The IRS and the Treasury Department have announced that the first monthly payment of the new refundable Child Tax Credit (CTC) from the American Rescue Plan will be made on July 15. The increased CTC ...
The IRS reminded taxpayers who missed the recent tax-filing deadline but are due a refund that there is no penalty for filing late if a refund is due. Those who owe and missed the deadline without req...
In an ongoing effort to help those experiencing homelessness, the IRS has reminded people who do not have a permanent address or a bank account that they may still qualify for stimulus payments and ot...
The IRS has added new 2022 models to the list of vehicles for which the plug-in vehicle credit would be available. The vehicles added include BMW and Mini vehicles. The BMW 745e XDrive has a credit am...
The IRS has modified inflation-adjusted amounts for the child tax credit (CTC), the earned income tax credit (EITC/EIC), and the applicable percentage table for Code Sec. 36B for calculating a taxpaye...
The IRS has released the 2022 inflation-adjusted amounts for health savings accounts (HSAs) under Code Sec. 223. For calendar year 2022, the annual limitation on deductions under Code Sec. 223(b)(2) f...
The IRS and Treasury have released updated early drafts of new Schedule K-2 and Schedule K-3 for Form 1065, U.S. Return of Partnership Income, Form 1120-S, U.S. Income Tax Return for an S Corporation,...
The IRS has extended the list of federal tax forms that cannot be filed electronically for which it is temporarily allowing digital signatures. The IRS has also extended filing period for which digita...
Arizona has updated its conformity to the Internal Revenue Code (IRC) for income tax purposes. For tax years beginning after 2020, Arizona now conforms to the IRC as amended and in effect on March 11,...
The California State Controller and Franchise Tax Board (FTB) announced that the date for individual income taxpayers to claim a refund for tax year 2016 has been extended to May 17, 2021. Generally, ...
Enacted Colorado legislation maintains indefinitely six voluntary contribution options that currently appear on personal income tax returns, unless contributions for a program fall below $50,000 annua...
Florida has enacted economic nexus for sales and use tax purposes. Out-of-state retailers and marketplace providers with no physical presence in Florida are required to collect Florida’s sales and u...
Indiana has enacted legislation:requiring Indiana to provide electronic notice to employers whose income tax withholding is past due; andproviding for annual payroll service provider withholding regis...
Kentucky created a credit for contributions to accounting granting organizations (AGOs) that fund education opportunity accounts (EOAs). Effective for tax years beginning after January 1, 2021, taxpay...
Montana enacted legislation to generally adopt the Multistate Tax Commission model statute for reporting adjustments to federal taxable income and partnership audit adjustments.Within 90 days after th...
The Ohio sales tax holiday will take place from Friday, August 6, 2021 through Sunday, August 8, 2021. During this period, the following items will be exempt:An item of clothing priced at $75 or less;...
A Tennessee excise tax deduction is allowed for payments received between March 1, 2020, and December 31, 2021, through the following Tennessee economic relief programs funded by federal CARES Act fun...
For Wisconsin sales and use tax purposes, a taxpayer’s petition for redetermination was dismissed because it was filed untimely and therefore the Tax Appeals Commission lacked jurisdiction over the ...
As the coronavirus (COVID-19) continues to affect local communities and global economies, Bezold Tax & Accounting Services, LLC remains committed to serving your tax and financial planning needs. As part of this commitment, we want to make you aware of key tax provisions impacting businesses contained in the year-end coronavirus relief legislation, known as the Consolidated Appropriations Act, 2021 (H.R. 133), that was signed into law on Dec. 27, 2020.
Business Clients – Regarding Forgivable PPP Loans and Employee Retention Tax Credit.
As the coronavirus (COVID-19) continues to affect local communities and global economies, Bezold Tax & Accounting Services, LLC remains committed to serving your tax and financial planning needs. As part of this commitment, we want to make you aware of key tax provisions impacting businesses contained in the year-end coronavirus relief legislation, known as the Consolidated Appropriations Act, 2021 (H.R. 133), that was signed into law on Dec. 27, 2020.
Payroll Protection Program (PPP) Round 2
Businesses may qualify for first and/or second draw of PPP. If you did not apply for first draw or were originally denied, you may qualify if your business has been negatively impacted by COVID-19. Self-employed business owners may qualify even if business doesn’t have employees. The first draw for such a business would be based on 2019 or 2020 Schedule C net income. If your business did receive a first draw on PPP 1, you may qualify for a second draw if your business experienced a reduction in gross receipts of 25% in any quarter of 2020 compared to same quarter of 2019 and has already used or will use 100% of first draw funds. Borrowers may be eligible for 100% loan forgiveness if they meet specific requirements.
Employee Retention Tax Credit
The new law extends the employee retention tax credit (ERTC sometimes referred to as ERC) through June 30, 2021. It also expands the ERTC. A noteworthy modification provides that employers who receive PPP funds may still qualify for the ERTC with respect to wages that are not paid with forgiven PPP proceeds. Employers are now able to claim the ERTC retroactively for 2020. This would entail filing amended Form 941 payroll tax returns, but may result in substantial refunds.
We at Bezold Tax and Accounting Services are committed to keeping you our clients informed of any new opportunities during this trying time. Please contact our office to discuss your circumstances in more detail.
There are many other provisions that benefit businesses. Please visit the Newsletter page on our website www.bezoldtax.com to learn more and contact us to discuss your circumstances in more detail.
Here we go again! Seems like we just finished filing 2019 returns and ready, set, go for 2020.
We have learned a lot this year! And, we face 2021 with great optimism. The last few months have been spent upgrading and learning new ways to communicate with you as our main priority. As you are aware, late the filing season everyone's world was rocked with COVID 19. Ours included. We had to maximize safety precautions to keep both you and us safe and still prepare accurate and timely tax returns. Like doing a 360 in the middle of an ocean!
BEZOLD TAX AND ACCOUNTING SERVICES, LLC
7817 Alexandria Pike
P O Box 382
ALEXANDRIA, KY 41001
Phone: 859-635-2077
Fax: 859-635-9118
Janet@bezoldtax.com
January l, 2021
Here we go again! Seems like we just finished filing 2019 returns and ready, set, go for 2020.
We have learned a lot this year! And, we face 2021 with great optimism. The last few months have been spent upgrading and learning new ways to communicate with you as our main priority. As you are aware, late the filing season everyone's world was rocked with COVID 19. Ours included. We had to maximize safety precautions to keep both you and us safe and still prepare accurate and timely tax returns. Like doing a 360 in the middle of an ocean!
