The following list summarizes tax and form changes for tax year 2017 known at the time this document was published. The list below also includes some other items of interest, such as existing Affordable Care Act provisions. Also, be sure to scroll down to the bottom of this article for a one-page summary you can download and share.
Disaster Tax Relief and Airport and Airway Extension Act of 2017
Signed into law on Sept. 29, 2017, this bill provides temporary tax relief to victims of Hurricanes Harvey, Irma and Maria. Here are the parts of the bill tax professionals will want to know about for tax year 2017:
Eased casualty loss rules:
- Ten percent of adjusted gross income limitation removed for personal casualty losses claimed on Schedule A.
- Non-itemizers are allowed to claim deduction by increasing the standard deduction.
- The $100 per-casualty floor increased to $500.
Eased access to retirement funds:
- Limit is up to $100,000 and applies to disasters through Jan. 1, 2019.
- Relief from 10 percent early retirement plan withdrawal penalty.
- Allowed to spread out any income inclusion over a three-year period.
- Amounts distributed allowed to be re-contributed over a three-year period, and taxpayer allowed to recoup any tax paid on distribution.
- Re-contribution of retirement plan withdrawals allowed for cancelled home purchases or construction.
- Retirement plan loans: maximum increased from $50,000 to $100,000, and due date of first repayment delayed by one year.
Charitable deduction limitations suspended:
- Contributions between Aug. 23, 2017 and Dec. 31, 2017.
- Temporarily suspends majority of limitations on charitable contributions.
- Exception from the overall limitation on itemized deductions for high-income taxpayers.
Employee retention tax credit:
- Employers conducting business in a disaster zone and business rendered inoperable as a result of damage from hurricane.
- Between disaster and Jan. 1, 2018.
- Maximum credit equals $6,000 of wages x 40 percent.
Special rule on earned income for earned income credit and child tax credit:
- If taxpayer earned income for the tax year is less than the preceding year, he or she may use income from preceding year.
Due Dates for Tax Year 2017
Returns and payments otherwise due on April 15, 2018, are timely if filed or paid by Tuesday, April 17, 2018, due to the occurrence of Emancipation Day and Patriot’s Day on Monday, April 16.
- Earned Income Credit & Advanced Child Tax Credit: no refund issued before Feb. 15.
- Forms W-2 and 1099-MISC (with box 7) are due on Jan. 31; as a result of the date change, fraud is down 47 percent year over year.
- Victims of Hurricanes Harvey, Irma and Maria and certain wildfires in California: the IRS extended tax year 2016 deadlines for individual and business returns to Jan. 31, 2018.
Qualifying Widow(er) Filing Status
A qualifying child no longer must be a dependent, and the name must be provided if not a dependent.
- The Qualifying Widow(er) filing status will work like Head of Household.
- The 1040 return will include a block to include the non-dependent.
- We do not yet know if this will be retroactive to prior years.
- Name changed to “Qualifying Widow(er);” used to say with a dependent child.
Some Taxpayers may Need New Individual Taxpayer Identification Numbers (ITINs)
Any individual filing a U.S. tax return is required to report a taxpayer ID number – generally the Social Security number (SSN) – on the return.
- For taxpayers who are not eligible for a SSN, but must file a return, the IRS issues ITINs.
- Due to the 2015 PATH Act, an ITIN will expire if an individual fails to file a return or is not included as a dependent on another return for three consecutive years. In addition, a taxpayer can no longer able to use ITIN on a return as of Jan. 1, 2017, if the ITIN was not used in the past three years. Taxpayers issued ITINs before 2013 are now required to renew through a staggered schedule between 2017 and 2020, and only ITIN holders required to file a return in 2017 need to renew their ITINs.
A taxpayer ID number of the educational institution is required on Form 8863, Education Credits: American Opportunity and Life Earning Credits, even if the institution didn’t use Form 1098-T. This provision was delayed until tax year 2017.
- Institutions must report on Form 1098-T only qualified tuition and related expenses actually paid.
