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Issue Number: 2021-12

Inside This Issue

1. Important update to Form W-2 and the General Instructions for Forms W-2 and W-3 – Dependent care exclusion increased from $5,000 to $10,500
2. IRS announces 2022 tax rates, standard deduction amounts, 401(k) limit increases to $20,500 and more
3. IRS offers how-to videos to help taxpayers apply for Offers in Compromise
4. New identity verification process to access certain IRS online tools and services
5. IRS updates process for FAQs on new tax legislation and addresses reliance concerns
6. Updated Publication 1345 now available
7. Proposed regulations on information reporting of health insurance coverage and other issues
8. New forms, instructions and publications on IRS.gov

Please note of the following corrections to the Box 10, Dependent care benefits section in the Form W-2 and the General Instructions for Forms W-2 and W-3 to ensure that employers who provide and employees who receive dependent care benefits obtain the correct maximum amount that can be excludable from an employee’s income.

Section 9632 of the American Rescue Plan Act of 2021 (ARP) permits employers to increase the maximum amount of dependent care benefits that can be excluded from an employee’s income from $5,000 to $10,500 ($5,250 for Married filing separately).

Form W-2, Box 10 under Instructions for Employee:

• This section has been updated to remove the $5,000 limit. It’s been revised to state that any amount above your employer’s plan limit is also included in
  box 1.

General Instructions for Forms W-2 and W-3, Box 10—Dependent care benefits under Specific Instructions for Form W-2:

• This section has been updated to remove the $5,000 limit. It’s been revised to advise of the increase to $10,500 or $5,250 for Married filing separately if the employer timely amends the plan.

For the updated form and instructions, once they are posted in November, go to the About Form W-2, Wage and Tax Statement IRS.gov webpage.

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Revenue Procedure 2021-45 announces annual inflation adjustments for tax year 2022, meaning new tax-rate schedules and tax tables and cost-of-living adjustments for various tax breaks. Taxpayers should consult additional guidance to determine whether these adjustments remain applicable for 2022.

Also, the contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is now increased to $20,500, up from $19,500 for 2021 and 2020.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver's Credit all increased for 2022. Taxpayers can also deduct contributions to a traditional IRA if they meet certain conditions.

The IRS also issued technical guidance regarding all cost‑of‑living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2022 in Notice 2021-61 posted on IRS.gov.

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The IRS introduces a new how-to video series that explains the Offer in Compromise process and walks taxpayers through the paperwork for submitting a valid offer to settle their tax debts. Understanding how offers work, helps them avoid scams and paying excessive fees to companies advertising outlandish claims. Taxpayers should also consult a trusted reputable tax professional when needed.

The new OIC video playlist marks another improvement for IRS online educational videos by breaking the videos' information out into easy-to-navigate chapters and sections that coincide with the layout of the OIC booklet and forms. It also offers taxpayers the ability to bookmark information they'd like to revisit later.

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The IRS launched an improved identity verification and sign-in process that enables more people to securely access and use IRS online tools and applications.

Taxpayers using the new mobile-friendly verification procedure can gain entry to existing IRS online services such as the Child Tax Credit Update Portal, Online Account, Get Transcript Online, Get an Identity Protection PIN (IP PIN) and Online Payment Agreement. Additional IRS applications will transition to the new method over the next year.

A fact sheet has more information about the new process.

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Significant frequently asked questions (FAQs) on newly enacted tax legislation, as well as any later updates or revisions to these FAQs, will now be announced in a news release and posted on IRS.gov in a separate fact sheet. These fact sheet FAQs will be dated to enable taxpayers to confirm the date on which any changes to the FAQs were made.

Additionally, prior versions of fact sheet FAQs will be maintained on IRS.gov to ensure that, if a fact sheet FAQ is later changed, taxpayers can locate the version they relied on if they later need to do so. In addition to significant FAQs on new legislation, the IRS may apply this updated process in other contexts, such as when FAQs address emerging issues. 

To address concerns about the potential application of penalties to taxpayers who rely on an FAQ, the IRS released a statement clarifying that if a taxpayer relies on any FAQ in good faith and that reliance is reasonable, the taxpayer will have a “reasonable cause” defense against any negligence penalty or other accuracy-related penalty if it turns out the FAQ is not a correct statement of the law as applied to the taxpayer’s particular facts.

For more information on taxpayer reliance, see the General Overview of Taxpayer Reliance on Guidance Published in the Internal Revenue Bulletin and FAQs.

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Publication 1345, Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns, is available on IRS.gov. This edition of Publication 1345, Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns, replaces the previous edition revised February 2021.

This publication addresses the rules and requirements for participation in IRS e-file by Authorized IRS e-file Providers filing individual income tax returns and related forms and schedules. All participants should become familiar with this publication.

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Regulation-109128-2, proposed regulations, which provide “minimum essential coverage,” as that term is used in health insurance-related tax laws, does not include Medicaid coverage that is limited to COVID-19 testing and diagnostic services provided under the Families First Coronavirus Response Act.

The proposed regulations also provide an automatic extension of time for providers of minimum essential coverage to furnish individual statements regarding such coverage, and an alternative method for furnishing individual statements when the shared responsibility payment amount is zero.

Lastly, the proposed regulations provide an automatic extension of time for “applicable large employers” to furnish statements relating to health insurance that the employer offers to its full-time employees.

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Forms

• Form 943, Employer's Annual Federal Tax Return for Agricultural Employees
• Form 1094-B, Transmittal of Health Coverage Information Returns
• Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns
• Form 1095-B, Health Coverage
• Form 1095-C, Employer-Provided Health Insurance Offer and Coverage

Instructions

• Inst 1095-A, Instructions for Form 1095-A, Health Insurance Marketplace Statement

Publications

• Pub 1187, Specifications for Electronic Filing of Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding
• Pub 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G
• Pub 1586, Reasonable Cause Regulations and Requirements for Missing and Incorrect Name/TINs (including instructions for reading CD/DVDs)
• Pub 1693, Social Security Administration/Internal Revenue Service (SSA/IRS) Reporter

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