Federal Tax News for Individuals
1. Involved in Crypto? Here Are Some Tax Issues
It’s a simple “yes” or “no” question, but you must answer it on your Form 1040 or Form 1040-SR: At any time during 2021, did you receive, sell, exchange or otherwise dispose of any financial interest in any virtual currency?
According to the IRS, some examples of a transaction involving virtual currency are the receipt of virtual currency as payment for goods or services; the receipt or transfer of virtual currency for free that doesn’t qualify as a bona fide gift; a trade of virtual currency for another virtual currency; and a sale of virtual currency. Your tax advisor can help determine how you should answer this question.
Speaking of cryptocurrency, greater regulation of digital assets could be coming. On March 9, 2022, President Biden signed an executive order (EO) to expand oversight of cryptocurrency markets. The EO also prioritizes the assessment of a Central Bank Digital Currency (CBDC). Various government financial regulators will assess how the “adoption of digital assets” would affect U.S. investors and businesses.
Also sought is input as to whether the “risks of digital assets” will require implementation of additional protective measures. Lawmakers haven’t yet embraced the idea of a CBDC where currency is represented by a digital token or electronic record.
2. Tip Income Responsibilities for Employees and Employers
Like most income, tips in the service industry are taxable. It doesn’t matter if tips are paid directly in cash or added to payments by credit, debit or gift cards, or shared with coworkers. Noncash tips, such as tickets or passes are also taxable. To correctly report tip income, the IRS advises taxpayers to keep a daily tip record and report all tips to their employers and on their income tax returns.
What if you’re the employer of tipped workers? Employees who receive $20 or more in any month must report the tips to you by the 10th of the next month. You must then withhold income and employment tax on the reported tips.
Click here for more information about the tax rules of tip income.
3. The IRS Has Issued this Year’s Tax Guide for Household Employers
The IRS recently announced the release of its “2022 Household Employer’s Tax Guide,” highlighting several changes. You need to withhold and pay Social Security and Medicare taxes if cash wages of $2,400 or more are paid in 2022 to any one household worker (up from $2,300 in 2021). You don’t count wages paid to a spouse, child under age 21, parent or anyone who is under age 18 at any time in 2022. Household workers include nannies, house cleaners and health aides.
Also, the COVID-19-related credit for qualified sick and family leave wages has expired. It was limited to leave taken after March 31, 2020, and before October 1, 2021. Click here to read the publication.
4. Are Social Security Benefits Taxable?
If you’re new to receiving Social Security (SS) benefits, you may not know that a portion may be taxable. SS benefits include monthly retirement, survivor and disability, but not supplemental security income payments (which aren’t taxable). The portion of your benefits that may be taxable depends on your income and filing status.
Basically, calculate half of your SS money and add it to your other income from wages, interest, dividends and capital gains (this includes benefits and income for both spouses). If the total exceeds $25,000 for a single person or $32,000 for a married couple filing jointly, part of your SS may be taxable. Click here to learn more or contact your tax advisor for help.
5. The IRS Announces the Top 10 Criminal Cases of 2021
If you think the topic of taxes can be a bit dry, think again! With the release of the IRS’s top 10 tax fraud cases of 2021, IRS Criminal Investigation (IRS-CI) Chief Jim Lee said, “The investigative work of 2021 has all the makings of a made-for-TV movie — embezzlement of funds from a nonprofit, a family fraud ring that stole millions in COVID-relief funds, and a $1 billion Ponzi scheme used to buy sports teams and luxury vehicles.”
Lee went on to say, “But this is real life and I’m grateful to our IRS-CI agents for pursuing these leads and ensuring that the perpetrators were prosecuted for their crimes.” The IRS-CI team investigates abusive tax schemes, bankruptcy fraud, employment tax enforcement, corporate fraud, gaming, healthcare fraud, identity theft schemes, money laundering and more. Click here to view the top 10 cases of 2021.