Early Withdrawals from Retirement Plans

Many people find it necessary to take out money early from their IRA or retirement plan. Doing so, however, can trigger an additional tax on top of income tax taxpayers may have to pay. Here are a few key points to know about taking an early distribution:

1. Early Withdrawals. An early withdrawal normally is taking cash out of a retirement plan before the taxpayer is 59½ years old.
   
   
2. Additional Tax. If a taxpayer took an early withdrawal from a plan last year, they must report it to the IRS. They may have to pay income tax on the amount taken out. If it was an early withdrawal, they may have to pay an additional 10 percent tax.
   
   
3. Nontaxable Withdrawals. The additional 10 percent tax does not apply to nontaxable withdrawals. These include withdrawals of contributions that taxpayers paid tax on before they put them into the plan. A rollover is a form of nontaxable withdrawal. A rollover occurs when people take cash or other assets from one plan and put the money in another plan. They normally have 60 days to complete a rollover to make it tax-free.
   
   
4. Check Exceptions. There are many exceptions to the additional 10 percent tax. Some of the rules for retirement plans are different from the rules for IRAs.
   
   
5. File Form 5329. If someone took an early withdrawal last year, they may have to file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with their federal tax return. Form 5329 has more details.

IRS Debunks Myths Surrounding Tax Refunds

As millions of people begin filing their tax returns, the Internal Revenue Service reminds taxpayers about some basic tips to keep in mind about refunds.

During the early parts of the tax season, taxpayers are anxious to get details about their refunds. In some social media, this can lead to misunderstandings and speculation about refunds. The IRS offers these tips to keep in mind.

Myth 1: All Refunds Are Delayed

While the IRS issues more than 90 percent of federal tax refunds in less than 21 days, some refunds take longer. Recent legislation requires the IRS to hold refunds for tax returns claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) until mid-February. Other returns may require additional review for a variety of reasons and take longer. For example, the IRS, along with its partners in the states and the nation’s tax industry, continue to strengthen security reviews to help protect against identity theft and refund fraud. The IRS encourages taxpayers to file as they normally would.

Myth 2: Calling the IRS or My Tax Professional Will Provide a Better Refund Date

Many people mistakenly think that talking to the IRS or calling their tax professional is the best way to find out when they will get their refund. In reality, the best way to check the status of a refund is online through the “Where’s My Refund?” tool at IRS.gov or via the IRS2Go mobile app.

Taxpayers eager to know when their refund will be arriving should use the "Where's My Refund?" tool rather than calling and waiting on hold or ordering a tax transcript. The IRS updates the status of refunds once a day, usually overnight, so checking more than once a day will not produce new information. “Where’s My Refund?” has the same information available to IRS telephone assistors so there is no need to call unless requested to do so by the refund tool.

Myth 3: Ordering a Tax Transcript a “Secret Way” to Get a Refund Date

Ordering a tax transcript will not help taxpayers find out when they will get their refund. The IRS notes that the information on a transcript does not necessarily reflect the amount or timing of a refund. While taxpayers can use a transcript to validate past income and tax filing status for mortgage, student and small business loan applications and to help with tax preparation, they should use “Where’s My Refund?” to check the status of their refund.

Myth 4: “Where’s My Refund?” Must be Wrong Because There’s No Deposit Date Yet

The IRS will update “Where's My Refund?” ‎on both IRS.gov and the IRS2Go mobile app with projected deposit dates for early EITC and ACTC refund filers a few days after Feb. 15. Taxpayers claiming EITC or ACTC will not see a refund date on “Where's My Refund?” ‎or through their software package until then. The IRS, tax preparers and tax software will not have additional information on refund dates.

The IRS cautions taxpayers that these refunds likely will not start arriving in bank accounts or on debit cards until the week of Feb. 27 – if there are no processing issues with the tax return and the taxpayer chose direct deposit. This additional period is due to several factors, including banking and financial systems needing time to process deposits. Taxpayers who have filed early in the filing season, but are claiming EITC or ACTC, should not expect their refund until the week of Feb. 27. The IRS reminds taxpayers that President’s Day weekend may impact when they get their refund since many financial institutions do not process payments on weekends or holidays.

Myth 5: Delayed Refunds, those Claiming EITC and/or ACTC, will be Delivered on Feb. 15

By law, the IRS cannot issue refunds before Feb. 15 for any tax return claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC). The IRS must hold the entire refund, not just the part related to the EITC or ACTC. The IRS will begin to release these refunds starting Feb. 15.

These refunds likely won’t arrive in bank accounts or on debit cards until the week of Feb. 27. This is true as long as there is no additional review of the tax return required and the taxpayer chose direct deposit. Banking and financial systems need time to process deposits, which can take several days.

