News on 2021 Child Tax Credit Refunds, IRS Hiring Plans

Here are important updates regarding the changes to the Child Tax Credit and recent hiring plans from the IRS.

Important News on Child Tax Credit Refunds

Recently, there were changes made to the child tax credit that will benefit many taxpayers. As part of the American Rescue Plan Act that was enacted in March 2021, the child tax credit:

  • Amount has increased for certain taxpayers
  • Is fully refundable (meaning you can receive it even if you don’t owe the IRS)
  • May be partially received in monthly payments

The new law also raised the age of qualifying children to 17 from 16, meaning some families will be able to take advantage of the credit longer.

The IRS will pay half the credit in the form of advance monthly payments beginning July 15. (You may have received a check or deposit already.) Taxpayers will then claim the other half when they file their 2021 income tax return.

Though these tax changes are temporary and only apply to the 2021 tax year, they may present important cash flow and financial planning opportunities today. It is also important to note that the monthly advance of the child tax credit is a significant change. The credit is normally part of your income tax return and would reduce your tax liability. The choice to receive the child tax credit in advance will affect your refund or amount due when you file your return. To avoid any surprises, please contact our office.

Qualifications and how much to expect

The child tax credit and advance payments are based on several factors, including the age of your children and your income.

  • The credit for children ages five and younger is up to $3,600 –– with up to $300 received in monthly payments.
  • The credit for children ages six to 17 is up to $3,000 –– with up to $250 received in monthly payments.

To qualify for the child tax credit monthly payments, you (and your spouse if you file a joint tax return) must have:

  • Filed a 2019 or 2020 tax return and claimed the child tax credit or given the IRS your information using the non-filer tool
  • A main home in the U.S. for more than half the year or file a joint return with a spouse who has a main home in the U.S. for more than half the year
  • A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number
  • Income less than certain limits

You can take full advantage of the credit if your income (specifically, your modified adjusted gross income) is less than $75,000 for single filers, $150,000 for married filing jointly filers and $112,500 for head of household filers. The credit begins to phase out above those thresholds.

Higher-income families (e.g., married filing jointly couples with $400,000 or less in income or other filers with $200,000 or less in income) will generally get the same credit as prior law (generally $2,000 per qualifying child) but may also choose to receive monthly payments.

Taxpayers generally won’t need to do anything to receive any advance payments as the IRS will use the information it has on file to start issuing the payments.

IRS’s Child Tax Credit Update Portal

Using the IRS’s child tax credit and update portal, taxpayers can update their information to reflect any new information that might impact their child tax credit amount, such as filing status or number of children. Parents may also use the online portal to elect out of the advance payments or check on the status of payments.

The IRS also has a non-filer portal to use for certain situations.

In short, if you are set up to pay quarterly estimates, the advance of the child tax credit was not factored into your estimates.  Therefore, I would suggest you immediately opt out of the advance.

If for whatever reason you do not opt out, let us stress again that your refund will be reduced or the amount you owe will be increased by taking the advance.

If you receive any advance, you must keep track of them for preparation of your 2021 tax return – the same as the stimulus payments.

IRS Small Business and Criminal Divisions Will Hire Thousands of Auditors by September

At a New York University conference, the co-commissioners of IRS’s Small Business/Self- Employed Division (SB/SE), and the commissioner of the Criminal Investigations Division (CI), announced that they will be hiring thousands of auditors by the end of September 2021.

President Biden and the House Appropriations Committee have both submitted budget increases for IRS for fiscal year 2022 – $1.7 billion more than IRS received in fiscal year 2021.

IRS SB/SE co-commissioners De Lon Harris and Darren Guillot spoke to the conference. “We’re going to be ready to go, as soon as that budget hits… to start bringing in what could be double the number of folks that we are looking at bringing in this year, just for exam alone.” They noted that they plan to hire 1300 field revenue officers, 400 tax compliance officers who will be available for “in person audits” (formerly called “office audits”), and 518 automated collection (ACS) phone representatives. Guillot said that, after taxpayers receive an IRS notice threatening to garnish wages or levy property, “you expect when you call that [ACS] phone number that we’re going to answer,” he said.

SB/SE expects to use new personnel to increase compliance in the following areas: fuel tax, syndicated conservation easements, and employment taxes.

Additional Ways to Protect Yourself from Unemployment Fraud

We recently shared information on how to avoid falling prey to the recent uptick in unemployment compensation fraud. The Pennsylvania Department of Labor & Industry has provided these additional tips to protect yourself and your employees from identity thieves and hackers.

‘When an employer responds to the notice of claim filed, the Department does not need any of the person’s real employment information for identity theft situations. They are just looking for a response that tells them the claim is fraudulent and should not have been opened. The fields do not need to be completed unless the system requires it (like start & end date, termination date), and when that happens, you can just enter the current date.  Do not spend time researching actual hire dates because this is not a real claim.

