Whether someone is entering the workforce for the first time or changing jobs, filling out new hire paperwork can feel overwhelming. One of the forms employees must complete is a W-4, Employee’s Withholding Certificate. This form tells employers how much money to withhold from the employee’s pay for federal income tax.
It’s important for employees to know the correct amount of tax to withhold so they don’t owe too much money when filing their tax return or have too much money withheld from their paychecks.
Get tax withholding right.
Federal income tax is a pay-as-you-go tax. Taxpayers pay the tax through their employers as they earn or receive income during the year. Employers take out – or withhold – income tax from employee paychecks and pay it to the IRS in the taxpayer’s name.
If an employee doesn’t have enough tax withheld, they may face an unexpected tax bill and a possible penalty when they file a tax return next year. If they overpay or have too much tax withheld during the year, the employee will likely get a tax refund when they file their tax return. Adjusting the tax withheld up front may mean a bigger paycheck throughout the year.
Form W-4, Employee’s Withholding Certificate
New employees must complete Form W-4 so that their employer can withhold the correct amount of federal income tax from their pay. Employees should read the instructions carefully. The employer will base the amount of withholding on the information the employee provides on their W-4 and how much the employee earns.
People can also submit a new W-4 when their personal or financial situation changes and they want to update their withholding.
Taxpayers can use the Tax Withholding Estimator
If a taxpayer isn’t sure how much tax they should have withheld, they can use the Tax Withholding Estimator tool on IRS.gov to:
• Estimate their federal income tax withholding.
• See how their refund, take-home pay or tax due is affected by their withholding amount.
Not all workers are employees
Workers are classified as either contractors or employees according to certain rules. Workers who are independent contractors need to pay their taxes directly to the IRS. Depending on how much they earn, they may need to pay estimated tax on a quarterly basis.
Keep tax forms in a safe place.
Form W-2, Wage and Tax Statement, is a taxpayer’s record of the income they received throughout the year and the amount of money withheld for federal, state, local and other taxes. Employers typically send these out in late January each year. Taxpayers should keep all the tax documents they receive and store them in a safe place so they are available for filing an accurate tax return.
The IRS offers several different payment plan options, but taxpayers may want to first consider non-IRS options depending on their financial situation. Regardless of how someone pays, they should act quickly because tax bills get larger as long as they remain unpaid.
Online self-service payment plans
Most taxpayers qualify for an IRS payment plan (or installment agreement) and can use the Online Payment Agreement (OPA) to set it up to pay off an outstanding balance over time. Once taxpayers complete the online application, they receive immediate notification of whether the IRS has approved their payment plan.
The process only takes a few minutes, and there’s no paperwork and no need to call, write or visit the IRS. Setup fees may apply for some types of plans. Taxpayers who don’t qualify for online self-service should contact the IRS for other payment plan options using the phone number or address on their most recent notice.
• Individual taxpayers’ online payment plan options include:
o Short-term payment plans – For taxpayers who have a total balance less than $100,000 in combined tax, penalties and interest. This plan gives them an extra 180 days to pay the balance in full.
o Long-term payment plan (also called an installment agreement) – For taxpayers who have a total balance less than $50,000 in combined tax, penalties and interest. They can make monthly payments for up to 72 months. Taxpayers are encouraged to set up plan payments using direct debit (automatic bank withdraw), which eliminates the need to send a payment each month, saves postage costs, and reduces the chance of default. The IRS requires direct debit for balances between $25,000 and $50,000.
• Business taxpayers’ online payment plan options include:
o Long-term payment plan (also called an installment agreement) – For business taxpayers who have a total balance less than $25,000 in combined tax, penalties and interest from the current and preceding tax year. They can make monthly payments for up to 24 months. Taxpayers can choose to set up payments using direct debit (automatic bank withdraw) and requires it on balances between $10,000 and $25,000.
Online tools for payment plans
Qualified taxpayers with existing payment plans may be able to use the Online Payment Agreement to make changes to their plans that include revising payment dates, payment amounts or bank information for direct debit payments.