See the What to Expect for Refunds in 2017 page and the Refunds FAQs page for more information.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

IRS YouTube Videos:

• Direct Deposit for Your Tax Refund – English | Spanish | ASL
• Claiming EITC or ACTC? Your Refund May be Delayed – English | Spanish | ASL
• When Will I Get My Refund? – English | Spanish | ASL

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Why Your Tax Refund May Be Delayed Until March

Refund Timing for Earned Income Tax Credit and Additional Child Tax Credit Filers

The IRS will begin to release EITC/ACTC refunds starting Feb. 15. However, the IRS cautions taxpayers that these refunds likely won’t arrive in bank accounts or debit cards until the week of February 27 -- if there are no processing issues with the tax return and the taxpayer chose direct deposit. This additional period is due to several factors, including banking and financial systems needing time to process deposits.
Where's My Refund? ‎on IRS.gov and the IRS2Go phone app will be updated with projected deposit dates for early EITC /ACTC refund filers a few days after Feb. 15. Taxpayers will not see a refund date on Where's My Refund? ‎or through their software packages until then. The IRS, tax preparers and tax software will not have additional information on refund dates, so Where’s My Refund? remains the best way to check the status of a refund.

Why is my refund being held?

Beginning in 2017, if you claim the EITC or ACTC on your tax return, the IRS must hold your refund until Feb. 15. This new law requires the IRS to hold the entire refund — even the portion not associated with the EITC or ACTC. Like previous years, some tax refunds may be held if there are questions about the tax return or the IRS needs more information.

Will I get my refund on Feb. 15?

While the IRS will begin to issue EITC/ACTC refunds starting Feb. 15, you should not count on actually seeing your refund until the week of Feb. 27 -- if you chose direct deposit or a debit card and there are no processing issues with your tax return.

Why does it take so long for the funds to show up in my account?

It takes additional time for refunds to be processed after leaving the IRS, and for financial institutions to accept and deposit them to bank accounts and products like debit cards. Also many financial institutions do not process payments on weekends or holidays, which can affect when refunds reach taxpayers. For EITC and ACTC filers, the three-day holiday weekend involving President’s Day affects their refund timing.

How do I check the status of my refund?

Where's My Refund ‎on IRS.gov and the IRS2Go phone app remains the best way to check the status of a refund. Where’s My Refund will be updated with projected deposit dates for early EITC and ACTC refund filers a few days after Feb. 15. Taxpayers will not see a refund date on Where's My Refund ‎or through their software packages until then. The IRS, tax preparers and tax software will not have additional information on refund dates, so taxpayers should not contact or call them about refunds before the end of February.

Page Last Reviewed or Updated: 09-Dec-2016

Reminder: Employers Face New Jan. 31 W-2 Filing Deadline; Some Refunds Delayed Until Feb. 15

IR-2016-143, Oct. 28, 2016

WASHINGTON — The Internal Revenue Service today reminded employers and small businesses of a new Jan. 31 filing deadline for Forms W-2. The IRS must also hold some refunds until Feb. 15.

A new federal law, aimed at making it easier for the IRS to detect and prevent refund fraud, will accelerate the W-2 filing deadline for employers to Jan. 31. For similar reasons, the new law also requires the IRS to hold refunds involving two key refundable tax credits until at least Feb. 15. Here are details on each of these key dates.

New Jan. 31 Deadline for Employers

The Protecting Americans from Tax Hikes (PATH) Act, enacted last December, includes a new requirement for employers. They are now required to file their copies of Form W-2, submitted to the Social Security Administration, by Jan. 31. The new Jan. 31 filing deadline also applies to certain Forms 1099-MISC reporting non-employee compensation such as payments to independent contractors.

In the past, employers typically had until the end of February, if filing on paper, or the end of March, if filing electronically, to submit their copies of these forms. In addition, there are changes in requesting an extension to file the Form W-2. Only one 30-day extension to file Form W-2 is available and this extension is not automatic. If an extension is necessary, a Form 8809 Application for Extension of Time to File Information Returns must be completed as soon as you know an extension is necessary, but by January 31. Please carefully review the instructions for Form 8809, for more information.

"As tax season approaches, the IRS wants to be sure employers, especially smaller businesses, are aware of these new deadlines," said IRS Commissioner John Koskinen. "We are working with the payroll community and other partners to share this information widely."

The new accelerated deadline will help the IRS improve its efforts to spot errors on returns filed by taxpayers. Having these W-2s and 1099s earlier will make it easier for the IRS to verify the legitimacy of tax returns and properly issue refunds to taxpayers eligible to receive them. In many instances, this will enable the IRS to release tax refunds more quickly than in the past.

The Jan. 31 deadline has long applied to employers furnishing copies of these forms to their employees and that date remains unchanged.

Some Refunds Delayed Until at Least Feb. 15

Due to the PATH Act change, some people will get their refunds a little later. The new law requires the IRS to hold the refund for any tax return claiming either the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) until Feb. 15. By law, the IRS must hold the entire refund, not just the portion related to the EITC or ACTC.

Even with this change, taxpayers should file their returns as they normally do. Whether or not claiming the EITC or ACTC, the IRS cautions taxpayers not to count on getting a refund by a certain date, especially when making major purchases or paying other financial obligations. Though the IRS issues more than nine out 10 refunds in less than 21 days, some returns are held for further review.

IRS Gives Tax Relief to Victims of Hurricane Matthew

Victims of Hurricane Matthew, which took place beginning on October 4, 2016, in parts of North Carolina, may qualify for tax relief. The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area.