The one field you should accurately complete is the reason for separation.  For identity theft claims, you should enter the reason for separation as “Still working full-time.” When the system receives the response, it will create an issue on the claim which will prevent payment if it is not already being prevented by some other reason.’

Here are the steps to submit your responses via the new benefits system:

Reporting Fraud – BenMod.

  • From the Unemployment Services widget, click “More Unemployment Services” and then the “Notice of Separation” link.
  • Choose the Claimants tab.
  • After locating the individual for whom you wish to report, click on the “Needs Response” link.

If you are not able to log into the new benefits system, enroll here, or respond using SIDES e-response: Reporting Fraud – SIDES

If you are unable to log in to the system, simply respond via the hard copy of your paperwork by writing “fraudulent claim” across the front of the form and mailing it to the department.

If you have hired a Third-Party Administrator (TPA) to care for your unemployment claims, disregard any Notices of Application because the TPA will be handling these for you.

The Pennsylvania Department of Labor & Industry has also advised the following:

  • “Appealing the financial determination is not the appropriate way to report a fraudulent claim to us, and it’s inundating our monetary appeals staff. Please do not appeal these determinations; use the above steps to report the fraud to us.”
  • “As the employer, you should simply respond to the claim notices but not also file a fraud report using our website’s “Report Fraud” link. The individual affected should use the “Report Fraud” link to file a report.”
  • “If a payment has already been made on that claim, payments will continue every other week until a staff member is able to deny the claim. Ultimately, you will not be charged for benefits paid to fraudulent, identity theft-related claims. Once benefits are denied, an overpayment will be set up, which credits your account.”
  • “Reporting the same claims multiple times is tying up resources. For as many of these false claims as you are receiving, we are receiving much more.  Please do not duplicate your report to us no matter how long it has been since you first reported it.”

The Pennsylvania Department of Labor & Industry has additional resources concerning unemployment compensation fraud that you can access here. Forms can also be completed over the phone by calling the Pennsylvania Unemployment Compensation Fraud Hotline at 800-692-7469.

If we can be of any assistance, please contact us online or call 215-723-4881.

Churches in Pennsylvania: Yes, You Can Apply for the Employee Retention Credit

The Employee Retention Credit (ERC) is a form of COVID-19 relief that can be paid as a payroll tax credit, including to eligible Pennsylvania churches. These ERCs are substantial and well worth the time to pursue. Eligible churches have the potential to receive reimbursement of up to 50% of $10,000 paid to each non-clergy employee in 2020 and up to 70% of $10,000 paid to each non-clergy employee per quarter in 2021.

Pursuing the ERC is not ideal for religious organizations that employ only members of the clergy, because clergy members’ FICA-exempt wages are not eligible to be included in the calculation of the credit. Other religious organizations whose principles simply object to mechanisms like tax credits or stimulus money may intentionally ignore the ERC. For those in leadership positions of all other religious organizations, read on.

Church financial leaders may have overlooked the ERC due to some common misconceptions.

It’s not worth pursuing the ERC because we only employ a few part-time, non-clergy employees.

Part-time employees are eligible to be included in the ERC calculations and the credits are proving to be substantial.

We don’t qualify because our church did not experience a decline in revenue.

One popular misconception is that there is only one qualifying economic hardship test, which is based on a decline in revenue. There are multiple avenues for qualification, one of which does not involve economic hardship.

There’s another way for churches to qualify for the ERC

Many religious organizations did not experience declines in revenue throughout the pandemic, unlike many for-profit organizations. So, while it is correct that churches typically will not qualify for an ERC due to economic hardship, they may qualify under another of the hardship requirements: that their operations were “fully or partially suspended” because of Federal, State, or local governmental order.

At the outset of the COVID-19 pandemic, religious organizations in Pennsylvania were defined by Governor Wolf as essential organizations, with their activities segmented into two classes of operations: religious services and “covenants, retreats, and other gatherings.” In theory, this meant that churches could not be forced to close their doors for worship services. Through this lens, if a church voluntarily decided to pause in-person activities, they would not qualify for the ERC.

Despite churches designation as essential, Governor Wolf and the Pennsylvania Department of Health imposed further restrictions on the continuance of in-person operations. This meant that if a religious organization closed in-person worship services due to an inability to comply with governmental orders or compliance resulted in an effect that is greater than nominal to the organization, then the organization could qualify for the ERC.

The “essential” classification protected worship services from mandatory closures but the continuance of in-person operations was contingent upon adherence to governmental orders for in-person public health safety measures. ERC eligibility can be argued if an organization’s inability to adhere to the rules of the in-person order resulted in operational closure.

Church. It’s more than a worship service.

