Caraker Law Firm Blog

IRS planning increased collection activity against federal employees Thrift Savings Plans (TSP)

Posted by Chad Caraker on Thu, May 05, 2016 @ 08:00 PM

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IRS Planning increased collection activity against federal employees'

Thrift Savings Plans (TSP)

The National Taxpayer Advocate has reported in its Fiscal Year 2016 Objectives report to Congress that a proposal by the IRS to expand collection efforts against retirement plans of federal employees "infringes on taxpayers' rights to a fair and just tax system." Federal employees have the ability to participate in the Thrift Savings Plan (TSP), which is similar to a private sector 401(k) plan in that employee savings are tax deferred and qualify for some level of employer, (in this case the federal government), matching. 

Taxpayers, including federal government employees, who owe taxes are subject to IRS levy on their property and rights to property.  This power extends to retirement accounts, including the TSP.  However, given the importance of retirement savings to an individual's welfare during old age, the IRS has historically regarded a levy on retirement funds as a special case that requires additional scrutiny and a manager's approval. 

Essentially, before a field Revenue Officer can levy a retirement benefit, the agent would determine what property is available to levy - both retirement and non-retirement, determine if the taxpayer has acted in a flagrant manner, and finally determine if the retirement funds are required for necessary living expenses. There are distinct problems with these factors, but that has been partially mitigated by other requirements prior to issuance of the levy.  The field Revenue Officer must either secure the signature of the Area Director of Field collections, or secure a manager's approval.

In order to obtain a collection manager's approval in this instance, the field Revenue Officer is required to draft a detailed memo that sets out a summary of all information provided to the agent by the taxpayer, whether the taxpayer has exhibited any flagrant behavior, and more importantly, other collection alternatives that have been considered and rejected.  In other words, the retirement account falls into a secondary level of collection after the field Revenue Officer reviews other property or income to levy. 

Recent activity at the IRS has created a pilot program to levy TSP accounts.  Most importantly, and of greatest concern, this program will be administered by ACS employees.  ACS is the Automated Collection System unit.  When a taxpayer's account is in ACS, it is not assigned to a single employee for collection, rather, there are various employees in functions and units that work on similar matters.  These employees do not receive the same level of financial analysis training as a field Revenue Officer. 

In addition to the reduced training received by ACS employees, the pilot program calls for ACS employees to document any information that a retirement is impending and that the taxpayer will be relying on funds from the TSP for necessary living expenses.  This lacks any analysis regarding other property the taxpayer may have that would be available to collect from, or if the taxpayer acted in a flagrant manner, all requirements of a field Revenue Officer. 

Finally, the pilot program requires managerial approval prior to levy on retirement accounts - but that is a requirement of many collection actions by ACS employees - hardly elevating these situation to a special case status.  What is not referenced is the required memo to the manager detailing information provided by the taxpayer and collection alternatives considered and rejected before proposing levy to the retirement account - all requirements of the field Revenue Officer.

In summary, the IRS is targeting one type of retirement account, the TSP, for increased collection activity, over all others. ACS does not have the ability to levy any other retirement accounts at this time.  The National Taxpayer Advocate believes that this pilot program undermines both taxpayer rights and retirement security policy.  As such, the National Taxpayer Advocate is going to continue to push the IRS to abandon the Thrift Savings Plan levy pilot program  If the IRS adopts the program, the National Taxpayer Advocate is prepared to accept all TSP levy cases coming from ACS.  Taxpayers should take advantage of this opportunity to protect their retirement income.  Additionally, where possible, taxpayers should seek assistance from the Appeals division in order to entertain collection alternatives through Appeals' Collection Due Process hearing procedures.  Feel free to contact Caraker Law Firm, P.C. with any questions you may have. 

Tags: Pension Contribution, Levy, IRS debt, Appeals Division, IRS

2015 Inflation Adjustments on Several Tax Benefits and Retirement Adjustments

Posted by Chad Caraker on Mon, Dec 08, 2014 @ 01:42 PM

 

 

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IRS Announces 2015 Inflation Adjustments on Several Tax Benefits and Retirement Adjustments

The IRS recently announced annual inflation adjustments for several tax provisions, which will apply to the 2015 tax year. Some of the affected provisions include: income tax rate schedules, the estate tax exemption, long-term care adjustments, and retirement adjustments. Below is a summary of those adjustments.