Individual taxpayers have the option to sign into or create their own Online Account. This account allows them to:
• Check on any scheduled or pending payments.
• Review payment plan details and payment history.
• View the amount they owe.
Payment options for taxpayers already working with the IRS
Individuals and out-of-business sole proprietors who are already working with the IRS to resolve a tax issue, and who owe $250,000 or less, have the option to propose a monthly payment that will pay the balance over the length of the collection statute – usually 10 years. These payment plans don’t require a financial statement, but a determination for the filing of a notice of federal tax lien still applies.
Find more information about the costs of payment plans on IRS.gov – Additional Information on Payment Plans.
WASHINGTON — The Internal Revenue Service today encouraged taxpayers who owe unpaid taxes and missed the April 18 tax deadline to file their 2022 federal income tax return and pay any tax due by Wednesday, June 14, to avoid a larger late-filing penalty.
Penalties and interest can grow quickly. The IRS reminded taxpayers about important payment programs that can help as well as the availability of special first-time penalty abatement relief for those who qualify.
Normally the late-filing penalty for each month — or part of a month that a return is late — is 5% of the unpaid tax, up to a maximum of 25 percent. The late-filing penalty will stop accruing once the taxpayer files.
But, by law, if a return is more than 60 days late, the minimum late-filing penalty, also known as a Failure to File penalty, is either $435 or 100% of the unpaid tax, whichever is less. This means the penalty will equal the tax due if the taxpayer owes $435 or less. If they owe more than $435, the minimum penalty will be $435.
The IRS must receive the return by June 14; returns mailed on that date normally won’t avoid the larger penalty. For that reason, the IRS recommends taxpayers file electronically by June 14.
In addition, taxpayers can limit late-payment penalties and interest charges by paying their tax electronically. The fastest and easiest way to do that is with IRS Direct Pay, a free service available only on IRS.gov. Several other electronic payment options are also available. Visit IRS.gov/payments for details.
Late-payment penalties and interest will stop accruing as soon as the tax is paid. The taxpayer need not figure any of these charges. Instead, the IRS will bill them for any amount due.
Taxpayers can review information on the Failure to File and the Failure to Pay penalties by visiting IRS.gov/penalties.
There are many important provisions that can help taxpayers in these situations.
Penalty relief for some
Taxpayers who have filed and paid on time and have not been assessed any penalties for the past three years often qualify to have the penalty abated. See the First-Time Penalty Abatement page on IRS.gov. A taxpayer who does not qualify for this relief may still qualify for penalty relief if their failure to file or pay on time was due to reasonable cause and not willful neglect.
Anyone who receives a penalty notice from the IRS should read it carefully and follow its instructions for requesting relief. See Penalty Relief on IRS.gov for the types of penalty relief and how to make the request.
In addition to penalties, interest will be charged on any tax not paid by the April 18 due date and any subsequent penalties. Interest stops accruing as soon as the balance due is paid in full. By law, interest abatement is not an option for reasonable cause or as first-time relief.
Options if unable to pay what’s owed
Many taxpayers mistakenly delay filing because they are unable to pay what they owe. Often, these taxpayers qualify for one of the payment options available from the IRS.
Individual taxpayer’s online payment plan options include:
• Short-term payment plans – for taxpayers who have a total balance less than $100,000 in combined tax, penalties and interest. This plan gives them an extra 180 days to pay the balance in full.
• Long-term payment plan (also called an installment agreement) – for taxpayers who have a total balance less than $50,000 in combined tax, penalties and interest. They can make monthly payments for up to 72 months. Taxpayers are encouraged to set up plan payments using direct debit (automatic bank withdraw), which eliminates the need to send a payment each month, saving postage costs, and reducing the chance of default. The IRS requires direct debit for balances between $25,000 and $50,000.
• Offer in Compromise — Some struggling taxpayers may qualify to settle their tax bill for less than the amount they owe by submitting an offer in compromise. To help determine eligibility, use the Offer in Compromise Pre-Qualifier tool.
