401(k) Plan Sponsors Not Confident about Employees’ Retirement Planning

The vast majority of executives responsible for 401(k) plans at their companies are feeling less confident that employees are financially prepared for retirement, according to a survey by Deloitte.

The survey found that 84 percent of the 430 respondents said only some or very few employees would be financially prepared for retirement.

The 401(k) plan sponsors in the survey view improving employees’ financial planning for retirement as a top goal, similar to last year. This is the 11th Annual 401(k) Benchmarking Survey conducted by Deloitte, in conjunction with the International Foundation of Employee Benefit Plans and the International Society of Certified Employee Benefit Specialists.

However, the plan sponsors surveyed remain steadfast in their obligation to prepare employees for retirement. Sixty-four percent of the respondents said they believe their responsibility includes taking an interest in whether employees are tracking towards a comfortable retirement.

To encourage plan participants to make better use of their 401(k), 49 percent of the plan sponsors are offering features that automatically increase participants’ contribution levels. However, 64 percent of the plan sponsors surveyed reported that fewer than 10 percent of participants take advantage of this opportunity.

Automatic enrollment of employees in 401(k) plans continues to grow, according to the survey, with 56 percent of 401(k) plans include an automatic enrollment feature, up 7 percent from 2010.

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IRS Proposes Regulations on Taxable Medical Devices

The Internal Revenue Service has issued proposed regulations to provide guidance on the excise taxes imposed on the sale of medical devices under the health care reform law.

The proposed regulations in REG-113770-10 affect manufacturers, importers, and producers of taxable medical devices, and have been eagerly awaited by them. They come at a time when medical device makers have come under scrutiny in Congress for overcharging health care providers and providing little transparency into the cost of the devices, while insisting on “gag clauses” to hide the price of the devices.

The health care reform law added Section 4191 to the Tax Code, imposing an excise tax on the sale of certain medical devices by the manufacturer, producer, or importer of the device in an amount equal to 2.3 percent of the sale price. It applies to sales of taxable medical devices after Dec. 31, 2012.

The proposed regulations also provide that if a device is not listed with the FDA but the FDA later determines that the device should have been listed as a device, the device will be deemed to have been listed as a device with the FDA as of the date the FDA notifies the manufacturer or importer in writing that corrective action with respect to listing is required.

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Eight Things to Know about Medical and Dental Expenses and Your Taxes

Issue Number:    IRS Tax Tip 2012-30

If you, your spouse or dependents had significant medical or dental costs in 2011, you may be able to deduct those expenses when you file your tax return. Here are eight things the IRS wants you to know about medical and dental expenses and other benefits.

1. You must itemize You deduct qualifying medical and dental expenses if you itemize on Form 1040, Schedule A.

2. Deduction is limited You can deduct total medical care expenses that exceed 7.5 percent of your adjusted gross income for the year. You figure this on Form 1040, Schedule A.

3. Expenses must have been paid in 2011 You can include the medical and dental expenses you paid during the year, regardless of when the services were provided. You’ll need to have good receipts or records to substantiate your expenses.

4. You can’t deduct reimbursed expenses Your total medical expenses for the year must be reduced by any reimbursement. Normally, it makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.

5. Whose expenses qualify You may include qualified medical expenses you pay for yourself, your spouse and your dependents. Some exceptions and special rules apply to divorced or separated parents, taxpayers with a multiple support agreement or those with a qualifying relative who is not your child.

6. Types of expenses that qualify You can deduct expenses primarily paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or treatment affecting any structure or function of the body. For drugs, you can only deduct prescription medication and insulin. You can also include premiums for medical, dental and some long-term care insurance in your expenses. Starting in 2011, you can also include lactation supplies.

7. Transportation costs may qualify You may deduct transportation costs primarily for and essential to medical care that qualify as medical expenses. You can deduct the actual fare for a taxi, bus, train, plane or ambulance as well as tolls and parking fees. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses, which is 19 cents per mile for 2011.

8. Tax-favored saving for medical expenses Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if used to pay qualified medical expenses including prescription medication and insulin.

For additional information, see Publication 502, Medical and Dental Expenses or Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

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Taxpayers Underreporting Retirement Income


Clarifying Form 1099-R would help the Internal Revenue Service identify more taxpayers who are underreporting their retirement income, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, noted that in a tax gap study for tax year 2001, the IRS estimated that as much as $4.2 billion could be attributed to underreported retirement income. Given the magnitude of underreporting, even small improvements in the IRS’s examination of tax returns with retirement income could increase taxpayer compliance and generate substantial revenue to the federal government to reduce the tax gap between taxes owed and money actually collected.

The IRS plans to conduct its own study to determine the benefit of transcribing additional lines from tax forms. TIGTA maintains that the cost to transcribe the forms would be nominal and would not increase taxpayer burden.

