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How to find non-ascii characters in a file?

May 3rd, 2017 No comments

The IRS only likes ASCII characters.  ASCII stands for American Standard Code for Information Interchange. The first 128 characters are all the characters from your keyboard.  The lower and upper case letters, digits and extra characters like !@#$% and so on.  Examples of non-ascii characters are é, ö or ĉ and more.  Anything with an accent or tilde are not characters that your keyboard can naturally generate.

Whether you file a Form 1095, 1099, 8027, 1042-S, 8966 or anything in between, the IRS will reject a file that has non-ascii characters.  Some non-ascii characters are really hidden and very difficult to find.  One way to find non-ascii character is by using Notepad++.  In Notepad++, go to

Search | Find characters in range | Non-ASCII Characters (128-255)

Then step through the document to find each non-ascii character.

 

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Form 1098-T for 2016 : Student’s Taxpayer Identification Number

January 18th, 2017 No comments

Colleges and universities use IRS Form 1098-T to report amounts relating to qualified tuition and related expenses.

The IRS imposes a penalty per record for incorrect or a missing taxpayer identification number for every tax form except IRS Form 1098-T. The new law reads:

“No penalty shall be imposed under section 6721 or 6722 solely by reason of failing
to provide the TIN of an individual on a return or statement required by section
6050(S)(a)(1) if the eligible educational institution required to make such return
contemporaneously makes a true and accurate certification under penalty of perjury
(and in such form and manner as may be prescribed by the Secretary) that it has
complied with standards promulgated by the Secretary for obtaining such individual’s TIN.”

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Valid and invalid TIN matching characters

February 24th, 2016 No comments

When TIN matching, a valid name consists of letters A-Z, a-z, space and hyphen.  Which means that

. (period)
, (comma)
: (colon)
‘ (apostrophe)

and !@#$%^&*()+=<>”/[]{} are not allowed.  Our TIN match ready program will look for and remove these characters and also removed any non-ascii character in the name.  All of removed characters will be listed in the Potential Errors file.

The software will also check whether the TIN is 9 digits and just digits.

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How can I submit one (1) required communication test with the IRS?

October 17th, 2015 13 comments

You want to electronically file IRS Forms 1095-B with their 1094-B transmittal summary and/or you want to electronically file IRS Forms 1095-C with the 1094-C transmittal summary.  That’s great.

The first step is getting a transmitter control code or TCC number.  Step by step instructions to attaining the TCC number for the IRS AIR System are at this link

ACA Application for Transmitter Control Code (TCC Number)

The TCC number that you attain from the IRS AIR System is different from the TCC number you would attain to electronically file 1098, 1099, 3921, 3922, 5498 forms.  Its a different and a different way of efiling.

Once you have the TCC number, you need to upload one (1) successful test file.  Here is the catch. It can’t be with your data.  The IRS set up 6 test scenarios with fake data.  You have to successfully efile one of those test scenarios to the IRS before efiling your data.

The test scenarios are written out examples.  We converted those examples to excel.  You can import the test excel file into the software, click on “File Information Returns Electronically”, type in your transmitter TCC and contact information, generate the XML files and upload them to the IRS.  We can guide you through this as well.  One successful and you will feel better about the electronic filing experience.  Call technical support at 608-444-6575 anytime and they can guide you through this test filing.

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CA-592: Non-Resident Income Withholding

November 12th, 2014 No comments

The state of California requires withholding of 7% on payments of $1500 or more to both residents and non-residents of the state.  This form follows the federal tax template used by the IRS for reporting payments and withholding to non-US persons from US sources, regardless whether the recipient would have any tax liability or is a resident.

For purposes of reporting, California non-residents include:

  • Individuals
  • Businesses that are not registered with the Secretary of State
  • Independent Contractors providing services in California
  • Trusts and Estates

In addition to contractor services and business proceeds, the withholding requirement also extends to rents, royalties and trust or estate distributions.

The form itself is not complicated to understand, and the payer has the responsibility for the reporting withholding requirement.  The question for most non-residents is how to obtain a refund for the withheld amounts assuming that there is no tax liability.

Non-resident Tax Liability and Forms

This is a burdensome task for many non-residents, who according to the instructions must file a California tax return if they receive Form CA-592.  In addition, failure to file a tax return could result in penalties.  There is an additional form that is only for non-residents, CA-592-B, where withheld amounts are reported.

