Tax-Free Employer-Provided Health Coverage Now Available for Children under Age 27

IR-2010-53, April 27, 2010

WASHINGTON — As a result of changes made by the recently enacted Affordable Care Act, health coverage provided for an employee’s children under 27 years of age is now generally tax-free to the employee, effective March 30, 2010.

The Internal Revenue Service announced today that these changes immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit.

IRS Notice 2010-38 explains these changes and provides further guidance to employers, employees, health insurers and other interested taxpayers.

“These changes give employers a unique opportunity to offer a worthwhile benefit to their employees,” IRS Commissioner Doug Shulman said. “We want to make it as easy as possible for employers to quickly implement this change and extend health coverage on a tax-favored basis to older children of their employees.”

This expanded health care tax benefit applies to various workplace and retiree health plans. It also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return.

Employees who have children who will not have reached age 27 by the end of the year are eligible for the new tax benefit from March 30, 2010, forward, if the children are already covered under the employer’s plan or are added to the employer’s plan at any time. For this purpose, a child includes a son, daughter, stepchild, adopted child or eligible foster child. This new age 27 standard replaces the lower age limits that applied under prior tax law, as well as the requirement that a child generally qualify as a dependent for tax purposes.

The notice says that employers with cafeteria plans may permit employees to immediately make pre-tax salary reduction contributions to provide coverage for children under age 27, even if the cafeteria plan has not yet been amended to cover these individuals. Plan sponsors then have until the end of 2010 to amend their cafeteria plan language to incorporate this change.

In addition to changing the tax rules as described above, the Affordable Care Act also requires plans that provide dependent coverage of children to continue to make the coverage available for an adult child until the child turns age 26. The extended coverage must be provided not later than plan years beginning on or after Sept. 23, 2010. The favorable tax treatment described in the notice applies to that extended coverage.

COBRA Health Insurance Continuation Premium Subsidy

The Recovery Act established an employer-provided health insurance continuation subsidy for workers who involuntarily lost their jobs between Sept. 1, 2008, and March 31, 2010. This subsidy has now been extended through May 31, 2010.

Employers and employees: See below for details.

The U.S. Department of Labor website also contains extensive information on this subsidy.

What about the health coverage tax credit? Some people who are eligible for the COBRA subsidy also qualify for the health coverage tax credit (HCTC) and may want to choose this more generous benefit instead. The HCTC pays 80 percent of health insurance premiums for those who qualify. Eligible individuals must receive Trade Adjustment Assistance benefits or be between the ages of 55 and 65 and receive pension payments from the Pension Benefit Guaranty Corporation. Individuals must also be enrolled in a qualified health plan. See more at HCTC: Eligibility Requirements and How to Receive the HCTC.

Employers

See these resources:

• IR-2009-15, IRS Releases Information to Help Employers Claim COBRA Medical Coverage Credit on Payroll Tax Form.
• Questions and answers on how to administer the COBRA continuation premium subsidy to former employees.
• Notice 2009-27, Premium Assistance for COBRA Benefits.

Employers should use the updated:

• Form 941, Employer’s Quarterly Federal Tax Return, to report their COBRA premium assistance payments.
• Form 941 Instructions, which explain how to complete lines 12a and 12b, which address the COBRA premium assistance payments.

Small employers that file Form 944, Employer’s ANNUAL Federal Tax Return — generally those with an estimated employment tax liability of $1,000 or less in the calendar year — may claim their COBRA credit on Form 944. Additionally, agricultural employers may claim the COBRA credit on Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees.

Employees and Former Employees

The Recovery Act provides eligible workers who have lost their jobs with a 65 percent subsidy for COBRA continuation premiums for themselves and their families for up to 15 months.

Eligible workers pay 35 percent of the premium to their former employers.

To qualify you must have been involuntarily separated from your job between Sept. 1, 2008, and May 31, 2010.

This subsidy is reduced if your filing status is single and your modified adjusted gross income exceeds $125,000 ($250,000 if you file a joint return). If your modified adjusted gross income exceeds $145,000 ($290,000 for joint filers), you do not qualify for the subsidy.

In addition, the COBRA subsidy is available to people who become eligible for COBRA coverage as a result of a reduction in hours occurring between Sept. 1, 2008, and May 31, 2010, followed by an involuntary termination between March 2, 2010 and May 31, 2010. If you fall into this category, your subsidy is available starting with the first period of coverage beginning after the involuntary termination. Individuals who did not take COBRA coverage after the reduction in hours or who signed up but later dropped it, get another chance to sign up for COBRA coverage. In this case, the COBRA coverage would begin with the first period of coverage after the involuntary termination and continue up to 18 months after the reduction in hours. The administrator of a group health plan or other entity must provide notice of the new election right after the involuntary termination. As in the case of other assistance-eligible individuals, the subsidy ends after the earliest of 15 months, the end of COBRA coverage, or eligibility for other group health or Medicare coverage.

