Several important tax changes happened last year that will affect the federal income tax returns that individuals and business taxpayers will file in 2017. Here’s a quick look at four key changes that you should be mindful of during this tax season.
1. Stand-Alone HRAs
On December 13, 2016, President Obama signed the 21st Century Cures Act into law. In addition to funding cutting-edge medical research, this new legislation allows an employer with fewer than 50 employees and no other group health insurance plan to establish Health Reimbursement Arrangements (HRAs) for its employees. These standalone HRAs aren’t subject to certain penalties and restrictions imposed by the IRS under the Affordable Care Act (ACA). Be sure to plan ahead: The 21st Century Cures Act applies to plan years beginning after 2016.
2. Standard Mileage Rates
Each year, the IRS modifies the standard mileage rates that taxpayers may use in lieu of tracking actual driving expenses. Due to lower gas prices, the rates have been reduced for 2017. The IRS recently announced that the flat rate for business driving is 53.5 cents per mile in 2017 (down from 54 cents per mile in 2016). Also, the rates for driving attributable to medical and moving purposes dropped to 17 cents per mile in 2017 (down from 19 cents per mile in 2016). Finally, the rate for charitable driving, which is set statutorily, remains at 14 cents per mile in 2017. In all cases, related tolls and parking fees can be added on top of the flat rate.
3. Valuations for Vehicles
Employees are taxed on the fair market value (FMV) of their personal use of company-provided vehicles. For convenience, the IRS permits FMV accounting methods based on the cents-per-mile rule (see “Standard Mileage Rates” above), as well as a fleet average value for employers with 20 or more vehicles, with the maximums updated annually. Under a recent IRS Notice, the cents-per-mile thresholds in 2017 are $15,900 for automobiles (the same as in 2016) and $17,800 for trucks and vans (up from $17,700 for 2016). The thresholds for the fleet average rule in 2017 are $21,100 for a passenger auto (down from $21,200 for 2016) and $23,300 for a truck or van (up from $23,100 for 2016).
4. Delayed Refunds
A new tax law change requires the IRS to hold refunds for tax returns claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) until at least February 15, 2017. As a result, many early filers still won’t have access to their refunds until the week of February 27 or even later. Under the new rules, the IRS must delay the entire refund, even the portion that isn’t associated with the EITC or ACTC. The IRS is advising taxpayers that the fastest way to get a refund is to file electronically and choose the direct deposit method.
5. Self-Certified Rollover Waivers
In general, an individual has 60 days to complete a tax-free rollover of a distribution from an Individual Retirement Account (IRA) or workplace retirement plan to another eligible retirement program. If you inadvertently miss this deadline, the distribution is usually taxable unless you obtain a waiver from the IRS. Thanks to a new ruling from the IRS in 2016, a taxpayer can self-certify that mitigating circumstances caused the failure.
For this purpose, a waiver may be allowed due to:
- A distribution check being misplaced and never cashed,
- Severe damage to the taxpayer’s home,
- Death of a family member,
- A serious illness of the taxpayer or a relative,
- The taxpayer’s incarceration, or
- Restrictions imposed by a foreign country.
The new rules went into effect on August 24, 2016.
Important note: Don’t forget that qualifying taxpayers may still make contributions, whether deductible or nondeductible, to a traditional IRA until the day taxes are due, without extension, like we mentioned in our last Partner Connections article. They also have until Tax Day to make a nondeductible contribution to a Roth IRA for 2016. Put simply, the deadline for individuals to contribute to traditional or Roth IRAs for 2016 is April 18, 2017.
This brief article covered just a few noteworthy tax developments in 2016. The IRS made many other changes that could affect your tax obligations depending on your personal or business’s situation. Be sure to meet with your accountant or call us at Crippen today before you file to find out what changes affected your unique tax situation today before it’s too late.