Affected areas that currently qualify include Beaufort, Bladen, Columbus, Cumberland, Edgecombe, Hoke, Lenoir, Nash, Pitt and Robeson counties. Continue to check the Tax Relief in Disaster Situations page to stay up-to-date on eligible areas and updated deadlines. The IRS expects additional states to be included in the extended relief.

Certain deadlines falling on or after October 4, 2016, and on or before March 15, 2017, have been postponed to March 15, 2017. This includes the 2015 individual returns on extension originally due on October 17 and the January 17, 2017, deadline for making quarterly estimated tax payments. Also included are the October 31 and January 31 deadlines for quarterly payroll and excise tax returns.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers and their tax preparers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866.562.5227 to request this tax relief.

More details can be found in IR-2016-131.

IRS Picks Private Debt Collection Contractors

Washington, D.C. (September 26, 2016)

By Michael Cohn

The Internal Revenue Service has chosen four private debt collection agencies to help collect unpaid tax debts as the IRS gears up to resurrect the controversial program.
The three agencies are CBE Group of Cedar Falls, Iowa, Conserve of Fairport, N.Y., Performant of Livermore, Calif., and Pioneer of Horseheads, N.Y. The IRS is required to revive the private debt collection program this year because of a provision in a highway funding bill that Congress passed last December.
Senators Charles Grassley, R-Iowa, and Charles Schumer, D-N.Y., were among the proponents of a bill to bring back the program, and it was incorporated in the highway legislation (see Here Come the Private Tax Debt Collectors … Again and the slideshow 7 Things You Need to Know about Private Tax Collectors). Three of the four agencies chosen are based in their states.                                        The program has been discontinued twice before because of complaints about harassment of taxpayers and the private companies’ low success rate at collecting unpaid tax debts. The increasing problem of scammers who pretend to be IRS employees and call taxpayers demanding immediate payment has also prompted concerns about reviving the program (see Highway Bill Will Revoke Passports for Tax Delinquents and Bring Back Private Tax Debt Collectors).
For the new program, the IRS said it will first send a written notice to taxpayers that it is turning over their tax debts to a collection agency. The IRS said it will send a written notice to both the taxpayer and their representative telling them the account has been turned over to a private collection agency, followed by a second letter confirming the transfer.
The private collection agencies are only supposed to work on accounts where taxpayers owe money and the IRS is no longer actively pursuing their accounts. These include older, overdue tax accounts, along with accounts where a lack of resources at the IRS prevent its employees from working on the cases.
The private collection agencies will be able to identify themselves as contractors of the IRS. However, their employees will need to follow the provisions of the Fair Debt Collection Practices Act, requiring them to be courteous and respect taxpayer rights.
The IRS said it will do everything it can to help taxpayers avoid confusion and understand their rights and tax responsibilities, especially given the prevalence of phone scams where criminals demand tax payments be sent on prepaid debit cards and gift cards.
The IRS noted the private collection agencies are not going to request payment on a prepaid debit card. They will instead inform taxpayers about the electronic payment options available to them on IRS.gov. Tax debts can also be paid by checks made out to the U.S. Treasury and sent directly to IRS, but not the private collection agency.
The IRS said it will keep taxpayers informed about any scams and offer tips for protecting themselves on the Tax Scams and Consumer Alerts page on IRS.gov.

To Maintain Eligibility for Advance Payments of the Premium Tax Credit, File ASAP

The IRS is sending letters to taxpayers who received advance payments of the premium tax credit in 2015, but who have not yet filed their tax return. You must file a tax return to reconcile any advance credit payments you received in 2015 and to maintain your eligibility for future premium assistance. If you do not file, you will not be eligible for advance payments of the premium tax credit in 2017.

If you receive Letter 5858 or 5862, you are being reminded to file your 2015 federal tax return along with Form 8962, Premium Tax Credit.  The letter encourages you to file within 30 days of the date of the letter to substantially increase your chances of avoiding a gap in receiving assistance with paying Marketplace health insurance coverage in 2017.

Here’s what you need to do if you received a 5858 

• Read your letter carefully.
• Review the situation to see if you agree with the information in the letter.
• Use the Form 1095-A that you received from your Marketplace to complete your return. If you need a copy of your Form 1095-A, log in to your HealthCare.gov or state Marketplace account or call your Marketplace call center.
• File your 2015 tax return with Form 8962 as soon as possible, even if you don’t normally have to file.
• If you have already filed your 2015 tax return with Form 8962, you can disregard the letter.

Here’s what you need to do if you received a 5862 letter:

• Read your letter carefully.
• Review the situation to see if you agree with the information in the letter.
• Use the Form 1095-A that you received from your Marketplace to complete Form 8962. If you need a copy of your Form 1095-A, log in to your HealthCare.gov or state Marketplace account or call your Marketplace call center.
• File your 2015 tax return with Form 8962 as soon as possible, even though you have an extension until October 17, 2016, to file.
• If you have already filed your 2015 tax return with Form 8962, please disregard this letter.