in a smaller tax refund or potentially a tax bill or penalty.

Students with Income from a Summer Job

If your child is a student with a summer job, the income your child earns over the summer is considered taxable income. For example, if your child is working as a waiter or a camp counselor, they may receive tips as part of their summer income. All tip income is taxable and is, therefore, subject to federal income tax.

Many students take on odd jobs over the summer to make extra cash. If this is your child’s situation, keep in mind that earnings received from self-employment are also subject to income tax. This includes income from odd jobs such as babysitting and lawn mowing. If your child has net earnings of $400 or more from self-employment, they also have to pay self-employment tax. Church employee income of $108.28 or more must also pay self-employment tax. This tax pays for benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed just as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.

Generally, newspaper carriers or distributors under age 18 are not subject to self-employment tax; however, special rules apply to services performed as a newspaper carrier or distributor. As a direct seller, your child is treated as being self-employed for federal tax purposes if the following conditions are met:

• Your child is in the business of delivering newspapers.
• All pay for these services directly relates to sales rather than to the number of hours worked.
• Delivery services are performed under a written contract which states that your child will not be treated as an employee for federal tax purposes.

If your child participates in advanced training as an ROTC student and receives a subsistence allowance it is not taxable. Active duty pay, for example, pay received during a summer advanced camp, is taxable, however.

Help is just a phone call away.

As a seasonal or part-time worker, you may not be required to file a federal or state return if the wages you earn at a part-time or seasonal job are less than the standard deduction; however, if you work more than one job, you may end up owing tax. As you can see, seasonal and part-time workers have unique tax situations. If you have any questions about your tax situation, please call.

• By Leon Clinton
• June 10, 2018