AB 80, the bill that would allow up to $150,000 of expenses to be deducted if paid with PPP forgiven loan amounts has not yet passed. There has been no activity, and we can't get good information on when and if it will pass, and what will actually be included in the final bill. Here are a few important things to know:
Unemployment Compensation - New Exclusion
March 12th the IRS released more details on how to report the new exclusion of up to $10,200 (per spouse) of Unemployment Compensation. The American Rescue Plan contains a new provision to exempt $10,200 of unemployment benefits received in 2020 from income taxes. The exclusion is retroactive, applying to unemployment insurance benefits received last year, largely to reduce the issue of surprise tax bills. It only applies to individuals with incomes below $150,000. The Joint Committee on Taxation (JCT) estimates the exemption will reduce federal revenue by $24.9 billion.
In addition, we are actively working with state tax agencies to determine how states plan to address the federal tax law changes brought about by the American Rescue Plan Act of 2021. For state conformity updates, please check back and we will update as we receive information from the states.
The American Rescue Plan also extends the three federal unemployment insurance expansions first created by the CARES Act through September 6, 2021. The American Rescue Plan increases the total number of weeks of benefits available to individuals who cannot return to work safely from 50 to 79, matching the expiration of the broader UI benefits.
The law maintains the federal supplement at its current level of $300 a week for weeks beginning after March 14 and before September 6, 2021. The American Rescue Plan provides 53 weeks of federal UI benefits after the state benefits end, up from 24 weeks.
Premium Tax Credit - ARP Act
The American Rescue Plan Act of 2021 makes a portion of unemployment compensation non-taxable for certain filers and eliminates repayment of excess funds received through the Advance Premium Tax Credit.
We ask for your patience while we work closely with the IRS and state taxing authorities to implement any necessary changes.
We expect the IRS to issue official guidance on these items in the near future.
If you have already filed with these items, we advise that you hold off on filing amended returns until the IRS provides official guidance.
Please stay tuned for information about the Advance Premium Tax Credit (APTC) — the IRS's first priority was the Unemployment Exclusion change and we expect more information on the APTC in the near future.
The IRS has advised that you should not yet amend returns that had Unemployment Compensation or Repayment of the Advance Premium Tax Credit. Official IRS guidance is forthcoming.
Retention Credit now available for employers who also took a SBA PPP Loan in 2020:
The Employee Retention Credit is a refundable tax credit against certain employment taxes equal to 50% of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021. Eligible employers can get immediate access to the credit by reducing employment tax deposits they are otherwise required to make. Also, if the employer's employment tax deposits are not sufficient to cover the credit, the employer may get an advance payment from the IRS.
For each employee, wages (including certain health plan costs) up to $10,000 can be counted to determine the amount of the 50% credit. Because this credit can apply to wages already paid after March 12, 2020, many struggling employers can get access to this credit by reducing upcoming deposits or requesting an advance credit on Form 7200, Advance of Employer Credits Due To COVID-19.
Employers, including tax-exempt organizations, are eligible for the credit if they operate a trade or business during calendar year 2020 and experience either:
A significant decline in gross receipts begins:
The significant decline in gross receipts ends:
The credit applies to qualified wages (including certain health plan expenses) paid during this period or any calendar quarter in which operations were suspended.
Contact us to assist if your payroll company can not amend your 941 returns for qualifying periods in 2020. You have 3 years to amend and receive this credit.
Expanded Child Tax Credit
Finally, the American Rescue Plan greatly expands the Child Tax Credit by allowing households with children to claim up to $3,600 for younger children or $3,000 for children age 6 or older regardless of earned income. While the CTC currently phases in with income and only $1,400 can be refunded to low-income households, the American Rescue Plan allows the full credit for low-income households, which raises marginal tax rates on these filers as they are no longer provided the credit as income rises. As such, it introduces a new disincentive to work for low-income earners, though the magnitude of the disincentive is disputed.
The expanded CTC would also be paid out monthly, which will be a major administrative challenge for the IRS. The agency must obtain projected incomes, filing statuses, and number of qualifying dependents for each eligible household to accurately advance the payments. While the Biden administration hopes to have this process ready by July, that may be an unrealistic timeline; it took the IRS two years to establish advance payments of the Affordable Care Act’s premium tax credits.
As the public health situation and the economy hopefully improve this spring and summer, policymakers will have an opportunity to evaluate the effectiveness and the costs of the expanded benefits in the American Rescue Plan and determine whether they should be allowed to expire or otherwise be reformed.