Churches cannot simply or easily be defined as an entity that provides a regular worship service. Churches serve many purposes, which is recognized by the phrase used by the Commonwealth,  “covenants, retreats, and other gatherings.” This terminology refers to all the activities of a church outside of holding a worship service. Many churches have operations that include daycare centers, nurseries, schools, professional services, legal services, personal financial services, faith-based counseling services, extracurricular and athletic activities, men’s and women’s groups, youth programs, and book studies.

The Internal Revenue Service recognizes that entities can have both essential and non-essential operations, affirming that the closure of non-essential operations immediately results in an ERC qualification if the affected operations are more than nominal to the organization:

“…an employer that maintains both essential and non-essential business operations, each of which are more than nominal portions of the business operations, may be considered to have a partial suspension of its operations if a governmental order restricts the operations of the non-essential portion of the business, even if the essential portion of the business is unaffected.” – Internal Revenue Service

An employer can still be eligible for an ERC if non-essential operations are continued remotely if the continued operations are not comparable to operations prior to the governmental order and the effect of the change in operation(s) can still be considered more than nominal to the business. Churches that launched remote services can qualify as well, although those who conducted services remotely prior to the pandemic will have a harder time substantiating qualification for the credit.

So, while it’s not too late to pursue the ERC if your church is interested in doing so it’s best to apply at your earliest opportunity. We are glad to help you through the process. Contact us online or call 215-723-4881.

Protect Yourself from Unemployment Fraud

Incidents of unemployment fraud continue to rise, thanks mainly to identity theft. According to the Pennsylvania Department of Labor & Industry’s security vendor ID.me, identity thieves are using “phishing attempts and fraud scams leveraging social media, text messaging, and email to lure unsuspecting individuals into providing personal information so that the scammers can claim their identity.”

The Pennsylvania Department of Labor & Industry has outlined the following as red flags that a fraudulent unemployment claim was filed involving you or your company:

You receive notification about an unemployment claim for an employee who never worked for you.

It’s likely that the person has no idea their name is being used or the name does not belong to a person to begin with. Many of these scammers file multiple claims at a time, choosing random Pennsylvania employers.

What to do?

Mark “Never worked here” on the form and send it back to the Pennsylvania Department of Labor & Industry.

You receive notice regarding an employee who is fully and currently employed by you.

Ask the employee if he or she opened a claim. If they did not file the unemployment claim, it’s probably the work of a scammer using their identity. Instruct the employee to report the fraud to the Pennsylvania Department of Labor & Industry (links and information posted below).

You receive notice that you have filed an unemployment claim, except you haven’t.

This means your identity was stolen and you should report the fraud to the Pennsylvania Department of Labor & Industry.

How to Report Pennsylvania Unemployment Compensation Fraud

Unemployment Compensation Fraud

Federal Pandemic Unemployment Assistance (PUA) Fraud

These forms can also be completed over the phone by calling the Pennsylvania Unemployment Compensation Fraud Hotline at 800-692-7469.

Employers Should Report Suspected Fraud as Quickly as Possible

If you receive paperwork, it does not necessarily mean that payments have or will be made on that claim. Either way, it is important for you to report it to us as soon as possible. You will not be charged for benefits paid to those committing fraud via identity theft. If payments are not stopped upfront, then there will be an overpayment set up when the situation is investigated. As always, overpayments credit your account and you are not charged for benefits that were overpaid.

The Pennsylvania Department of Labor & Industry has additional resources concerning unemployment compensation fraud that you can access here.

If we can be of any assistance, please contact us online or call 215-723-4881.

Preparing for Digital Assets – Present and Future

As we pass the one-year mark of COVID-19, we are faced with changes in our personal lives which include pieces from the “old normal” and the “new normal.” While we are slowly getting back to living aspects of our lives as we did before the COVID-19 pandemic, there appear to be remaining complexities related to relationships, supply-chains, risk management, and our overall financial health.

We at Canon Capital Wealth Management want to assure you that we remain focused on assisting you as we all move into this new future together.

One of the hot topics in our world right now is the acceleration of digital transformation through new technological advancements and the opportunities for investing. Blockchain and cryptocurrency offerings such as Bitcoin and other digital assets have grown in prominence over the past year. While these areas are high risk because they are complicated and very new, we are paying attention to their rapid evolution. As a part of our commitment to educate ourselves and our clients, we have taken the initiative and will begin formal training through RIA Digital Assets Council (RIADAC) for our investment advisors this spring. When digital assets become available in registered security formats, we are positioned to be ahead of the curve and prepared to assist you.

Learn more about RIADAC, including their predictions for the digital asset space in 2021.

Please reach out to our team if you wish to understand the current options for participating in this uncharted but potentially promising space.

Latest News on COVID-related Legislation and Taxes – May 24, 2021 Update

Tax season may have just ended, but there continues to be various news on legislation and COVID relief.