I think we got it. Some of you have already been introduced to our "Verlfyle" program. It is a secure messaging program to send and receive personal information. Your link is forever and you can upload 2020 information to this program. The information is delivered directly to us. For those who are not set up with "Verifyle" and would like to be, please call the office and we will set you up. Please DO NOT send personal Information over regular email. It is not safe.
We added phone lines and the ability to conduct "Zoom" meetings. We miss our personal meetings with you and did not want to lose the ability to review your return, answer your questions and concerns, and conduct tax planning. It isn't perfect but it has proven to be helpful.
With all of the turmoil, some of you have not picked up your 2019 tax information. We have it here! Therefore, you do not have your "envelope" for 2020 Information or the check-off list, We will accept any envelope! And, we have included a list of "Documents most often not included" with your tax information that usually delay the processing of returns. Rule of thumb for all information is if it says "Tax Document", please Include. And if you're not sure if we need it, include it. We would rather have it and not need it than need it and not have it. Each and every one of you do a tremendous job of gathering your information, and for this, we are most grateful.
Following are new legislation and things to expect on your 2020 tax returns. Also, changes at Bezold Tax and Accounting to serve you our most precious asset.
Be Well and Safe!
Janet
DOCUMENTS TO REMEMBER:
Soon you will be receiving and want to gather for your tax returns: Forms W-2, wage and tax statements; Forms 1099-MISC; 1099NEC (new this year for Non-employee Contract work); All Income Documents: 1099NT; 1099B; 1099DIV•, 1099R just to name a few. Sales of Stock require a Cost Basis. This is what you actually paid for the stock, usually it is listed on the statement but purchases before 2011 the owner of the stock would need to provide.
Form 1099SA — Health Savings Account Distributions along with a statement that all distributions were used for qualified Health cost.
Form 1099-T Tuition Statement for College Students. To maximize your College Credit it is beneficial for us to complete the students and the parent's returns. Also if you paid for books and fees separately please note with your information.
Form 1099-Q for those who used distributions from a "College Plan" for Tuition and fees please include this document. It can be taxable income and we need this form to complete worksheets to prove non-taxable.
New Baby! ! Congratulations, please remember to include a copy of the Social Security Card and Birthdate.
Copy of all newly issued Driver' s License that may have expired In 2020.
For our retirees, please include the pink and grey Social Security Statement received in January.
A question on the return is "Did you at any time during 2020, receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency? YES NO Please circle one. If you have circled YES, we will need the information included with your documents. Thank You.
This was a big year for unemployment benefits. Unemployment is taxable income so please include the tax document for unemployment received for 2020.
Notice 1444 — this is new this year, see information later In the newsletter.
You may have made Estimate Tax Payments during the year. Please include the date and amount -of each estimated payment separated by Federal and State. If you have them, please include the canceled checks with our information. Remembering the one made in January 2021 if for 2020 tax year and the one made in January 2020 was for 2019 tax year.
It is not too soon to be taking steps to gather the vital tax information we will need to ensure you file both a complete and accurate tax return and to pay the lowest legal amount of tax. Questions? Call 859-635-2077
APPOINTMENTS: We are forced to re-think appointments. During this uncertain time, we are asking for you to brmg in your tax information and leave with the front desk. Please have it contamed in an envelope with your name, a good phone number, and email address. We will notify you when we start the return and if we have any questions. Once we finish the return, we will set up either a zoom meeting or phone call to go over the return with you. We have enhanced software that allows for virtual signatures. We will also accommodate clients who do not have internet access for signatures. We realize this may not be ideal and we sincerely appreciate everyone's patience and cooperation.
For those who cannot drop off during business hours, we have a secure drop box next to the garage door in the brick. We will notify you that we have received your information so you do not worry.
We are concemed about everyone's safety and want to do everything we can to follow guidelines to prevent the spread of the "Big Germ" (direct quote from my great-granddaughter). We now have the promise of a vaccine to fight COVID-19 and hopefully we can see a bright light at the end of the tunnel. Again, thank you all for your understanding and cooperationa Prayers for all who have been affected by the virus and wishes for a full recovery
RETURNS: With the ability of sending you a PDF of your return, please note with your information If you prefer a PDF —OR- PAPER copy.
Bezold Tax and Accounting was voted Best Accountmg/CPA Services of NKY! We were recognized in the Best of INKY Magazine. Thank you we are honored and humbled with the award.
WEBSITE: Please refer to our website for complete information of Legislative updates. We will be posting a monthly newsletter for Individuals and one for businesses. Bezoldtax.com
2020 WHAT TO EXPECT
RECOVERY REBATE CREDIT - New in 2021, those who didn't receive an Economic Impact Payment (stimulus check) may be able to claim the Recovery Rebate Credit. Taxpayers may be able to clann the Recovery Rebate Credit if they met the eligibility criteria in 2020 and they didn't receive an EIP In the spring of 2020, or their was less than it should have been. For instance, your income was less in 2020 than it was on the return they used to calculate your payment or you added a child 111 2019 or 2020 that was not included with your EIP payment. These adjustments can be made on your 2020 return and you Will receive the credit as an additional refund.
This EIP is nontaxable income, but we must report the amount that you received. You will need Notice 1444, which was mailed to you at the time of the payment. Most taxpayers Will not have this; it wasn't marked as a tax document. If you can bring in a bank statement or check stub of what you received, we can figure the credit. If you do have the Notice 1444, please include with your tax information.
End of December another Stimulus payment went out to qualifying taxpayers. Please list this one separate from the first one.
REFUNDS: Although the IRS issues most refunds in less than 21 days, the IRS cautions taxpayers not to rely on receivmg a 2020 federal tax refund by a certain date, especially when making major purchases or paying bills. Some returns may require additional review and may take longer. Refunds that include the Earned Income Tax Credit or Additional Child Tax Credit should be available by the first week of March. By law, the IRS cannot issue refunds for people clanmng the EITC or ACTC before mid-February.
INTEREST PAYMENTS: Taxpayers who received a federal tax refund in 2020 may have been paid interest. The IRS sent interest payments to individual taxpayers who timely filed their 2019 federal Income tax returns and received refunds. Most interest payments were received separately from tax refunds. Interest payments are taxable and must be reported on 2020 income tax returns. In January 2021, the IRS will send a form 1099-INT, Interest Income, to anyone who received interest totalmg at least $10.00
STANDARD DEDUCTION: The Standard deduction for married filing jointly rises to $24,800, for single taxpayers and married individuals filing separately $12,400, and for head of household status $18,650
ITEMIZING DEDUCTIONS: The CARES act allows a $300 "above-the-line" deduction for cash contributions to charity if you take the standard deduction when you file in 2021. For those who itemize, the law lifts the 60% of adjusted gross income limitation, on cash contributions. Individuals can elect to deduct donations up to 100% of their 2020 income. Contributions must be made In cash (check, cash, and credit card) to a public charity, The unlimited amount is not applicable to private foundations nor to gifts of appreciated stock or Donor-Advised Funds.
