First-Time Penalty Abatement (“FTA”) Waiver – Take Advantage of this Waiver

Allowed by the Internal Revenue Service

Most Taxpayers Are Missing Out

Beginning in Calendar Year 2001, the IRS began granting the First-Time Penalty Abatement (“FTA”) waiver to taxpayers who receive a Failure-to-File (“FTF”) or Failure-to-Pay (“FTP”) penalty but have a compliant tax history for the prior three years.  The FTA waiver applies only to a single tax year.
The IRS can abate both penalties under certain circumstances.

According to a 2012 Treasury Inspector General for Tax Administration report, in 2010 about 1.65 million individual taxpayers qualified for FTA. However, according to the same TIGTA report, only 8.8% (less than 10%) of the taxpayers in the sample it tested actually received the abatement. The report indicates that the primary reason for this disparity is that most taxpayers do not know FTA exists. This is largely because the IRS does not indicate FTA as a relief option on its penalty-related notices. The IRS does not publicize the FTA.

For businesses and payroll clients, FTA applies to the failure-to-file, failure-to-pay, and/or the failure-to-deposit penalties. S corporation and partnership late-filing penalties also qualify under FTA. For individuals, FTA applies to the failure-to-file and failure-to-pay penalties. Estate and gift tax returns do not qualify for FTA waivers.

A taxpayer must have filed all tax returns for the past three years, as required, and have a clean three-year penalty history. The taxpayer cannot have penalties of a “significant” amount assessed in the prior three years on the same type of tax return.

If you need help taking advantage of this First-Time Penalty Abatement (“FTA”) Waiver or want to know if you qualify, call me or contact my office. It is nice to save money.

Cleaning Up The Tax Mess PBS Video

Cleaning Up The Tax Mess

February 2012 Business Due Date Reminders

February 28 – Payers of Gambling Winnings

File Form 1096, Annual Summary and Transmittal of U.S. Information Returns, along with Copy A of all the Forms W-2G you issued for 2011. If you file Forms W-2G electronically, your due date for filing them with the IRS will be extended to April 2. The due date for giving the recipient these forms was January 31.

February 28 – Informational Returns Filing Due

File information returns (Form 1099) and transmittal Forms 1096 for certain payments you made during 2011. There are different forms for different types of payments. These are government filing copies for the 1099s issued to service providers and others (see January 31).

If you file Forms 1098, 1099, or W-2G electronically, your due date for filing them with the IRS will be extended to April 2. The due date for giving the recipient these forms was January 31.

February 29 – All Employers
File Form W-3, Transmittal of Wage and Tax Statements, along with Copy A of all the Forms W-2 you issued for 2011. If you file Forms W-2 electronically, your due date for filing them with the SSA will be extended to April 2. The due date for giving the recipient these forms was January 31.

February 29 – Large Food and Beverage Establishment Employers

File Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. Use Form 8027-T, Transmittal of Employer’s Annual Information Return of Tip Income and Allocated Tips, to summarize and transmit Forms 8027 if you have more than one establishment. If you file Forms 8027 electronically, your due date for filing them with the IRS will be extended to April 2.

New Reporting Requirement for Individuals with Foreign Financial Assets

 

New for 2011 is a requirement for any individual who, during the tax year, holds any interest in a “specified foreign financial asset” to complete and attach Form 8938 to his or her income tax return if a reporting threshold is met. The reporting threshold varies depending on whether the individual lives in the U.S. and files a joint return with his or her spouse. For example, someone who is not married and doesn’t live abroad will need to file Form 8938 for 2011 if the total value of his or her specified foreign financial assets was more than $50,000 as of December 31, 2011, or more than $75,000 at any time during 2011. For married taxpayers filing a joint return and living in the U.S., the threshold amounts are doubled. The thresholds also are higher for taxpayers residing abroad.

Specified foreign financial assets include financial accounts maintained by foreign financial institutions and other investment assets not held in accounts maintained by financial institutions, such as stock or securities issued by non-U.S. persons, financial instruments or contracts with issuers or counterparties that are non-U.S. persons, and interests in certain foreign entities. However, no disclosure is required for interests that are held in a custodial account with a U.S. financial institution.

