Non-Resident Income Tax Withholding for Mobile Employees

Having employees work outside the traditional office is becoming more common, especially as technology and travel make it easier to work from different locations. This trend coincides with state governments having persistent budget shortfalls, leading to state audits of employers for income tax withholding. These events have given rise to new problems for employers because of state income tax rules for non-resident employees. Often, this problem becomes pronounced when an employer is located on the border, between states, such as an Omaha employer having Iowa residents as employees.  States are now looking to ensure that non-residents working in their state are paying the proper amount of income taxes, and to the right state.

Every state has unique rules for employer income tax withholding of non-resident employees, but in Nebraska, the employer is responsible for withholding income tax for all non-resident employees working in Nebraska. For example, an Iowa employee working for a Nebraska company must have income tax withheld for the state of Nebraska at the same rate as any Nebraska resident. If the company is not a Nebraska employer, the employer must still withhold Nebraska income tax when the employee performs services in Nebraska and transacts business greater than $600 or maintains an office in the state.

These rules can become complicated for the human resources department, but if not properly evaluated, it may trigger an inadvertent violation. For example, if an employer allows an employee to regularly work from home, but the employee lives in another state, it may be possible that the employer is responsible to the other state for withholding. To avoid these problems, ensure that clear policies for working remotely exist and that the employer has a clear understanding of where employees spend substantial time working.

© 2016 Vandenack Weaver LLC
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IRS Shuts Down E-file PIN Tool

In response to recent cyber-attacks on the Electronic Filing PIN App (“e-file PIN”), the Internal Revenue Service (“IRS”) announced the e-file PIN capability is no longer available online or through the toll-free phone service.  Prior to the shutdown, taxpayers could use the e-file PIN tool as an alternative method for signature verification on individual tax returns.

In February, the IRS announced that criminals attacked the system and accessed more than 100,000 e-file PIN numbers, but did not steal taxpayer information.   The IRS did not close down the system at that time and instead elected to provide more security, noting the program’s application programming interface was embedded in most commercial return preparation software and a shutdown would cause a major disruption.  The IRS planned to shut down the program later this year, but additional attacks prompted an earlier shut down.

The IRS reports that only a small number of taxpayers used the e-file PIN tool, so the effect on taxpayers should be minimal.  Most taxpayers opted to use their adjusted gross income from their prior-year tax return to authenticate their returns.  Taxpayers who have not filed their tax returns this year and need a replacement e-file PIN will need assistance from their respective tax software providers.

  © 2016 Vandenack Williams LLC
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Initial Steps for Victims of Tax Related Identity Theft

As the 2016 tax season comes to a close, many taxpayers may have discovered they were victims of identity theft. Taxpayers often discover that they have been a victim of identity theft after they receive information that a tax return has already been filed using their social security number. If you are e-filing and a return has already been filed, your filing will likely be rejected. If the IRS suspects identity theft, you will receive Letter 5071C, which will request you verify your identity. Such verification can be completed online at https://idverify.irs.gov/IE/e-authenticate/welcome.do.

 After discovering that you have been a victim of identity theft, you should take multiple actions to protect your identity and correct any fraudulent returns with the IRS. It is recommended that you contact the FTC at identitytheft.gov and contact one of the major credit bureaus to place a fraud alert on your credit. If you have received a notice from the IRS or your attempt to e-file a return was denied, you should immediately contact the IRS. If your e-filing has been denied and you believe it is related to identity theft, you must complete Form 14039, Identity Theft Affidavit. Form 14039, a paper copy of your return, and any required payment of tax should be mailed to the IRS.

 If issues persist related to any fraudulently filed tax returns, additional information can be obtained from the IRS’s website, https://www.irs.gov/, or by contacting Vandenack Williams LLC.

© 2016 Vandenack Williams LLC
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Internal Revenue Service Experiences Computer Issues

Last week, the Internal Revenue Service experienced wide spread computer issues. On Wednesday, February 3, many of IRS’s computer systems became unavailable. Within 24 hours after initially reporting the outage, the IRS announced it had resumed processing individual and business tax returns. Initial reports indicate that the outage was caused by a hardware failure.

The IRS is telling taxpayers they should not take additional action in response to the outage. While the outage prevented the IRS from accepting returns, reports are that the outage should not affect taxpayers who filed prior to February 3 or before the outage occurred that day. For taxpayers who submitted returns during the outage through tax preparation services such as H&R Block and Turbo Tax, those services held returns until the IRS resolved its computer issues.

The IRS is also indicating that the issues should not create any delays in taxpayers receiving refunds. The IRS is continuing to state that 9 out of 10 taxpayers should receive their refunds with 21 days after being accepted by the IRS. If you have filed your return, you can check the status of your refund using the “Where’s My Refund?” tool at https://www.irs.gov/Refunds.

For additional information about the outage, visit the IRS website at https://www.irs.gov/uac/Newsroom/IRS-Experiencing-Systems-Outage2. Additional information may be released as the IRS continues to examine the cause of the outage and monitor for any issues.

© 2015 Vandenack Williams LLC
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New Identity Safeguards for 2016 Tax Returns (State and Federal)

For 2016, the Internal Revenue Service (IRS) and the Nebraska Department of Revenue (DOR) are taking steps to reduce tax-related identity theft, which has become a growing issue. For example, in 2013, the IRS identified almost $30 billion of fraudulent refund requests. While most of the efforts at the IRS will be invisible to the taxpayer, new login steps for e-filers of federal returns will likely be noticeable.

On the state level, each state is taking different procedures to prevent tax-related identity theft. In Nebraska, the DOR will request further information from taxpayers who elect to use the e-filing system. The DOR will ask for a driver’s license or similar state issued ID card during the e-filing process. This additional identity information is voluntary and a tax return will be processed if it does not contain this information, however, it may take longer to process in order to ensure that the return is not fraudulent.

When filing, if the IRS or DOR notes that you have filed more than one tax return, or the records indicate work income from an employer you did not perform work for in the tax year, or you somehow have an abnormal taxing event, steps should be taken to determine whether you are a victim of tax-related identity theft, to prevent further damage.

 © 2015 Vandenack Williams LLC
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Passport Revocation for Seriously Delinquent Taxpayers

The Internal Revenue Service has a new tool to encourage taxpayers to pay delinquent tax debts. If the IRS notifies the Secretary of State by certification that an individual has a seriously delinquent tax debt, the Secretary of State may deny issuing or renewing a passport or revoke the individual’s passport. IRC § 7345 is part of the Fixing America’s Surface Transportation Act and was signed into law by President Obama on December 4, 2015.

A seriously delinquent tax debt is an unpaid, legally enforceable federal tax liability greater than $50,000, which has been accessed and taxpayer has received a notice of lien or levy is made. Taxpayers are not considered to have a seriously delinquent tax debt if they are involved in settling their debt through an offer-in-compromise, installment agreement, or are legally contesting the debt.

If the IRS notifies the Secretary of State of such a tax debt, the Code also requires that the taxpayer receive the same notice. If the taxpayer believes the certification is erroneous, taxpayer may bring a civil action in federal district court or the tax court. If a court determines that the certification was erroneous, the court will order the IRS to notify the Secretary of State of such error. Additionally, if the IRS determines that such certification was erroneous or if the debt is satisfied or ceases to be seriously delinquent, the IRS must send notice to the Secretary of State.

© 2015 Vandenack Williams LLC
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