Some automatically get more time to file
Some taxpayers get more time to file, even if they didn’t request an extension. These special deadlines affect penalty and interest calculations for those who qualify, such as members of the military serving in combat zones, taxpayers living outside the U.S. and those living in declared disaster areas.
Disaster areas
The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in a federally declared disaster area when at least one area qualifies for the Federal Emergency Management Agency’s Individual Assistance program. Ordinarily, this means that taxpayers need not contact the IRS to get disaster tax relief. For details on all available relief, visit the Around the Nation page on IRS.gov.
Those serving in combat zones
Military service members and eligible support personnel serving in a combat zone have at least 180 days after they leave the combat zone to file their tax returns and pay any tax due. A complete list of designated combat zone localities is in Publication 3, Armed Forces’ Tax Guide, available on IRS.gov.
Combat zone extensions also give affected taxpayers more time for a variety of other tax-related actions. Various circumstances affect the exact length of the extension available to taxpayers. Details, including examples illustrating how these extensions are calculated, are in the Extensions of Deadlines section in Publication 3.
Taxpayers, military on duty living outside the United States
U.S. citizens and resident aliens who live and work outside the U.S. and Puerto Rico are granted an automatic two-month extension, until June 15, 2023, to file their 2022 tax returns and pay any tax due.
The special June 15 deadline also applies to members of the military on duty outside the U.S. and Puerto Rico who do not qualify for the longer combat zone extension. Affected taxpayers should attach a statement to their return explaining which of these situations apply. For more information about the special tax rules for U.S. taxpayers abroad, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, on IRS.gov.
When to check withholding
To protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time next year, taxpayers should check their withholding every year. For help determining the right amount to withhold, use the Tax Withholding Estimator on IRS.gov.
Form 1099-K, Payment Card and Third-Party Network Transactions, is an IRS form that is used to report certain payment transactions.
If taxpayers receive a Form 1099-K, they should use that information with their other tax records to determine their correct tax liability. Taxpayers must report all their income on their tax return unless it’s excluded by law, regardless of whether they receive a Form 1099-K.
Taxpayers will receive Form 1099-K for business transactions, including income from:
• A business the taxpayer owns.
• Self-employment.
• Activities in the gig economy.
• The sale of personal items and assets.
Money received as a gift or for reimbursement does not require a 1099-K. Taxpayers can minimize the chance of an error by asking friends or family members to correctly designate that type of payment as a non-business-related transaction. The taxpayer should also make a note of what the payment was for and who sent it. Good recordkeeping is key.
What to do when a Form 1099-K is incorrect
Some taxpayers may have received a Form 1099-K for the sale of personal items, or Form 1099-K may have been issued in error – such as for transactions between friends and family, or expense sharing.
If the information is incorrect on the Form 1099-K, taxpayers should contact the issuer immediately. The issuing organization’s name appears in the upper left corner on the form. Taxpayers should keep a copy of all correspondence with the issuer for their records.
If a taxpayer receives a Form 1099-K in error and the taxpayer cannot obtain a corrected Form 1099-K, the taxpayers should follow the IRS’ updated guidance at Understanding Your Form 1099-K.
1099-K reporting threshold for tax year 2023
The American Rescue Plan of 2021 changed the reporting threshold requirement for payment apps, also known as third-party settlement organizations. The IRS announced that the new Form 1099-K reporting threshold will start in tax year 2023.
• The old threshold was $20,000 and 200 transactions per year. This applies to tax year 2022 and prior years.
• The new threshold is more than $600. This applies to tax year 2023 and future years.
The threshold change means some people may receive a Form 1099-K who have not received one in the past. There are no changes to what counts as income or how tax is calculated.
WASHINGTON ― With the tax deadline approaching, the IRS reminded taxpayers they can avoid late filing and interest penalties by submitting their tax return and any payments due by April 18. For struggling taxpayers who can’t pay by the deadline, the IRS offers several different options to help.
The IRS also provides multiple ways for people to file for an extension, get information to help file their tax return and learn about payment options if they have trouble paying by the April 18 deadline.
An extension will help to avoid penalties and interest for failing to file on time, and gives taxpayers until Oct. 16, 2023, to file. However, they still must pay what they owe by the April 18 deadline.
