June Newsletter

This month’s newsletter discusses the recent federal rule changes impacting salaried employees who will be entitled to overtime pay in late 2016. There is also information to help protect a recently departed loved one’s identity from being stolen. These articles, plus recent announcements from the IRS regarding audit rates, and new Health Savings Account (HSA) limits for 2017 round out this month’s newsletter.

Should you know of someone who may benefit from this information please feel free to forward this newsletter to them.

Ghosting Identity Theft

What everyone should know

To most people “ghosting” is the act of breaking up with a boyfriend or girlfriend by breaking off all contact. Now there is a new ghosting phenomena; stealing the identity of a recently deceased loved one.

Ghosting protocol

Would-be identity thieves scour obituaries to find as much personal information as possible about the recently departed. The more information available about the loved one the better. With this information, thieves can make purchases, open credit cards, create false IDs, and file fraudulent tax returns. This activity can go unchecked until all the proper paper work is filed on the deceased. It can be a nightmare to clear up the mess, all while dealing with the grief associated with losing someone close to you.

What can be done

There are actions available to reduce the risk of this happening.

1 Less is more. When creating an obituary, avoid being too specific on information that could be used by ID thieves. Print a birth year, but not the day and month. Omit the maiden name and the address of the deceased.
Magnifying glass on obituaries page
1 Home unattended. During the funeral and visitation, consider having a friend or relative stay at the home of the deceased. Thieves are known to target homes for burglary during the service.
1 Notify the bank. Remove the deceased’s name from joint bank and credit card accounts. Immediately close solo credit card accounts. Closely monitor any activity in the accounts.
1 Be proactive. Knowing it can take Social Security months to inform all interested parties of the death, proactively contact anyone who may need to know of the death. Report the death to Social Security. File a final tax return. Cancel the driver’s license to avoid duplicates being ordered.
1 Work with credit agencies. Contact the major credit agencies and follow their instructions to place a death notice in their records. This should help stop a thief from opening new accounts. Obtain a free credit report from one of the credit agencies and look for suspicious activity. Wait a few months and review a free credit report from a second agency. Continue to monitor activity on the deceased’s credit reports.

Fortunately, as long as your name is not on the accounts, family members are rarely liable for any illegal activity. But cleaning up the mess can be a real hassle.

New Overtime Rules

Employer and employee alert

On May 18, 2016 President Obama and Labor Secretary Perez announced new Department of Labor overtime regulations that go into place December 1, 2016. The Federal Labor Standards Act (FLSA) has information everyone needs to know to comply with these new rules.

The changes

Watch icon Any worker making $47,476 or less must be paid overtime for hours worked in excess of 40 in a given week. This is true whether the employee receives a salary or hourly pay. The overtime rate must be at least time and one-half.
Watch icon Up to 10% of the compensation amount can be in the form of nondiscretionary bonuses or incentives.
Watch icon Highly compensated employees (HCE) is now defined as $134,004 or higher. The old rate was $100,000. Those above these income levels are exempt from the overtime rules as long as a minimal duties test is met.
Watch icon The new rule is effective December 1, 2016
Watch icon The wage amount will automatically reset every three years. The next change will be January 1, 2020.
Watch icon Actual implementation documentation has not been published in the Federal Register. Final regulations could still change slightly.

What this means to you

Watch icon There will be change. Any salaried employee who makes less than the $47,476 amount will see a change. It could take any of the following forms:

Point move from salaried employee to hourly employee
Point a raise to $47,476 or more
Point move from a flexible work-week to a scheduled work-week to comply with a strict 40 hour work week
Point increase in the tracking of hours
Watch icon Flex hours a thing of the past? Your work hours must now be tracked. Because of this, working from home and working flexible hours is more difficult. While the legal burden of reporting is placed on employers, employees will now need to track their work time.
Watch icon Required reporting. While the Department of Labor provides flexibility on how employers track hours, the standard of reporting will probably be tested through legal action. Here are some of the options per the Department of Labor.

Point Time clock. Have everyone track their hours by punching in and out.
Point Personal recordkeeping. Have each employee track their daily hours and report them to the employer each pay period on a timesheet.
Point Hard scheduling. Publish a schedule of hours for each employee. Record any deviation from the schedule and place the documentation with payroll records.

Note: Please refer the U.S. Department of Labor Fact Sheet #21 for a summary of the FLSA’s recordkeeping regulations.

Watch icon More than a raise. While many are touting this as a potential raise for more than 4 million employees, many believe two other objectives are in play. The first is to broaden employment. Employers may hire additional people to avoid the necessity of paying overtime. The second possible objective is to help re-establish a work and leisure balance.

