There Are Penalties For Excess Contributions To An IRA

An excess contribution results when a taxpayer has contributed more than the annual limit to a traditional IRA or a Roth IRA. If any part of the excess contribution is allowed to remain in the IRA past the due date for correcting the excess, it is subject to a 6% excise

tax (6% penalty tax). The 6% penalty tax applies each year the excess is allowed to remain in the IRA.
To correct an excess contribution, the excess contribution must be withdrawn by the due date for filing the return, including extensions. The withdrawal of the excess contribution is considered tax-free if:
• The taxpayer does not take a deduction for the contribution, and
• The taxpayer withdraws any interest or other income earned on the contribution while it was part of the IRA.  For this purpose, any loss on the contribution is also taken into consideration when calculating the amount to withdraw.
If more than one contribution is made during the year, the last contribution is considered to be the one that is withdrawn first for purposes of calculating net income on earnings.
If the excess contribution is withdrawn after the due date (or extended due date), the withdrawal is generally taxable. However, the withdrawal is not taxable if both of the following conditions are met:
• Total contributions (other than rollover contributions) for the tax year were not more than the contribution limit that is not based on the taxpayer’s compensation ($5,500/$6,500 limits that apply for 2016), and
• The taxpayer did not take a deduction for the excess contribution being withdrawn.
Another way to handle an excess contribution is to pay the 6% penalty on the excess and leave it in the IRA. In the following
year, under contribute to the IRA for that year and apply the prior year excess contribution to the current year contribution. If the excess contribution carryover is still in excess of the contribution allowed for the carryover year, pay the 6% penalty on the difference
and carry the remainder over to the next year. Keep doing this until the excess is used up.
If you need assistance dealing with an excess contribution, contact Steve Siesser at>


Coverdell ESAs Subject to One Rollover Per Year Rule

Prior to 2014, the IRS applied the one-rollover-per year limitation for IRAs on an IRA-by-IRA basis, meaning each IRA was limited to one rollover per year allowing a taxpayer to make multiple rollovers in one year using separate IRAs for each rollover.  However, beginning in 2015, the IRS withdrew its proposed regulations and followed the Bobrow Tax Court decision (T.C. Memo. 2014-21) in which the court ruled an individual can make only one rollover from an IRA to another (or the same) IRA in any 1-year period regard-

less of the number of IRAs owned.
Are Coverdell ESAs subject to the same one rollover per year limit regardless of the number of ESAs owned by the taxpayer? There is no published guidance interpreting Coverdell ESA rollover limitations.  However, IRS Pub. 970, Tax Benefits for Education, states that only one rollover per Coverdell ESA is allowed during a 12-month period.
In light of the similarity of the language in the code concerning IRA rollovers and Coverdell ESA rollovers, the IRS recently stated in a Program Manager Technical Assistance letter that only one rollover per individual per year is permitted for Coverdell ESAs. The letter
suggested that IRS Pub. 970 should be updated using the following language:
“You can make only one rollover from a Coverdell ESA to another Coverdell ESA in any 12-month period regardless of the number of Coverdell ESAs you own. However, you can make unlimited transfers from one Coverdell ESA trustee directly to another Coverdell ESA trustee because such transfers are not considered to be distributions or rollovers. The once in any 12-month period limitation rule does not apply to the rollover of a military
death gratuity or payment from Service members’ Group Live Insurance (SGLI).”
If you need assistance figuring out the maze of IRS rules governing educational savings plans, please contact Steve Siesser at

IRS Announces Cost-of -Living Adjustments for Retirement Plans


The IRS has released Notice 2016-62 regarding cost-of-living adjustments for the dollar limitations for pension plan contributions and other retirement-related items for tax year 2017.

The contribution limit for 401(k)s and non-qualified Section 457 deferred compensation plans remains unchanged at $18,000 for 2017.  However, income ranges for eligibility to make deductible contributions to traditional IRAs and to Roth IRAs, and to claim the saver’s credit all increased.

The phase-out ranges for when taxpayers or their spouses who were covered by a retirement plan at work were also changed for 2017:

  • For single taxpayers covered by a workplace retirement plan — $62,000 to $72,000, up from $61,000 to $71,000.
  • For married couples filing jointly where the spouse making the IRA contribution is covered by a workplace retirement plan — $99,000 to $119,000, up from $98,000 to $118,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is $186,000 to $196,000, up from $184,000 and $194,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual COLA and remains $0 to $10,000.
  • The income phase-out range for taxpayers making contributions to a Roth IRA is $118,000 to $133,000 for singles and heads of household, up from $117,000 to $132,000. For married couples filing jointly, the income phase-out range is $186,000 to $196,000, up from $184,000 to $194,000.
  • The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual COLA and remains $0 to $10,000.
  • The income limit for the saver’s credit or the retirement savings contributions credit, for low- and moderate-income workers is $62,000; for married couples filing jointly is up from $61,500; $46,500; for heads of household, it is up from $46,125; and it is $31,000 for singles and married individuals filing separately, up from $30,750.
  • The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $18,000. The catch-up contribution limit for employees aged 50 and over who participate in those plans remains unchanged at $6,000.
  • The limit on annual contributions to an IRA remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual COLA and remains $1,000.