The exclusion for Medical Expenses in 2020 is 7.5% of the Adjusted Gross Income. If your income is $100,000, the first $7 ,500 in Medical is not deductible.
RETIREMENT WITHDRAWAL: Waiver of the Early Withdrawal Penalty on up to $100,000 withdrawal from IRAs and Defined Contribution Plans such as 401(k)'s made between January 1 and December 31, 2020 by a person who or whose family is infected with the Coronavirus or they are economically harmed. Rules are complex and we should discuss.
Required Minimum Distributions, RMDs, otherwise required for 2020 from 401(k) plans and IRAs are waived, meaning you do not have to take them in 2020. This includes distributions that would have been required by April 1, 2020 due to the account owner's having turned age 70 1/2 in 2019.
CAPTIAL GAINS: Income thresholds for long-term capital gains rates also increased. Single and married filing separately taxpayers with income up to $40,000, up to $80,000 for married filing jointly, and up to $53,600 for Head of Household can experience a 0% Long Term Capital Gains rate. The rate then goes to 15% and 20% as Income thresholds increase
ESTATES AND GIFTS: The annual exclusion for gifts is $15,000 for calendar 2020, the same as it was for calendar 2019
BUSINESS NEWS
The CARES Act instituted an Employee Retention Credit that an employer can qualify for a refundable credit against generally the employer's 6.2% portion of the social security payroll tax for 50% of certain wages paid to employees during the COVD-19 crisis.
The most notable provision was the section on the Paycheck Protection Program loan. The IRS had repeatedly said that taxpayers who received debt forgiveness for spending the PPP loan on specific expenses could not take those expenses as deductions on their 2020 tax returns. Congress said otherwise and basically corrected the CARES Act which did not address this issue. CAA2021 now states that the expenses used to receive debt forgiveness would be allowed as deductions on the taxpayers return. We have been waiting for this ever since they issued the loans in the spring of 2020, For those who we are tracking and monitoring expenses, we can now complete the loan forgiveness application as soon as the banks issue the revised application.
Consolidated Appropriations Act, 2021 signed into law 12-27-2020 provides additional aid to small businesses Including PPP-2 (Payroll Protection Program) and EIDL (Economic Injury Disaster Loan)-The requirements for obtaining these are more restricted than original ald provided through the CARES Act. We can help you calculate if you are eligible. You can call for specific details if you want to apply.
NET OPERATING LOSSES (NOLS) have been liberalized. The 2017 Tax Cuts and Jobs Act limited NOL's arising after 2017 to 80% of taxable income and eliminated the ability to carry NOL'S back to prior tax years. For NOL's arising in tax years beginnina before 2021, the CARES Act allows taxpayers to carryback 100% of NOL's to the prior five tax years, effectively delaying for carrybacks the 80% taxable Income limitation and carryback prohibition until 2021. NOL carryforwards are also liberalized. For NOL's m tax years beginning before 2021 taxpayers can take an NOL deduction equal to 100% of taxable income, rather than the present 80%.
This has been a year of change, for just about everyone, both business and personal. We have only scratched the surface of the results of the new legislation and the CARES Act. We have been in seminars for the most part since October 15th and still getting updates.
We look forward to working with you with your taxes for 2020 and tax planning for changes that may occur in 2021. Our clients are planners and we Invite the chance to travel that road with you. Allow us to serve you,
ON THE HOME FRONT:
We are very excited to welcome to our Bezold Tax and Accounting Family Donna McClure and Linda Espelage-Scaggs.
Donna McClure an EA is a long-time friend of mine and very experienced in tax for over 30 Years. Donna is married to her long time love of her life Mac and has 3 grown children, all married with 8 Grand Children. It's a new day every day! And Donna enjoys every minute, We are very excited you have added us to your family and can't wait to kick off the tax season with you!
Linda Espelage-Scaggs is an EA who also holds an accounting degree. Linda is a selfproclaimed "tax nerd" and has extensive experience in tax and accounting. Linda lives in Pendleton County with her long-time soul mate Rusty. They have 6 children and 17 grandchildren. Now that's a Christmas to remember! Thank you for adding us to your family, Linda! Lookina forward to a great tax season!
Donna and Linda are new faces and we can't walt for all of you to meet them. You will find out very quickly how they complement our team with their knowledge and interest in helping each of you reach your goals and understand your taxes.
Debbie and Jeff are still empty nesters. I guess that's a good thing? They have enjoyed many outdoor bike rides this summer. Tyler and Haylee still reside in Florida and have pursued very successful careers. Tyler is getting back into the music industry a little, you can see his latest on https:/(www.youtube.com/user/tribetyler Kaitlyn is still in CA living the dream. She loves living close to the beach and the beautiful CA weather but still likes to visit us when she comes In town. Miss you!
Renee is learning all about virtual school! Laynie is now In the 4th grade and little Kye is growing up too fast, Life surely has been different with all the hoops and new rules due to the Virus. Hopefully things get back on track for you Renee. Husband Shaun is still the best diesel mechanic in town.
Tina and Jimmy are down to one left in the house, but gaining a Grand Daughter in 2021! They are so excited. They look forward to spoiling her. Congratulations, Life will definitely change and you will love it! Just think after 3 boys you are finally gettmg a little girl!
Christy is commiserating with Renee. She has 3 girls in Virtual School. The internet is going wild. Carlee will be graduating High School this spring, Josie is a Freshman at Campbell County and Cassidy is in the 7th grade at CC Middle School. Good Luck Girls! And hang in there Christy !
Haley is a very accomplished sophomore at NKU! Bringing the house down with great grades and sharing all of her expertise with us. We are so fortunate, her youth keeps us all young!
Thanks Haley!
Roger and Janet still living the dream! We welcomed our 2nd Great Grand baby, Blakely Mae in August this year! Quinn's little sister and Andrew and Kayla's daughter. We celebrated a beautlful wedding of Grandson Brandon and Katie, good time had by all. Trevor and Madison are entrepreneurs of the year! It's all about the grandkids these days !
Wishing you a better 2021! Debbie, Renee, Tina, Christy, Haley, Linda, Donna, Roger and Janet
Filing Season Begins!
Filing Season Begins!
IRS Announces various dates related to tax season: They will begin accepting Individual Income Tax returns on Friday February 12th, 2021. We can prepare and E-file prior to this date, the returns however, will not be accepted by IRS until this date.
The later date of accepting returns is a result of Congressional tax law changes in late December and IRS having to modify the forms and software to accommodate the changes. Also, the Path Act requires IRS to hold refunds on returns claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until at least February 15th, allowing IRS to spend more time to detect and prevent fraud. IRS anticipates starting to send out refunds from these returns the first week of March.