COBRA Subsidy Eligibility Period Extended to May 31

IR-2010-52, April 26, 2010

WASHINGTON — Workers who lose their jobs during April and May may qualify for a 65-percent subsidy on their COBRA health insurance premiums, according to the Internal Revenue Service. The American Recovery and Reinvestment Act established this subsidy to help workers who lost their jobs as a result of the recession maintain their employer sponsored health insurance.

The Continuing Extension Act of 2010, enacted April 15, reinstated the COBRA subsidy, which had expired on March 31. As a result, workers who are involuntarily terminated from employment between Sept. 1, 2008 and May 31, 2010, may be eligible for a 65-percent subsidy of their COBRA premiums for a period of up to 15 months. In some cases, workers who had their hours reduced and later lose their jobs may also be eligible for the subsidy.

Employers must provide COBRA coverage to eligible individuals who pay 35 percent of the COBRA premium. Employers are reimbursed for the other 65 percent by claiming a credit for the subsidy on their payroll tax returns: Form 941, Employers QUARTERLY Federal Tax Return, Form 944, Employer’s ANNUAL Federal Tax Return, or Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees. Employers must maintain supporting documentation for the claimed credit.

How do I know if I have to file quarterly individual estimated tax payments?

Answer:   You must make estimated tax payments for the current tax year if both of the following apply:

• You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.
• You expect your withholding and credits to be less than the smaller of:
• 90% of the tax to be shown on your current year’s tax return, or
• 100% of the tax shown on your prior year’s tax return.  (Your prior year tax return must cover all 12 months.)

There are special rules for:

• Certain small business taxpayers for periods beginning 2009
• Certain taxpayers with higher adjusted gross income
• Farmers and commercial fishermen
• Aliens
• Estates and Trusts

How to Report and Identify Phishing, E-mail Scams and Bogus IRS Web Sites

The IRS does not initiate taxpayer communications through e-mail.

• The IRS does not request detailed personal information through e-mail.
• The IRS does not send e-mail requesting your PIN numbers, passwords or similar access information for credit cards, banks or other financial accounts.
• Report suspicious e-mails and bogus IRS Web sites to phishing@irs.gov.

If you receive an e-mail from someone claiming to be the IRS or directing you to an IRS site,

• Do not reply.
• Do not open any attachments. Attachments may contain malicious code that will infect your computer.
• Do not click on any links. If you clicked on links in a suspicious e-mail or phishing Web site and entered confidential information, visit our Identity Theft page.
• Use the following steps to report the e-mail or bogus Web site to the IRS.

How to report phishing, e-mail scams and bogus IRS Web sites

If you receive an e-mail or find a Web site you think is pretending to be the IRS,

• Forward the e-mail or Web site URL to the IRS at phishing@irs.gov.
• You can forward the message as received or provide the Internet header of the e-mail. The Internet header has additional information to help us locate the sender.
• After you forward the e-mail or header information to us, delete the message.

How to identify phishing e-mail scams and bogus IRS Web sites

• Sample of phishing e-mails
• First sample of an actual phishing e-mail – PDF
• Second sample of an actual phishing e-mail – PDF
• All IRS.gov Web page addresses begin with, http://www.irs.gov/.
• Is it a phishing Web site? – PDF
• Are you a victim of Identity Theft?
• Contact the Federal Trade Commission at 1-877-IDTHEFT (438-4338)
• Visit the IRS Identity Theft resource page

You may also report misuse of the IRS name, logo, forms or other IRS property to the Treasury Inspector General for Tax Administration toll-free at 1-800-366-4484.

Where’s My Refund – It’s Quick, Easy, and Secure.

How can I get my personal refund information?

Go to the Where’s My Refund? online tool to check on the status of your refund.

You can generally get information about your refund 72 hours after IRS acknowledges receipt of your e-filed return, or three to four weeks after mailing a paper return.

You’ll need to provide the following information from your tax return:

Your Social Security Number (or Individual Taxpayer Identification Number)

Your Filing Status

The exact whole dollar amount of your refund

Can I change my mailing address online?

If your refund was returned to us by the U.S. Postal Service you may be able to change the address we have on file for you, online. Where’s My Refund? will offer this service to you if you’re eligible.

What if my refund was lost, stolen, or destroyed?

Generally, you can file an online claim for a replacement check if it’s been more than 28 days from the date that we mailed your refund. Where’s My Refund? will give you detailed information about filing a claim if this situation applies to you.

What should I do if I made a mistake on my federal return that I have already filed?

Answer:   It depends on the type of mistake that you made:

• Many mathematical errors are caught in the processing of the tax return itself.
• If you did not attach a required schedule, the IRS will contact you and ask for the missing information.
• If you did not report all your income or did not claim a credit, you should file an amended or corrected return using Form 1040X , Amended U.S. Individual Income Tax Return.