Except for eligible victims of recent natural disasters who have until Oct. 16 to make various tax payments, taxpayers who can’t pay the full amount of taxes they owe by April 18 should file and pay what they can to reduce total penalties and interest.
There are several ways to make electronic payments, and there are options for a payment plan or agreement.
IRS Online Account
An IRS Online Account provides access to important information when preparing to file a tax return, pay a balance or follow up on notices. Taxpayers can view their:
• Adjusted Gross Income.
• Payment history and any scheduled or pending payments.
• Payment plan details.
• Digital copies of select notices from the IRS.
Taxpayers can also use their Online Account to securely make a same-day payment for an outstanding 2022 tax balance, pay quarterly estimated taxes for the 2023 tax season or request an extension to file a 2022 return.
Interest and a late payment penalty will apply to any payments made after April 18. Making a payment, even a partial payment, will help limit penalty and interest charges.
Other options to pay electronically
Direct Pay, available only on IRS.gov, is the fastest and easiest way to make a one-time payment without signing into an IRS Online Account.
• Direct Pay: Direct Pay is free and allows taxpayers to securely pay their federal taxes directly from their checking or savings account without any fees or preregistration. Taxpayers can schedule payments up to 365 days in advance. After submitting a payment through Direct Pay, taxpayers will receive immediate confirmation.
• Electronic Funds Withdrawal (EFW): This option allows taxpayers to file and pay electronically from their bank account when using tax preparation software or a tax professional. This option is free and only available when electronically filing a tax return.
• Electronic Federal Tax Payment System: This free service gives taxpayers a safe and convenient way to pay individual and business taxes by phone or online. To enroll and for more information, taxpayers can call 800-555-4477 or visit eftps.gov.
• Debit or credit card or digital wallet: Individuals can pay online, by phone or with a mobile device through any of the authorized payment processors. The processor charges a fee. The IRS doesn’t receive any fees for these payments. Authorized card processors and phone numbers are available at IRS.gov/payments.
Other payment options:
• Cash: For taxpayers who prefer to pay in cash, the IRS offers a way to pay taxes at one of its Cash Processing Company services. The IRS urges taxpayers choosing this option to start early because it involves a four-step process. Details, including answers to frequently asked questions, are at IRS.gov/paywithcash.
• Check or money order: Payments made by check or money order should be made payable to the “United States Treasury.” To help ensure that the payment gets credited promptly, taxpayers should also enclose a 2022 Form 1040-V payment voucher and print the following on the front of the check or money order:
o “2022 Form 1040”
o Name
o Address
o Daytime phone number
o Social Security number
For taxpayers who cannot pay in full
The IRS encourages taxpayers who cannot pay in full to pay what they can and consider a variety of payment options available for the remaining balance including getting a loan to pay the amount due. In many cases, loan costs may be lower than the combination of interest and penalties the IRS must charge under federal law. Taxpayers should act as quickly as possible: Tax bills accumulate more interest and fees the longer they remain unpaid. For all payment options, visit IRS.gov/payments.
Online self-service payment plans
Most individual taxpayers qualify for a payment plan and can use Online Payment Agreement to set up a payment plan (including an installment agreement) to pay off an outstanding balance over time.
Once the online application is completed, the taxpayer receives immediate notification of whether their payment plan has been approved. Taxpayers can setup a plan using the Online Payment Agreement in a matter of minutes. There’s no paperwork and no need to call, write or visit the IRS. Setup fees may apply for some types of plans.
Online payment plan options for individual taxpayers include:
• Short-term payment plan – The total balance owed is less than $100,000 in combined tax, penalties and interest. Additional time of up to 180 days to pay the balance in full.
• Long-term payment plan (installment agreement) – The total balance owed is less than $50,000 in combined tax, penalties and interest. Pay in monthly payments for up to 72 months. Payments may be set up using direct debit (automatic bank withdraw) which eliminates the need to send in a payment each month, saving postage costs, and reducing the chance of default. For balances between $25,000 and $50,000, direct debit is required.
