Tax season has begun: What you need to know

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Yahoo Finance

The big tax story in 2017 was the $1.5 trillion Tax Cuts and Jobs Act, which President Donald Trump signed into law on Dec. 22. The legislation significantly transformed the tax code for the first time in more than 30 years, with new tax rates and modified deductions. Many taxpayers will soon see a slight bump in their paychecks beginning in February. (The Internal Revenue Service posted new withholding rates for employers this month.)

But most of the changes don’t apply to 2017, so there’s no need to worry about them until next tax season. (One exception will be discussed below.)

The IRS started accepting tax returns this week (Jan. 29 was the official start of tax season). Here are a few things to know as tax season gets underway.

Tax forms should be arriving

If you worked as an employee last year, your employer must give you a Form W-2, Wage and Tax Statement. This form shows the amount of wages you received for the year and the taxes withheld from those wages. It’s important that you use this form to help make sure you file a complete and accurate tax return, the IRS says. Other tax forms you might get include 1098 (for homeowners, this tells you how much you paid in mortgage interest, which is deductible; this changes next year); 1095-A (if you or a dependent enrolled in health insurance through a state exchange or the federal marketplace); 1095-C (sent by your employer confirming you had minimum essential coverage last year); 1099-B (your broker or mutual fund company sends this if you sold stocks, bonds or mutual funds).

Most tax documents should be mailed by Jan. 31. If you don’t get your W-2 by mid-February, contact your employer to make sure they have the correct address. And if you can’t get a copy from your employer, call the IRS at 800-829-1040.

Speaker of the House Paul Ryan (R-WI) speaks after the House of Representatives passed tax reform legislation on Capitol Hill in Washington, U.S., December 19, 2017. REUTERS/Joshua Roberts
Speaker of the House Paul Ryan (R-WI) speaks after the House of Representatives passed tax reform legislation on Capitol Hill in Washington, U.S., December 19, 2017. REUTERS/Joshua Roberts

April 17 is the last day to file your return

The deadline to file this year is April 17 – two days later than usual because April 15 falls on a Sunday, and Monday, April 16 is Emancipation Day, a legal holiday in the District of Columbia.

Figure out if you’re eligible for the EITC

The IRS wants the millions of taxpayers who earned $53,930 or less during 2017 to know they may qualify for the Earned Income Tax Credit.

Eligible families with three or more qualifying children could get a maximum credit of up to $6,318. Couples without a qualifying child could get up to $510. Unlike most deductions and credits, the EITC is refundable, which means eligible taxpayers could get a refund from the IRS even if they don’t owe any taxes. In 2017, nearly 27 million taxpayers received over $65 billion in EITC, while the average amount of EITC received was $2,445, according to the IRS.

You must file a tax return to claim the EITC. Here’s more information from the IRS.

Most refunds will be sent out within three weeks

The IRS says it expects to issue more than nine out of 10 refunds in under 21 days. But note that the IRS can’t issue refunds on returns claiming the EITC or the Additional Child Tax Credit before mid-February.

The “IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards starting on Feb. 27, 2018, if those taxpayers chose direct deposit and there are no other issues with the tax return,” the agency says.

You can check the status of your refund on the IRS’s site. If it’s been more than 21 days since you e-filed your return – and six weeks or more since you  mailed it – and you still haven’t gotten your refund, contact the IRS.

Some returns will be more closely scrutinized

The IRS will be looking more closely at returns that claim the EITC, the child tax credit (CTC), the additional child tax credit (ACTC), or the American opportunity tax credit (AOTC). Specifically, if you pay someone to do your taxes and claim one of these credits, your tax preparer must complete and submit Form 8867 (Paid Preparer’s Due Diligence Checklist) with your return. If the requirements are not met, they’ll have to pay a penalty.

And the IRS says if it examines your return and denies all or part of one of the four credits claimed, you (the taxpayer): must pay back any amount claimed in error with interest; may be subject to the 20% accuracy-related penalty and the 75% fraud penalty; may be banned from claiming one or more of the refundable credits for the next two years if the IRS “finds the error is because of reckless or intentional disregard of the rules.”

Until 2015, the checklist only applied to the EITC. Starting with 2016, it was expanded to include the other credits.

“For many years the Earned Income Tax Credit was subject to abuse. Many people who took it were not actually eligible for it, and they had assistance from preparers,” says John Lieberman, a CPA at Perelson Weiner LLP. So now the IRS is on heightened alert in an effort to reduce fraud.

Medical expenses

There is one provision from the recently passed tax reform that affects 2017 taxes: The law allows you to deduct qualified medical expenses that exceed 7.5% of your adjusted gross income (AGI). Previously, you could only deduct expenses that exceeded 10% of your AGI. For example, if your AGI is $70,000, you can deduct medical expenses over $5,250, whereas before you’d only be able to deduct if your expenses went above $7,000. In order to claim the medical expenses deduction, you must itemize your deductions.  

Beginning Jan. 1, 2019, the threshold for claiming medical expenses moves back to 10% of AGI.

A good reason to file early

Tax-related identity theft has been a growing problem for the IRS, as the underfunded agency scrambles each season to warn taxpayers and preparers against such scams. Tax ID theft occurs when someone uses your stolen Social Security number to file a return claiming a fraudulent refund.

That’s why it’s best to file your return early – someone can only claim your refund with your personal information if they do it before you do. If they file afterward, the IRS automatically denies their request. (And by the way, filing your return early doesn’t mean you have to pay your taxes early.)

Note that the IRS does not initiate contact with taxpayers by email or text message to request personal or financial information. If you get a suspicious message asking for any personal data, report it to the IRS at phishing@irs.gov.

Read more:

4 things to know about the new U.S. tax law

6 things we’ll regret about the Trump tax cuts

The states where Americans rely on Social Security the most

Correction: A previous version of this article had misstated the cost of the Tax Cuts and Jobs Act. It is $1.5 trillion, not $150 trillion.

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