IRS extends relief for physical presence signature requirement

Under IRS regulations regarding electronic consents and elections, if a signature must be witnessed by a retirement plan representative or notary public, it must be witnessed “in the physical presence” of the representative or notary — unless guidance has provided an alternative procedure.

Recently, in Notice 2022-27, the IRS extended, through the end of 2022, its temporary relief from the physical presence requirement. This is good news for businesses that sponsor a qualified retirement plan.

Requirements for relief

The physical presence requirement is imposed under IRS regulations regarding electronic consents and elections for certain retirement plans — including 401(k) plans. Originally granted in the early days of the COVID-19 pandemic, the relief initially applied for 2020 and has been extended twice since then, most recently through June 30, 2022.

As set forth in the IRS notice granting the original relief, the physical presence requirement is deemed satisfied for signatures witnessed by a notary public if the electronic system for remote notarization:

  • Uses live audio-video technology, and
  • Is consistent with state law requirements for a notary public.

For signatures witnessed remotely by a plan representative, the physical presence requirement is deemed satisfied if the electronic system uses live audio-video technology and meets four requirements:

  1. Live presentation of photo ID,
  2. Direct interaction,
  3. Same-day transmission, and
  4. A signed acknowledgement by the representative.

The relief has now been extended through December 31, 2022, subject to the same conditions. According to the IRS, a further extension of the relief beyond the end of 2022 isn’t expected to be necessary. The tax agency is currently reviewing comments received in connection with the initial relief and subsequent extensions to determine whether to retain or permanently modify the physical presence requirement. Any modification would be proposed through the regulatory process, which would include the opportunity for further comment.

An appreciable move

Given that the return to in-person business interactions has happened in fits and starts, this extension is likely to be appreciated by employers that sponsor retirement plans and their participants. Although many 401(k) plans are designed to limit or eliminate the need for spousal consents, those that offer annuity forms of distribution are subject to the spousal consent rules. And some 401(k) plans must require spousal consent if a married participant wants to name a non-spouse as primary beneficiary. Contact us for more information.

© 2022


Inflation enhances the 2023 amounts for Health Savings Accounts

The IRS recently released guidance providing the 2023 inflation-adjusted amounts for Health Savings Accounts (HSAs). High inflation rates will result in next year’s amounts being increased more than they have been in recent years.

HSA basics

An HSA is a trust created or organized exclusively for the purpose of paying the “qualified medical expenses” of an “account beneficiary.” An HSA can only be established for the benefit of an “eligible individual” who is covered under a “high deductible health plan.” In addition, a participant can’t be enrolled in Medicare or have other health coverage (exceptions include dental, vision, long-term care, accident and specific disease insurance).

A high deductible health plan (HDHP) is generally a plan with an annual deductible that isn’t less than $1,000 for self-only coverage and $2,000 for family coverage. In addition, the sum of the annual deductible and other annual out-of-pocket expenses required to be paid under the plan for covered benefits (but not for premiums) can’t exceed $5,000 for self-only coverage, and $10,000 for family coverage.

Within specified dollar limits, an above-the-line tax deduction is allowed for an individual’s contribution to an HSA. This annual contribution limitation and the annual deductible and out-of-pocket expenses under the tax code are adjusted annually for inflation.

Inflation adjustments for next year

In Revenue Procedure 2022-24, the IRS released the 2023 inflation-adjusted figures for contributions to HSAs, which are as follows:

Annual contribution limitation. For calendar year 2023, the annual contribution limitation for an individual with self-only coverage under an HDHP will be $3,850. For an individual with family coverage, the amount will be $7,750. This is up from $3,650 and $7,300, respectively, for 2022.

In addition, for both 2022 and 2023, there’s a $1,000 catch-up contribution amount for those who are age 55 and older at the end of the tax year.