If you need help with planning for retirement or how these changes impact you, please contact Steve Siesser at


W-2 & 1099 Filing Deadlines Moved Up for 2017


Beginning in 2017, for the 2016 reporting year, filers must send W-2 and 1099-MISC recipient copies and submit to the SSA/IRS by January 31, regardless of method (paper or e-file). In many cases, this is months earlier, increasing workload and stress for filers.

These changes will be particularly important to filers who employee health care providers and/or child care providers in their homes . 

To further complicate matters, the new filing deadline, as it relates to Form 1099-MISC, only impacts filers reporting nonemployee compensation payments in box 7.   As a general rule, if you own a business and hire an independent contractor to perform work for you and you pay them at least $600, you are required to provide them with a Form 1099, reporting the amount in Box 7.  Since the overwhelming majority of 1099-MISC filers will report information in box 7, there is bound to be some confusion.

I cannot over-stress the importance of understanding the new deadlines and the impact these will have on filers.  Historically, filers were required to provide W-2 and 1099-MISC forms to recipients by January 31;  however, they were not required to submit the forms to the SSA/IRS until February 28 (paper) or March 31 (e-file).

With three months of work being condensed into 30 days, this change adds an extensive amount of work for filers in January.  In addition,  Forms 1095-B and 1095-C filing deadlines also fall at the end of January for recipient delivery.  This schedule means businesses will face a huge time crunch when planning for wage, income, and ACA reporting for the 2016 tax year.

In the past, some businesses would file W-2 and 1099-MISC recipient copies first and wait to find out if any changes were needed prior to filing to the SSA/IRS, which lessened the risk for possible corrections.  Due to the earlier deadline in 2017, businesses may need to abandon this strategy and consider filing to recipients and the SSA/IRS concurrently.

To further complicate January’s filing deadlines, the IRS recently eliminated the automatic 30-day extension of time to file W-2 forms. Previously, filers could obtain an automatic 30-day extension by submitting Form 8809 to the IRS on or before January 31.  Filers could also request an additional 30-day extension, pushing their e-file deadline to the end of May.  These automatic extensions will no longer be available when filing W-2 forms for tax year 2016.

If you need assistance meeting these filing deadlines, please contact Steve Siesser at


IRS Announces Increases for 2017 Tax Rate Schedules


The IRS has released Revenue Procedure 2016-55 which provides details about the annual adjustments for more than 50 tax provisions, including the tax rate schedules for tax year 2017, which will generally be used on returns filed in 2018.

Some highlights of the changes:

  • The standard deduction for married filing jointly rises to $12,700 for tax year 2017, up $100 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $6,350 in 2017, up from $6,300 in 2016. For heads of households, the standard deduction will be $9,350 for tax year 2017, up from $9,300 for tax year 2016.
  • The personal exemption for tax year 2017 remains $4,050. The exemption is subject to a phase-out that begins with adjusted gross incomes of $261,500 ($313,800 for married couples filing jointly). It phases out completely at $384,000 ($436,300 for married couples filing jointly.)
  • For tax year 2017, the 39.6 percent rate affects single taxpayers whose income exceeds $418,400 ($470,700 for married taxpayers filing jointly), up from $415,050 and $466,950, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2017 are described in the revenue procedure.
  • The limitation for itemized deductions to be claimed on tax year 2017 returns of individuals begins with incomes of $287,650 or more ($313,800 for married couples filing jointly).
  • The Alternative Minimum Tax exemption amount for tax year 2017 is $54,300 and begins to phase out at $120,700 ($84,500, for married couples filing jointly for whom the exemption begins to phase out at $160,900). The 2016 exemption amount was $53,900 ($83,800 for married couples filing jointly). For tax year 2017, the 28 percent rate applies to taxpayers with taxable incomes above $187,800 ($93,900 for married individuals filing separately).
  • The tax year 2017 maximum Earned Income Tax Credit is $6,318 for taxpayers filing jointly who have three or more qualifying children, up from a total of $6,269 for tax year 2016. (The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
  • For tax year 2017, the monthly limitation for the qualified transportation fringe benefit is $255, as is the monthly limitation for qualified parking.
  • For calendar 2017, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage is $695.
  • For tax year 2017, the AGI amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $112,000, up from $111,000 for tax year 2016.
  • Estates of decedents who die during 2017 have a basic exclusion amount of $5.49 million, up from a total of $5.45 million for estates of decedents who died in 2016.