The penalty for failing to report specified foreign financial assets for a tax year is $10,000. However, if this failure continues for more than 90 days after the day on which the IRS mails notice of the failure to the individual, additional penalties of $10,000 for each 30-day period (or fraction of the 30-day period) during which the failure continues after the expiration of the 90-day period, with a maximum penalty of $50,000.

To the extent the IRS determines that the individual has an interest in one or more foreign financial assets but he or she doesn’t provide enough information to enable the IRS to determine the aggregate value of those assets, the aggregate value of those assets will be presumed to have exceeded $50,000 (or other applicable reporting threshold amount) for purposes of assessing the penalty.

No penalty will be imposed if the failure to file the 8938 is due to reasonable cause and not due to willful neglect. The fact that a foreign jurisdiction would impose a civil or criminal penalty on the taxpayer (or any other person) for disclosing the required information isn’t reasonable cause.

In addition, if it is shown that the individual failed to report the income from the foreign financial account on his or her income tax return, a 40% accuracy-related penalty is imposed for underpayment of tax that is attributable to an undisclosed foreign financial asset.

If you have questions related to this issue or are uncertain if you are required to file Form 8938, please give this office a call to discuss your particular situation.

 

For Form 8938 and instructions from Stuart Rohatiner, CPA, JD click here

Need additional information about this article? Please contact my office at 305-868-3600 ext 3105

New Voluntary Worker Classification Settlement Program

The Internal Revenue Service has launched a new program that will enable many employers to resolve past worker classification issues and achieve certainty under the tax law at a low cost by voluntarily reclassifying their workers.

This new program will allow employers the opportunity to get into compliance by making a minimal payment covering past payroll tax obligations rather than waiting for an IRS audit.

This is part of a larger “Fresh Start” initiative at the IRS to help taxpayers and businesses address their tax responsibilities.

The new Voluntary Classification Settlement Program (VCSP) is designed to increase tax compliance and reduce burden for employers by providing greater certainty for employers, workers and the government. Under the program, eligible employers can obtain substantial relief from federal payroll taxes they may have owed for the past, if they prospectively treat workers as employees. The VCSP is available to many businesses, tax-exempt organizations and government entities that currently erroneously treat their workers or a class or group of workers as nonemployees or independent contractors, and now want to correctly treat these workers as employees.

To be eligible, an applicant must:

• Consistently have treated the workers in the past as nonemployees,

• Have filed all required Forms 1099 for the workers for the previous three years

• Not currently be under audit by the IRS, the Department of Labor or a state agency concerning the classification of these workers

Interested employers can apply for the program by filing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees.

Employers accepted into the program will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Participating employers will, for the first three years under the program, be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes.

Full details, including FAQs, are available on the Employment Tax on IRS.gov, and in Announcement 2011-64

 

 

January 2012 Taxes Individual Due Dates

January 3– Time to Call For Your Tax Appointment

Image by 401K via Flickr

January is the beginning of tax season. If you have not made an appointment to have your taxes prepared, we encourage you do so before the calendar becomes too crowded.

January 10 – Report Tips to Employer

If you are an employee who works for tips and received more than $20 in tips during December, you are required to report them to your employer on IRS Form 4070 no later than January 10.

January 17 – Individual Estimated Tax Payment Due

It’s time to make your fourth quarter estimated tax installment payment for the 2011 tax year. Generally, this due date is January 15, but when the due date falls on a Saturday, Sunday or federal legal holiday, it is not due until the next business day.

January 17 – Farmers & Fishermen Estimated Tax Payment Due

If you are a farmer or fisherman whose gross income for 2010 or 2011 is two-thirds from farming or fishing, it is time to pay your estimated tax for 2011 using Form 1040-ES. You have until April 17, 2012 to file your 2011 income tax return (Form 1040). Generally, this due date is January 15, but when the due date falls on a Saturday, Sunday or federal legal holiday, it is not due until the next business day. If you do not pay your estimated tax by January 17, you must file your 2011 return and pay any tax due by March 1, 2012 to avoid an estimated tax penalty.