High deductible health plan defined. For calendar year 2023, an HDHP will be a health plan with an annual deductible that isn’t less than $1,500 for self-only coverage or $3,000 for family coverage (these amounts are $1,400 and $2,800 for 2022). In addition, annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) won’t be able to exceed $7,500 for self-only coverage or $15,000 for family coverage (up from $7,050 and $14,100, respectively, for 2022).

Reap the rewards

There are a variety of benefits to HSAs. Contributions to the accounts are made on a pre-tax basis. The money can accumulate tax free year after year and can be withdrawn tax free to pay for a variety of medical expenses such as doctor visits, prescriptions, chiropractic care and premiums for long-term care insurance. In addition, an HSA is “portable.” It stays with an account holder if he or she changes employers or leaves the workforce. If you have questions about HSAs at your business, contact your employee benefits and tax advisors.


New per diem business travel rates became effective on October 1

Are employees at your business traveling again after months of virtual meetings? In Notice 2021-52, the IRS announced the fiscal 2022 “per diem” rates that became effective October 1, 2021. Taxpayers can use these rates to substantiate the amount of expenses for lodging, meals and incidental expenses when traveling away from home. (Taxpayers in the transportation industry can use a special transportation industry rate.)

Background information

A simplified alternative to tracking actual business travel expenses is to use the high-low per diem method. This method provides fixed travel per diems. The amounts are based on rates set by the IRS that vary from locality to locality.

Under the high-low method, the IRS establishes an annual flat rate for certain areas with higher costs of living. All locations within the continental United States that aren’t listed as “high-cost” are automatically considered “low-cost.” The high-low method may be used in lieu of the specific per diem rates for business destinations. Examples of high-cost areas include Boston, San Francisco and Seattle.

Under some circumstances — for example, if an employer provides lodging or pays the hotel directly — employees may receive a per diem reimbursement only for their meals and incidental expenses. There’s also a $5 incidental-expenses-only rate for employees who don’t pay or incur meal expenses for a calendar day (or partial day) of travel.

Less recordkeeping

If your company uses per diem rates, employees don’t have to meet the usual recordkeeping rules required by the IRS. Receipts of expenses generally aren’t required under the per diem method. But employees still must substantiate the time, place and business purpose of the travel. Per diem reimbursements generally aren’t subject to income or payroll tax withholding or reported on an employee’s Form W-2.

The FY2022 rates

For travel after September 30, 2021, the per diem rate for all high-cost areas within the continental United States is $296. This consists of $222 for lodging and $74 for meals and incidental expenses. For all other areas within the continental United States, the per diem rate is $202 for travel after September 30, 2021 ($138 for lodging and $64 for meals and incidental expenses). Compared to the FY2021 per diems, both the high and low-cost area per diems increased $4.

Important: This method is subject to various rules and restrictions. For example, companies that use the high-low method for an employee must continue using it for all reimbursement of business travel expenses within the continental United States during the calendar year. However, the company may use any permissible method to reimburse that employee for any travel outside the continental United States.

For travel during the last three months of a calendar year, employers must continue to use the same method (per diem or high-low method) for an employee as they used during the first nine months of the calendar year. Also, note that per diem rates can’t be paid to individuals who own 10% or more of the business.

If your employees are traveling, it may be a good time to review the rates and consider switching to the high-low method. It can reduce the time and frustration associated with traditional travel reimbursement. Contact Dukhon Tax for more information.


IRS extends administrative relief for 401(k) plans

As mitigation measures related to COVID-19 ease, it will be interesting to see which practices and regulatory changes taken in response to the pandemic remain in place long-term. One of them might be relief from a sometimes-inconvenient requirement related to the administration of 401(k) plans.

A virtual solution

In IRS Notice 2021-40, the IRS recently announced a 12-month extension of its temporary relief from the requirement that certain signatures be witnessed “in the physical presence” of a 401(k) plan representative or notary public.