Tax Rates. Beginning in the 2015 tax year, the following tax rates will apply:

If the Taxable Income Is:

The Tax for Married Individuals Filing Jointly is:

Less than or equal to $18,450

 

10% of the taxable income

Over $18,450 but not over $74,900

 

$1,845 plus 15% of the excess over $18,450

Over $74,900 but not over $151, 200

 

$10,312.50 plus 25% of the excess over $74,900

Over $151,200 but not over $230,450

 

$29,387.50 plus 28% of the excess over $151,200

Over $230,450 but not over $411,500

 

$51,566.50 plus 33% of the excess over $230,450

Over $411,500 but not over $464,850

 

$111,324 plus 35% of the excess over $411,500

Over $464,850

$129,996.50 plus 39.6% of the excess over $464,850

 

If the Taxable Income Is:

 

The Tax for Heads of Households is:

Not over $13,150

 

10% of the taxable income

Over $13,150 but not over $50,200

 

$1,315 plus 15% of the excess over $13,150

Over $50,200 but not over $129,600

 

$6,872.50 plus 25% of the excess over $50,200

Over $129,600 but not over $209,850

 

$26,722.50 plus 28% of the excess over $129,600

Over $209,850 but not over $411,500

$49,192.50 plus 33% of the excess over $209,850

Over $411,500 but not over $439,000

$115,737 plus 35% of the excess over $411,500

Over $439,000

$125,362 plus 39.6% of the excess over $439,000

 

If the Taxable Income Is:

The Tax for Unmarried Individuals is:

Not over $9,225

 

10% of the taxable income

Over $9,225 but not over $37,450

 

$922.50 plus 15% of the excess over $9,225

Over $37,450 but not over $90, 750

 

$5,156.25 plus 25% of the excess over $37,450

Over $90,750 but not over $189,300

 

 

$18,481.25 plus 28% of the excess over $90,750

Over $189,300 but not over $411,500

 

 

$46,075.25 plus 33% of the excess over $189,300

Over $411,500 but not over $413,200

 

 

$119,401.25 plus 35% of the excess over $411,500

Over $413,200

 

 

$119,996.25 plus 39.9% of the excess over $413,200

 

If the Taxable Income Is:

The Tax for Married Individuals Filing Separate Returns is:

Not over $9,225

 

10% of the taxable income

Over $9,225 but not over $37,450

 

$922.50 plus 15% of the excess over $9,225

Over $37, 450 but not over $75,600

 

$5,156.25 plus 25% of the excess over $37,450

Over $75,600 but not over $115,225

 

 

$14,693.75 plus 28% of the excess over $75,600

Over $115,225 but not over $205,750

 

$25,788.75 plus 33% of the excess over $115,225

 

Over $205,750 but not over $232,425

$55,662 plus 35% of the excess over $205,750

 

Over $232,425

$64,989.25 plus 39.6% of the excess over $232,425

 

 

If the Taxable Income Is:

The Tax for Estates and Trusts is:

Not over $2,500

 

15% of the taxable income

Over $2,500 but not over $5,900

 

$375 plus 25% of the excess over $2,500

Over $5,900 but not over $9,050

 

$1,225 plus 28% of the excess over $5,900

Over $9,050 but not over $12,300

 

 

$2,107 plus 33% of the excess over $9,050

Over $12,300

 

$3,179.50 plus 39.6% of the excess over $12,300

 

 

Estate Tax Exemption. The Estate Tax is a tax imposed on the transfer of property at a person’s death, for any portion of the decedent’s gross estate that exceeds the Federal Estate Tax Exemption. This year the estate tax exclusion has increased from a total of $5,340,000 to $5,430,000. This means that decedents who die in 2015 have an estate tax exclusion that has increased by $90,000 from the previous year.

Long-term Care. Deductions for Long Term Care Insurance Premiums have increased slightly from 2014. The 2015 deductible limits under §213(d)(10) for eligible long-term care premiums are as follows:

Attained Age Before Close of Taxable Year

Limitation on Premiums

40 or less

$380

More than 40 but not more than 50

$710

More than 50 but not more than 60

$1,430

More than 60 but not more than 70

$3,800

More than 70

$4,750

 

Retirement Adjustments. The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the government’s Thrift Savings Plan has increased from $17,500 to $18,000. In addition, if you are 50 or over you can contribute an additional $6,000 as a catch-up contribution. However, the limit on annual contributions to IRA accounts remains unchanged at $5,500 with the catch-up contribution limit remaining $1,000.

The deduction for taxpayers making contributions to traditional IRA accounts is phased out gradually starting at an Adjusted Gross Income (AGI) of $61,000 for single taxpayers and heads of households, $98,000 for married couples filing jointly (when the spouse who makes the IRA contribution is covered by a workplace retirement plan), and $183,000 for an IRA contributor not covered by a workplace retirement plan but who is married to someone who is covered. 

The deduction for taxpayers making contributions to a Roth IRA is phased out gradually starting at an AGI of $183,000 for married couples filing jointly and $116,000 for singles and heads of households.

Lastly, the AGI limit for the saver’s credit (retirement savings contribution credit) for low and moderate income workers has also increased slightly for 2015. The credit is now $61,000 for married couples filing jointly, $45,750 for heads of household, and $30,500 for singles and married couples who file separately.

If you have any questions about how these adjustments might affect your tax situation, please feel free to contact our office for further assistance.

Tags: IRA, Roth IRA, Pension Contribution, Retirement, Financial Planning, Tax, Long-term Care, Thrift Savings Plan, Income Taxes, Tax Planning, Estate Tax Exemption, Tax Adjustments, Wealth Planning, Long Term Care Insurance