January 31 – File 2011 Return to Avoid Penalty for Not Making 4th Quarter Estimated Payments File 2011

Return to Avoid Penalty for Not Making 4th Quarter Estimated Payment If you file your prior year’s return and pay any tax due by this date, you need not make the 4th Quarter Estimated Tax Payment (January calendar).

January 2012 Business Due Dates

January 17 – Employer’s Monthly Deposit Due

If you are an employer and the monthly deposit rules apply, January 17 is the due date for you to make your deposit of Social Security, Medicare and withheld income tax for December 2011. This is also the due date for the nonpayroll withholding deposit for December 2011 if the monthly deposit rule applies. Generally, this due date is January 15, but when the due date falls on a Saturday, Sunday or federal legal holiday, it is not due until the next business day. As of 1/1/11, federal employment tax deposits must be made electronically (no more paper coupons), except employers with a deposit liability under $2,500 for a return period may remit payments quarterly or annually with the return.

January 31 – 1099s Due To Service Providers

If you are a business or rental property owner and paid $600 or more for the services of individuals (other than employees) during a tax year, you are required to provide Form 1099 to those workers by January 31st. “Services” can mean everything from labor, professional fees and materials, to rents on property. In order to avoid a penalty, copies of the 1099s need to be sent to the IRS by February 28, 2012 (April 2, 2012 if filed electronically). They must be submitted on optically scannable (OCR) forms. This firm prepares 1099s in OCR format for submission to the IRS with the 1096 submittal form. This service provides both recipient and file copies for your records. Please call this office for preparation assistance.

Payments that may be covered include the following:

• Cash payments for fish (or other aquatic life) purchased from anyone engaged in the trade or business of catching fish

• Compensation for workers who are not considered employees (including fishing boat proceeds to crew members)

• Dividends and other corporate distributions

• Interest

• Amounts paid in real estate transactions

• Rent

• Royalties

• Amounts paid in broker and barter exchange transactions

• Payments to attorneys

• Payments of Indian gaming profits to tribal members

• Profit-sharing distributions

• Retirement plan distributions

• Original issue discount

• Prizes and awards

• Medical and health care payments

• Debt cancellation (treated as payment to debtor)

January 31 – W-2 Due to All Employees

All employers need to give copies of the W-2 form for 2011 to their employees. If an employee agreed to receive their W-2 form electronically, post it on a website and notify the employee of the posting.

January 31 – File Form 941 and Deposit Any Undeposited Tax

File Form 941 for the fourth quarter of 2011. Deposit any undeposited Social Security, Medicare and withheld income tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return.

January 31 – Certain Small Employers

File Form 944 to report Social Security and Medicare taxes and withheld income tax for 2011. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is $2,500 or more for 2011 but less than $2,500 for the fourth quarter, deposit any undeposited tax or pay it in full with a timely filed return.

January 31 – File Form 943

All farm employers should file Form 943 to report Social Security, Medicare taxes and withheld income tax for 2011. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the year in full and on time, you have until February 10 to file the return.

January 31 – W-2G Due from Payers of Gambling Winnings

If you paid either reportable gambling winnings or withheld income tax from gambling winnings, give the winners their copies of the W-2G form for 2011.

January 31 – File Form 940

Federal Unemployment Tax File Form 940 (or 940-EZ) for 2011. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it is more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.

January 31 – File Form 945

File Form 945 to report income tax withheld for 2011 on all non-payroll items, including back-up withholding and withholding on pensions, annuities, IRAs, gambling winnings, and payments of Indian gaming profits to tribal members. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the year in full and on time, you have until February 10 to file the return.

4 more Credit Suisse bankers charged in tax case

By JESSICA GRESKO

Associated Press

WASHINGTON — Federal prosecutors in Virginia have charged four more bankers with Zurich-based Credit Suisse Group with conspiracy in what they say was a long-running scheme to help U.S. taxpayers hide as much as $4 billion in assets.