The original relief, which appeared in IRS Notice 2020-42, was provided primarily to facilitate plan loans and distributions under the CARES Act. However, the relief could be used during 2020 for any signature that, under regulations, had to be witnessed in the physical presence of a plan representative or notary public. This included required spousal consents. The relief was subsequently extended through June 30, 2021, under IRS Notice 2021-03.

Under the notices, signatures witnessed remotely by a plan representative satisfy the physical presence requirement if the electronic system uses live audio-video technology and meets four requirements established under the original relief:

  1. Live presentation of a photo ID,
  2. Direct interaction,
  3. Same-day transmission, and
  4. Return with the representative’s acknowledgment.

Signatures witnessed by a notary public satisfy the physical presence requirement if the electronic system for remote notarization uses live audio-video technology and is consistent with state-law requirements for a notary public.

Comments requested

As mentioned, IRS Notice 2021-40 further extends the relief — subject to the same conditions — through June 30, 2022. The notice also requests comments regarding whether permanent modifications should be made to the physical presence requirement. Comments are specifically requested regarding:

  • The costs and other effects of the physical presence requirement and its temporary waiver,
  • Whether the relief has resulted in fraud, coercion or other abuses,
  • How the witnessing requirements are expected to be fulfilled as the pandemic abates,
  • What procedural safeguards should be instituted if the physical presence requirement is permanently modified, and
  • Whether permanent relief should use different procedures for witnessing by plan representatives or notary publics.

Comments should be submitted by September 30, 2021.

More information

Going forward, the need for a signature may often relate to spousal consents. If your business recently established a 401(k), the plan may be designed to limit or even eliminate the need for spousal consents.

However, plans that offer annuity forms of distribution are still subject to the spousal consent rules. And other 401(k) plans must require spousal consent if a married participant wants to name a nonspouse as primary beneficiary. Feel free to contact our firm for more information on the latest IRS guidance addressing employee benefits.


Avoiding Tax Identity Theft

"Identity theft is one of the fastest growing crimes nationwide, and refund fraud caused by identity theft is one of the biggest challenges facing the IRS."…IRS Tips for Taxpayers, FS-2014-2, January 2014

According to an IRS report, Mauricio Warner, a Georgia resident, had a $10 million tax fraud and identity theft operation underway before he was caught and convicted. Warner used the names and social security numbers of online victims who "were told they could submit an application for an 'Obama stimulus payment' or 'Free Government Money.'”

Warner was sentenced to 240 months in federal prison and three years supervised probation, ordered to pay over $5 million in restitution, and forfeited his $4.1 million bank account.

The IRS has been aggressive in tracking down identity thieves and criminals like Warner. Its Identity Theft Clearing House since its inception in 2012 has pursued over 7,600 leads involving 1.47 million fraudulent returns amounting to almost $7 billion.

Avoiding Tax Identity Fraud

If you're the victim of a tax-identity theft, your tax return may only be the beginning. The IRS recommends the following precautions:

Don't fall for scams

tax fraud identity theftAny email addressed directly to you claiming to be from the IRS is fraudulent. The IRS never contacts taxpayers by email or social media. They do not use the web to demand payment or offer refunds to taxpayers. Forward suspicious email to [email protected].

Likewise, unexpected phone calls from someone claiming to be an IRS agent are impersonation scams. The caller might ask for personal information to send you a refund or threaten you with arrest or deportation if you don't pay an overdue tax bill. Report these impersonation scams online or call 1-800-366-4484.

Finally, any website that claims to be an official IRS site but does not begin with www.irs.gov is bogus. Make a phishing report at the link cited above.

File early and hold your personal information close

File your tax return as early as possible. Income tax identity thieves strike early in the year.

Safeguard your social security number and never give it out unless you have initiated contact requiring its disclosure. Never routinely carry a social security card or documents that display your social security number.

Protect all personally identifiable information on your computer. Use firewalls, anti-spam and virus detection software, and use secure passwords for Internet accounts. Be especially discrete with your online activity in public places over non-secure networks.

