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IRS provides relief to victims of severe storms and flooding in Connecticut and New York; various deadlines postponed to Feb. 3, 2025

WASHINGTON — The Internal Revenue Service announced today tax relief for individuals and businesses in Connecticut and New York affected by severe storms and flooding from torrential rainfalls that began on Aug. 18, 2024. Some communities in western Connecticut also experienced landslides and mudslides from these storms.

These taxpayers now have until Feb. 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA).

This means that individuals and households that reside or have a business in Suffolk County New York and in Fairfield, Litchfield, and New Haven counties in Connecticut qualify for tax relief.

The same relief will be available to any other counties added later to the disaster area. The current list of eligible localities is always available on the Tax relief in disaster situations page on IRS.gov.

Filing and payment relief

The tax relief postpones various tax filing and payment deadlines that occurred from Aug. 18, 2024, through Feb. 3, 2025 (postponement period). As a result, affected individuals and businesses will have until Feb. 3, 2025, to file returns and pay any taxes that were originally due during this period.

This means, for example, that the Feb. 3, 2025, deadline will now apply to:

Any individual, business or tax-exempt organization that has a valid extension to file their 2023 federal return. The IRS noted, however, that payments on these returns are not eligible for the extra time because they were due last spring before the storm occurred.
Quarterly estimated income tax payments normally due on Sept. 16, 2024, and Jan. 15, 2025.
Quarterly payroll and excise tax returns normally due on Oct. 31, 2024, and Jan. 31, 2025.
In addition, penalties for failing to make payroll and excise tax deposits due on or after Aug. 18, 2024, and before Sept. 3, 2024, will be abated, as long as the deposits were made by Sept. 3, 2024.

The Disaster assistance and emergency relief for individuals and businesses page has details on other returns, payments and tax-related actions qualifying for relief during the postponement period.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. These taxpayers do not need to contact the agency to get this relief.

It is possible an affected taxpayer may not have an IRS address of record located in the disaster area, for example, because they moved to the disaster area after filing their return. In these unique circumstances, the affected taxpayer could receive a late filing or late payment penalty notice from the IRS for the postponement period. The taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area.

Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization. Tax preparers located in the disaster area with clients located outside the disaster area can choose to use the bulk requests from practitioners for disaster relief option, described on IRS.gov.

Additional tax relief

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2024 return normally filed next year), or the return for the prior year (the 2023 return filed this year). Taxpayers have extra time – up to six months after the due date of the taxpayer’s federal income tax return for the disaster year (without regard to any extension of time to file) – to make the election. For individual taxpayers, this means Oct. 15, 2025. Be sure to write the FEMA declaration number 3612-EM for Connecticut and 3613-EM for New York on any return claiming a loss. See Publication 547, Casualties, Disasters, and Thefts for details.

Qualified disaster relief payments are generally excluded from gross income. In general, this means that affected taxpayers can exclude from their gross income amounts received from a government agency for reasonable and necessary personal, family, living or funeral expenses, as well as for the repair or rehabilitation of their home, or for the repair or replacement of its contents. See Publication 525, Taxable and Nontaxable Income for details.

Additional relief may be available to affected taxpayers who participate in a retirement plan or individual retirement arrangement (IRA). For example, a taxpayer may be eligible to take a special disaster distribution that would not be subject to the additional 10% early distribution tax and allows the taxpayer to spread the income over three years. Taxpayers may also be eligible to make a hardship withdrawal. Each plan or IRA has specific rules and guidance for their participants to follow.

The IRS may provide additional disaster relief in the future.