Prosecutors originally charged four people in the scheme in February, so the charges announced Thursday bring the total number of people charged up to eight. Charging documents filed in the case do not specify what bank the group worked for, but The Associated Press previously reported its identity.

Prosecutors wrote in February that as of late 2008 Credit Suisse was maintaining thousands of secret accounts for U.S. customers with approximately $3 billion in assets, but that amount was increased to $4 billion in a document filed Thursday. Prosecutors previously alleged that the conspiracy goes back as far as 1953.

The four individuals charged Thursday were: Markus Walder, who was the head of North American Offshore Banking; Susanne D. Ruegg Meier, a member of the bank’s senior management; Andreas Bachmann and Josef Dorig, both of whom worked for a Credit Suisse subsidiary. Court documents did not include Dorig’s nationality, but all three others charged are Swiss.

Credit Suisse itself is not charged in the case, but prosecutors wrote that bank officials “knew and should have known that they were aiding and abetting U.S. customers in evading their U.S. income taxes.”

“Credit Suisse is committed to a fully compliant cross-border business. Subject to our Swiss legal obligations and throughout this process we will continue to cooperate with the U.S. authorities in an effort to resolve these matters,” the bank said in an emailed statement.

The four individuals previously charged in the case were Italian citizen Marco Parenti Adami and Swiss citizens Emanuel Agustoni, Michele Bergantino and Roger Schaerer. Schaerer has dual citizenship with the United States.

Revised court documents released Thursday discuss how the group is alleged to have worked with 35 clients including people in New York, New Jersey, California, Florida and Virginia to conceal assets and income in secret accounts. The original court papers noted 17 customers, none of them by name.

Deadline looms for US citizens to file tax returns and FBAR reports

Image by Getty Images via @daylife

Attention! United States persons meaning US citizens residing abroad, dual citizens with the United States, green card holders (Permanent Residents) and US residents for income tax purposes, deadlines are fast approaching for compliance with US reporting and filing obligations. Specifically, for individuals, there are two tax reporting and filings due this month: the Report of Foreign Bank and Financial Accounts (the ‘FBAR’) and the US Individual Income Tax Return.

What is an FBAR? The FBAR is used to report a financial interest in or signature authority over a foreign financial account. The report for the calendar year 2010, although linked to the US Individual Income Tax Return, is not sent to the US Internal Revenue Service. It goes to the US Department of the Treasury and must be received by the Treasury on or before June 30th 2011. Postmarked by June 30th is not acceptable, and note that no extension for later filing is available.

Who Must File an FBAR?

A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.

A very common misconception is that only one account has to be over $10,000. This is incorrect. It is the aggregate value of all foreign accounts. If the individual has five accounts with $2,000 in each of four, and $3,000 in number five, all accounts must be reported. Foreign financial accounts also mean accounts held jointly with others, such as foreign national spouses, friends, and as guardian for children, etc.

What kind of Financial Account are we talking about?

Foreign Financial Accounts are accounts and financial interests held in Bermuda or other jurisdictions outside the United States by US persons – see description above.

A financial account includes, but is not limited to, a securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained with a financial institution (or other person performing the services of a financial institution). A financial account also includes a commodity futures, or options account, an insurance policy with a cash value (such as a whole life insurance policy), an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund.

This comprehensive list includes foreign pensions, foreign whole of life insurance policies, foreign annuities, and investment accounts holding foreign mutual funds, foreign money market funds and related type accounts.

What does a Financial Interest mean?

A United States person has a financial interest in a foreign financial account for which:

(1) the United States person is the owner of record or holder of legal title, regardless of whether the account is maintained for the benefit of the United States person or for the benefit of another person; or

(2) the owner of record or holder of legal title is one of the following:

(a) An agent, nominee, attorney, or a person acting in some other capacity on behalf of the United States person with respect to the account;

(b) A corporation in which the United States person owns directly or indirectly: (i) more than 50 percent of the total value of shares of stock or (ii) more than 50 percent of the voting power of all shares of stock;

(c) A partnership in which the United States person owns directly or indirectly:

(i) an interest in more than 50 percent of the partnership’s profits or

(ii) an interest in more than 50 percent of the partnership capital;

(d) A trust of which the United States person:

(i) is the trust grantor and

(ii) has an ownership interest in the trust for United States federal tax purposes.