The California income tax form for non-residents is Form 540NR, and in order to get tax relief you may have to show that you paid tax on the California sourced income in your home state.  For this purpose you would file Schedule S, Other State Tax Credit, with 540NR.  If you qualify, you would get a tax credit on the California return for amounts paid in your home state.

If you don’t live in a state with a reverse credit agreement with California, you will have to complete 540NR along with the deductions and exemptions available, and pay the tax owed.  The availability of a refund will depend on the amount of income sourced in California, and the applicable rate after deductions.  If your home state does not offer a credit for those amounts paid, you will in essence pay double tax for the earned income or distributions.

To avoid the pain of double taxation, there is the remaining option to claim the withheld amounts as a deduction for those who itemize on their Federal tax returns. The taxpayer could then claim any amount refunded by California as income in the following year.  In the event that there is no refund due, then the only tax relief is via the federal deduction.

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Form 1095-C and 1094-C: Employer-Provided Health Insurance Offer and Coverage

October 10th, 2014 No comments

Employers with more than 50 employees, who provide insurance to their employees must file Form 1095-C and 1094-C.  1095-C details the health coverage for each employee, and 1094-C is the transmittal form to accompany all forms 1095-C sent to the IRS.  These forms correspond to the employer shared responsibility provisions as set out in the Affordable Care Act (ACA).  This mandate will not go into effect until tax year 2015, and as with the other ACA forms are all currently in draft form.

Affordable Coverage and Minimal Essential Value Requirements

The employer shared responsibility provisions of the ACA are designed to encourage employers to offer affordable coverage to their full-time employees.  According to the IRS, there is a test to determine if coverage is ‘affordable’:

If an employee’s share of the premium for employer-provided coverage would cost the employee more than 9.5% of that employee’s annual household income, the coverage is not considered affordable for that employee

The employer must also offer what is termed ‘minimal essential value’ in the coverage that meets certain criteria.  In other words, employers cannot shift the cost of coverage to employees, or offer a bare-bones policy to escape the ACA mandate.

Employer Shared Responsibility

If they fail to offer coverage, and an employee must then purchase coverage in the Health Insurance Marketplace, then the employer may be subject to an Employer Shared Responsibility Payment.  This payment would be due if one full time employee receives a Premium Tax Credit for purchasing coverage on their own.  The Premium Tax Credit is discussed in a previous article.   The employer payment is $2000 for a full calendar year, per employee.

However, there is another threshold to be met by employers.  They must provide affordable insurance to a minimum of 95% of their employees, or they will have to make a payment equal to an amount for all their employees even if some receive coverage.   This stiff payment requirement does have a 30-employee exclusion, so if an employer has 50 employees the payment would be for 20 employees after the exclusion is subtracted.  In effect, this shifts the tax credit from the government to the employer, but it is doubtful that it will be a very effective tool for encouraging businesses to offer coverage.  Interestingly, government employers at all levels are also subject to this payment.

As the ACA was unveiled many large, corporate employers took a look at these provisions and payments, and determined that is was less costly to simply pay the penalties and not offer insurance.  In effect, the employer shared responsibility payment is a subsidy to the government for employees who purchase insurance in the Marketplace, and then receive a tax credit.  One should look for the IRS to change these rules and formulas for employers in the future, as businesses find creative ways to minimize their health care expenses under Obamacare.

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Form 1095-A: Verification of Health Coverage Purchased in the Health Insurance Marketplace Under Obamacare

October 10th, 2014 No comments

The Affordable Care Act (ACA) or Obamacare has generated a new collection of tax forms that employers, insurers and individuals will be required to file each year.  At this point, the published forms are draft versions, but the IRS assures us that they will have the final forms and instructions available by the filing deadline.  That deadline for filing will be January 31 of each year, similar to W-2 and 1099 filing deadlines.  Although the forms should be available, the filing and reporting requirements will not be mandatory for tax year 2014, but will be required for tax year 2015.

Form 1095-A

The first form is 1095-A, which is filed by all Health Insurance Marketplaces, including a copy being provided to individuals who purchased a qualified health plan through the ACA Marketplace.  Because having health insurance is mandatory, those who purchase a plan through the Marketplace may be entitled to a tax credit.  According the IRS draft instructions, the copy of 1095-A can be used by individuals to:

  • Allow them to obtain the premium tax credit, if they qualify
  • Reconcile advance payments of the credit on their returns
  • File an accurate tax return

This information is also furnished to the IRS so that they have the information on all family members in each household that enrolled in a qualified plan.