The due date for 2020 calendar year individual income tax returns is Thursday April 15th, 2021.
We are ready, whenever you are!
Dear Taxpayers:
Here is an overview of key provisions in the recent COVID relief legislation that affect individuals. The legislation is the COVID-related Tax Relief Act of 2020 (the "Act" or COVIDTRA) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR), both of which are part of the Consolidated Appropriations Act, 2021.
January 14, 2021
Dear Taxpayers:
Here is an overview of key provisions in the recent COVID relief legislation that affect individuals. The legislation is the COVID-related Tax Relief Act of 2020 (the "Act" or COVIDTRA) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR), both of which are part of the Consolidated Appropriations Act, 2021.
RECOVERY REBATE/ECONOMIC IMPACT PAYMENT
Direct-to-taxpayer recovery rebate. The Act provides for a refundable recovery rebate credit for 2020 that will paid in advance to eligible individuals, often automatically, early in 2021. (Code Sec. 6428A, as added by COVIDTRA Sec. 272) These payments are in addition to the direct payments/rebates provided for in earlier Federal legislation, the 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act, PL 116-136, 3/27/2020), which were called Economic Impact Payments (EIP).
The amount of the rebate is $600 per eligible family member—$600 per taxpayer ($1,200 for married filing jointly), plus $600 per qualifying child. Thus, a married couple with two qualifying children will receive $2,400, unless a phase-out applies. The credit is phased out at a rate of $5 per $100 of additional income starting at $150,000 of modified adjusted gross income for marrieds filing jointly and surviving spouses, $112,500 for heads of household, and $75,000 for single taxpayers.
Treasury must make the advance payments based on the information on 2019 tax returns. Eligible taxpayers who claimed their EIPs by providing information through the nonfiler portal on IRS's website will also receive these additional payments.
Nonresident aliens, persons who qualify as another person's dependent, and estates or trusts don't qualify for the rebate. Taxpayers without a Social Security number are likewise ineligible, but if only one spouse on a joint return has a Social Security number, that spouse is eligible for a $600 payment. Children must also have a Social Security number to qualify for the $600-per-child payments.
Taxpayers who receive an advance payment that exceeds the amount of their eligible credit (as later calculated on the 2020 return) will not have to repay any of the payment. If the amount of the credit determined on the taxpayer's 2020 return exceeds the amount of the advance payment, taxpayers receive the difference as a refundable tax credit.
Advance payments of the rebates are generally not subject to offset for past due federal or state debts, and they are protected from bank garnishment or levy by private creditors or debt collectors.
Amount of payment. IRS has begun making payments of up to $600 to eligible taxpayers or up to $1,200 to married couples filing joint returns. Parents will get an additional $600 for each dependent child under age 17. Thus, a married couple with two children under 17 will get a $2,400 payment.
Who is eligible. U.S. citizens and residents are eligible for a full payment if their adjusted gross income (AGI) is under $75,000 for singles or marrieds filing separately, $112,500 for heads of household, and $150,000 for married couples filing jointly and surviving spouses. The recipient must not be the dependent of another taxpayer and must have a social security number that authorizes employment in the U.S.
Phaseout based on income. For individuals whose AGI exceeds the above thresholds, the payment amount is phased out at the rate of $5 for each $100 of income. Thus, the payment is completely phased out for single filers with AGI over $87,000 and for joint filers with no children with AGI over $174,000. For a married couple with two children, the payment will be completely phased out if their AGI exceeds $198,000.
Payments are nontaxable. The economic impact payment that you receive won't be included in your income for tax purposes. It won't cause you to owe tax or decrease your refund for 2020.
How to get a payment. The vast majority of people won't have to do anything to get an economic impact payment. IRS will calculate and send the payment automatically to those who are eligible.
If you've filed your 2019 tax return, IRS will use the AGI and dependents from that return to calculate the payment amount. The credit won't be allowed if the return doesn't include a valid identification number (typically, a social security number) for each individual for whom a credit is sought. Thus, for example, a joint return must include valid identification numbers for both spouses to get the full $1200 credit. A $600 credit is allowed if only one spouse provides a valid identification number, and no credit is allowed if neither spouse does so.
IRS will deposit the payment directly into the bank account reflected on the return. IRS has developed a web-based tool called Get My Payment, www.irs.gov/coronavirus/get-my-payment, for individuals to provide banking information to IRS, so that payments can be received by direct deposit rather than by check sent in the mail. The tool includes the date the payment is scheduled to be issued to the individual.
If you have not yet filed for 2019. The due date for 2019 individual income tax returns was July 15, 2020, or October 15 if an automatic extension of time was requested on Form 4868. Individuals who are required to file a return for 2019 and haven't done so should file the return as soon as possible. Doing so will help give IRS time to process and make all resulting economic impact payments before January 15, 2021 (the deadline for processing payments).
If you aren't required to file. If you receive social security, supplemental security income, social security disability income, railroad retirement, or veterans' compensation and pension benefits, and you aren't required to file a tax return, you don't have to file to receive a payment. IRS will generate an automatic payment using information from the Social Security Administration and the Department of Veterans Affairs. The payment will be made by direct deposit or paper check, in the same manner as the recipient's regular benefits.
If you aren't required to file a tax return and you don't receive any of the above payments, you can register to receive an economic impact payment by providing information on IRS's web-based Non-Filers: Enter Payment Info Here tool, www.irs.gov/coronavirus/non-filers-enter-payment-info.
Non-filers with dependent children; $600 payment. Non-filers who have a dependent child under age 17 must register their dependents on the Non-Filers: Enter Payment Info Here tool to receive the additional payment of $600 per child. Non-filers who receive the economic impact payment before registering a dependent child can still get the additional $600 payment by filing a 2020 income tax return on which the dependent is listed.
Pro-taxpayer changes to CARES Act Economic Impact Payment rules. As noted above, the CARES Act provided EIPs.
The Act makes the following changes to the CARES Act EIP:
- Provides that the $150,000 limit on adjusted gross income before the credit amount starts to phase out, which, under the CARES Act, applied to joint returns, also applies to surviving spouses. (Code Sec, 6428(c)(1), as amended by Act Sec. 273(a)) This change may allow taxpayers who qualify to use the surviving-spouse filing status to claim a larger EIP on their 2020 returns.
