The U.S. tax code is complicated and often hard to understand, with many provisions, credits and disallowances. Let’s review a few credits that many people are interested in, as well as how to respond to the IRS if you get married — or get a taxes-due notice.
The Employee Retention Credit
The ERC was implemented as part of the Coronavirus Aid, Relief, and Economic Security Act to encourage businesses affected by the pandemic to keep staff on payroll during lockdowns and times of reduced business activity. Over 2020 and 2021, more than 1 million ERC claims — representing more than $86 billion — were filed.
The IRS continues to review tax returns that claim the credit. It urges taxpayers to review their past claims and quickly resolve any incorrect ones by filing an amended return. For its part, the IRS plans to deny (or disallow) tens of thousands of improper, high-risk and erroneous ERC claims.
If your claim is disallowed and you disagree with the IRS’ decision, you can seek review by petitioning the Independent Office of Appeals or, if necessary, the U.S. District Court or U.S. Court of Federal Claims. You must generally file your response within two years of the date the notice of claim disallowance was mailed. You may ask the IRS to extend the time to file the response.
The ERC is very complicated, so professional guidance can help you ensure compliance and avoid the potential legal and financial consequences of misfiling.
Solar energy credit
The current credit for installing solar panels, called the Residential Clean Energy Credit, equals 30% of the cost of new, qualified clean energy for your primary residence. Solar roofing tiles and solar shingles qualify for the credit, though accessories (such as panels used to support the system) do not. The 30% is calculated from the final out-of-pocket cost after deducting any subsidies, rebates or other financial incentives.
The Residential Clean Energy Credit is a nonrefundable tax credit, meaning that it may reduce your tax liability to zero, but it will not result in a refund if your credit exceeds your tax liability.
To claim the full 30% credit, your taxable income needs to be high enough to generate a tax liability equal to or greater than the credit. If your credit exceeds your tax liability for the current year, the unused portion can generally be carried forward to future tax years, allowing you to take advantage of the credit over time.
This credit remains in effect until 2032, so don’t let sales reps tell you time is running out to claim it. After 2032, the credit begins to sunset, with smaller percentages of credit available through 2035.
Child care and employees
If you are an employer who provides child care services to your employees, you might be eligible for the Employer-Provided Childcare Credit. During the current tax year, you must have paid or incurred qualified child care expenditures such as:
- Costs associated with acquiring, constructing, rehabilitating or expanding property used for a qualified child care facility
- Amounts paid to support child care workers through training and scholarship programs and to provide increased compensation to employees with higher levels of child care training
- Expenditures paid under contract with a qualified child care facility
- Qualified resource and referral spending
The credit is up to 25% of qualified child care facility expenditures and up to 10% of qualified resource and referral expenditures. The credit is capped at $150,000.
The IRS and marriage
Your marital status on December 31 of any year determines your marital status for filing your taxes. So if you got married in 2024, you will want to decide if you would like to file jointly with your new spouse or file separately. But even if you file separately, your new marital status will affect how you file.
Most married couples file jointly — it’s simpler and generally more beneficial financially, as most married couples are eligible for helpful tax deductions and tax credits. However, there are some potential risks:
- If one spouse owes back taxes or student loans, or has other federal debts, the IRS can offset the couple’s joint refund to pay off the debt. (The nonliable spouse may seek to reclaim their portion of any refund through the Injured Spouse Allocation.)
- By filing jointly, both spouses become fully responsible for the tax return’s accuracy and any resulting tax, interest or penalties. This means that if one spouse underreports income or claims deductions incorrectly, the IRS can pursue payment from either spouse, even after a divorce. (In some instances, the unaware spouse may apply for Innocent Spouse Relief.)
Be sure to communicate with your spouse about any existing tax issues. It’s also advisable to talk to a tax professional before you file.
Taxes-due notices
What should you do if you receive a notice from the IRS requesting payment of taxes you’ve already paid? The notice will say that you must make payment within 21 days, and that if payment is not fully received within 60 days, the IRS can proceed with collections. Do not ignore this notice, even if you know your taxes were paid. Because of a correspondence backlog at the IRS, many payments that have been received have not yet been processed.
Begin by verifying that your taxes were in fact paid. If you have documentation, don’t pay the taxes again. Instead, create an online account with the IRS to monitor your case. Respond to the IRS with your payment documentation (for example, a payment receipt or a canceled check) as quickly as possible, which may prevent further action while your case is reviewed. Keep an eye on your online account so that you can see when your payment is applied. If you don’t see the payment applied within 50 days, call the number on your notice, preferably on a Wednesday, Thursday or Friday, when the IRS has shorter on-hold times.
Benefits of an online IRS account
The IRS recommends that taxpayers create online accounts so that they can have access to notices, account information and transcripts — all the necessary information to keep current on tax obligations.
You have 120 days to pay a tax bill after it is posted to your online account. If you cannot pay the full amount that you owe, you may either set up a payment plan or apply for an Offer in Compromise to pay a reduced amount. Above all, don’t miss a deadline! As soon as you do, you lose some taxpayer rights.
Taxes are complicated, so to make sure you’re following the detailed rules correctly, speak with a qualified tax professional.
PaySmart is a payroll provider located in Mechanicsburg, Pennsylvania, supporting small businesses in the Central PA region. We are dedicated to helping small businesses take care of their payroll needs. To learn more information about how PaySmart may provide payroll solutions, please get in touch with us at 717-766-1777. Our New Client Concierge is waiting for you!