- Taxpayers must receive a payee statement (Form 1098-T or information required on form).
Taxpayers electing to treat a federally declared disaster area loss as sustained in the preceding year should file Form 4684, Casualties and Thefts; the deadline is six months after a disaster.
Refundable Corporate Alternative Minimum Tax (AMT) Credits Reduced due to Sequester
Corporations eligible for bonus depreciation can choose, instead, to accelerate use of prior year minimum tax credits (as a refundable credit). If the election is made, a portion of requested refund will be subject to the sequester reduction.
Oil and Gas Credits Reinstated
This was reinstated due to the price of oil and market conditions, and there is now a new Form 8904, Credit for Oil and Gas Production From Marginal Wells. If applicable, taxpayers must also file Form 8830, Enhanced Oil Recovery Credit.
Other New Forms
- Form 8973, Certified Professional Employer Organization Customer Reporting Agreement.
- Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities, filed with Form 941, Employers Quarterly Federal Tax Return.
- Form 8975, Tax Jurisdiction and Constituent Entity Information, for entities with more than $850 million in revenue.
- Form 9100, Notice of Late Election.
Adjusted Filing Deadlines for Tax Year 2016
For calendar year C corporations, the automatic extension is five months (Sept. 15) until tax years beginning after 2025; at that time, the extension is increased to six months (Oct. 15).
Extender Provisions/Expired as of Dec. 31, 2016 (usually get extended by Congress):
Tax Relief for Families and Individuals
- Extension of above-the-line deduction for qualified tuition and related expenses.
- Extension and modification of exclusion from gross income of discharge of qualified principal residence indebtedness.
- Extension of mortgage insurance premiums treated as qualified residence interest.
Incentives for Growth, Jobs, Investment, and Innovation
- Extension and modification of empowerment zone tax incentives.
- Extension of Indian employment tax credit.
- Extension and modification of accelerated depreciation for business property on an Indian reservation.
- Extension and modification of railroad track maintenance credit.
- Extension of mine rescue team training credit.
- Extension of qualified zone academy bonds.
- Extension of special expensing rules for certain film and television productions.
- Moratorium on medical device excise tax.
Incentives for Energy Production and Conservation
- Extension and modification of credit for nonbusiness energy property.
- Credits for wind energy property and geothermal heat pump property.
- Extension of credit for energy-efficient new homes.
- Extension of fuel cell motor vehicle credit.
- Extension of alternative fuel vehicle refueling property.
- Extension of credit for two-wheeled plug-in electric vehicles.
- Extension and modification of credits with respect to facilities producing energy from certain renewable resources.
IRS Continues to Expand Taxpayer Services: Adds New Features to Taxpayers Online Account
Part of the IRS’ commitment to improve and expand taxpayer services, taxpayers have access latest information about their federal tax account where they can review their payment options, view up to 18 months of tax payment history, view payoff amounts and tax balance due for each tax year, and obtain online transcripts of Form 1040 through Get Transcript.
Taxpayers must authenticate their identities through the rigorous Secure Access process, and taxpayers who have registered using Secure Access for Get Transcript Online or Get an IP PIN may use their same username and password.
IRS Pilot Program: Auditing Schedule F Expenses
This program is being worked on at the IRS Brookhaven, New York, campus; the focus is on compliance issues such as deducting expenses on the wrong form, deducting expenses actually belonging to another taxpayer or deducting hobby losses.
Auditors are to address the following three areas:
- Deposits and supplies: Farmers write a lot of checks at year end to pay expenses. A deposit to be applied against a future expense is not deductible unless the expense is for future supplies. The following factors indicate a deposit and not a payment (payment made prior to delivery):
- Absence of specific quantity terms.
- Right to a refund of any unapplied payment credit of the contract.
- Treatment of the expenditure as a deposit by the seller.
- Right to substitute other goods or products as specified in the contract.