- Makes the requirement to provide IRS with the taxpayer's identification number identical to the same requirement under the new rebate, described above under "Direct-to-taxpayer recovery rebate." (Code Sec. 6428(g), as amended by COVIDTRA Sec. 273(a))
DEDUCTIONS
$250 educator expense deduction applies to PPE, other COVID-related supplies. The Act provides that eligible educators (i.e., kindergarten-through-grade-12 teachers, instructors, etc.) can claim the existing $250 above-the-line educator expense deduction for personal protective equipment (PPE), disinfectant, and other supplies used for the prevention of the spread of COVID-19 that were bought after March 12, 2020. IRS is directed to issue guidance to that effect by Feb. 28, 2021. (COVIDTRA Sec. 275; Code Sec. 62(a)(2)(D)(ii))
7.5%-of-AGI "floor" on medical expense deductions is made permanent. The Act makes permanent the 7.5%-of-adjusted-gross-income threshold on medical expense deductions, which was to have increased to 10% of adjusted gross income after 2020.
The lower threshold will allow more taxpayers to take the medical expense deduction in 2021 and later years. (Code Sec. 213(a), as amended by Act Sec. 101)
Mortgage insurance premium deduction is extended by one year. The Act extends through 2021 the deduction for qualifying mortgage insurance premiums, which was due to expire at the end of 2020. The deduction is subject to a phase-out based on the taxpayer's adjusted gross income. (Code Sec. 163(h)(3)(E)(iv)(I), as amended by Act Sec. 133)
Above-the-line charitable contribution deduction is extended through 2021; increased penalty for abuse. For 2020, individuals who don't itemize deductions can take up to a $300 above-the-line deduction for cash contributions to "qualified charitable organizations." The Act extends this above-the-line deduction through 2021 and increases the deduction allowed on a joint return to $600 (it remains at $300 for other taxpayers). (Code Sec. 170(p), as added by Act Sec. 212(a)) Taxpayers who overstate their cash contributions when claiming this deduction are subject to a 50% penalty (previously it was 20%). (Code Sec. 6662(l), as added by Act Sec. 212(b))
Extension through 2021 of allowance of charitable contributions up to 100% of an individual's adjusted gross income. In response to the COVID pandemic, the limit on cash charitable contributions by an individual in 2020 was increased to 100% of the individual's adjusted gross income. (The usual limit is 60% of adjusted gross income.) The Act extends this rule through 2021. (Code Sec. 170(b)(1)(G), as amended by Act Sec. 213)
EXCLUSIONS FROM INCOME
Exclusion for benefits provided to volunteer firefighters and emergency medical responders made permanent. Emergency workers who are members of a "qualified volunteer emergency response organization" can exclude from gross income certain state or local government payments received and state or local tax relief provided on account of their volunteer services. This exclusion was due to expire at the end of 2020, but the Act made it permanent. (Code Sec. 139B, as amended by Act Sec. 103)
Exclusion for discharge of qualified mortgage debt is extended, but limits on amount of excludable discharge are lowered. Usually, if a lender cancels a debt, such as a mortgage, the borrower must include the discharged amount in gross income. But under an exclusion that was due to expire at the end of 2020, a taxpayer can exclude from gross income up to $2 million ($1 million for married individuals filing separately) of discharge-of-debt income if "qualified principal residence debt" is discharged. The Act extends this exclusion through the end of 2025, but lowers the amount of debt that can be discharged tax-free to $750,000 ($375,000 for married individuals filing separately). (Code Sec. 108(a)(1)(E), as amended by Act Sec. 114(a))
Extension of exclusion for certain employer payments of student loans. Qualifying educational assistance provided under an employer's qualified educational assistance program, up to an annual maximum of $5,250, is excluded from the employee's income. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act, PL 116-136, 3/27/2020) added to the types of payments that are eligible for this exclusion, "eligible student loan repayments" made after Mar. 27, 2020, and before Jan. 1, 2021. These payments, which are subject to the overall $5,250 per employee limit for all educational payments, are payments of principal or interest on a qualified student loan by the employer, whether paid to the employee or a lender. The Act extends the exclusion for eligible student loan repayments through the end of 2025. (Code Sec. 127(c)(1)(B), amended by Act Sec. 120)
TAX CREDITS
Individuals may elect to base 2020 refundable child tax credit (CTC) and earned income credit (EIC) on 2019 earned income. If an individual's child tax credit (CTC) exceeds the taxpayer's tax liability, the taxpayer is eligible for a refundable credit equal to 15% percent of so much of the taxpayer's taxable "earned income" for the tax year as exceeds $2,500. And the earned income credit (EIC) equals a percentage of the taxpayer's "earned income." For both of these credits, earned income means wages, salaries, tips, and other employee compensation, if includible in gross income for the tax year. But for determining the refundable CTC and the EIC for 2020, the Act allows taxpayers to elect to substitute the earned income for the preceding tax year, if that amount is greater than the taxpayer's earned income for 2020. (Act Sec. 211(a))
Health coverage tax credit (HCTC) for health insurance costs of certain eligible individuals is extended by one year. A refundable credit (known as the health coverage tax credit or "HCTC") is allowed for 72.5% of the cost of health insurance premiums paid by certain individuals (i.e., individuals eligible for Trade Adjustment Assistance due to a qualifying job loss, and individuals between 55 and 64 years old whose defined-benefit pension plans were taken over by the Pension Benefit Guaranty Corporation). The HCTC was due to expire at the end of 2020, but the Act extended it through 2021. (Code Sec. 35(b)(1)(B), amended by Act Sec. 134)
New Markets tax credit extended. The New Markets credit provides a substantial tax credit to either individual or corporate taxpayers that invest in low-income communities. This credit was due to expire at the end of 2020, but the Act extended it through the end of 2025. Carryovers of the credit were extended, as well. (Code Sec. 45D(f)(1)(H), amended by Act Sec. 112(a))
Nonbusiness energy property credit extended by one year. A credit is available for purchases of "nonbusiness energy property"—i.e., qualifying energy improvements to a taxpayer's main home. The Act extends this credit, which was due to expire at the end of 2020, through 2021. (Code Sec. 25C(g)(2), amended by Act Sec. 141)
Qualified fuel cell motor vehicle credit extended by one year. The credit for purchases of new qualified fuel cell motor vehicles, which was due to expire at the end of 2020, was extended by the Act through the end of 2021. (Code Sec. 30B(k)(1), as amended by Act Sec. 142)
2-wheeled plug-in electric vehicle credit extended by one year. The 10% credit for highway-capable, two-wheeled plug-in electric vehicles (capped at $2,500) was extended until the end of 2021 by the Act. (Code Sec. 30D(g)(3)(E)(ii), amended by Act Sec. 144)
Residential energy-efficient property (REEP) credit extended by two years, bio-mass fuel property expenditures included. Individual taxpayers are allowed a personal tax credit, known as the residential energy efficient property (REEP) credit, equal to the applicable percentages of expenditures for qualified solar electric property, qualified solar water heating property, qualified fuel cell property, qualified small wind energy property, and qualified geothermal heat pump property. The REEP credit was due to expire at the end of 2021, with a phase-down of the credit operating during 2020 and 2021. The Act extends the phase-down period of the credit by two years—through the end of 2023; the REEP credit won't apply after 2023. (Code Sec. 25D(h), as amended by Act Sec. 148(a))
The Act also adds qualified biomass fuel property expenditures to the list of expenditures qualifying for the credit, effective beginning in 2021. (Code Sec. 25D(a), as amended by Act Sec. 148(b)).