Individual Payments for Child Tax Credit Starting on July 15.

While this has not received a lot of press, be aware you may be receiving payments from the IRS soon if you have a child under 18 claimed as a dependent and your income is under certain thresholds. The American Rescue Plan Act provided for advanced payments of the child tax credit anticipated on a taxpayer’s 2021 income tax return. The payments will begin on July 15, 2021. Thereafter, they will be made on the 15th of each month unless the 15th falls on a weekend or holiday and will continue through December 2021. The total amount paid out prior to the end of the year will estimate 50% of the IRS’s estimate of the 2021 credit. Recipients will receive the monthly payments through direct deposit, paper check, or debit cards. The IRS says that it is committed to maximizing the use of direct deposit. You will need to keep track of these payments for the preparation of your 2021 individual tax return.

The IRS also is required to build an “Opt Out” option on their website for those taxpayers who may not want to receive the monthly payments.

For more information, please visit the IRS website.

Finally, Some Support for Recent Startups

A “recovery startup business” that began operations after February 15, 2020, with $1M or less in average annual gross receipts can now qualify for the employee retention credit (see below) for the third and fourth quarters of 2021. The credit is capped at $50K per quarter, and at this point is not subject to any shutdown restrictions or gross receipts decline tests. In other words, if you started a business after February 15, 2020, you are eligible for a 70% credit against wages paid up to a $50K credit per quarter.

As an example, if you qualify and paid wages of $70K per quarter, you could qualify for a $50K refundable credit and only be out of pocket $20K.

Employee Retention Credit (ERC)

Unfortunately, we continue to hear too many stories of tax preparers who ignored the ERC for their clients in 2020. We also hear too many stories of payroll services who also did not inquire about the credit to have the quarterly payroll returns filed accurately. This credit, in many cases, can be larger than the funds received through the PPP program.  Many businesses don’t realize they qualify for the credit.

If your business was fully or partially shut down on a government order, or you had a “substantial” (either 20% or 50%) decline in gross receipts per quarter compared to 2019, you are eligible for a credit up to $7,000 per employee. We have been helping many clients and non-clients with this credit and its interaction with the PPP loans.

There are two areas of caution with the credit.

First, there are “new companies” that are advertising services to prepare this credit and filings for you. They are typically charging a percentage of the refund as their fee. There is no reason to use one of these companies for the service. As you can imagine, some of these companies are turning out to be less than reputable – and you don’t want a less than reputable company in possession of your payroll records and employee information.

Second, if you qualified in 2020 and filed or amended payroll tax returns to claim the credit, the credit MUST be reported on your 2020 tax returns. Many firms who ignored the credit for their clients altogether and filed annual income tax returns (corporate, partnership, or individual) may now realize their clients qualify for the credit.  While amended payroll tax returns for 2020 can be filed throughout 2021 to claim the credit, keep in mind, the associated income tax returns will have to be amended as well. In the case where an income tax return was filed without the credit, many firms will report the credit for 2020 on the 2021 income tax returns. This is incorrect and will put the credit at risk upon any examination of the returns.  Keep in mind, the IRS has extended the statute for the ERC to five years vs. three. So, we suspect there will be a number of returns audited in the future.

While this article is non-authoritative, it’s one of many that can be found with a simple search that speaks to the subject: When is the Amount of the Employee Retention Credit Subject to Tax?

You can also watch our presentation on the ERC from February.

Lastly, the IRS will most likely not process these credits for 2020 for six months or longer. So, the money won’t be refunded any time soon. If you qualify in 2021, there are some options to receive your money faster.

PPP1 Forgiveness Applications

As stated in an earlier communication, forgiveness applications should now be available through most, or all, lenders and should be considered for filing as soon as possible. For loans under $150K, the application is extremely simple.  However, if you need to coordinate the PPP forgiveness with the Employee Retention Credit, or other grants or programs like Families First, the application may not be so straightforward. If your business received assistance from another government program besides PPP that assisted with payroll, we would encourage you to check with your tax preparer prior to filing the application.

PPP2 Update

The general funds for the second round of PPP funding have been exhausted.  The SBA and lenders are not taking new applications at this time, and there is no “chatter” on replenishing the general fund.

However, in January, $15B was set aside for CFI lenders (Community Financial Institutions). Recently, there was approximately $8B left in these allocated funds. You may be able to qualify and obtain a loan from one of these lenders. These lenders should be able to lend through community development, minority, or microlending. If you feel you would qualify for one of these, you may still apply for a PPP2 loan until May 31 or until the lender closes the program.

