On January 23, 2017, the IRS announced it is opening the 2017 tax filing season. IRS Commissioner John Koskinen stated, "Getting to this point is a year-round effort for the IRS and the nation's tax community. The dedicated employees of the IRS look forward to serving taxpayers this filing season, and I want to thank all the tax and payroll community for their hard work that makes tax time smoother for the nation."
This week the IRS published two reminders on the Earned Income Tax Credit (EITC). In IR-2017-8 the Service encouraged those in rural areas to file and claim EITC.
Many employees and business or farm owners in rural areas have lower earned income. For the 2016 tax year, those with incomes up to $53,505 may qualify for the EITC. The maximum potential refund is $6,269 if you are a working family with qualifying children. The average EITC is expected to be $2,400.
To benefit from the EITC, you must file a tax return. Even if you do not owe tax, you may file a tax return and benefit from the refundable credit. You can use the IRS Free File program to complete your return without any cost.
A second letter focused on EITC potential benefits for those persons with disabilities. While the EITC is based on earned income, many taxpayers retire on disability. If the employer's disability plan pays taxable income, they still may qualify for the EITC.
A concern of individuals with disabilities is that they may be receiving Social Security disability benefits, Medicaid or Food Stamps. The IRS letter emphasizes that tax refunds, including EITC amounts, are not counted as income for purposes of these programs. This rule protecting those on disability applies to all federal programs and any state program with federal funding.
There may be a delay in some refunds for taxpayers who claim the EITC. Congress requires the IRS to hold all EITC refunds until the middle of February to provide time for additional review. For tax returns with EITC refunds, it is likely the payments will be made the week of February 27, 2017.
The IRS also has announced EITC Awareness Day on Friday, January 27, 2017. The IRS will publicize EITC Awareness Day on www.irs.gov
and social media.
Chairman Brady Explains 2017 Tax Reform Plan
On January 24, House Ways and Means Chairman Kevin Brady (R-TX) spoke to the U.S. Chamber of Commerce in Washington, D.C. Brady was a Chamber of Commerce executive in Texas before he ran for Congress.
Brady covered several specific aspects of the Tax Reform Act that is expected to be passed this year. He indicated, "I was excited to announce that we were working together to design a tax system that is built for growth and would leapfrog America back into the lead of the most pro-growth tax systems in the world for new jobs and new investment."
Staff for the Ways and Means Committee are diligently drafting the 2017 Tax Reform Act, expected to be 3,000 pages. Brady continued, "Our members and staff are hard at work turning the ideas of our Blueprint into tax reform legislation that delivers the 21st Century tax code our nation needs. A tax code that is built for growth – the growth of families' paychecks, the growth of local businesses and the growth of our economy as a whole."
Brady summarized three specific decisions on 2017 tax reform. The bill is being drafted with the "lowest tax rates on American job creators in modern history." He did not specify the specific rate. Prior House plans have suggested a rate of 25% for corporations and 33% for individuals. The White House has proposed rates as low as 15%.
Second, he explained that there will be a full deduction for "new capital investments." This provision is designed to encourage companies to acquire new equipment, since it will be fully deductible.
Third, he resolutely claims that the plan will end the "Made in America" tax. This provision will involve a border-adjusted tax that is designed to remove taxes on exports and apply taxes to imports.
Brady noted, "More importantly, border adjusting our taxes helps eliminate all tax incentives for U.S. companies to move their manufacturing, technology, headquarters, and jobs overseas." The border-adjusted tax is widely used by most other industrial nations worldwide.
Finally, Brady concluded, "Our goal is not simply to eliminate all tax incentives to move overseas. Our goal is to establish America as a magnet for 21st century investment and job creation."
The expected bill will be comprehensive and include massive revisions to both individual and corporate taxes. Brady plans to repeal the alternative minimum tax and estate tax. Most itemized deductions will be eliminated. Brady has previously indicated that he will preserve the charitable deduction. However, the White House plan suggested a cap of $200,000 on charitable deductions. This could have serious impact on major gifts and capital campaigns. The Charitable Giving Coalition is conducting a fly-in for charitable organizations on February 16, 2017. Over a dozen charitable associations and major organizations are supporting the fly-in. The tax bill is projected to be scored by the Joint Committee on Taxation (JCT) in March. Chairman Brady hopes to mark up the bill in May and pass the bill in early June. Senate action is much more uncertain. Sen. McConnell (R-KY) reports that the Senate is currently backlogged with 1,200 presidential appointments requiring Senate confirmation.
Mulvaney – Nominee for Office of Management and Budget
One of the key financial positions in any administration is the Director of the Office of Management and Budget (OMB). On January 24, OMB Nominee Mick Mulvaney testified in confirmation hearings before the Senate Homeland Security and Governmental Affairs Committees.
Many of the questions to Mulvaney were directed toward future economic policy. When he was asked whether tax reform must be revenue-neutral, Mulvaney indicated that his primary focus is on expanding the economy.
When asked for ways to increase revenue, Mulvaney observed that the IRS each year has a "tax gap" and is failing to collect $500 billion or more. When asked by Sen. Angus King Jr. (I-ME) whether he will restore the IRS staff cuts to close the tax gap, Mulvaney responded that this was an "excellent point." However, he did not commit to that restoration.
King also inquired about Social Security and the possibility of raising the income cap on payroll taxes. Mulvaney noted that there were at least three different options for addressing entitlement reform. He suggested that his plan would be to try to address all three areas.
He was twice offered the opportunity to support the Taxpayer Protection Pledge. During his time as a member of Congress, Mulvaney had signed that pledge. He also declined to indicate he will support that pledge as Director of the Office of Management and Budget.
Finally, the questioners addressed the debt ceiling. Treasury Secretary Nominee Steven Mnuchin stated that the United States cannot default on its debt. Mulvaney agreed that default was not a proper option.
Confirmation hearings are helpful in understanding the views of each nominee. Mulvaney was very careful not to make specific commitments on taxes or entitlement reform. His answers suggest that the White House may be willing to enact comprehensive tax reform even if it is not revenue-neutral. However, both Speaker Ryan and Majority Leader McConnell still are holding to a plan for revenue-neutrality. If they pass a bill that is revenue-neutral, the White House may be asked to accept the House or Senate top rates for corporate and individual taxes.
Applicable Federal Rate of 2.6% for February -- Rev. Rul. 2017-4; 2017-6 IRB 1 (19 Jan 2017)
The IRS has announced the Applicable Federal Rate (AFR) for February of 2017. The AFR under Section 7520 for the month of February will be 2.6%. The rates for January of 2.4% or December of 1.8% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2017, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here