The tax relief is part of a coordinated federal response to the damage caused by these storms and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

Reminder about tax return preparation options

Eligible individuals or families can get free help preparing their tax return at Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) sites. To find the closest free tax help site, use the VITA Locator Tool or call 800-906-9887. Note that normally, VITA sites cannot help claim disaster losses.
To find an AARP Tax-Aide site, use the AARP Site Locator Tool or call 888-227-7669.
Any individual or family whose adjusted gross income (AGI) was $79,000 or less in 2023 can use IRS Free File’s guided tax software at no cost. There are products in English and Spanish.
Another Free File option is Free File Fillable Forms. These are electronic federal tax forms, equivalent to a paper 1040 and are designed for taxpayers who are comfortable filling out IRS tax forms. Anyone, regardless of income, can use this option.
MilTax, a Department of Defense program, offers free return preparation software and electronic filing for federal tax returns and up to three state income tax returns. It’s available for all military members and some veterans, with no income limit.
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Funding from the Inflation Reduction Act improves taxpayer service with modern online tools

WASHINGTON — With the funding from the Inflation Reduction Act (IRA), the Internal Revenue Service continues to modernize online tools for taxpayers to take advantage of clean energy credits.

The IRA, with its associated funding, gave the IRS the opportunity to transform taxpayer services – creating new, fully electronic processes and systems, updating legacy systems, improving compliance and fraud mitigation.

Building and launching these online tools has been a major milestone for the IRA and is helping to save taxpayers time and money.

IRS Energy Credits Online

IRS Energy Credits Online or IRS ECO, is a free electronic service that is secure, accurate and requires no special software, making it accessible to large and small businesses alike.

Taxpayers can use the IRS ECO platform to register and provide information to the IRS for filing purposes. In addition, IRS ECO incorporates validation checks and other risk-mitigation measures and allows for monitoring in real time of key metrics to include identification of customer-service enhancements and fraudulent activity.

In November 2023, the IRS announced that qualified manufacturers can submit eligible clean vehicle VINs and sellers and dealers can register their business and complete time of sale reports completely online using IRS Energy Credits Online tool.

If a taxpayer transfers their clean vehicle credit, IRS Energy Credits Online allows dealers and sellers to receive advance payments within 72 hours of the expiration of a cancellation period. IRS ECO generates a time of sale report that the vehicle buyer will use when filing their federal tax return to claim or report the transfer of the credit.

In December 2023, the IRS announced that qualifying businesses, tax-exempt organizations or entities such as state, local and Indian tribal governments can register using the new IRS Energy Credits Online tool so they can take advantage of the elective payment or transfer of credits.

The Inflation Reduction Act and the Creating Helpful Incentives to Produce Semiconductors Act, known as CHIPS, allows taxpayers to take advantage of certain manufacturing investment, clean energy investment and production tax credits through elective pay or transfer.

Elective payment and the transfer election create alternative ways for applicable entities and eligible taxpayers who have earned one of the IRA clean energy or the CHIPS credits to get the benefit of the credit even if the taxpayer cannot use the credit to offset their tax liability.

IRS ECO was built with flexibility and as it evolves taxpayers will soon be able to leverage the technology for home energy credits. The IRS will continue to interact with taxpayers, qualified manufacturers, sellers and dealers to maximize the effectiveness of this tool and is committed to delivering a seamless experience that works for taxpayers.

Simplified Processes

When introduced in 2009, applying for the Qualifying Advanced Energy Project Credit program could be a cumbersome and complex process. Taxpayers had to navigate intricate paper-based procedures to report necessary information to both the IRS and the DOE. However, expanded funding from the IRA enabled a transition towards a fully electronic process.

In a landmark milestone, the IRS, in partnership with the Department of the Treasury and the Department of Energy (DOE), created a streamlined digital application process for the Qualifying Advanced Energy Project Credit and the Wind and Solar Low-Income Communities Bonus Credit programs.

The pioneering collaboration led to the creation of an online application portal for the two programs and marked a significant step forward in the IRS's commitment to leveraging modern technology for improved taxpayer service and lowering barriers of entry for taxpayer to access clean energy tax incentives.

This partnership led to the creation of a DOE online application portal for the Wind and Solar Low-Income Communities Bonus Credit public release in June 2023.

The DOE portal is designed to streamline the digital implementation of the Qualifying Advanced Energy Project Credit and the Wind and Solar Low-Income Communities Bonus Credit.

This new portal provides a user-friendly interface for taxpayers and simplifies the submission and review processes, enabling easy communication between taxpayers, DOE and IRS.

By creating a user-friendly platform, the agencies lowered the barrier to entry, making it easier for taxpayers to participate in these clean energy tax incentives.