Qualified taxpayers with existing payment plans may be able to use the Online Payment Agreement to make changes including revising payment dates, payment amounts or bank information for payments made by direct debit. Go to Online Payment Agreement for more information.
Though interest and late-payment penalties continue to accrue on any unpaid taxes after April 18, the failure to pay the tax penalty rate is cut in half while an installment agreement is in effect. Find more information about the costs of payment plans on the IRS’ Additional Information on Payment Plans webpage.
Other payment options
Taxpayers struggling to meet their tax obligation may also consider these additional payment options:
• Offer in Compromise – Certain taxpayers qualify to settle their tax liabilities for less than the total amount they owe by submitting an Offer in Compromise. To help determine their eligibility, they can use the Offer in Compromise Pre-Qualifier tool. To help taxpayers prepare their own valid Offers in Compromise, the IRS created an Offer in Compromise video playlist – also available in Spanish and Simplified Chinese – that walks them through the necessary paperwork.
• Temporary delay of collection – Taxpayers can contact the IRS to request a temporary delay of the collection process. If the IRS determines a taxpayer is unable to pay, it may delay collection until the taxpayer’s financial condition improves. Penalties and interest continue to accrue until the full amount is paid.
• Other payment plan options – Taxpayers who do not qualify for online self-service should contact the IRS using the phone number or address on their most recent notice for other payment plan options. For individuals and out-of-business sole proprietors who are already working with IRS Campus Collection and who owe $250,000 or less, one available option is to propose a monthly payment that will pay the balance over the length of the Collection Statute (usually 10 years). These payment plans don’t require a financial statement, but they do require a determination for the filing of a Notice of Federal Tax Lien still applies.
For more information about payments, see Topic No. 202, Tax Payment Options, on IRS.gov.
Taxpayers who aren’t able to file by the April 18, 2023, deadline can request an extension before that deadline, but they should know that an extension to file is not an extension to pay taxes. If they owe taxes, they should pay them before the due date to avoid potential penalties and interest on the amount owed.
Taxpayers who request a six-month extension to file their taxes have until October 16, 2023, to file their 2022 federal income tax return.
How to request a free extension to file for a return with no tax due
Individual taxpayers, regardless of income, can use IRS Free File at IRS.gov/FreeFile to request an automatic six-month tax-filing extension. Alternatively, taxpayers can file Form 4868, Application for Automatic Extension of Time to File.
How to request an extension when making a payment for a return with taxes due
Taxpayers can choose to submit an electronic payment and select Form 4868 or extension as the payment type. The IRS will count it as an extension automatically, and taxpayers won’t need to file Form 4868.
Victims in FEMA disaster areas may have an automatic extension
The IRS may offer an automatic extension to areas designated by the Federal Emergency Management Agency. To check whether an area is included, see IRS.gov/disasters. Taxpayers in the affected areas do not need to file any extension paperwork, and they do not need to call the IRS to qualify for the extended time.
Receiving a tax refund is happy news to any taxpayer; getting it quickly is even better. Direct deposit is the safest and most convenient way to receive a tax refund. The IRS encourages taxpayers to file when they are ready and choose direct deposit to receive any refund they may be owed.
Benefits of choosing IRS direct deposit:
- It’s fast. The fastest way for taxpayers to get their refund is to file electronically and choose direct deposit. Visit IRS.gov for details about IRS Free File, Free File Fillable Forms, free tax return preparation and more. Taxpayers who file a paper return can also choose direct deposit, but it will take longer to process the return and get a refund.
- It’s secure. Since refunds are electronically deposited, there’s no risk of having a paper check stolen or lost in the mail.
- It’s easy. Taxpayers can simply follow the instructions when selecting direct deposit as a refund method and enter their account information as directed. They must enter the correct account and routing numbers when they file.
- It provides options. Taxpayers can split a refund into several financial accounts. These include checking, savings, health, education and certain retirement accounts. They should use IRS Form 8888, Allocation of Refund, Including Savings Bond Purchases to deposit a refund in up to three accounts. This form cannot be used to designate part of a refund to pay tax preparers.
