Dependent Care Assistance Programs (DCAPs) are employer-sponsored benefits that help employees manage expenses associated with caring for qualified dependents. These programs either provide dependent care services directly or reimburse employees for eligible expenses.

For the 2024 tax year, the maximum exclusion from wages for a DCAP remains at $5,000 ($2,500 if married filing separately).

The IRS issued a news release last week encouraging taxpayers to get an Identity Protection Personal Identification Number (IP PIN) for the 2025 tax season.

Why an IP PIN?

An IP PIN is a crucial layer of protection against tax-related identity theft. An IP PIN is a six-digit number that is known only to the taxpayer and the IRS. The IRS uses this number to confirm the taxpayer's identity when they file their federal tax return.  Using an IP PIN prevents someone other than the taxpayer from using the taxpayer's Social Security number or Individual Taxpayer Identification Number (ITIN) to file a return.

With a heat wave hitting much of the nation and Arizona blistering form 25+ days of temperatures of 110 degrees or higher, air conditioning units are failing.  While the cost of a new unit can be unsettling, the US Department of Energy provides consumers the opportunity to receive tax credits of up to $2,000.  If you purchase an eligible energy efficient equipment, complete IRS Form 5695 to claim your credit.

For more information, go to Clean Energy Tax Credits for Consumers.

Business owners need to consider things besides family dynamics when hiring their parents or children. One of those things is employment taxes.

Child works for parent - When a child works for a parent's sole proprietorship or a partnership in which each partner is the child's parent:

• Payments for the child's services are subject to income tax withholding. But, payments for the services of a child under age 18 are not subject to social security and Medicare taxes, while payments to a child over age 18 are.
• Payments for the services of a child under age 21 are not subject to Federal Unemployment Tax (FUTA). Payments to children over 20 are.

When are business travel expenses deductible? Business travel expenses can be deducted when an individual must travel away from their tax home or main place of work for business reasons. An individual is traveling away from their tax home if they are away for more than an ordinary workday and they need to sleep to meet the demands of their work while away.

What is a tax home?  Generally, an individual's tax home is their regular place of business or post of duty - not their personal residence. The term "tax home" can include the entire city or general area where the individual's work or business is located.

The IRS has posted a webpage that alerts taxpayers to some issues to consider when operating a business as a married couple.  Employment tax requirements for family employees may vary from those that apply to other employees. 

Changes to several tax credits and contributions.

The IRS often scrutinizes large deductions for rental real estate losses claimed by so-called “real estate professionals.” In a new case involving a couple that wholly owned a partnership, Dunn, TC Memo 2022-112, 11/29/22, the Tax Court denied losses because neither spouse met the requisite tax law test.  

In 2021, Governor Doug Ducey signed Senate Bill 1828, which increased the maximum taxable wages from $7,000 to $8,000 for Unemployment Insurance (UI) compensation purposes, effective calendar year 2023. This legislation also made other changes to the UI program, including additional program integrity requirements. 

The Arizona Legislature substantially reduced Arizona's individual income tax rates for the 2022 tax year. The previous Form A-4 withholding rates are no longer representative of the new lower income tax rates. Employers should select the 2.0% default on behalf of the employee.

Employees will still have the option of selecting a higher Arizona withholding rate than their wages might dictate and there is still a line to add an additional amount of Arizona withholding.