The portal was thoroughly tested before its public release in June 2023, ensuring a robust and efficient system.

To further simply the application process, a new Advanced Energy Project Credit DOE portal was launched because of extensive collaboration with the IRS Large Business and International Division.

Enhanced Customer Service and Communication

These new online tools allowed this IRS to create new ways for the IRS to provide customer service directly to the taxpayer without long wait times on the phone. Recognizing the preference for email communication, the IRS established customer service email inboxes and help desk support structures, ensuring prompt and effective taxpayer assistance.

Since August of 2022 the IRS has published several program resources reflecting the ongoing commitment to taxpayer service, education and continuous improvement.

Looking Ahead

The IRS remains dedicated to enhancing online tools and focusing on future updates to further streamline processes and improve user experiences. The landmark funding will continue the IRS's ability to integrate modern technology to deliver unprecedented service quality and efficiency to taxpayers, all while supporting the clean energy tax incentives.

Use IRS.gov to find helpful resources

The IRS reminds taxpayers of the several resources for the credits and deductions under the Inflation Reduction Act can be found on IRS.gov.

SECURE 2.0 Act impacts how businesses complete Forms W-2

The Internal Revenue Service reminds businesses that starting in tax year 2023 changes under the SECURE 2.0 Act may affect the amounts they need to report on their Forms W-2.

The SECURE 2.0 Act allows for additional features in various employer retirement plans to encourage use of these plans.

The provisions potentially affecting Forms W-2 (including Forms W-2AS, W-2GU and W-2VI) are:

De minimis financial incentives (Section 113 of the SECURE 2.0 Act),
Roth Savings Incentive Match Plan for Employees (SIMPLE) and Roth Simplified Employee Pension (SEP) Individual Retirement Arrangements (IRAs) (Section 601 of the SECURE 2.0 Act), and
Optional treatment of employer nonelective or matching contributions as Roth contributions (Section 604 of the SECURE 2.0 Act).
De minimis financial incentives

The SECURE 2.0 Act made changes designed to encourage employees to contribute to their employers’ 401(k) or 403(b) plans. These changes allow employers to offer small financial incentives to employees who choose to participate in these retirement savings arrangements.

If an employer offers such an incentive, it's considered part of the employee's income and is subject to regular tax withholding unless there's a specific exemption. For more information, refer to Questions and Answers D-1 through D-6 in Notice 2024-2, published in the Internal Revenue Bulletin.

Roth SIMPLE and Roth SEP IRAs

Under section 601 of the SECURE 2.0 Act, an employer that maintains a SEP or SIMPLE IRA plan can offer participating employees the option to designate a Roth IRA as the IRA to which contributions under the arrangement or plan are made. For more information, refer to Questions and Answers K-1 through K-8 in Notice 2024-2, published in the Internal Revenue Bulletin.

Salary reduction contributions to a Roth SEP or Roth SIMPLE IRA are subject to federal income tax withholding, the Federal Insurance Contributions Act (F**A) taxes and the Federal Unemployment Tax Act (FUTA) taxes. These contributions should be included in boxes 1, 3 and 5 (or box 14 for railroad retirement taxes) of Form W-2. They’ll also be reported in box 12 with code F (for a SEP) or code S (for a SIMPLE IRA).

Employer matching and nonelective contributions to a Roth SEP or Roth SIMPLE IRA are not subject to withholding for federal income tax, F**A taxes or FUTA taxes. These contributions must be reported on Form 1099-R for the year in which the contributions are made to the employee’s Roth IRA. The total amounts are listed in boxes 1 and 2a of Form 1099-R with code 2 or 7 in box 7, and the IRA/SEP/SIMPLE checkbox is checked.

Designated Roth nonelective contributions and designated Roth matching contributions

Under section 604 of the SECURE 2.0 Act, plans can allow employees to designate certain matching and nonelective contributions made after Dec. 29, 2022, as Roth contributions. These contributions are not subject to withholding for federal income tax. In addition, these contributions generally are not subject to withholding for Social Security or Medicare tax. However, for designated Roth nonelective contributions (including contributions that would be treated as matching contributions if the plan were a qualified plan) that are made to a governmental section 457(b) plan, refer to Question and Answer Q&A L‑7 in Notice 2024‑2, published in the Internal Revenue Bulletin.