Taxpayers should deposit refunds into U.S. bank accounts in their own name, their spouse’s name or both. They should avoid making a deposit into accounts owned by others. Some banks require both spouses’ names on the account to deposit a tax refund from a joint return. Taxpayers should check with their bank for direct deposit rules.
Get a bank account
Taxpayers who don’t have a bank account can visit the FDIC website for information on banks that let them open an account online and how to choose the right account. Veterans can use the Veterans Benefits Banking Program for access to financial services at participating banks.
Mobile apps may be an option
Some mobile apps and prepaid debit cards allow for direct deposit of tax refunds. They must have routing and account numbers associated with them that can be entered on a tax return. Taxpayers should check with the mobile app provider or financial institution to confirm which numbers to use.
Taxpayers must have their routing and account numbers for direct deposit available when they are ready to file. The IRS can’t accept this information after a return is filed.
There is a limit of three direct deposit refunds made into a single financial account or prepaid debit card.
More information:
Whether someone travels for work once a year or once a month, figuring out travel expense tax write-offs might seem confusing. The IRS has information to help all business travelers properly claim these valuable deductions.
Here are some tax details all business travelers should know
Business travel deductions are available when employees must travel away from their tax home or main place of work for business reasons. A taxpayer is traveling away from home if they are away for longer than an ordinary day’s work and they need to sleep to meet the demands of their work while away.
Travel expenses must be ordinary and necessary. They can’t be lavish, extravagant or for personal purposes.
Employers can deduct travel expenses paid or incurred during a temporary work assignment if the assignment length does not exceed one year.
Travel expenses for conventions are deductible if attendance benefits the business. There are special rules for conventions held outside North America.
Deductible travel expenses include:
• Travel by airplane, train, bus or car between your home and your business destination.
• Fares for taxis or other types of transportation between an airport or train station and a hotel, or from a hotel to a work location.
• Shipping of baggage and sample or display material between regular and temporary work locations.
• Using a personally owned car for business.
• Lodging and meals.
• Dry cleaning and laundry.
• Business calls and communication.
• Tips paid for services related to any of these expenses.
• Other similar ordinary and necessary expenses related to the business travel.
Self-employed individuals or farmers with travel deductions
• Those who are self-employed can deduct travel expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship).
• Farmers can use Schedule F (Form 1040), Profit or Loss From Farming.
Travel deductions for the National Guard or military reserves
National Guard or military reserve servicemembers can claim a deduction for unreimbursed travel expenses paid during the performance of their duty.
Recordkeeping
Well-organized records make it easier to prepare a tax return. Keep records such as receipts, canceled checks and other documents that support a deduction.
Most of the common errors taxpayers make on their tax returns are easily avoidable. By carefully reviewing their return, taxpayers can save time and effort by not having to correct it later. Filing electronically also helps prevent mistakes. Tax software does the math, flags common errors and prompts taxpayers for missing information. It can also help taxpayers claim valuable credits and deductions. Taxpayers who qualify may use IRS Free File to file their return electronically for free.
Here are some of the mistakes to avoid:
• Filing too early. While taxpayers should not file late, they also should not file prematurely. They should wait to file until they’re certain they’ve received all their tax reporting documents, or they risk making a mistake that may lead to a processing delay.
• Missing or inaccurate Social Security numbers. Each SSN on a tax return should appear exactly as printed on the Social Security card.
• Misspelled names. The names of all taxpayers and dependents listed on the return should match the names on their Social Security cards.
• Inaccurate information. Taxpayers should carefully enter any wages, dividends, bank interest and other income they received to make sure they report the correct amounts. This includes any information taxpayers need to calculate credits and deductions.
• Incorrect filing status. Some taxpayers choose the wrong filing status. Publication 501 has detailed information about filing statuses.
• Math mistakes. Math errors are some of the most common mistakes. They range from simple addition and subtraction to more complex calculations. Taxpayers should always double check their math. Better yet, tax prep software will check it automatically.
• Figuring credits or deductions. Taxpayers can make mistakes figuring things like their earned income tax credit, child and dependent care credit and child tax credit. Tax software will calculate these credits and deductions and include any required forms and schedules.