If you become a victim

The signs

You are likely to have become a victim of tax fraud if the IRS informs you that:

  • they have received more than one tax return filed under your social security number
  • you owe the IRS money for a refund overpayment
  • you reported wages from an employer you never heard of

What to do

Don't procrastinate; work with the IRS. In addition to following the FTC-recommended steps to limit the damage of identity theft:

  • respond to the IRS notice right away using the telephone number and contact information on the notice
  • complete IRS Form 14039, the Identity Theft Affidavit. Go to IRS.gov/pub/irs-pdf/f14039.pdf and follow the instructions for transmitting the form to the IRS.
  • pay your taxes and file your tax return, even if you must use paper documents

It might take a while, and you could use some help

Tax identity fraud cases can become complex and perplexing. An IRS resolution to tax identity fraud could drag on for months. If you need help in extricating yourself from identity-theft problems, Dukhon Tax and Accounting offers just the expertise, advice and services to individuals and businesses on a year-round basis.


Incorrect Tax Forms Cause Major Headaches for 800,000 Americans

One of the biggest changes facing tax filers this year is proving that they have health care coverage due to the requirements of the Affordable Care Act (AFA). Additionally, filers must also prove that their income qualifies them for subsidy payments, which they have already been receiving. Unfortunately, some serious errors by government officials have just made this process even harder. Over 800,000 filers in 37 states, who thought they were prepared to file, have been notified that the government sent them incorrect paperwork. Even worse, at least 50,000 people who have already filed their taxes using the wrong documentation will have to file amend returns once they receive the corrected form.

The Problem

1095 form errorThe error only affects individuals and families who obtained health care coverage through the HealthCare.gov federal exchange and received subsidies. Subsidies are granted by the government to help individuals under certain income limits pay for their health insurance premiums. The 2014 subsidies were based on the projected household income at the time of enrollment. The government recent mailed out 1095-A forms, which report the average benchmark premium in an individual’s area and the amount of subsidy that they qualified for. The premium amount is how the government determines the amount of premium tax credit filers are eligible to receive. A blog post on the HealthCare.gov website stated that the initial 1095-A forms contained 2015 premium benchmarks instead of the ones for 2014. Speaking on behalf of the Centers for Medicare and Medicaid Services, Andrew M. Slavitt said that they do not know how or why the mistake occurred. Officials estimate that individuals will receive a corrected Form 1095-A in the first week of March.

Unfortunately, it wasn’t just the federal health care exchange that had reporting issues. James F. Scullary, a spokesman for the California healthcare exchange, said that they were in the process of sending out over 100,000 corrected forms to households in that state.

The Impact

Affected households were notified via email and phone calls as soon as the error was detected. Filers can also login in to their HealthCare.gov accounts, where they will see a message indicating whether they were affected. Additionally, they can call the federal customer service center at 800-318-2596. The 50,000 tax filers who have already filed their income tax returns will receive special instructions from the Treasury Department as to how they can file amended returns.

These errors are particularly difficult for lower-income families who received subsidies for their heath care premiums. Many of these families rely on their annual tax refunds to pay critical household bills. Waiting to file taxes until a new form is mailed out places them in a tough financial position.

Healthcare Enrollment Extended

In related news, millions of households who are still uninsured are also getting surprises when they file their taxes. Steep penalties are subtracted from a household’s tax refund if they cannot prove that they had health insurance coverage for 2014. The penalty is $95 per adult or 1 percent of income. In 2015, the fees rise to $325 per adult or 2 percent of income. To help mitigate these penalties, President Obama announced a special enrollment period for healthcare that runs from March 15th to April 30th. This allows uninsured individuals to sign up for healthcare on HealthCare.gov and not have to pay penalties for 2015. These individuals are still responsible for paying the penalties for not having insurance during the 2014 year. Only taxpayers who live in states with a Federally-facilitated Marketplace (FFM) are eligible to take advantage of this special enrollment period.