When filing an amended or corrected return:

• Include copies of any schedules that have been changed or any Form W-2  you did not include.
• Generally, to claim a refund, the Form 1040X (PDF) must be received within three years after the date you filed your original return or within two years after the date you paid the tax, whichever is later.
• Please allow the IRS 8-12 weeks to process an amended return.

How to Get Copy of Your Tax Return

If you need an exact copy of a previously filed and processed tax return and all attachments (including Form W-2), you should complete Form 4506 (PDF), Request for Copy of Tax Return, and mail it to the address listed in the instructions, along with a $57.00 fee for each tax year requested. The check or money order for the fee should be made payable to the “United States Treasury”. Copies are generally available for returns filed in the current and past six years. Copies of jointly filed tax returns may be requested by either spouse and only one signature is required. Allow 60 calendar days to receive your copies.

Most needs for tax return information can be met with a computer print-out of your return information called a “transcript”. A transcript may be an acceptable substitute for an exact copy of a return by the United States Citizenship and Immigration Services and lending agencies for student loans and mortgages. A “tax return transcript” will show most line items contained on the return as it was originally filed. If you need a statement of your tax account which shows changes that you or the IRS made after the original return was filed, however, you must request a “tax account transcript”. Both transcripts are generally available for the current and past three years and are provided free of charge. The period in which you will receive the transcript varies from within ten to thirty business days from the time the IRS receives your request for the tax return or tax account transcript.

You can obtain a free transcript by calling 800-829-1040 and following the prompts in the recorded message or by completing and mailing a request for a transcript to the address listed in the instructions.

The IRS has created a new Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript, to order a transcript of a Form 1040 series return. The IRS created this streamlined form to help those taxpayers trying to obtain, modify or refinance a home mortgage. Transcripts may also be mailed to a third party, such as a mortgage institution, if specified on the form. You must sign and date the form giving your consent for the disclosure. Businesses, partnerships or individuals who need transcript information from other forms, such as Form W-2 or Form 1099, can use Form 4506-T (PDF), Request for Transcript of Tax Return, to obtain the information. These transcripts may also be mailed to a third party if there is consent for the disclosure.

Forms can be downloaded by using the following links or ordered by calling 800-829-3676. If you are a taxpayer impacted by a federally declared disaster, the IRS will waive the usual fees and expedite requests for copies of tax returns for people who need them to apply for benefits or to file amended returns claiming disaster-related losses. For additional information, refer to Topic 107, Tax Relief Disaster Situations, or call the IRS Disaster Assistance Hotline at 866-562-5227.

IRS Reaches Out to Millions of Employers on Benefits of New Health Care Tax Credit

IR-2010-48, April 19, 2010

WASHINGTON ? The Internal Revenue Service this week began mailing postcards to more than four million small businesses and tax-exempt organizations to make them aware of the benefits of the recently-enacted small business health care tax credit.

Included in the Patient Protection and Affordable Care Act approved by Congress last month and signed into law by President Obama, the credit is one of the first health care reform provisions to go into effect. The credit, which takes effect this year, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

“We want to make sure small employers across the nation realize that — effective this tax year — they may be eligible for a valuable new tax credit. Our postcard mailing — which is targeted at small employers — is intended to get the attention of small employers and encourage them to find out more,” IRS Commissioner Doug Shulman said. “We urge every small employer to take advantage of this credit if they qualify.”

In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low and moderate income workers.

For tax-years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. The maximum credit goes to smaller employers — those with 10 or fewer full-time equivalent (FTE) employees — paying annual average wages of $25,000 or less. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals. The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt organizations, the IRS will provide further information on how to claim the credit.

Here’s What Happens After You File Your Taxes

IRS Tax Tip 2010-74

Most taxpayers have already filed their federal tax returns, but many may still have questions. Here’s what the IRS wants you to know about refund status, recordkeeping, mistakes and what to do if you move.

Refund Information

You can go online to check the status of your 2009 refund 72 hours after IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after you mail a paper return. Be sure to have a copy of your 2009 tax return available because you will need to know your filing status, the first Social Security number shown on the return, and the exact whole-dollar amount of the refund. You have three options for checking on your refund:

• Go to IRS.gov, and click on “Where’s My Refund”
• Call 1-800-829-4477 24 hours a day, seven days a week for automated refund information
• Call 1-800-829-1954 during the hours shown in your tax form instructions

What Records Should I Keep?

Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRAs and business or rental property — should be kept longer.

You should keep copies of tax returns you have filed and the tax forms package as part of your records. They may be helpful in amending already filed returns or preparing future returns.

Change of Address

If you move after you filed your return, you should send Form 8822, Change of Address to the Internal Revenue Service. If you are expecting a refund through the mail, you should also file a change of address with the U.S. Postal Service.

What If I Made a Mistake?

Errors may delay your refund or result in notices being sent to you. If you discover an error on your return, you can correct your return by filing an amended return using Form 1040X, Amended U.S. Individual Income Tax Return.