Unlike regular Roth contributions, designated Roth nonelective and matching contributions must be reported on Form 1099-R for the year in which they're allocated to an individual's account. They’re reported in boxes 1 and 2a of Form 1099-R, and code “G” is used in box 7. For more information, refer to Questions and Answers L-1 through L-11 in Notice 2024-2.

Form W-2 or Form 1099-R reporting

As described above, the reporting requirements that apply to contributions made to a Roth IRA under a SEP arrangement or SIMPLE IRA plan, or to a designated Roth account under an applicable retirement plan, depend on the type of contribution made. The table below summarizes these reporting requirements. For more information, refer to the 2024 General Instructions for Forms W-2 and W-3 and the 2024 Instructions for Forms 1099-R and 5498.
Reminder

Businesses can now complete and print various copies (excluding Copy A) of Forms W-2 (including Forms W-2AS, W-2GU and W-2VI) on IRS.gov for recipients. Any information entered on one copy (excluding Copy A) will automatically appear on the others. Copy A cannot be completed online to print and file with the Social Security Administration.

If a business filed 2023 Forms W-2 without following these new guidelines, they may need to file Form W-2c to correct any errors. Refer to the General Instructions for Forms W-2 and W-3 for details on when and how to file Form W-2c.

IRS shares new warning signs of incorrect claims for Employee Retention Credit

The IRS recently shared five new warning signs of incorrect claims by businesses for the Employee Retention Credit. The new list comes from common issues the IRS has seen while reviewing and processing ERC claims.

Aggressive promoters convinced many businesses to claim this pandemic-era credit when they’re not eligible. The IRS urges businesses to carefully review their filings to confirm their eligibility and ensure their claim doesn’t include these warning signs or other mistakes.

Businesses should talk to a trusted tax professional and resolve incorrect claims through the IRS’s claim withdrawal program or the second ERC Voluntary Disclosure Program to avoid issues such as audits, repayment, penalties and interest.

The five new red flags cover these areas:

Essential businesses during the pandemic that could fully operate and didn’t have a decline in gross receipts. Promoters convinced many essential businesses to claim the ERC when, in many instances, essential businesses weren’t eligible because their operations weren’t fully or partially suspended by a qualifying government order.
Businesses unable to support how a government order fully or partially suspended business operations. Whether a business was fully or partially suspended depends on its specific situation. When asked for proof on how the government order suspended more than a nominal portion of their business operations, many businesses haven’t provided enough information to confirm eligibility.
Businesses reporting family members’ wages as qualified wages. If business owners claimed the ERC using wages paid to related individuals, those claims are likely for the wrong amount or ineligible.
Businesses using wages already used for Paycheck Protection Program loan forgiveness. Businesses can’t claim the ERC on wages that they reported as payroll costs to get PPP loan forgiveness.
Large employers claiming wages for employees who provided services. Large eligible employers can only claim wages paid to employees who were not providing services. Many large employers’ claims incorrectly included wages for employees who were providing services during these periods.
The IRS previously issued warnings involving these seven areas:

Too many quarters being claimed.
Government orders that don’t qualify.
Too many employees and wrong calculations.
Businesses citing supply chain issues.
Businesses claiming ERC for too much of a tax period.
Businesses didn’t pay wages or didn’t exist during eligibility period.
Promoter says there’s nothing to lose.
For details on all of these warning signs, check new and previously shared signs ERC claims may be incorrect.
Businesses can also use the IRS’s ERC Eligibility Checklist or review Frequently Asked Questions about ERC Eligibility to help identify incorrect claims.

IRS reminder for schoolteachers: Up to $300 in classroom expenses deductible for 2024

WASHINGTON – As educators gear up for the new school year, the IRS reminds schoolteachers that the maximum deduction for classroom expenses in 2024 remains at $300.

This deduction allows educators to offset the cost of supplies, materials and other classroom essentials, providing some financial relief for those who spend their own money to improve their students' learning experience.