The IRS also had other objections. “We will explore your recommendations, but based on our experience from working with retirement professionals and financial institutions, we question whether required reporting of distribution and rollover contribution dates will lead to significant improvements in the deterrence or detection of unreported retirement income,” wrote Richard Byrd, Jr., the commissioner of the IRS’s Wage and Investment Division. “As noted in the report, an individual receiving certain types of distributions from retirement plans or Individual Retirement Accounts (IRA) may have the option of transferring the distribution amount to another qualified plan or IRA. When individuals receive rollover-eligible distributions from the retirement plan or IRA, rather than having the funds transferred directly between the plan administrators and/or trustees, they must deposit the funds into a qualified plan or IRA within 60 days from the distribution date. Failure to deposit the funds can subject the distribution to taxation as regular income and an additional ten percent tax.”

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Taxable or Non-Taxable Income?

Issue Number:    IRS Tax Tip 2012-25

Although most income you receive is taxable and must be reported on your federal income tax return, there are some instances when income may not be taxable.

The IRS offers the following list of items that do not have to be included as taxable income:

  • Adoption expense reimbursements for qualifying expenses
  • Child support payments
  • Gifts, bequests and inheritances
  • Workers’ compensation benefits (some exceptions may apply; see Publication 525, Taxable and Nontaxable Income)
  • Meals and lodging for the convenience of your employer
  • Compensatory damages awarded for physical injury or physical sickness
  • Welfare benefits
  • Cash rebates from a dealer or manufacturer

Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your taxable income are:

  • Life insurance If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are generally not taxable unless the policy was turned over to you for a price.
  • Scholarship or fellowship grant If you are a candidate for a degree, you can exclude from income amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify for the exclusion.
  • Non-cash income Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.

All other items—including income such as wages, salaries, tips and unemployment compensation — are fully taxable and must be included in your income unless it is specifically excluded by law.

These examples are not all-inclusive. For more information, see Publication 525, Taxable and Nontaxable Income, which can be obtained at the IRS.gov website or by calling the IRS at 800-TAX-FORM (800-829-3676).

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Five Tips for Recently Married or Divorced Taxpayers with a Name Change

Issue Number:    IRS TAX TIP 2012-23

If you changed your name after a recent marriage or divorce, the IRS reminds you to take the necessary steps to ensure the name on your tax return matches the name registered with the Social Security Administration. A mismatch between the name shown on your tax return and the SSA records can cause problems in the processing of your return and may even delay your refund.

Here are five tips from the IRS for recently married or divorced taxpayers who have a name change.

1. f you took your spouse’s last name — or if you hyphenated your last names, you may run into complications if you don’t notify the SSA. When newlyweds file a tax return using their new last names, IRS computers can’t match the new name with their Social Security number.

2. If you recently divorced and changed back to your previous last name, you’ll also need to notify the SSA of this name change.

I3. nforming the SSA of a name change is easy. Simply file a Form SS-5, Application for a Social Security Card, at your local SSA office or by mail and provide a recently issued document as proof of your legal name change.

4. Form SS-5 is available on SSA’s website at http://www.socialsecurity.gov/, by calling 800-772-1213 or at local offices. Your new card will have the same number as your previous card, but will show your new name.

5. If you adopted your spouse’s children after getting married and their names changed, you’ll need to update their names with SSA too. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN – by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return. Form W-7A is available on the IRS.gov website or by calling 800-TAX-FORM (800-829-3676).

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IRS Extends Tax-Filing Deadline to April 17

 The Internal Revenue Service opened the 2012 tax season on Wednesday by extending the tax-filing deadline until April 17.

Taxpayers will have until Tuesday, April 17 to file their 2011 tax returns and pay any tax due because April 15 falls on a Sunday, and Emancipation Day, a holiday observed in the District of Columbia, falls this year on Monday, April 16. According to federal law, District of Columbia holidays affect tax deadlines in the same way that federal holidays do, giving all taxpayers two extra days to file this year. Taxpayers requesting an extension will have until Oct. 15 to file their 2011 tax returns. The IRS will begin accepting e-file and Free File returns on Jan. 17, 2012.

The IRS also announced a number of improvements to help make this tax season easier for taxpayers. This includes new navigation features and helpful information on IRS.gov and a new pilot program to allow taxpayers to use interactive video to get help with tax issues.

The IRS is conducting a limited rollout of its new videoconferencing technology at 10 IRS offices and two other sites, and may expand to further sites in the future. A list of locations is available on IRS.gov. The IRS has updated the front page of the IRS Web site to make it easier for taxpayers to get key forms, information and file tax returns. The front page also has links to taxpayer-friendly videos on the IRS YouTube channel. More improvements are planned for IRS.gov in the months ahead.

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