DISASTER-RELATED CHANGES IN RETIREMENT PLAN RULES
10% early withdrawal penalty does not apply to qualified disaster distributions from retirement plans. A 10% early withdrawal penalty generally applies to, among other things, a distribution from employer retirement plan to an employee who is under the age of 59½. The Act provides that the 10% early withdrawal penalty doesn't apply to any "qualified disaster distribution" from an eligible retirement plan. The aggregate amount of distributions received by an individual that may be treated as qualified disaster distributions for any tax year may not exceed the excess (if any) of $100,000, over the aggregate amounts treated as qualified disaster distributions received by that individual for all prior tax years. (TCDTR Sec. 302(a))
Increased limit for plan loans made because of a qualified disaster. Generally, a loan from a retirement plan to a retirement plan participant cannot exceed $50,000. Plan loans over this amount are considered taxable distributions to the participant. The Act increases the allowable amount of a loan from a retirement plan to $100,000 if the loan is made because of a qualified disaster and meets various other requirements. (TCDTR Sec. 302(c)(3))
As always, we are here to assist in tax preparation and planning. Your questions are important and as we approach the 2021 filing season we assure you your confidence in us is well-placed.
Your referral of us to a friend or a colleague is the greatest compliment you can pay.
Thank you for your loyalty.
The Bezold Tax and Accounting Team.
Dear Business Client:
The Consolidated Appropriations Act, 2021 (the CCA, 2021), signed into law on December 27, 2020, is a further legislative response to the coronavirus (COVID-19) pandemic. The CCA, 2021 includes--along with spending and other non-tax provisions and tax provisions primarily affecting individuals--the numerous business tax provisions briefly summarized below. The provisions are found in two of the several acts included in the CCA, 2021, specifically, (1) the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the TCDTR) and (2) the COVID-related Tax Relief Act of 2020 (the COVIDTRA).
Dear Business Client:
The Consolidated Appropriations Act, 2021 (the CCA, 2021), signed into law on December 27, 2020, is a further legislative response to the coronavirus (COVID-19) pandemic. The CCA, 2021 includes--along with spending and other non-tax provisions and tax provisions primarily affecting individuals--the numerous business tax provisions briefly summarized below. The provisions are found in two of the several acts included in the CCA, 2021, specifically, (1) the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the TCDTR) and (2) the COVID-related Tax Relief Act of 2020 (the COVIDTRA).
Tax provisions made permanent (without other changes). The TCDTR makes permanent without other changes (1) the railroad track maintenance credit and (2) the exclusion of the aging period in determining the mandatory interest capitalization period in producing beer, wine or distilled spirits.
Tax provisions extended (without other changes). The TCDTR extends the following tax credits without other changes: (1) the new markets tax credit, (2) the work opportunity credit, (3) the employer credit for paid family and medical leave that was provided by the 2017 Tax Cuts and Jobs Act (2017 TCJA), (4) the carbon sequestration credit, (5) the business energy credit (the ‘‘Code Sec. 48 credit’’) both as regards termination dates and phase-downs of credit amounts, (6) the credit for electricity produced from renewable resources (the ‘‘Code Sec. 45 credit’’) and the election to claim the Code Sec. 48 credit instead for certain facilities (but the phase-down of the amount of the Code Sec. 45 credit for wind facilities isn’t deferred), (7) the Indian employment credit, (8) the mine rescue team training credit, (9) the American Samoa development credit, (10) the second generation biofuel producer credit, (11) the qualified fuel cell motor vehicle credit as applied to businesses, (12) the alternative fuel refueling property credit as applied to businesses, (13) the two-wheeled plug-in electric vehicle credit as applied to businesses, (14) the credit for production from Indian coal facilities, and (15) the energy efficient homes credit.
Additional provisions extended by the TCDTR without other changes are the following: (1) the exclusion from employee income of certain employer payments of student loans, (2) the 3-year recovery period for certain racehorses, (3) favorable cost recovery rules for business property on Indian reservations, (4) the 7-year recovery period for motor sports entertainment complexes, (5) expensing for film, television and live theatrical productions, (6) empowerment zone tax incentives except for the increased section 179 expensing for qualifying property and the deferral of capital gain for dispositions of qualifying assets, and (7) the exclusion from being personal holding company income for certain payments or accruals of dividends, interest, rents, and royalties from a related person that is a controlled foreign corporation.
Energy provisions. The TCDTR makes changes to energy provisions in addition to making them permanent or extending them.
The TCDTR adds ‘‘waste energy recovery property’’ to the types of property that qualify for the Code Sec. 48 credit (above). And the credit rate assigned is 30%. ‘‘Waste energy recovery property’’ is property (1) the construction of which begins before 2024, (2) that has a capacity of no more than 50 megawatts, and (3) generates electricity solely from heat from buildings or equipment if the primary purpose of that building or equipment isn’t the generation of electricity. But it doesn’t include property eligible for the Code Sec. 48 credit for cogeneration property unless the taxpayer doesn’t take the Code Sec. 48 credit for that property.
For wind facilities that are ‘‘qualified offshore wind facilities,’’ the TCDTR relaxes the rules under which wind facilities that are eligible for the Code Sec. 45 credit can, by election (see above), be eligible instead for the Code Sec. 48 credit.
The TCDTR makes permanent the energy efficient commercial buildings deduction. Additionally, the TCDTR indexes for inflation the per-square-foot dollar caps on the full and partial versions of the deduction. And the TCDTR provides that to the extent that deductibility depends on specified recognized energy efficient standards, the referred-to standards will be standards issued within two years of construction (rather than the standards bearing now-stale dates that applied under pre- TCDTR law).
Clarifications of tax consequences of PPP loan forgiveness. The COVIDTRA clarifies that the non-taxable treatment of Payroll Protection Program (PPP) loan forgiveness that was provided by the 2020 CARES Act also applies to certain other forgiven obligations. Also, the COVIDTRA clarifies that taxpayers whose PPP loans or other obligations are forgiven as described above, are allowed deductions for otherwise deductible expenses paid with the proceeds and that the tax basis and other attributes of the borrower’s assets won’t be reduced as a result of the forgiveness.
