Following tax law changes Dec. 17, the Internal Revenue Service recently announced the upcoming tax season will start on time for most people.
But taxpayers affected by three recently reinstated deductions need to wait until mid- to late February to file their individual tax returns.
In addition, said Doug Shulman, IRS commissioner, taxpayers who itemize deductions on Form 1040 Schedule A will need to wait until mid- to late February to file as well.
The start of the 2011 filing season will begin in January for the majority of taxpayers.
Recent changes in the law, though, mean that the IRS will need to reprogram its processing systems for three provisions that were extended in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.
People claiming any of these three items—involving the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction as well as those taxpayers who itemize deductions on Form 1040 Schedule A—will need to wait to file their tax returns until tax processing systems are ready, which the IRS estimates will be in mid- to late February.
“The majority of taxpayers will be able to fill out their tax returns and file them as they normally do,” Shulman said.
“We will do everything we can to minimize the impact of recent tax law changes on other taxpayers.
“The IRS will work through the holidays and into the New Year to get our systems reprogrammed and ensure taxpayers have a smooth tax season,” he said.
The IRS will announce a specific date in the near future when it can start processing tax returns impacted by the late tax law changes.
In the interim, people in the affected categories can start working on their tax returns, but they should not submit their returns until IRS systems are ready to process the new tax law changes.
Taxpayers are also urged to use e-file instead of paper tax forms to minimize confusion over the recent tax changes and ensure accurate tax returns, he said.
In addition, taxpayers will need to wait to file if they are within any of the following three categories:
• taxpayers claiming itemized deductions on Schedule A.
Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes (add link to Schedule A). In addition, itemized deductions include the state and local general sales tax deduction extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted Dec. 17, which primarily benefits people living in areas without state and local income taxes and is claimed on Schedule A, Line 5.
Because of late Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.
• taxpayers claiming the Higher Education Tuition and Fees Deduction.
This deduction for parents and students – covering up to $4,000 of tuition and fees paid to a post-secondary institution – is claimed on Form 8917.
However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.
• taxpayers claiming the Educator Expense Deduction.
This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250.
The educator expense deduction is claimed on Form 1040, Line 23 and Form 1040A, Line 16, he said.
For those falling into any of these three categories, the delay affects both paper filers and electronic filers.
“E-file is the fastest, best way for those affected by the delay to get their refunds,” Shulman said.
“Those who use tax-preparation software can easily download updates from their software provider.
“The IRS Free File program also will be updated.”
As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure a smooth tax season.
Updated information will be posted on www.IRS.gov. This will include an updated copy of Schedule A as well as updated state and local sales tax tables.
Several other forms used by relatively few taxpayers are also affected by the recent changes, and more details are available on www.IRS.gov.
In addition, the IRS reminds employers about the new withholding tables released for 2011.
“Employers should implement the 2011 withholding tables as soon as possible, but not later than Jan. 31,” Shulman said.
The IRS also reminds employers that Publication 15, (Circular E), Employer’s Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on www.IRS.gov before year’s end.
New guidance on debit cards
The IRS recently issued new guidance allowing the continued use of health flexible spending arrangement and health reimbursement arrangement debit cards for the purchase of prescribed over-the-counter medicines and drugs.
The new guidance modifies previous guidance to permit taxpayers to continue using FSA and HRA debit cards to purchase over-the-counter medications for which the taxpayer has a prescription, an IRS spokesperson said.
Effective after Jan. 15, this use of debit cards must comply with procedures reflecting those that pharmacies currently follow when selling prescribed medicines or drugs.
The procedures include requirements that a prescription for the medication be presented to the pharmacy or the mail-order or web-based vendor that dispenses the medication and that proper records be retained.
In accordance with the Affordable Care Act, IRS officials said, the cost of over-the-counter medicines or drugs can be reimbursed from a health FSA or HRA if a prescription has been obtained. The requirement to obtain a prescription does not apply to insulin.
The prescription requirement applies to purchases made on or after Jan. 1 and not to purchases made in 2010 even if reimbursed after Dec. 31, 2010.
The reason is because the requirement applies only to over-the-counter medications and does not apply to other health care expenses such as medical devices, eye glasses or contact lenses.