Under federal law, this $300 cap is unchanged from 2023, continuing the adjustment for inflation that began in 2022 when the limit was raised from $250.

Who qualifies for educator expense deductions?

This deduction is available for teachers, instructors, counselors, principals and aides who work at least 900 hours a school year in a school providing elementary or secondary education. Educators filing jointly can claim up to $600 if both spouses are eligible, but no more than $300 per person. Educators can claim this deduction even if they take the standard deduction, and both public and private school educators qualify.

What's deductible?

Educators can claim deductions for out-of-pocket expenses on classroom items like books, supplies, equipment (including computers and software) and COVID-19 safety measures such as masks, disinfectants and air purifiers. They may also deduct costs for professional development courses relevant to their teaching, though it could be more advantageous to use other educational tax benefits like the lifetime learning credit (refer to Publication 970, Tax Benefits for Education, Chapter 3).

Expenses for homeschooling or nonathletic supplies for health or physical education are not eligible. The IRS recommends educators maintain detailed records, such as receipts and canceled checks, to substantiate their deductions.

Use E-file to claim educator expenses

For educators who have been granted a tax filing extension or qualify for a disaster extension, or for any other pertinent reason are still in the process of completing their 2023 tax return, the rules for claiming deductions remain consistent for the 2024 tax year. The filing extension deadline is Oct. 15, 2024. However, submitting a return before this date can aid in averting processing delays.

The IRS advises taxpayers to file electronically for a smoother process, whether they use tax software or a professional. Choose direct deposit for faster refunds. For more details, visit E-file options to file your return.

Individuals who owe taxes should consider using IRS Direct Pay or other electronic payment options available at IRS’ Make a payment page for convenience.

IRS issues important interim guidance on employer matching contributions made to retirement plans related to employee student loan payments

WASHINGTON — The Internal Revenue Service today issued interim guidance for sponsors of 401(k) and similar retirement plans that provide, or wish to provide, matching contributions based on eligible student loan payments made by their participating employees.

Notice 2024-63, posted today on IRS.gov, implements section 110 of the SECURE 2.0 Act of 2022, which for the first time permits employers to provide matching contributions for employees based on their payments on student loans.

The 2022 legislation permits employers with a 401(k) plan, 403(b) plan, governmental 457(b) plan or SIMPLE IRA plan to provide matching contributions based on student loan payments, rather than based only on elective contributions to retirement plans, in plan years beginning after Dec. 31, 2023.

Using a question-and-answer format that includes several illustrative examples, the notice addresses a variety of plan-administration issues. Among other issues, the notice addresses:

General student loan matching contribution eligibility rules (including dollar and timing limitations).
What is required for an employee certification that student loan matching contribution requirements have been met.
Reasonable student loan matching contribution procedures that a plan may adopt.
Special nondiscrimination testing relief for 401(k) plans that include student loan matching contributions.
The notice applies for plan years beginning after Dec. 31, 2024. In the notice, the IRS said it plans to issue proposed regulations providing further guidance on section 110, but that plan sponsors may rely on the notice until the proposed regulations are issued.

The IRS welcomes public comments on this notice, which provides details on how to submit comments.

IRS, states, tax industry announce new joint effort to combat growing scams and schemes; ongoing coordination to follow in footsteps of Security Summit’s identity theft efforts to help taxpayers and protect revenue

WASHINGTON — A coalition representing the Internal Revenue Service, state tax agencies and the spectrum of the nation’s tax industry today announced a new joint effort to combat the growth of scams and schemes threatening taxpayers and tax systems.

The new combined effort follows a variety of increased scams and schemes that intensified during the past filing season that aimed to exploit vulnerable taxpayers while enriching fraudsters and promoters.

Convened at the request of IRS Commissioner Danny Werfel, the coalition of federal and state tax agencies along with software and financial companies as well as key national tax professional associations agreed to a three-pronged approach. They will work to expand outreach and education about emerging scams, develop new approaches to identify potentially fraudulent returns at the point of filing and create infrastructure improvements to protect taxpayers as well as federal, state and industry tax systems.