- Custom hires: Hire individuals or businesses who own equipment that the farmer doesn’t own, such as combines. This is fully deductible, but does not include rental or lease of equipment operated by the taxpayer. Wages paid to employees should not be reported on this line
- Fuel expenses must be for conducting business on the farm. Questions in this area include 1) Do you have a storage tank on the farm? and 2) How do you account for personal use from the storage tank? If fuel is purchased from a gas station, another point is to get an explanation to ensure the fuel is not for personal use.
IRS Reminds Startups of a New Option to Apply Research Credit Against Payroll Tax Liability
Eligible small business startups can amend a 2016 tax return by Dec. 31, 2017
- Election to have a portion of the research credit be a payroll tax credit (after Dec. 31, 2015).
- To make election, complete Form 6765, Qualified Credit for Increasing Research Activities, and attach to return.
- After making election, small businesses can claim a payroll tax credit on Form 8974, Qualifying Small Business Payroll Tax Credit for Increasing Research Activities. This must be attached to Form 941, Employers Quarterly Federal Tax Return.
IRS Statement on Health Care Reporting Requirement
For the upcoming 2018 filing season, the IRS will not accept the electronic tax return until the taxpayer indicates whether he or she had coverage, an exemption or will make a shared responsibility payment. In addition, returns filed on paper that do not address the health coverage requirements may be suspended pending the receipt of additional information and any refunds may be delayed.
To avoid refund and processing delays when filing 2017 tax returns in 2018, taxpayers should indicate whether they and everyone on their return had coverage, qualified for an exemption from the coverage requirement or are making an individual shared responsibility payment. This process reflects the requirements of the ACA and the IRS’ obligation to administer the health care law. The 2018 filing season will be the first time the IRS will not accept tax returns that omit this information.
ACA: Phase-In of Penalty
Individual shared responsibility payment is greater of the percentage of household income above filing threshold, or a flat dollar amount. A penalty applies for any given month the taxpayer, spouse or dependents do not have qualified coverage or an exemption.
ACA: Federal Poverty Level
The 2016 federal poverty level used on tax year 2017 tax return is shown in the chart below; taxpayers falling within federal poverty level may be eligible for premium tax credit.
President Trump eliminated ACA insurance subsidies for low-income individuals. In addition, there are now cost sharing reduction payments, not premium tax credits.
ACA: Source Documents
The following source documents will continue to be used to support ACA computations:
- Form 1095-A, Health Insurance Marketplace Statement, issued by health insurance exchanges.
- Form 1095-B, Health Coverage Statement for providers of minimum essential coverage, including self-insured employers.
- Form 1095-C, Employer-Provided Health Coverage Statement, used for large employers of more than 50 employees.
ACA: Due Diligence Requirements
- Forms 1095-B & C not required to be attached to return but should be reviewed for accuracy and retain for records.
- The taxpayer can independently corroborate health care coverage; proof of coverage includes insurance cards, explanation of benefits’ statements from the taxpayer’s insurer and W-2 or payroll statements reflecting health insurance deductions.
- Documents will be helpful when there are gaps in coverage during year – for example, if the taxpayer has a job change, a benefit plan was added or dependents were dropped. Again, it should be verified that forms indicate the taxpayer had coverage for the entire year, or a note should be made about any gaps in coverage.
Small Employer Health Reimbursement Arrangements (HRAs) Exempted from Group Health Plan Requirements
HRAs include employer reimbursed medical expenses, including insurance premiums up to a certain amount. Reimbursement is excludable from an employee’s income. Beginning in 2017, a small employer is allowed to provide an HRA without facing an ACA penalty for failing to provide insurance.
ACA: Employer Shared Responsibility (ESR)
- Employers with fewer than 50 workers are not subject to the mandate to cover employees with health insurance.
- Employers with between 50 and 99 full-time employees are liable for ESR beginning in tax year 2016.
- Employers with at least 100 full-time employees are liable for ESR beginning in tax year 2015.
- The number of employees is determined by considering the average of full-time employees on business days during preceding calendar year, and includes full-time equivalents.
