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Issue 40664

2018 Schedule A Instruct Page A-16 Footnote 2

Project Statement: Determine if the Schedule A and Instructions clearly communicates appropriate guidance to the public.

Goal Statement: The goal of this project is to review and make recommendations to the IRS that will enhance customer service and improve the taxpayer’s experience.

TAP RECOMMENDATION

ID 1664

Schedule A Instructions, page A-2 Examples of Medical and Dental Payments You Can Deduct To the extent you weren’t reimbursed, you can deduct what you paid for: Insurance premiums for medical and dental care, including premiums for qualified long-term care insurance contracts, as defined in Pub. 502. For example, you can include the premiums paid for Medicare B, Medicare D, and voluntary enrollment in Medicare A as a medical expense. But see Limit on long-term care premiums you can deduct, later. Reduce the insurance premiums by any self-employed health insurance deduction you claimed on Schedule 1 (Form 1040), line 29. You can’t deduct insurance premiums paid with pretax dollars (e.g., premiums you pay via your employer’s payroll deduction) because the premiums aren’t included in box 1 of your Form(s) W-2. If you are a retired public safety officer, you can’t deduct any premiums you paid to the extent they were paid for with a tax-free distribution from your retirement plan. Taxpayers are often confused by the term “pretax” and do not understand that insurance premiums are not included in W-2 wages. Including the most common taxpayer examples makes it clear which premiums are included and which are not included in taxable wages. Contributions to 401(k) or other retirement plans can be seen on the W-2 when box 1 and 3 are different; however, medical premiums are not clearly apparent as not included in W-2 wages. This will ensure a taxpayer’s right “To pay no more than the correct amount of tax” and “To be informed.”

IRS Action:Adopted

ID 1664

Schedule A Instructions, page A-2 Adopt -We agree with the recommendation and will adopt language similar to the recommended text.

TAP RECOMMENDATION

ID 1665

Schedule A Instruction, page A-16

Note: Residents of Alaska do not have a state sales tax but should follow the instructions on the next page to determine their local sales tax amount.

1 Use the Ratio Method to determine your local sales tax deduction, then add that to the appropriate amount in the state table. Your state sales tax rate is provided next to the state name.

2 Follow the instructions on the next page to determine your local sales tax deduction, then add to the state tax table worksheet line 2.

3 The California table includes the 1.25% uniform local sales tax rate in addition to the 6.00% state sales tax rate for a total of 7.25%. Some California localities impose a larger local sales tax. Taxpayers who reside in those jurisdictions should use the Ratio Method to determine their local sales tax deduction, then add that to the appropriate amount in the state table. The denominator of the correct ratio is 7.25%, and the numerator is the total sales tax rate minus 7.25%.

4 This state does not have a local general sales tax, so the amount in the state table is the only amount to be deducted.

5 The Nevada table includes the 2.25% uniform local sales tax rate in addition to the 4.6000% state sales tax rate, for a total of 6.85%. Some Nevada localities impose a larger local sales tax. Taxpayers who reside in those jurisdictions should use the Ratio Method to determine their local sales tax deduction, then add that to the appropriate amount in the state table. The denominator of the correct ratio is 6.85%, and the numerator is the total sales tax rate minus 6.85%.

6 The 4.0% rate for Hawaii is an excise tax but is treated as a sales tax for purpose of this deduction.

7 The rate increased during 2018, so the given rate is an average for the year.

8 The rate decreased during 2018, so the given rate is an average for the year. The current instructions are not correct in calculating the state and local sales tax. If compared to the Sales Tax Calculator, the suggested language will have the same result. The current language informs the taxpayer to add it to the amount in the sales tax table which is placed on line 1 of the worksheet, and then the worksheet on line 2 informs the taxpayer to again place the amount from the Local Optional Table, therefore adding the amount twice into the worksheet, resulting in an incorrect sales tax amount. To ensure that the taxpayer’s rights under the Taxpayer Bill of Rights are protected regarding paying the correct amount of tax, this change would help reduce possible errors in calculation.

IRS Action:Partially adopted

ID 1665

Schedule A Instruction, page A-16

Partially adopt – The tables should only address the state and/or local tax amounts to be used in figuring the deduction. We will remove language from the table footnotes that duplicates instructions for how to use the state and/or local tax amounts to figure the deduction.

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2020 TAP Annual Report

The 2020 TAP Annual Report highlights our key recommendations to improve IRS customer service and summarizes our key accomplishments and activities, including the 237 recommendations submitted to the IRS in 2020.

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