Waiver of information reporting for PPP loan forgiveness. The COVIDTRA allows IRS to waive information reporting requirements for any amount excluded from income under the exclusion- from-income rule for forgiveness of PPP loans or other specified obligations. Note: IRS had already waived information returns and payee statements for loans that, before enactment of the COVIDTRA, were guaranteed by the Small Business Administration under section 7(a)(36) of the Small Business Act.
Extensions and modifications of earlier payroll tax relief. The TCDTR extends the CARES Act credit, allowed against the employer portion of the Social Security (OASDI) payroll tax or of the Railroad Retirement tax, for qualified wages paid to employees during the COVID-19 crisis. Under the extension, qualified wages must be paid before July 1, 2021 (instead of January 1, 2021). Additionally, beginning on January 1, 2021, the credit rate is increased from 50% to 70% of qualified wages. and qualified wages are increased from $10,000 for the year to $10,000 per quarter. Many other rules are also relaxed. And the TCDTR makes some retroactive clarifications and technical improvements to the credit as initially enacted.
The COVIDTRA extends (1) the credits provided by the Families First Coronavirus Response Act (FFCRA) against the employer portion of OASDI and Railroad Retirement taxes for qualifying sick and family paid leave and (2) the equivalent FFCRA-provided credits for the self-employed against the self-employment tax. Under the extension of the employer credits, wages taken into account are those paid before April 1, 2021 (instead of January 1, 2021). Under the extension of the credits for the self employed, the days taken into account are those before April 1, 2021 (instead of January 1, 2021).
The COVIDTRA also makes retroactive clarifications of (1) the employer (but not self-employed equivalent) FFCRA paid leave credits that were extended as discussed above, (2) the exclusion of qualifying paid leave in calculating the employer portion of Railroad Retirement taxes and (3) and the increase in the amount of the FFRCA paid leave credits against the employer portion of Railroad Retirement taxes by the amount of the Medicare payroll taxes on qualifying paid leave. Additionally, the COVIDTRA directs IRS to extend the Presidentially ordered deferral of the employee’s share of OASDI and Railroad Retirement taxes. As first provided by IRS, the deferral was of taxes to be withheld and paid on wages and other compensation (up to $4,000 every two weeks) paid in the period from September 1, 2020 to December 31, 2020 so that the taxes were instead withheld and paid ratably in the period from January 1, 2021 to April 30, 2021. Under the deferral, the period over which the deferred-from-2020 taxes are ratably withheld and paid is extended to all of 2021 (instead of the four-month period ending on April 30, 2021).
Employee benefits and deferred compensation. The TCDTR provides that expenses for business-related food and beverages provided by a restaurant are fully deductible if they are paid or incurred in calendar years 2021 or 2022, instead of being subject to the 50% limit that generally applies to business meals. The TCDTR temporarily allows (1) carryovers and relaxed grace period rules for unused flexible spending arrangement (FSA) amounts, whether in a health FSA or a dependent care FSA, (2) the raising of the maximum eligibility age of a dependent under a dependent care FSA from 12 to 13 and (3) prospective changes in election limits set forth by a plan (subject to the applicable limits under the Code).
With a view to layoffs in the current economic climate, the TCDTR relaxes rules that would otherwise cause a partial qualified retirement plan termination if the number of active participants decreases.
Because of market volatility during the COVID-19 pandemic, the COVIDTRA relaxes, if certain conditions are met, the funding standards that, if met, allow a defined benefit pension plan to transfer funds to a retiree health benefits account or retiree life insurance account within the plan. The CARES Act’s relaxed rules for ‘‘coronavirus-related distributions’’ are retroactively amended by the COVIDTRA to additionally provide that a coronavirus-related distribution that is a during-employment withdrawal from a money purchase pension plan meets the distribution requirements of Code Sec. 401(a).
And under a provision of narrow applicability, the TCDTR lowers to 55 years, from the usually applicable 59½ years, the age at which certain employees in the building or construction trades can, though still employed, receive pension plan payments under certain multiple employer plans without affecting the status of trusts that are part of the pension plans as qualified trusts.
Residential real estate depreciation. For tax years beginning after December 31, 2017, the TCDTR assigns a 30-year ADS depreciation period to residential rental property even though it was placed in service before January 1, 2018 (when the 2017 TCJA first applied the more-favorable 30-year period) if the property (1) is held by a real property trade or business electing out of the limitation on business interest deductions and (2) before January 1, 2018 wasn’t subject to the ADS.
Farmers’ net operating losses. The COVIDTRA allows farmers who had in place a two-year net operating loss carryback before the CARES Act to elect to retain that two-year carryback rather than claim the five-year carryback provided in the CARES Act. It also allows farmers who before the CARES Act waived the carryback of a net operating loss, to revoke the waiver.
Low-income housing credit. The TCDTR provides a 4% per year credit floor for buildings that aren’t eligible for the 9% per-year credit floor. (Both floors are alternatives to the calculation under which the per-year credit is generally a percentage, prescribed by IRS, that is intended to result in a credit that, in the aggregate over the 10-year credit period, has a present value of 70% of the qualified basis for certain new buildings and 30% of the qualified basis for certain other buildings.)
Life insurance. The TCDTR changes the interest rate assumptions that determine whether a contract meets the cash value and premium caps for qualifying as a life insurance contract. The change is to designated floating rates from the respective 4% and 6% rates fixed by prior law.
Disaster relief. The TCDTR includes several provisions targeted at ‘‘qualified disaster areas,’’ some of which affect individuals and some which affect businesses as described below. ‘‘Qualified disaster areas’’ are areas for which a major disaster was Presidentially declared during the period beginning on January 1, 2020 and ending February 25, 2021. The incidence period of the disaster must begin after December 27, 2019 but not after December 27, 2020. Excluded are areas for which a major disaster was declared only because of COVID-19.
The relief includes relief for retirement funds that consists of the following: (1) waiver of the 10% early withdrawal penalty for up to $100,000 of certain withdrawals by individuals living in a qualified disaster area and that have suffered economic loss because of the disaster (qualified individuals), (2) a right to re-contribute to a plan distributions that were intended for home purchase but not used because of a qualified disaster, and (3) relaxed plan loan rules for qualified individuals. Changes to plan amendment rules facilitate the relief.
The relief also provides to employers in the harder-hit parts of a qualified disaster area an up-to-$ 2,400-per-employee employee retention credit, subject to coordination with certain other employer tax credits. Generally, tax-exempt organizations can take it as a credit against FICA taxes.
Corporations are provided with relaxed charitable deduction rules for qualified-disaster-related contributions, and individuals are provided with relaxed loss allowance rules for qualified-disaster-related casualties.