(e) A trust in which the United States person has a greater than 50 percent present beneficial interest in the assets or income of the trust for the calendar year; or

(f) Any other entity in which the United States person owns directly or indirectly more than 50 percent of the voting power, total value of equity interest or assets, or interest in profits.

This is a daunting list of financial interest situations and requires complex research in many instances. Those who may have signatory authority, but no financial interest, are generally assessed more on a case by case basis due to the complex nature of a compound structure.

Why do you have to report these accounts and financial interests?

Most importantly, the FBAR reports are also linked to new reporting requirements under the US Internal Revenue Service initiative and part of the Hire Act legislated by US Congress. The Foreign Account Tax Compliance Act FATCA as it is called placed new and very significant reporting requirements on foreign financial entities (FFE) and non-financial foreign entities (NFFS): your foreign bank, your foreign trustee, your foreign pension administrator, your foreign mutual fund investment provider, your foreign insurance company, your foreign small business private corporation if you own shares and others.

FFEs are required to report all US person’s accounts, balances, transactions, and identifiers to US Internal Revenue Service. Non-cooperation with this mandate by FFEs will trigger an onerous withholding tax penalty on the foreign financial institutions. It is an understatement to say that this new mandate has generated controversy offshore.

These are complex and taxing times for US persons abroad. The discussion above only covers one required form. There are a number of others that are linked to the FBAR that US citizens abroad may have no knowledge of. A good rule to follow is that every time you open/close an account, transfer monies, receive/give gifts, earn, invest, sell/buy an acquisition, die or otherwise implement estate and succession planning, there is a tax consequence.

If you misinterpret IRS instructions, miss deadlines, or inadvertently file incomplete returns, the penalties range from significant to very, very severe. Therefore, it is not recommended, when it comes to US and international tax matters, to rely upon the advice of anyone who does not have an extensive background, license and most importantly competency and experience in US and international tax matters. Well intended friends, foreign brokers, foreign counsel, foreign trustees, foreign pension administrators or even professionals such as CPAs who have had no experience in international tax law practice (they specialized in audit or investments) may not have the expertise to understand current US tax law regarding international tax issues affecting US persons residing abroad.

It is always preferable not to be exposed to significant tax errors or missed tax obligations. If you are audited by US Internal Revenue Service, you may be asked to provide the names of the foreign advisors who provided the advice to you, not a comfortable position to be in.

US Internal Revenue Service has instituted a complex licensing program for tax professionals who advise and prepare US tax returns for compensation. The practitioners are required to take a competency exam, demonstrate tax experience, complete continuing education programs every year, pass a background check (with fingerprints for non-CPA practitioners), be current on all personal individual and related tax reporting and liabilities, and submit to announced office audits by IRS personnel. The Service has implemented severe fines, disbarment from practice before the US Internal Revenue Service, and criminal prosecution for violations of professional conduct and lack of due diligence in conducting a tax practice.

The Internal Revenue Service has made it very clear through various pronouncements, meetings with experienced tax professional groups and in speeches by the Commissioner, Mr. Douglas Shulman, that there will be no relenting of the pressure to bring US persons back into compliance with US tax law.

American Citizens Abroad are aggressively lobbying Congress and various interested representatives on the disincentives of the current US citizenship-based tax system.

This could be a taxing summer for those not in compliance.

By Martha Myron

Withholding Compliance Questions & Answers

Q1: In the past, as an employer, I was required to submit all Forms W-4 that claimed complete exemption from withholding (when $200 or more in weekly wages were regularly expected) or claimed more than 10 allowances. What Forms W-4 do I now have to submit to the IRS?
A1: Employers are no longer required to routinely submit Forms W-4 to the IRS.  However, in certain circumstances, the IRS may direct you to submit copies of Forms W-4 for certain employees in order to ensure that the employees have adequate withholding. You are now required to submit the Forms W-4 to IRS only if directed to do so in a written notice or pursuant to specified criteria set forth in future published guidance.