The new task force will be called the Coalition Against Scam and Scheme Threats (CASST).

“Across the spectrum of the tax system, we’ve seen a rising tide of scams and schemes that try to exploit taxpayers and find gaps in government and industry defenses,” Werfel said. “This new collaborative approach will allow the private and public sectors to throw our combined weight against this threat. We will do more to work closely together, share information faster, respond quickly to threats and quickly alert the public to new and emerging threats. Our goal is to have a mass effect on this expanding problem that’s spread on social media and through bad actors.”

The new CASST project has wide support across the nation’s tax community. In addition to the IRS, other participants include state tax agencies represented by the Federation of Tax Administrators as well as the leading software and financial industries working in the tax space and key national tax professional organizations. The Council for Electronic Revenue Communication Advancement, the National Association of Computerized Tax Processors and the American Coalition for Taxpayer Rights are among those that have signed on to support the initiative. In all, more than 60 different groups from the private sector have signed on to the initiative, either individually or as part of a group.

“The FTA membership is dedicated to protecting taxpayers from fraudulent attacks on the country’s tax ecosystem,” said Federation of Tax Administrators Executive Director Sharonne Bonardi. “We are committed to continuing our collaborative efforts by working with the IRS, industry and other stakeholders to implement strategies that allow for proactive detection, prevention and mitigation of scams and schemes deployed by bad actors intending to defraud tax agencies.”

The new coalition is an outgrowth of the Security Summit effort, and while the new collaborative effort will not replace the Summit, the scams coalition will be closely modeled on the Summit. The Security Summit was launched in 2015 by the same groups to stem the growth in tax-related identity theft. The combined effort improved information sharing between the groups, identified common approaches to combat tax-related identity theft, improved internal tax system defenses and conducted extensive public awareness campaigns for taxpayers and tax professionals. While tax-related identity theft remains a concern, the improved protections have protected millions of taxpayers and prevented billions of dollars of fraudulent payments.

For this new project targeting scams, the CASST task force has agreed to high-level principles. The purpose of the group will be to better protect taxpayers from falling prey to unscrupulous actors by leveraging multilateral relationships across the tax ecosystem to minimize the filing of fraudulent tax returns.

"CERCA is pleased to work with the IRS and the states to combat the proliferation of ‘scams and schemes’ that are victimizing millions of Americans,” said Shannon Bond, chair of the Council for Electronic Revenue Communication Advancement. CERCA represents companies in the tax software and preparation industries as well as financial service groups and others in the tax community. “Continuing our long partnership with the IRS, CERCA stands shoulder to shoulder with both the federal government and the states to reduce first-party fraud, which threatens the viability of tax systems and imperils vulnerable taxpayers."

During the past tax season, there has been increased activity involving a variety of scams and schemes harming taxpayers, including the Fuel Tax Credit, household employment taxes and the Sick and Family Leave Credit. The IRS has seen hundreds of thousands of dubious claims come in where it appears taxpayers are claiming credits for which they are not eligible, leading to refunds being delayed and the need for taxpayers to show they have legitimate documentation to support these claims.

Numerous other scams and schemes continue to be seen circulating on social media and are highlighted through efforts including the annual IRS Dirty Dozen list and alerts from the Security Summit partners. The new approach will increase collaborative efforts to raise awareness and education about schemes, not just during tax season but throughout the year.

With the new scam and scheme initiatives, the IRS, states and the private sector will work to put in place new protections by filing season 2025. The combined effort is particularly important because the group has seen instances where scammers look for weak points in government systems and the private sector to exploit. The combined effort will improve defenses across both the private and public sector with a goal of making it more difficult for scammers to slip improper or false tax returns through the system.

The group will also work to make long-term structural changes to fundamentally improve the ability to identify and stop scams. This includes working to improve EFIN and PTIN validation and new steps to combat “ghost preparers,” who prepare tax returns for a fee and do not in any way sign a tax return or disclose their role on the tax return as the preparer. In many cases, these are inflated tax refunds that lead to millions in revenue loss and add risk for taxpayers who file potentially improper claims with only the individual’s name associated with the tax return.