ACA: Employer Shared Responsibility Payment
Employers with at least 50 full-time employees are liable for ESR if one of following conditions exists:
- The employer does not offer health coverage or offers coverage to fewer than 95 percent of its full-time employees and dependents, and at least one of the full-time employees receives a premium tax credit, OR the employer offers health coverage to at least 95 percent of its full-time employees and dependents, but at least one full-time employee receives a premium tax credit.
- The second option may occur because employer did not offer coverage to that employee, coverage was unaffordable or coverage did not provide the minimum value.
- The standard deduction for married filing jointly rises to $12,700 for tax year 2017, up $100 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $6,350 in 2017, up from $6,300 in 2016. For heads of households, the standard deduction will be $9,350 for tax year 2017, up from $9,300 for tax year 2016.
- The personal exemption for tax year 2017 remains as it was for 2016: $4,050. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $261,500 ($313,800 for married couples filing jointly). It phases out completely at $384,000 ($436,300 for married couples filing jointly).
- For tax year 2017, the 39.6 percent tax rate affects single taxpayers whose income exceeds $418,400 ($470,700 for married taxpayers filing jointly), up from $415,050 and $466,950, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2017 are described in the revenue procedure.
- The limitation for itemized deductions to be claimed on tax year 2017 returns of individuals begins with incomes of $287,650 or more ($313,800 for married couples filing jointly).
- The AMT exemption amount for tax year 2017 is $54,300 and begins to phase out at $120,700 (for married couples filing jointly for whom the exemption begins to phase out at $160,900). The 2016 exemption amount was $53,900 ($83,800 for married couples filing jointly). For tax year 2017, the 28 percent tax rate applies to taxpayers with taxable incomes above $187,800 ($93,900 for married individuals filing separately).
- The tax year 2017 maximum Earned Income Credit amount is $6,318 for taxpayers filing jointly who have three or more qualifying children, up from a total of $6,269 for tax year 2016. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
- For tax year 2017 participants who have self-only coverage in a medical savings account, the plan must have an annual deductible that is not less than $2,250, but not more than $3,350; these amounts remain unchanged from 2016. For self-only coverage, the maximum out of pocket expense amount is $4,500, up $50 from 2016. For tax year 2017 participants with family coverage, the floor for the annual deductible is $4,500, up from $4,450 in 2016. However, the deductible cannot be more than $6,750, up $50 from the limit for tax year 2016. For family coverage, the out of pocket expense limit is $8,250 for tax year 2017, an increase of $100 from tax year 2016.
- For tax year 2017, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $112,000, up from $111,000 for tax year 2016.
- For tax year 2017, the foreign earned income exclusion is $102,100, up from $101,300 for tax year 2016.
- Estates of decedents who die during 2017 have a basic exclusion amount of $5.49 million, up from a total of $5.45 million for estates of decedents who died in 2016.
- The 401(k) contribution limit remains unchanged at $18,000 for 2017.
- For single taxpayers covered by a workplace retirement plan, the phase-out range is $62,000 to $72,000, up from $61,000 to $71,000.
- For married couples filing jointly where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $99,000 to $119,000, up from $98,000 to $118,000.
- For an IRA contributor who is not covered by a workplace retirement plan and married to someone who is covered, the deduction is phased out if the couple’s income is between $186,000 and $196,000, up from $184,000 and $194,000.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
- The income phase-out range for taxpayers making contributions to a Roth IRA is $118,000 to $133,000 for singles and heads of household, up from $117,000 to $132,000. For married couples filing jointly, the income phase-out range is $186,000 to $196,000, up from $184,000 to $194,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
- The income limit for the saver’s credit (also known as the retirement savings contributions credit) for low- and moderate-income workers is $62,000 for married couples filing jointly, up from $61,500; $46,500 for heads of household, up from $46,125; and $31,000 for singles and married individuals filing separately, up from $30,750.
- The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $18,000.
- The catch-up contribution limit for employees age 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $6,000.
- The limit on annual contributions to an IRA remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains at $1,000.