$1,400 Stimulus Payments (Economic Impact Payments)
The American Rescue Plan provides a third round of stimulus payments up to $1,400 for adults and any dependent. Households with earnings of more than $80,000 for single filers, $120,000 for Head of Household filers, and $160,000 for married filing jointly will not receive any payment. The payments begin to phase out at $75,000 for single filers, $112,500 for Head of Household filers, and $150,000 for joint filers—meaning about 89 percent of filers will receive a payment.
The payment design creates steep phaseout rates for higher earners, which means they face high marginal tax rates and disincentives to work and could encourage filers to increase traditional retirement contributions in 2021 to reduce their AGI and receive an additional payment.
The Treasury Department and the Internal Revenue Service are providing special payment relief to individuals and businesses in response to the COVID-19 Outbreak.
The filing deadline for tax returns extended to July 15, 2020. The IRS urges taxpayers who are owed a refund to file as quickly as possible. For those who can't file by the April 15, 2020 deadline, the IRS reminds individual taxpayers that everyone is eligible to request a six-month extension to file their return.
Payment Relief - Individuals
Income tax payment deadlines for individual returns, with a due date of April 15, 2020, are being automatically extended until July 15, 2020, for up to $1 million of their 2019 tax due. This payment relief applies to individuals, trusts and estates. IRS will automatically provide this relief to taxpayers. Taxpayers do not need to file any additional forms or call the IRS to qualify for this relief.
Payment Relief - Corporations
For C Corporations, income tax payment deadlines are being automatically extended until July 15, 2020, for up to $10 million of their 2019 tax due.
Estimated Tax Payments
This relief also includes estimated tax payments for the tax year 2020 that are due on April 15, 2020.
Penalties and Interest
Penalties and interest will begin to accrue on any remaining unpaid balances as of July 16, 2020. If a tax return or extension is filed by April 15, 2020, the taxpayer will automatically avoid interest and penalties on the taxes paid by July 15.
The Franchise Tax Board announced special tax relief for California taxpayers affected by the COVID-19 pandemic. Affected taxpayers are granted an extension to file 2019 California returns and make certain payments to July 15, 2020, for all tax filings and payments due between March 15, 2020, through July 15, 2020.
FTB Business Calendar Year Filers:
COVID-19 Due Dates for 2020 Annual Tax Payments and Estimated Annual Tax Fees is also extended to July 15th, 2020 for LLC's, SMLLC's, S Corporations and C Corporations
For more information: https://www.ftb.ca.gov/about-ftb/newsroom/covid-19/extensions-to-file-pay.html
SELF EMPLOYED INDIVIDUALS:
Application Process: In the event of a disaster, the affected state will publish announcements about the availability of Disaster Unemployment Assistance. To file a claim, individuals who are unemployed as a direct result of the disaster should contact their State Unemployment Insurance agency. Individuals who have moved or have been evacuated to another state should also contact the state agency. Applications for Disaster Unemployment Assistance (DUA) must filed by an individual within 30 days of the announcement of the availability of DUA in the state. Individuals must follow the instructions in the announcement and file for DUA based on the filing methods used by the state (i.e. in person, mail, telephone, or internet). So, it will be an application with California EDD. www.Benefits.gov
Pending House of Representatives and Presidential approval:
Coronavirus Rescue bill increases “maximum unemployment benefit by $600 per week and ensures that laid-off workers, on average, will receive their full pay for four months. It ensures that all workers are protected whether they work for businesses small, medium or large, along with self-employed and workers in the gig economy.” https://www.capitolnewsforum.com/post/senate-cuts-coronavirus-rescue-deal-schumer-s-explanation
What can be done today:
Freelancers relief fund: https://www.freelancersunion.org/resources/freelancers-relief-fund/
Here are some free filing options for those with simple returns to utilize that are expecting or getting refunds:
The IRS also offer Free E-filing Services: https://www.e-file.com/?utm_source=google&utm_campaign=free_broad&utm_term=%2Bfree%20%2Btaxes&ccid=246276516&gclid=Cj0KCQjw6sHzBRCbARIsAF8FMpXJgNwJ9IlSUvWqeSst1f9Sh49ddVlz6yaoHD8vYHhd31hPKo13S7caAmTDEALw_wcB
State of CA free Filing Option: https://www.ftb.ca.gov/file/ways-to-file/online/calfile/index.asp
Taxpayers who have a tax debt they cannot pay may have heard that they can settle their tax debt for less than the full amount owed. Called an Offer in Compromise.