Some of the key information on the form includes:

  • Health policy coverage dates
  • Amount of advance credit payments made
  • Total amount of premiums paid
  • The method used to compute the amount of premium tax credit available

The Premium Tax Credit

The premium tax credit is available to individuals who purchased health coverage through the Marketplace and meet certain criteria such as:

  • Not eligible for employer of government health plans
  • Are within certain income limits (explained below)
  • Cannot be claimed as a dependent by another person
  • Do not use filing status Married Filing Separately

Some individuals may choose to receive the credit in the form of reduced payments to their insurer while others will wait to get is as part of their tax refund.  One of the reasons for form 1095-A is to allow those who receive the credit as premium deductions to accurately file their taxes.  The total premium tax credit depends on the size of the household and income.  The general formula for eligibility is between 100% and 400% of the federal poverty level, for example:

  • $11,490 (100%) up to $45,960 (400%) for one individual.
  • $15,510 (100%) up to $62,040 (400%) for a family of two.
  • $23,550 (100%) up to $94,200 (400%) for a family of four.

Households with lower incomes than this range could possibly be eligible for Medicaid and would not need the credit or qualify.  The amount of the credit is determined by income level, with lower income households receiving a larger tax credit than high-income households.  All that is certain is that individuals will now have another form to pay attention to in filing their taxes, but there may be some refund available that makes it worth the effort.

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Forms 1095-B (Health Coverage) and 1094-B (Transmittal): To Verify Minimal Essential Coverage Under Obamacare

October 10th, 2014 2 comments

Another new tax form required for entities that provide health coverage for individuals under Obamacare is Form 1095-B.  This form is used to verify that an individual has ‘minimal essential coverage’ under the mandates of the Affordable Care Act (ACA).  This coverage is referred to as the individual responsibility requirement under ACA, which requires either purchasing or receiving health coverage, or face paying a penalty.  Although ACA is a health care directive, the penalty and coverage verification have been left to the IRS as the agency with the ability to both track and collect the penalty using tax returns.

The penalty aspect of ACA was controversial, but this is the way that Obamacare mandates that every individual have coverage.   The penalty is minimal the first year, but increases steadily each year to equal the cost of mid-level health plan in the Marketplace.  This form, submitted by the entity that provides the coverage, will demonstrate that a taxpayer had fulfilled the requirement and would avoid the penalty.  Therefore, anyone who receives a copy of this form should retain it to verify that they have complied with the mandate.

The types of coverage that could be reported on the form include:

  • Small Business Health Options Program
  • Employer sponsored coverage
  • Government-sponsored program
  • Individual market insurance
  • Multi-employer plans

 

The form is actually filed by the entity that provides the coverage, and then the Responsible Individual (Policy Holder) listed in Part I will receive a copy of the form for their records.

Part II is for Employer Sponsored Coverage, and Part III is for other Issuers or Coverage Partners.

Part IV has multiple spaces for Covered Individuals where there may be several family members under the same plan.

There are also boxes that indicate the number of months of coverage for the calendar year.  There is an additional form that must be filled out for employers that provide coverage, the 1095-C, which I will discuss in another article.

Form 1094-B

Form 1094-B is simply the transmittal form that will accompany all 1095-B forms that are filed by one employer or provider of coverage.  For instance, if an employer provides coverage they would send separate 1095-B forms for each employee, but only one 1094-B as the transmittal form.  It is simple to fill out and poses no real challenges for the filer.

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What’s new with IRS Form 1042-S for tax year 2014?

August 28th, 2014 33 comments

A lot is new!

IRS Form 1042-S has always been a difficult form that very few people understand.  We work with book publishers, model agencies, casinos and many other companies year after year and very few understood Form 1042-S and the data required.  Each year, we email back and forth requesting more data so that the form can be filled out correctly and e-filed correctly with the IRS.

Here comes tax year 2014.  Form 1042-S is completely redesigned and split as:

Chapter 3 — WITHHOLDING OF TAX ON NONRESIDENT ALIENS AND FOREIGN CORPORATIONS

Chapter 4 — TAXES TO ENFORCE REPORTING ON CERTAIN FOREIGN ACCOUNTS

If you prepared Form 1042-S in tax year 2013 or for any prior year, then you have been reporting information under Chapter 3 (you just didn’t know it was Chapter 3).  Chapter 3 is the reporting of withholding for a non-US resident by a US company.  Book publishers are a classic example.  A United States publishing company will print books by writers from around the world.  Non-US writers are subject to withholding which means the publishing company (the withholding agent) has to withhold part of their pay and send that money to the IRS.  The writer (or recipient) might have an opportunity to get that withheld money from the IRS depending on which country they are from and whether that foreign country has a tax treaty set up with the United States.  The list of countries that do have a tax treaty with the IRS are in this article.  Most recipients who receive a Copy B by mail or email just give up and let the IRS keep the money.  If a publishing company withheld $40 or $100 from your pay and sent that to the IRS, are you going to chase that cash?  Probably not and the IRS knows this and they are gaining revenue.