Biden’s Potential Tax Reform

There continue to be rumblings of a Biden tax overhaul, and the infrastructure bill that includes some tax provisions. Some of these bills may include changes retroactive to January 2021. Needless to say, any Biden tax bill needs to be evaluated seriously as they may include some of the largest tax increases in decades. Without Republican support, most likely the earliest any tax plan could pass is late fall or early winter when the reconciliation process becomes available again to Congress. Our Planning for a Biden Administration Tax Plan presentation from December is still a good summation of possible changes.  More to come on this over the next few months.

Should you have any questions on any of these topics, or any other items that relate to your situation, do not hesitate to contact us at 215-723-4881 or via email.  We’ll be happy to discuss your situation with you.

Finally, we want to thank everyone for the continued compliments related to our Zoom series over the past year.  We continue to evaluate the tax landscape and will not hesitate to have another Zoom session if it will be a substantial benefit to the participants.

Latest News on Tax Deadlines and COVID-related Legislation

Legislation and developments continue to move at a breathtaking pace with regard to tax filing deadlines and COVID-related legislation. Here at Canon Capital, our workload continues to be full as we prioritize getting our clients the help they need – despite being in the middle of tax season. We’ve gathered the latest updates in this blog post.

Federal Tax Deadline Extended to May 17, 2021 for Some Returns

As you may have heard, the deadline for filing individual tax returns and payments for 2020 has been extended to May 17, 2021. Pennsylvania has adopted the May 17 date as well.  However, the April 15 deadline remains for some returns, including C-corporations and trust tax returns. We are still waiting on guidance on gift tax returns. Lastly, and perhaps most oddly, the due date for first quarter estimates for individual returns is still April 15, 2021.

In addition to certain tax return deadlines being extended, the 2020 contribution deadlines for IRAs, Roths, HASs, Archer MSAs, and Coverdell ESAs have also been extended to May 17, 2021.

The AICPA continues to advocate for moving everything normally due on April 15, 2021 to May 17, 2021.  Needless to say, we are hoping for some decisions soon.

Employee Retention Credit

Many businesses don’t realize they are eligible for these substantial, recently expanded credits.  If your business was fully or partially shut down on government order, or you had a “substantial” (either 20% or 50%) decline in gross receipts per quarter compared to 2019, you may be eligible for a credit of up to $7,000 per employee. We have been helping many clients with this credit and its interaction with the PPP loans.  Unfortunately, we are hearing too many stories from business owners that their accountant has de-prioritized work related to the ERC. If you are not getting answers and would like to discuss your potential eligibility, please feel free to give us a call.

PPP2 Applications and Draws

As you may have heard, the deadline for applying for a PPP loan has been extended to May 31, 2021.  However, in a somewhat unexpected announcement, the SBA announced last week that they are projecting the funds to run out mid-April. Thus, we suggest getting any remaining applications in immediately.  There may be a replenishment of funds, but nothing has been announced yet.

Also, at the beginning of March, the SBA changed the formula on how sole proprietors calculate their loans. This change was a huge benefit to schedule C borrowers. There is pressure for Congress to adopt a retroactive law allowing schedule C borrowers funded with applications prior to the change to use the new formula.  Again, there is only discussion at this point and nothing imminent. This would also require additional funds to be allocated to the PPP program.

In addition, the SBA has stated that of the approximate 25M schedule C/sole proprietor businesses in the U.S., only 2.6M have applied and been approved for PPP loans. If you have questions about your eligibility, please contact us immediately.

Forgiveness applications should now be available through most or all lenders and should be considered for filing as soon as possible.

Lastly, if you had a “Draw 1” application in January or February (that is your first borrowing under the PPP program), you may now be eligible to submit a “Draw 2” application.  Again, if you have questions about eligibility, please contact us immediately.

Economic Injury Disaster Loan Update

The SBA has raised the COVID-19 EIDL loan limit to $500,000.  There have also been additional funds made available for the program.

IRS to Recalculate Taxes on Unemployment Benefits

With the American Rescue Plan Act passage in March, there was a retroactive provision that made the first $10,200 of unemployment benefits non-taxable for filers under certain thresholds. The IRS came out with guidance and stated that taxpayers who have already filed their returns should not file an amended return. The IRS will recalculate those returns and issue refunds. The refunds will come in two phases starting in May 2021. The first phase will be for single taxpayers who are eligible for the exclusion. The second phase will include married taxpayers and others with more complex returns. However, the IRS may not calculate returns with additional credits properly, making an amended return necessary after all. Taxpayers need to pay attention to the accuracy of the return.

Other Programs

Other brand-new programs have become available, such as the Shuttered Venue Operators Grant and the Restaurant Revitalization Fund. The funds in these programs will run out fairly quickly, so please make sure you, or your banker or advisor, are ready to apply for these programs when they open.

Affordable Care Premium Tax Credits

The passage of the American Rescue Plan Act also includes a retroactive provision stating a taxpayer does not have to repay any of the advance premium credit for 2020 if they received too much. In this case, taxpayers who already filed their 2020 tax returns will need to file an amended return.

