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NC extensions denied in error

The NC Department of Revenue has started sending out notices denying extensions that were timely filed. The notices demand the income tax return be filed within 30 days and threaten penalties and interest if tax is due. If you are due a refund, then there will be no penalty or interest due. Of course, there should be no late filing penalty for the extensions denied even if the taxpayer owes as long as the taxpayer or preparer has proof of timely mailing. There can still be interest and late payment penalties but that is because the extra tax was not paid with the extension.

Reason NC extensions denied

The NC Association of CPAs is reporting that several trays of certified mail were delayed in the Raleigh Post Office. Once the mail finally made it to the Department of Revenue they were so late that NC assumed they were mailed after the deadline. NC should have looked at the postmarks and determined which were filed timely. NC is working to correct their records.

What should taxpayers do?

If you filed on or before April 18, 2016, then this will not affect you.

If you filed an extension and do not receive a notice, then just wait. There is nothing to do except file your return timely.

If you filed an extension and receive a notice denying it, you need to reply. NC should fix this but you need to protect yourself by sending a response via certified or registered mail along with proof you filed your NC extension timely. Your proof of timely filing will be one of three things:

  1. If you filed the extension on NC’s website, then you should have proof showing timely filing.
  2. Certified Mail receipt addressed to the proper address for NC extensions and marked by the Post Office as received by the Post Office on or before April 18, 2016. If I filed your NC extension, this is the proof I have. Please send me the notice so I can get NC to update their records.
  3. Registered Mail receipt addressed to the proper address for NC extensions and marked by the Post Office as received by the Post Office on or before April 18, 2016.

If you put a stamp on the extension, you are at the NC Department of Revenue’s mercy. They do not have to prove you did not file timely, you have to prove you did file the extension timely. Unfortunately, your word is not usually enough.

What we learned

Taxpayers need to send important tax documents Certified or Registered Mail or by means of an approved electronic method.

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Change in W-2 due date for 2015

The NC Legislature, without much warning or lead time, changed the W-2 due date for NC employers. The old W-2 due date was the end of February. Now employers must send the the employer copy to the NC Department of Revenue by January 31, 2016. This W-2 due date change is also tied into a new mandatory electronic filing of W-2s effective for 2015 forms.

NC now requires Electronic Filing

The Legislature, as is true of most elected bodies, lacks many people with practical real world experience. On September 23, 2015, the Legislature passed H.B. 117 (PDF) requiring the new due date. But that was not enough for our Legislature, they decided to also require that all W-2s for 2015 be filed electronically. The only exceptions were for those employers requesting a hardship extension. Really? A little less than 3 1/2 months to get an entire new system setup.

For large employers and those using large payroll processing firms, the electronic requirement is no big deal. They had already invested in software for electronically filing W-2s. Their adjustment is to the new due date only. Smaller employers did not often have the capability to electronically file W-2s with NC. In addition, many of the payroll software vendors catering to small businesses did not have this capability. Even last year I saw handwritten W-2s from some small employers. The Legislature’s solution was to require the NC Department of Revenue to provide an online filing process.

Just this Monday (January 25th) , the NC Department of Revenue finished their programming to allow a simple method for electronically filing W-2s. Fortunately, the Department exercised its authority to grant hardship waivers without making employers apply. You can see their notice here. Basically, small employers can still file paper W-2s for 2015. Find more information on NC electronic filing here.

2015 W-2 form

NC W-2 Due Date change

NC employers had until the end of February 2015 to file W-2s with NC. This would allow employers to provide the W-2s to their employees by the end of January. Then if an employee had needed a correction, the employer had time. For example, if the Social Security Number, the employee’s name or address were wrong things could be fixed before the forms went to the government. No such option now.

Reason for the change

The stated reason is to help prevent identity theft. If NC is able to match the electronically filed W-2s to the individual returns before issuing a refund this should help a lot with identity theft. Considering the short time the Legislature gave to the Department of Revenue, I expect there will be problems this year.

Future Federal W-2 due date change

In December, Congress changed the due dates for 2016 W-2 forms due in early 2017. Congress also made the change to combat identity theft. At least Congress is giving employers time to adjust. The employer will have to file 2016 and future W-2s by the end of the following January. In years past employers who electronically transmitted forms W-2s received an extra month to file them with the government. Instead of the general end of February W-2 due date, electronic filers had until the end of March. No more!

Conclusion

Employers need to adjust their payroll processes to comply with the new due dates. Late filers will owe penalties. NC charges $50 per late W-2. IRS charges up to $100 per W-2 for 2015 W-2s and up to $260 for 2016 W-2s. Penalties are just money down the drain. Taxpayers cannot even deduct the penalty to reduce their income taxes.

