W-2s and how-to’s for refund season
With just two months left to file their tax returns, taxpayers have to deal with increased tax identity theft risks and prevention measures, new health insurance documents, plus trying to ensure they get the most they’re entitled to. While the only constant in the tax code is change, with the extension of about a dozen individual tax breaks late last year, there are fewer big changes this season. But despite that, there are still issues taxpayers should be aware of before filing their 2015 tax returns.
How to: help prevent tax identity theft
Tax identity theft, already a million dollar business for fraudsters, could get worse this tax season. In 2013, the IRS identified more than 5 million potential fraudulent returns. That same year the IRS paid out $5.2 billion in fraudulent refunds.
State and federal governments are implementing stronger anti-fraud measures to help protect taxpayers. For example, in an effort to reduce fraud risk, some states have increased their review processes to validate returns, which could result in delayed refunds. Some states may not start distributing refunds until March 1.
But taxpayers should also take steps to protect themselves. Besides keeping their personal information like Social Security numbers and birthdates secure, filing early is one of the best ways to prevent tax identity theft. Taxpayers who file early shorten the window of opportunity identity thieves have to file a fraudulent return first.
How to: use new health insurance documents
Like last year, many taxpayers will be able to report their full-year health insurance coverage for their household by checking a box on their tax form. And again, if they didn’t have full-year coverage for their entire household, they either will have to pay a penalty or qualify for an exemption.
The difference this year is everyone with health insurance – including through an employer or government plans like Medicare or TRICARE – will receive a new tax form (1095-B or 1095-C) that reports health insurance information to both the taxpayer and the IRS.
Like last year, a version of this form, the 1095-A, will be sent to state and federal marketplace plan enrollees and the IRS. Taxpayers need to use information on the 1095-A to reconcile their advance premium tax credit and file a complete tax return. More than one million taxpayers put their tax credit at risk by either not filing or reconciling the credit appropriately.
However, the B and C forms aren’t necessary to file if all household members are covered. If not all members are covered or there are gaps of coverage, the forms may help taxpayers calculate the penalty or apply for an exemption. The forms will also allow the IRS to match a taxpayer’s response on their tax return with the information on the form. Bringing the documents to a tax professional can help make sure taxes are filed accurately and avoid dealing with IRS notices. However, most taxpayers can file tax returns before receiving a 1095-B or -C by using information readily available from other sources.
How to: make the most of refund season
Refund season only rolls around once a year. And with 70 percent of taxpayers receiving a refund and the average refund sitting right around $2,800, it’s the most significant financial moment of the year for many families.
One way taxpayers can make every penny count is by making sure they claim every credit and deduction they’re entitled to. As many as one in five leave money on the table by missing a credit or deduction. For example, 20 percent of eligible taxpayers do not claim the Earned Income Tax Credit, potentially worth up to $6,242.
A qualified tax professional can help taxpayers get every tax benefit they’re entitled to. Seeing the right tax professional will help simplify tax season and help the taxpayer make the most of refund season.