Biden’s Potential Tax Reform

There are currently two bills in Congress that could be part of a Biden tax overhaul. The Sensible Taxation and Equity Promotion (STEP) Act would eliminate stepped-up-basis at death. The bill would allow individuals to exclude up to $1M in unrealized capital gains from tax, as well as provide the opportunity to pay the tax in installments over a 15-year period for capital gains that apply to any illiquid assets like a farm or business. Changes would be retroactive to January 2021. The second, Senator Bernie Sanders’ 99.5 Percent Act, proposes to lower the gift tax exemption to $1M and to limit annual gift tax exemptions.

Needless to say, any Biden tax bill needs to be evaluated seriously. Without Republican support, most likely the earliest any tax plan could pass is late fall or early winter when the reconciliation process becomes available again to Congress.  More to come on this over the next few months.

Biden’s $2.3 Trillion Infrastructure, Tax Plus Plan

This topic has just started to be discussed. There may be a possibility for a bill by the end of the summer, so for now, we’ll have to keep our eye on this as well.

Should you have any questions on any of these topics, or any other items that relate to your situation, do not hesitate to contact us at 215-723-4881 or via email.  We’ll be happy to discuss your situation with you.

Additional Resources

Recording of February 11, 2021 Seminar: The Expanded Employee Retention Credit

Recording of January 12, 2021 Seminar: Unpacking the Latest COVID-19 Relief Package

Recording of December 18, 2020 Seminar: Year-end Planning for a Biden Administration and the SECURE Act

New W-4 Form for 2021

The IRS has issued the new W-4 form for 2021. The W-4 form has changed significantly since 2020, so now is the perfect time to do a Paycheck Check-up. We have a step-by-step guide available to you here.

If you have any questions about your specific situation, please consult with your tax advisor. If you do not currently have a tax advisor, we welcome the opportunity to serve you. Please call 215-723-4881 or contact us online.

Tax Update: Filing Deadline Changes, PPP Loan Submission Extension, and More

We want to make sure you are up to date on some of the most recent changes that have happened during this week.

Change in Tax Filing Due Date to May 15 for Individual Taxpayers

In our last update, we informed you that we anticipated the IRS would push back the due date of tax returns originally due on April 15, 2021.  As you might have heard in the news, on Wednesday, March 17, the IRS has in fact changed the due date for individual tax returns and the payments due with those returns to May 15, 2021.

On the surface, this seems like a good thing, and we believe it is a partial step forward. However, as with much that the IRS does, they seemed to confuse the situation further. They did not extend the due date for all taxpayers with a due date of April 15, as Trusts, Not for Profits, and Corporations with a due date of April 15 are still due on that date. In addition, any individual taxpayers that are required to make quarterly estimated tax payments (roughly 9.5 million taxpayers) are still required to make their 1st quarter estimated tax payment by April 15, one month prior to their tax return being due. This seems to have made the system more complex, rather than providing relief to those taxpayers who need it most.

We, along with our National Organization the AICPA, are continuing to push for a June 15, 2021, due date and are asking Congress to step in and push for some real relief needed for all individuals and entities subject to the April 15 due date.  So, for now, May 15 is the new due date for some individual taxpayers. Stay tuned as we will keep you updated should the situation change.

Unemployment Exclusion of $10,200

For those taxpayers that will benefit from the recently passed unemployment compensation exclusion of $10,200, the IRS has posted on their website the instructions for claiming this exclusion for those who have not yet filed their tax returns. For those who have already filed tax returns prior to the exclusion coming into law, the IRS has stated that taxpayers should not file Amended tax returns, they will issue refunds to those taxpayers who qualify. We will also monitor this situation, and should the refunds fail to start coming to those due refunds, we will let you know of any revised procedures.

PPP Loan Submission Date Looks to be Extended through May 31

For those businesses and organizations that are eligible for the new round of PPP loans, it looks like the date for applying for the next round of loans will be extended from March 31, 2021, to May 31, 2021.  With the changes recently made for Sole Proprietorships & Single member LLC’s, this will provide some extra time for those needing assistance to keep businesses running.

The House has unanimously passed this Bill and it has moved on to the Senate, so hopefully this will pass shortly. We will update you as we hear news on the final passage.

Should you have any questions on any of these or any other items that relate to your situation, do not hesitate to contact us and we will be happy to discuss with you directly.

Unpacking the American Rescue Plan Act (ARPA): What It Means for You and Your Business

On Thursday March 11, 2021, President Biden signed the American Rescue Plan Act (ARPA) into law. This law contains another round of $1,400 stimulus checks for qualifying individuals.  However, as with most of the other recent major legislation changes, there are many provisions in the law that affect both businesses and individuals. Some provisions are retroactive to 2020 and will delay the filing of 2020 income tax returns.  Others may not take effect until 2021 and 2022.