So file those NC W-2s before the end of January!

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NC tricking taxpayers?

Frustrated by Zach Klein, CC-BY, on Flickr

This year NC taxpayers filed for the first time under the tax changes made by the Legislature in 2013 but mostly effective in 2014. Many lower-income people, those making less than about $80,000, paid the same, a little less or a little more income tax as under the 2013 rules. But because the withholding tables resulted in much lower withholding in 2014 than in 2013, many taxpayers owed for the first time. Others received much lower refunds than they did the prior year.

Complaints abound

Complaints were loud and intense for a while. Politicians being politicians, they figured they needed to fix this problem and help most people receive a refund in the future. After all, 2016 is an election year. Instead of cutting tax rates or allowing more deductions the Legislature decided it could fool most of the people most of the time.

The “fix” or tricking taxpayers

Maybe I am a cynic but this is sure what it looks like. The Legislature passed House Bill 117, also known as Session Law 2015-259 (PDF). Starting in 2016, the law requires employers to withhold at a higher rate than the actual NC tax rate. This should cause more people to get a refund or get a larger refund. Voila, problem fixed.

Of course one could argue the Legislature is helping taxpayers who were confused by the more complex new NC-4 (PDF of withholding allowance form) and had less tax withheld than was proper. The fix to that would seem to be to make the law simpler and not cause smaller take home pay for almost everyone, even those who got the NC-4 right.

Example of the “fix”

Lets look at a simple example. Taxpayer Tom owed $2,000 for 2014 and had $1,900 withheld. Poor Tom has to pay another $100 with his 2014 tax return. For 2016 he owes $2,000 but he has $2,100 withheld. Now Tom is happy because he is getting $100 back. What really happened? He still owes $2,000 in total income tax before any payments. Because of the $100 refund, the NC Legislature hopes Taxpayer Tom is tricked into thinking 2016 was a good tax year while 2014 was a bad tax year.

Conclusion

So taking more money up front and then returning it later is a tax cut? Sadly, the NC Legislature will fool quite a few people with this ploy. So is tricking taxpayers part of the Legislature’s job?

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NC is slow cashing checks for 2014 income taxes

As of 5/13/2015, taxpayers are reporting their tax checks have not yet cleared. I called NC and learned they received many more checks just before the April 15th deadline than they have in the past. The deluge of checks is causing a backlog in posting and depositing the checks. So no need to worry yet, NC is slow cashing checks this year.

What can you do?

First look to see if your check to NC has cleared your bank account. If it has not, make a note to followup over the next couple of weeks. If your NC income tax check has still not cleared, it is time to contact NC. If we filed your NC extension and mailed in your check, we have proof of filing and the tracking information from the Post Office showing NC received the extension and check. Let us know if you want us to followup with NC. Remember, the first hour of handling issues of this nature is included in your tax preparation fee.

If you mailed your own payment, hopefully you used certified or registered mail and can prove timely filing and timely payment. You will need this information if you want to request NC waive any penalties. NC’s contact information is available here.

I strongly urge you to give NC at least another week to deposit your check before contacting them.

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Hours week of April 15, 2015

Jake, Butch and I will be on vacation the rest of this week!

Here are our hours for this week:

For people on extension, please do not worry. An extension does not increase or decrease your odds of being audited. Thirteen million, yes million, taxpayers filed to extend their 2013 returns. I expect at least that many this year. And no, they were not all my clients.

More about extensions on my post from 2014.

 

 

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NC finally updates 2014 tax law

NC Legislature, courtesy of the NC General Assembly

On March 31, 2015 the NC Legislature finally passed and the Governor signed Senate Bill 20 (you want the ratified version) bringing NC’s law mostly in line with 2014 federal tax law changes. A whole 15 days before the April 15th deadline and only 16 days after calendar year corporate returns were due. The NC Department of Revenue has a brief summary here (downloads as a PDF).

Wouldn’t it be nice to be able to complete your work at least three months late and have no penalty? If so, join the Legislature and you can take all the time you want to do your job.

In defense of the Legislature, most of the changes the liberals accuse the Legislature of doing were already the law. For example, if the Legislature had done nothing then debt forgiveness on principal residence debt would still have been taxable. What the Legislature really decided was to not accept a federal change but stick with our existing law.m For an example, see this post by the Progressive Pulse. On the other hand, the Progressive Pulse is correct that the gas tax changes are effectively a tax increase.

You can read my earlier posts on the Legislature’s slow work here and here.