• Incorrect bank account numbers. Taxpayers who are due a refund should choose direct deposit. This is the fastest way for them to get their money. However, taxpayers need to make sure they use the correct routing and account numbers on their tax return.
• Unsigned forms. An unsigned tax return isn’t valid. In most cases, both spouses must sign a joint return. Exceptions may apply for members of the armed forces or other taxpayers who have a valid power of attorney.
• Disreputable tax preparers. Taxpayers should remember they, not the tax preparer, are responsible for the information on their tax return. The IRS has resources to help taxpayers find someone to prepare their tax return. Some taxpayers may even be able to get free help from IRS-certified volunteers. Certified public accountants, enrolled agents or other tax professionals can also help taxpayers avoid errors.
WASHINGTON –The Internal Revenue Service today reminded taxpayers to choose a tax return preparer with care. Even though most tax return preparers provide honest, quality service, some may cause harm through fraud, identity theft and other scams.
When hiring an individual or firm to prepare a tax return, filers need to understand who they’re choosing and what important questions to ask.
A taxpayer’s needs will determine which kind of preparer is best for them. Whether taxpayers regularly use a tax professional to help them file a tax return or have decided to work with one for the first time, choosing a tax professional carefully is important. Taxpayers are ultimately responsible for all the information on their income tax return, regardless of who prepares the return.
When choosing a tax professional, the IRS urges taxpayers to visit IRS.gov. The Choosing a Tax Professional page on IRS.gov has information about tax return preparer credentials and qualifications. The IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications can help identify many preparers by type of credential or qualification.
Warning signs
By law, anyone who is paid to prepare or assists in preparing federal tax returns must have a valid Preparer Tax Identification Number. Paid preparers must sign and include their PTIN on any tax return they prepare.
Not signing a return is a red flag that the paid preparer may be looking to make a quick profit by promising a big refund or charging fees based on the size of the refund. Taxpayers should avoid these unethical “ghost” tax return preparers.
A ghost preparer is someone who doesn’t sign tax returns they prepare. Unscrupulous ghost preparers often print the return and have the taxpayer sign and mail it to the IRS. For electronically filed returns, a ghost preparer will prepare the tax return but refuse to digitally sign it as the paid preparer.
Tips for selecting a tax return preparer
Here are a few tips to consider when choosing a tax return preparer:
• Look for a preparer who’s available year-round. If questions come up about a tax return, taxpayers may need to contact the preparer after the filing season is over.
• Review the preparer’s history. Check the Better Business Bureau website for information about the preparer. Look for disciplinary actions and the license status for credentialed preparers. For CPAs, check the State Board of Accountancy’s website, and for attorneys check with the State Bar Association. For enrolled agents go to IRS.gov and search for “verify enrolled agent status” or check the IRS Directory of Federal Tax Return Preparers.
• Ask about service fees. Taxpayers should avoid tax return preparers who base their fees on a percentage of the refund or who offer to deposit all or part of the refund into their own financial accounts. Be wary of tax return preparers who claim they can get larger refunds than their competitors.
• Ensure their preparer offers IRS e-file. The IRS issues most refunds in fewer than 21 days for taxpayers who file electronically and choose direct deposit.
• Provide records and receipts. Good preparers ask to see these documents. They’ll also ask questions to determine the client’s total income, deductions, tax credits and other items. Do not hire a preparer who e-files a tax return using a pay stub instead of a Form W-2. This is against IRS e-file rules.
• Understand the preparer’s credentials and qualifications. Attorneys, CPAs and enrolled agents can represent any client before the IRS in any situation. Annual Filing Season Program participants may represent taxpayers in limited situations if they prepared and signed the tax return.
• Never sign a blank or incomplete return. Taxpayers are responsible for filing a complete and correct tax return.
• Review the tax return before signing it. Be sure to ask questions if something is not clear or appears inaccurate. Any refund should go directly to the taxpayer – not into the preparer’s bank account. Review the routing and bank account number on the completed return and make sure it’s accurate.