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Q2: If an employer no longer has to submit Forms W-4 claiming complete exemption from withholding or claiming more than 10 allowances, how does the IRS determine adequate withholding?
A2: The IRS is making more effective use of information contained in its records along with information reported on Form W-2 wage statements to ensure that employees have enough federal income tax withheld.

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Q3: If the IRS determines that an employee does not have enough federal income tax withheld, what will an employer be asked to do?
A3: If the IRS determines that an employee does not have enough withholding, we will notify you to increase the amount of withholding tax by issuing a “lock-in” letter that specifies the maximum number of withholding allowances permitted for the employee. You will also receive a copy for the employee that identifies the maximum number of withholding exemptions permitted and the process by which the employee can provide additional information to the IRS for purposes of determining the appropriate number of withholding exemptions. If the employee still works for you, you must furnish the employee copy to the employee. If the employee no longer works for you, you must send a written response to the IRS office designated in the lock-in letter indicating that the employee is no longer employed by you. The employee will be given a period of time before the lock-in rate is effective to submit for approval to the IRS a new Form W-4 and a statement supporting the claims made on the Form W-4 that would decrease federal income tax withholding. The employee must send the Form W-4 and statement directly to the IRS office designated on the lock-in letter. You must withhold tax in accordance with the lock-in letter as of the date specified in the lock-in letter, unless otherwise notified by the IRS. You will be required to take this action no sooner than 45 calendar days after the date of the lock-in letter. Once a lock-in rate is effective, an employer can not decrease withholding unless approved by the IRS.

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Q4: As an employer, after I lock in withholding on an employee based on a lock-in letter from the IRS, what do I do if I receive a revised Form W-4 from the employee?
A4: After the receipt of a lock-in letter, you must disregard any Form W-4 that decreases the amount of withholding. The employee must submit for approval to the IRS any new Form W-4 and a statement supporting the claims made on the Form W-4 that would decrease federal income tax withholding. The employee should send the Form W-4 and statement directly to the address on the lock-in letter. The IRS will notify you to withhold at a specific rate if the employee’s request is approved. However, if, at any time, the employee furnishes a Form W-4 that claims a number of withholding allowances less than the maximum number specified in the lock-in letter, the employer must increase withholding by withholding tax based on that Form W-4.

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Q5: As an employer who has received a modification letter (letter 2808C) from the WHC program, do I wait for another 60 days to change the marital status and/or number of allowances per the modification letter?
A5: No, the modifications to the marital status and/or number of allowances become effective at the beginning of the first full pay period after you receive the letter 2808C.

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Q6: I have been directed to lock in an employee’s withholding. What happens if I do not lock in the employee’s withholding as directed?
A6: Those employers who do not follow the IRS lock-in instructions will be liable for paying the additional amount of tax that should have been withheld.

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Q7: Our employees can submit or change their Forms W-4 on line. How can I prevent them from changing their Forms W-4 after they have been locked-in by the IRS?
A7: You will need to block employees who have been locked-in from using an on line Form W-4 system to decrease their withholding.

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Q8:  What should I do if an employee submits a valid Form W-4 that appears to be claiming an incorrect withholding amount?
A8: You should withhold federal income tax based on the allowances claimed on the Form W-4.  But, you should advise the employee that the IRS may review withholding to ensure it is adequate, and that the IRS may direct you, as the employer, to withhold income tax for the employee at a certain rate if the review indicates the employee’s withholding is inadequate. Once this occurs the employee will not be allowed to decrease their withholding unless approved by the IRS.