Before applying for an Offer in Compromise, here are some things to know:
Additional IRS Resources:
IRS YouTube Videos:
It is Important to know the rules whe it comes to Employee or Independent Contractors.The IRS encourages all businesses and business owners to know the rules when it comes to classifying a worker as an employee or an independent contractor.An employer must withhold income taxes and pay Social Security, Medicare taxes and unemployment tax on wages paid to an employee. Employers normally do not have to withhold or pay any taxes on payments to independent contractors.Here are two key points for small business owners to keep in mind when it comes to classifying workers.
1. Control. The relationship between a worker and a business is important. If the business controls what work is accomplished and directs how it is done, it exerts behavioral control. If the business directs or controls financial and certain relevant aspects of a workers job, it exercises financial control. This includes:
2. Relationship. How the employer and worker perceive their relationship is also important for determining worker status. Key topics to think about include:
The IRS can help employers determine the status of their workers by using form Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. IRS Publication 15-A, Employer's Supplemental Tax Guide, is also an excellent resource.
Millions of people enjoy hobbies that are also a source of income. From catering to cupcake baking, crafting homemade jewelry to glass blowing -- no matter what a persons passion, the Internal Revenue Service offers some tips on hobbies.Taxpayers must report on their tax return the income earned from hobbies. The rules for how to report the income and expenses depend on whether the activity is a hobby or a business. There are special rules and limits for deductions taxpayers can claim for hobbies. Here are five tax tips to consider:
With the election of Donald Trump, tax reform is on the front burner for this President Elect. If and when his changes materialize is another question.Individual Tax Change Proposals
Warning: Mr. Trump has proposed three tax brackets: 12%, 25% and 33%. Some may find that they were paying at 28% rate may be pushed into paying 33% rate on a portion of their taxable income. Single parents are also likely to pay more taxes as Mr. Trump has proposed to eliminate personal exemptions and the head of household status.
For gains subject to the 3.8% tax on net investment income (NII), the different is minimal. If you are a real estate professional or the gains are from assets used in the individuals material participation business, there could be an $11,000 increase in taxes between a sale in 2016 and 2017.
Estate & Gift Tax Change Proposal
Corporate Tax Change Proposal
Proposed Repeal of the Affordable Care Act
What you should be aware of about the repeal? If now receiving a premium assistance credit, the credit will disappear when Obamacare is repealed. This does mean that some people will not be able to afford health insurance without the governments subsidy. Also employers who were pushed into offering health insurance to their employees because of Obamacare may drop their policies. If you are likely to lose coverage in 2017 all medical services should be completed while insurance is still in place. (Maybe before February 2017?) Self-employed individuals that now receive a premium assistance credit, the credit will disappear when Obamacare is repealed. This means that some individuals will not be able to afford health insurance without the government subsidy. If you are likely to lose coverage in 2017 all medical services should be completed while insurance is still in place. (Maybe before February 2017?) Small Business owners who now benefit from the small employer health insurance credit, it will disappear with the repeal of Obamacare. Because the small employer health insurance credit is only available for two years, this change will have a short term impact.Â· Small business owners who dropped their health reimbursement account (HRA) because the limits on an HRA violated health care reform that the repeal of Obamacare may allow then to reinstate the reimbursement of individual health insurance premiums, medicare premiums and out of pocket medical costs. But NOT yet! You will tell them when. Advise large business owners (applicable large employers) should not invest in compliance infrastructure (people, software and service providers) because the record keeping and requirements to file form 1095 will disappear with Obamacare.
If you start a business, one key to success is to know about your federal tax obligations. You may need to know not only about income taxes but also about payroll taxes. Here are five basic tax tips that can help get your business off to a good start.
Have you ever wondered if the Alternative Minimum Tax applies to you? You may have to pay this tax if your income is above a certain amount. The AMT attempts to ensure that some individuals who claim certain tax benefits pay a minimum amount of tax.Here are some things from the IRS that you should know about AMT:
1. You may have to pay the tax if your taxable income, plus certain adjustments, is more than the AMT exemption amount for your filing status. If your income is below this amount, you usually will not owe AMT.
2. The 2017 AMT exemption amounts for each filing status are:
3. The rules for AMT are more complex than the rules for regular income tax. 4.If you file a paper return, use the AMT Assistant tool on IRS.gov to find out if you may need to pay the tax or consult your tax professional.5.If you owe AMT, you usually must file Form 6251, Alternative Minimum Tax Individuals. Some taxpayers who owe AMT can file Form 1040A and use the AMT Worksheet in the instructions.
If customers can’t find it, it doesn’t exist. Clearly list and describe the services you offer. Also, be sure to showcase a premium service.