At this point, we Are NOT anticipating having a Zoom meeting discussing this Act in particular. If you have any questions, please feel free to contact us directly.

Will Tax Season Be Extended?

Before we provide the highlights of this new law, we would like to give our thoughts regarding the question on everyone’s mind: “Will the IRS extend tax season again this year?”  As of today, they have not. The IRS Commissioner has been on record on several occasions stating they have no plans to do so. However, he did acknowledge prior to the passage of ARPA, that printing and distributing another round of stimulus payments, may necessitate extending the deadline.

The AICPA, along with members of Congress and other organizations have been pushing for an extended due date. The most popular dates are June 15 and July 15, which is consistent with the prior year due date. As you can imagine, the IRS is under tremendous pressure to either extend the deadline or waive any penalties on taxes that would have been due April 15. The IRS still has to process millions of 2019 returns; write guidance and regulations immediately on the law passed December 27, 2020, that is currently in effect; process another round of stimulus payments; and write guidance and regulations on this new ARPA immediately for the parts that are retroactive or currently in effect.

However, the biggest difficulty may be for the IRS to code their computer systems and issue guidance to tax software vendors on how to report the 2020 tax law changes that have just passed.  This alone will take weeks, not days.

All of this is in addition to their normal workload during filing season.

Lastly, they are still working remotely to some extent. We have already seen some states starting to extend their deadlines, ahead of any change by the IRS.  Taking all of this into account, it seems certain that something will have to be extended or addressed, so stay tuned.

Highlights of the ARPA

Since we do not anticipate presenting a Zoom meeting, following are the highlights of the ARPA that could affect several areas common to businesses and individuals. We have organized each element as best we could so you can identify the topics that may interest you.

Recovery Rebates (Stimulus Payments) to Individuals

The ARPA includes provisions for individuals to receive a $1,400 payment ($2,800 for eligible individuals fining a joint tax return), and a $1,400 payment for each dependent:

  • College students, disabled adult children, and adult parents will qualify for the $1,400 payment
  • Payments will be made to the taxpayer, not the dependent
  • Phase out for the payments begins at $150,000 of adjusted gross income for a joint return ($75,000 for single) and is completely phased out at $160,000 of adjusted gross income for a joint return ($80,000 for single).

Enhanced Child Tax Credits

The ARPA includes provisions for enhanced child tax credits for 2021, making the Child Tax Credit (CTC) fully refundable for 2021 and increasing the amount to $3,000 per child ($3,600 for children under age 6). These amounts are subject to income limits and phaseouts. The ARPA also directed the IRS to make advanced payments equal to 50% of the anticipated credit based on the taxpayer’s 2019 and 2020 return.

  • Advanced monthly payments to taxpayers will begin after July 1, 2021
  • The IRS is also responsible for creating an online portal to allow the taxpayers the option of opting out and reporting changes in dependents, income, and other relevant information.

Premium Tax Credit for Marketplace Insurance

The new legislation will:

  • Change the affordability percentages used for 2021 and 2022.
  • For 2020, the excess advance premium credit will not have to be repaid
  • For 2021, the credits available are increased for those earning over 133% of the federal poverty line.

Employee Retention Credit

The new legislation:

  • Extends the ERC from June 30, 2021 until December 31, 2021. The legislation would continue the ERC rate of credit at 70% for this extended period. It also continues to allow for up to $10,000 in qualified wages for any calendar quarter.
  • Limits the ERC to $50,000 per calendar quarter of an eligible employer that is a “recovery startup business.” A “recovery startup business” is one that: (1) began operations after February 15, 2020 whose average annual gross receipts for a 3-taxable-year period ending with the taxable year which precedes such quarter does not exceed $1,000,000, and (2) experiences a full or partial suspension of operations due to a governmental order or experiences a significant gross receipts decline.
  • Allows the credit to be claimed against Medicare (1.45%, Hospital Insurance – HI) taxes only. Since the employer/employee tax rate for Medicare is 1.45%, it could take longer to immediately claim the credit under the ARPA for the third and fourth quarters of 2021. Instead of just withholding the taxes immediately, it could be more likely that more employers would need to file Form 7200 (Advance Payment of Employer Credits Due to COVID-19).
  • Continues the year-over-year gross receipts decline requirement at 20%.
  • Qualified wages paid by an employer taken account as payroll costs under (1) Second Draw PPP loans; (2) shuttered venues assistance and (3) restaurant revitalization grants are not eligible for the ERC.

Unemployment Provisions – Individuals

The new legislation:

  • Extends the Federal pandemic unemployment compensation payment of $300 per week through September 6, 2021.
  • Does not extend the 50% credit for reimbursing employers
  • Makes the first $10,200 ($20,400 for a married couple) of 2020 unemployment tax exempt for households earning under $150,000
  • There is no phaseout, so at $150,001 – All the unemployment benefits become taxable.