All of the data you used to paper or electronically file for Chapter 3 in prior years is used again for tax year 2014. Tax year 2014 additionally requires

  1. Recipient’s account number.  Last year this was optional.  The account number is a unique set of letters, numbers, hyphens and blanks up to 20 characters in length.
  2. Recipient’s date of birth.
  3. Foreign taxpayer identification number, if any.

The recipient’s date of birth will probably stump most withholding agents. These are non-US residents; most of the withholding agents don’t retain a foreign TIN or have an account number for a client.  Having a birth date is really pushing it.  The good news is that the 1042-S instructions states

Use box 20 to enter the recipient’s date of birth if it is available in the withholding agent’s electronically searchable information.

That means the withholding agent dodged a bullet for TY2014 and can just enter blanks.  Just below that paragraph, the 1042-S instructions states:

 Starting in calendar year 2017, the withholding agent will be required to report either the recipient’s foreign tax identification number or the recipient’s date of birth.

That means that for everyone who filed 1042-S forms in prior years, the data you collected is fine and can be used for now.  But you have to start collecting the recipient foreign TIN or date of birth.  Its going to be required and you can’t paper or electronically file Form 1042-S without this information.  This is all good news for all of our clients because I doubt anyone collected this information. But a warning that more data must be retained by the withholding agent.

The big change to Form 1042-S is the inclusion of Chapter 4 reporting.  Lots and lots of edit fields related to Chapter 4 which is also commonly known as FATCA.  FATCA is the Foreign Account Tax Compliance Act (FATCA). It is a new law in the United States that requires US people, including individuals who live outside the United States, to report their financial accounts held outside of the United States.  These are financial accounts held in banks in Europe, Canada and anywhere else outside of the US.  The United States IRS wants to know that these accounts exist and who owns them.  Specifically, the IRS wants:

  1.  The withholding agent, in this case, the non-US bank or foreign financial institution (FFI) to report to the IRS about their US clients.  Whoa!!  Step back and read that again.  FATCA requires that these foreign financial institutions voluntarily fill out Form 1042-S and mail or email Copy B to the US entity reporting that they have a non-US financial account.  That FFI also has to send Copy A of Form 1042-S to the IRS.
  2.  US residents who own these foreign accounts or assets must report them on the new IRS Form 8938, Statement of Specified Foreign Financial Assets.

The IRS gets the information they want from someone and whoever doesn’t report may be penalized.  How does the IRS plan on penalizing a bank that is located in Switzerland or anywhere outside of the United States that doesn’t report this information?  I don’t know.  The US must have a strong tax treaty with this foreign countries to motivate their financial institutions to report this information to the IRS.  The change in Form 1042-S and new Form 8938 make it more difficult for a US citizen, living in or outside of the United States, to conceal assets held in offshore accounts.  Once the IRS knows where new money is held, new federal tax revenues follow.

 

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Tax Year 2014 1099 Form Changes

August 5th, 2014 No comments

The following changes have been made to this year’s revenue procedure:

  • Form 1099–B. This form has been complete revised for new reporting requirements. Additional boxes have been added. Box 12 is reserved for future use.
  • Form 1099–H. This form has been made obsolete as the Health Care Tax Credit expired December 31, 2013.
  • Form 1099–INT. Boxes 10 through 13 have been renumbered boxes 12 through 15. New box 10 is used to report market discount. New box 11 is used to report bond premium.
  • Form 1099–K. Box 1 has been divided. Box 1a continues to report gross amount of payment card/third party network transactions. Box 1b reports the amount of transactions for which no card was presented. The 2nd TIN not. box was added to Copies A and C. The account number box has been shorted to accommodate the 2nd TIN not. box.
  • Form 5498. Boxes 15a and 15b have been added for reporting the FMV of certain specified assets held in IRAs.
  • Form 1042–S. This form has been complete revised. The height of the forms image area has increased to 4.25″. All boxes after box 2 have been renumbered and/or repurposed for FATCA reporting.
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