Taxing Definitions

Definitions — In the news

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Have you been keeping up with tax news? Recent items include a new tax act, final rules affecting Form W-2, Wage and Tax Statement, and news about health savings account limits for 2020.

Here are three questions on these topics.

1

The Taxpayer First Act of 2019 was signed into law on July 1, 2019. The act makes changes to the way the IRS is organized, and provides for taxpayer safeguards in cases of identity theft, misdirected refunds, and Identity Protection Personal Identification Numbers.

One provision of the act changed the number of information returns filed (such as W-2s and 1099s) that triggers mandatory e-filing. For 2021 forms (those filed in 2022), employers and other who file more than 100 of these returns will have to send them electronically instead of on paper. The number drops to 10 returns for calendar years after 2021.

2

The IRS released final regulations governing the use of truncated social security or taxpayer identification numbers. Truncated numbers show the last four digits of a taxpayer identifying number. Asterisks or Xs replace the first five digits.

Employers can voluntarily use truncated identification number on Forms W-2. The new rules apply to returns, statements, and other documents required to be filed or furnished after December 31, 2020.

True or false:

Truncated numbers can be used on Forms W-2 filed with the social security administration.

  

or

3

In revenue procedure 2019-25, the IRS published the amount allowed to be deducted for contributions to health savings accounts in 2020.

Health savings accounts are a tax-advantaged way to pay for medical costs. The accounts consist of two parts: a high-deductible health insurance policy and a related savings account. Contributions to the savings account can be tax deductible and withdrawals that qualify are tax free.

True or false:

The 2020 deduction is the same as the 2019 deduction.

  

or

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Note: Taxing Lessons provides a summarized version of sometimes lengthy court decisions and IRS documents. The full documentation may include facts and issues not presented here. Please use the link provided in the post to read the entire document.

This information should not be considered legal, investment, or tax advice. Taxing Lessons and Top Drawer Ink Corp. do not provide legal, investment, or tax advice. Always consult your legal, investment, and/or tax advisor regarding your personal situation.

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✓ Right answer!

A truncated number cannot be used with a form required to be filed with the IRS or social security administration. Employers cannot truncate their own employer’s identification number on Form W-2 given to employees but can use truncated SSNs on the employee’s copies of Form W-2.
Sorry, wrong answer :(
✓ Right answer!

For 2020, the annual limit on deductible contributions is $3,550 for self-only coverage under a high-deductible health policy (a $50 increase from 2019) and $7,100 for family coverage (a $100 increase from 2019).
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