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Q9: What do I do if an employee hands me a substitute Form W-4 developed by the employee?
A9:  Employers may refuse to accept a substitute form developed by an employee and the employee submitting such a form will be treated as failing to furnish a Form W-4.  In such case, you should inform the employee that you will not accept this form and offer the employee an opportunity to complete an official Form W-4 or a substitute Form W-4 developed by you. Until the employee furnishes a new Form W-4, the employer must withhold from the employee as from a single person claiming no allowances; if, however, a prior Form W-4 is in effect for the employee, the employer must continue to withhold based on the prior Form W-4.  As an employer, a substitute withholding exemption certificate developed by you can be used in lieu of the official Form W-4, if you provide all the tables, instructions, and worksheets contained in the Form W-4 in effect at that time to the employee.

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Q10: What do I do if an employee hands me an official IRS Form W-4 that is clearly altered?
A10: Any alteration of a Form W-4 (e.g. crossed out penalties of perjury statement above the signature) will cause the Form W-4 to be invalid. If an employer receives an invalid Form W-4, the employee will be treated as failing to furnish a Form W-4; the employer must inform the employee that the Form W-4 is invalid, and must request another Form W-4 from the employee. Until the employee furnishes a new Form W-4, the employer must withhold from the employee as from a single person claiming no allowances. If, however, a prior Form W-4 is in effect for the employee, the employer must continue to withhold based on the prior Form W-4.

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Q11: I heard my employer no longer has to routinely submit Forms W-4 to the IRS.  How will this affect me as an employee?
A11: There is no change in the requirement that employees have adequate income tax withholding. The withholding calculator found on www.irs.gov is available to help employees determine the proper amount of federal income tax withholding. Another useful resource, Publication 919, “How Do I Adjust My Tax Withholding?” is available on the IRS Web site or can be obtained by calling 1-800-TAX-FORM (829-3676).  Individuals who do not have sufficient income tax withholding are subject to penalties. The IRS will be making more effective use of information contained in its records along with information reported on Form W-2 wage statements to ensure that employees have enough federal income tax withheld.

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Q12: As an employee, what happens if the IRS determines that I do not have adequate withholding?
A12: The IRS may direct your employer to withhold federal income tax at an increased rate to ensure you have adequate withholding by issuing a lock-in letter. At that point, your employer must disregard any Form W-4 that decreases the amount of withholding. You will receive a copy of the lock-in letter. You will be given a period of time before the lock-in rate is put in effect to submit for approval to the IRS a new Form W-4 and a statement supporting the claims made on the Form W-4 that would decrease your federal income tax withholding. You should send the Form W-4 and statement directly to the address on the lock-in letter. Once a lock-in letter is issued, you will not be allowed to decrease your withholding unless approved by the IRS.

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Q13: What if I don’t want to submit a Form W-4 to my employer?
A13: Your employer is required to withhold income tax from your wages as if you are single with zero allowances if you do not submit a Form W-4.

Page Last Reviewed or Updated: December 16, 2009

From the Internal Revenue Service

Taxes Overseas? Fess up without going to jail

NEW YORK — Tax payers with money offshore have until the end of August to fess up if they want Uncle Sam to take it easy on them.

The IRS announced on Tuesday that it would give taxpayers a reduction in penalties — and no jail time — if they fess up to any undisclosed overseas accounts by Aug. 31.

“This new effort gives those hiding money in foreign accounts a tough, fair way to resolve their tax problems once and for all,” said IRS Commissioner Doug Shulman in a prepared statement. “And it gives people a chance to come in before we find them.”

Tax payers will face a penalty of up to 25% of the highest annual account balance going back to 2003, though some taxpayers will be able to receive a penalty of as little as 5% depending on the size of the account.

The program also requires tax payers to fork over back taxes, interest and late charges for up to eight years.

IRS: Itemizers can file on Feb. 14

This is the IRS’s second voluntary attempt at this program. In 2009 it reeled in 15,000 taxpayers with undisclosed overseas accounts at banks in more than 60 countries.

Penalties under the new initiative are higher than they were during the 2009 program so that people who waited to fess up aren’t rewarded. However, Schulman said that as the IRS continues to invest more resources in cracking down on these illegal offshore accounts, this is the time to come forward.

“The situation will just get worse in the months ahead for those hiding assets and income offshore,” he said. “This new disclosure initiative is the last, best chance for people to get back into the system.” 

revised from CNN Money Online