No matter what the pundits say, the true impact of this change is unknown. The only certainty is that all employers now face additional administrative duties and potential legal action for non-compliance. This includes businesses, schools, and non-profit organizations. What is important at this point is to be aware of the upcoming change and plan for it.

The Chances of Being Audited

2015 audit statistics show continued changes

What are the Chances?

Every year the IRS publishes the statistics on the number of tax returns they are examining. Provided here are the last three years of published information and a look back to 2008 to see any trends:

Percent of Individual Tax Returns Audited
Fiscal Year Year 2015 2014 2013 2008
All Individual Tax Returns 0.84% 0.86% 0.96% 1.00 %
No Income (AGI) 3.78% 5.26% 6.04% 2.15%
Income under $25,000 1.01% .93% 1.00% .90%
$25,000 – 50,000 .50% .54% .62% .72%
$50,000 – 75,000 .47% .53% .60% .69%
$75,000 – 100,000 .49% .52% .58% .69%
$100,000 – 200,000 .64% .65% .77% .98%
$200,000 – 500,000 1.54% 1.75% 2.06% 1.92%
$500,000 – $1 million 3.81% 3.62% 3.79% 2.98%
$1 million – $5 million 8.42% 6.21% 9.02% 4.02%
$5 million – 10 million 19.44% 10.53% 15.98% 6.47%
$10 million and over 34.69% 16.22% 24.16% 9.77%
Note: These audit rates are stated as a percent of total tax returns in each Adjusted Gross Income (AGI) class as claimed on individual tax returns. In general the examinations are for tax returns filed in the previous calendar year.

Source: IRS Data Books


Point Overall, you have less than 1 out of 100 chance of being selected for an audit. The .84% audit rate is down .02% versus 2014.
Point The IRS is continuing its focus on returns with no AGI or negative income. This group’s 3.78% audit rate is down versus last year, but is still significantly higher than the 2.15% audit rate in 2008.
Point The IRS continues its focus on who pays the income tax. Those with incomes over $500,000 continue to have audit rates significantly higher than in 2008.
Point Over 1/3 of those with incomes over $10 million were faced with an audit.

Having good records

Your best defense in case of an audit is retaining adequate records for as long as you need them. This includes retaining copies of original tax returns and any supporting documentation. Please keep all receipts, statements and cancelled checks that support any tax return entry. Also retain legal documents, confirmation of asset purchases, asset sales, real estate transactions, mileage logs, and informational tax forms. Remember the IRS can audit your tax return for three years after the later of the filing date or when you filed your tax return. This time-frame is six years if your income is understated by more than 25%. Include any state record retention requirements as you review when it is safe to destroy old records. This can add one to two years to your recordkeeping requirements. Filing cabinet

2017 Health Savings Account Limits Announced

The savings limits for the ever-popular Health Savings Accounts (HSA) are now set for 2017. The new limits are outlined here with current year amounts noted for comparison purposes.

What is an HSA?

An HSA is a tax-advantaged savings account to pay for qualified health care costs for you, your spouse, and your dependents. When contributions are made through an employer, they are made on a pre-tax basis. There is no tax on the withdrawn funds, the interest earned, or investment gains as long as the funds are used to pay for qualified medical, dental, and vision expenses. Unused funds may be carried over from one year to the next. To qualify for this tax-advantaged account you must be enrolled in a “high deductible” health insurance program as defined by HSA rules.

Stethescope around hunderd dollar bills

The limits

Health Savings Account (HSA) Limits NEW! 2017 2016 Change
Maximum Annual Contribution Self $3,400 $3,350 +$50
Family $6,750 $6,750 nc
Add: 55+ catch up
$1,000 $1,000 nc
Health Insurance Requirements
Minimum Deductible Self coverage $1,300 $1,300 nc
Family coverage $2,600 $2,600 nc
Out-of-pocket Maximum Self coverage $6,550 $6,550 nc
Family coverage $13,100 $13,100 nc

Source: IRS Rev Proc 2016-28

Note: To qualify for an HSA you must have a qualified High Deductible Health Plan (HDHP). A plan must meet minimum deductible requirements that are typically higher than traditional health insurance. In addition, your coverage must have reasonable out-of-pocket payment limits as set by the above noted maximums.

Not sure what an HSA is all about? Check with your employer. If they offer this option in their health care benefits, they will have information discussing the program and its potential benefits.

As always, should you have any questions or concerns regarding your situation please feel free to call.

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