Paycheck Protection Program Modifications

There have been several changes to the PPP program in the past few weeks prior to the passage of ARPA.  Recent changes include:

  • Allowing schedule C filers to use gross income in their calculation of loan proceeds vs. net income
  • Businesses with a North American Industry Classification System (NAICS) code beginning with “72” to use a 3.5 multiple of average monthly payroll instead of a 2.5 multiple to figure their loan proceeds. NAICS codes of 72 are companies in the accommodation and food service sectors, including lodging.

Due to the number of changes, there has been a lot of pressure to extend the application deadline.  The current deadline is March 31.  However, the Fed has already committed to supporting PPP loans through June, and it is practically certain the SBA will extend the application deadline to May 31.

The new ARPA legislation:

  • Allocates an additional $7.25 billion towards PPP funding.
  • Adds “additional covered nonprofit entity” as an eligible nonprofit eligible for First Draw and Second Draw PPP loans.

Paid Sick and Family Leave Credits under Families First

Changes under the ARPA apply to amounts paid with respect to calendar quarters beginning after March 31, 2021. ARPA, 2021:

  • Extends the FFCRA paid sick time and paid family leave credits from March 31, 2021 through September 30, 2021.
  • Provides that paid sick and paid family leave credits may each be increased by the employer’s share of Social Security tax (6.2%) and employer’s share of Medicare tax (1.45%) on qualified leave wages.
  • Allows for the credits for paid sick and family leave to be structured as a refundable payroll tax credit against Medicare tax only (1.45%), beginning after March 31, 2021.
  • Increases the amount of wages for which an employer may claim the paid family leave credit in a year from $10,000 to $12,000 per employee.
  • Expands the paid family leave credit to allow employers to claim the credit for leave provided for the reasons included under the previous employer mandate for paid sick time. For the self-employed, the number of days for which self-employed individuals can claim the paid family leave credit is increased from 50 to 60 days.
  • Permits the paid sick and family leave credit to be claimed by employers who provide paid time off for employees to obtain the COVID-19 vaccination or recover from an illness related to the immunization.

Other Relief-Related Provisions

Restaurant revitalization grants. The ARPA appropriates $28,600,000,000 for fiscal year 2021 to struggling restaurants to be administered by the SBA. The money will be available until expended. Eligible entities include restaurants, or other specified food businesses, and includes businesses operating in an airport terminal. It does not include a state or local government operated business, or a company that as of March 13, 2020 operates in more than 20 locations, whether the locations do businesses under the same name. It also does not include any business that has a pending application for, or has received, a grant under the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act. The amount given to any business who fulfills the eligibility and certification requirements is $10,000,000 and limited to $5,000,000 per physical location of the business. Grants may be used for: (1) payroll costs; (2) mortgage payments; (3) rent; (4) utilities; (5) maintenance expenses; (6) supplies; (7) food and beverage expenses; (8) covered supplier costs; (9) operational expenses; (10) paid sick leave; and (11) any other expense determined to be essential to maintaining the business.

Shuttered venue operators. CAA, 2021 authorized grants to eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, or talent representatives who demonstrate a 25% reduction in revenues. The ARPA appropriates $1,250,000,000, for fiscal year 2021, to help carry out these grants. The money will be available until expended. Governmental entities do not qualify.

Other Benefits and Related Provisions

Dependent Care Assistance. The amount of taxable wage exclusion for dependent care benefits is increased from $5,000 to $10,500 for married couples filing jointly. The amount of excludable wages for married couples filing separately is $5,250. This increase applies to any taxable year beginning after December 31, 2020, and before January 1, 2022, effective December 31, 2020.

COBRA. Under the ARPA, Assistance Eligible Individuals (AEIs) may receive an 85% subsidy for COBRA premiums paid during any period of COBRA coverage during the period beginning on April 1, 2021 (the first day of the first month beginning after enactment) and ending on September 30, 2021.

  • Refundable tax credit. Employers will be allowed a quarterly tax credit against the Medicare payroll tax equal to the premium amounts not paid by AEIs. If the credit amount exceeds the quarterly Medicare payroll tax, the excess will be treated as an overpayment refundable under Code Sec. 6402(a) and Code 6413(b). The quarterly credit may be paid in advance according to forms and instructions to be provided by the Department of Labor.

Many other provisions include excluded income from Student Loan Discharges, expansion of the EITC for taxpayers with no qualifying children, COBRA premium subsidy, targeted EIDL loans, and others which we are not able to cover in this update.

As we become aware of changes, we will pass them on to keep you informed. If you have any questions about this new information and how it pertains to your situation, please contact us.