The low-income housing credit is modified to allow, subject to various limitations, increases in the state-wide credit ceilings to the extent allocations are made to harder-hit parts of qualified disaster areas.
Excise taxes. The TCDTR makes various excise tax changes for beer, wine and distilled spirits. The TCDTR also provides that the temporary increase in the Black Lung Disability Trust Fund tax won’t apply to coal sales after 2021 (instead of after 2020). And the end of the liability imposed because of the Oil Spill Liability Trust Fund Rate is deferred until after 2025. Additionally, the alternative fuels credit against the diesel and special motor fuels tax is extended.
Food and Beverage No Longer 50% deductible for 2021 and 2022. You have probably heard that the recent stimulus legislation included a provision that removes the 50% limit on deducting business meals provided by restaurants in 2021 and 2022 and makes those meals fully deductible. Here are the details.
In general, the ordinary and necessary food and beverage expenses of operating your business are deductible. However, the deduction is limited to 50% of the otherwise allowable expense.
The new legislation adds an exception to the 50% limit for expenses for food or beverages provided by a restaurant. This rule applies to expenses paid or incurred in calendar years 2021 and 2022.
The use of the word "by" (rather than "in") a restaurant makes it clear that the new rule is not limited to meals eaten on the restaurant's premises. Takeout and delivery meals provided by a restaurant are also fully deductible.
It's important to note that, other than lifting the 50% limit for restaurant meals, the legislation does not change the rules for deducting business meals. All the other existing requirements continue to apply. To be deductible:
- The food and beverages cannot be lavish or extravagant under the circumstances.
- You or one of your employees must be present when the food or beverages are
- This is defined as a current or prospective customer, client, supplier, employee, engage or deal in your business.
If food or beverages are provided at an entertainment activity, either they must be purchased separately from the entertainment or their cost must be stated on a separate bill, invoice, or receipt. This is required because the entertainment, unlike the food and beverages, is nondeductible.
I will be pleased to hear from you at any time with questions about the above news or any other matters.
Very truly yours,
The Bezold Tax Team
Starting this week, the Treasury Department and the Internal Revenue Service are sending approximately 8 million second Economic Impact Payments (EIPs) by prepaid debit card.
For those who don’t receive a direct deposit, they should watch their mail for either a paper check or a prepaid debit card. To speed delivery of the payments to reach as many people as soon as possible the Treasury’s Bureau of Fiscal Service is sending payments out by prepaid debit card.
Starting this week, the Treasury Department and the Internal Revenue Service are sending approximately 8 million second Economic Impact Payments (EIPs) by prepaid debit card.
These EIP Cards follow the millions of payments already made by direct deposit and the ongoing mailing of paper checks that are delivering the second round of Economic Impact Payments as rapidly as possible.
For those who don’t receive a direct deposit, they should watch their mail for either a paper check or a prepaid debit card. To speed delivery of the payments to reach as many people as soon as possible the Treasury’s Bureau of Fiscal Service is sending payments out by prepaid debit card.
IRS and Treasury urge eligible people who don’t receive a direct deposit to watch their mail carefully during this period. The prepaid debit card, called the Economic Impact Payment card, is sponsored by the Bureau of the Fiscal Service and is issued by Treasury’s financial agent, MetaBank®, N.A. The IRS does not determine who receives a prepaid debit card.
Taxpayers should note that the form of payment for the second mailed EIP may be different than the first mailed EIP. Some people who received a paper check last time might receive a prepaid debit card this time, and some people who received a prepaid debit card last time may receive a paper check.
EIP Cards are safe, convenient and secure. EIP Card recipients can make purchases online or in stores anywhere Visa® Debit Cards are accepted. They can get cash from domestic in-network ATMs, transfer funds to a personal bank account and obtain a replacement EIP Card if needed without incurring any fees. They can also check their card balance online, through a mobile app or by phone without incurring fees. The EIP Card provides consumer protections including certain protections against fraud, loss and other errors.
EIP Cards are being sent in a white envelope that prominently displays the U.S. Department of the Treasury seal. The EIP Card has the Visa name on the front of the Card and the issuing bank name, MetaBank®, N.A. on the back of the card. Each mailing will include instructions on how to securely activate and use the EIP Card.
EIP Cards are being issued to eligible recipients across all 50 states and the District of Columbia. Residents of the western part of the United States are generally more likely to receive an EIP Card.
Click above for Update on Office Status, Tax Returns and Stimulus Checks during COVID-19
First, we would like to give a BIG Thank You to our friends at Duke Energy and LPM Electric. The Storm that went through in the middle of April left us without electric. Originally we were told it would be approx. 3 days. But thanks to the Great work and efficiency of Duke and LPM Electric we were back up and running in 36 hours. Our Heroes! Thank You.
We as well as all of you are struggling through this pandemic. We struggle to implement our normal procedures of being here to answer all of your questions and preparing your returns in a timely manner. Communications are definitely not perfect. We understand this is not normal and everyone is anxious to say the least. We are not just your tax preparer. We are here to help you with all the questions that make you anxious. Although it is extremely difficult to respond to everyone and we apologize if we have missed your phone call or email. We have been swamped with phone calls about the Stimulus payment and the SBA and PPP Loan for businesses. Below is some information that may help answer many of your questions regarding the stimulus checks. We hope and pray everyone is well.
Good news is we are all still well and still working. We will be in contact with you about your returns through email. Please keep in mind you are important to us and we are trying our best, but we are struggling with the elements. We hope you find this information helpful. We are definitely looking forward to the days ahead when we can say, Sure Come on IN!
Take Care and Stay Well,
Debbie, Renee’, Tina, Christy, Haley, Janet and Roger.
If you haven’t received your stimulus check from the IRS yet:
First, go to IRS.gov and click Get My Payment. You will then enter information to verify your identity and your Adjusted Gross Income from your 2018 or 2019 tax return, whichever is the last return you filed. This will give you an update of your stimulus check. There is a link on that page to Frequently Asked Questions if you have any trouble. Here is a link to a video for people who were not required to file a tax return for 2018 or 2019 https://www.youtube.com/watch?v=RJG-tr9tr7U&feature=youtu.be and a PDF explaining the process Stimulus Check for Non-Filers
Another issue is taxpayers who have not received a refund, but owed on the last tax return filed with IRS. IRS does not have your bank account information to direct deposit your refund and you are on the list to receive a paper check by mail. You can use the IRS tool to get stimulus check automatically deposited into your bank account; however you may get a "sorry, we can't determine your status" message until the IRS has a date for releasing your check (based on AGI.)
These taxpayers will be given the opportunity to provide bank account info to "flip" back to direct deposit, but NOT until they have a status report. And, once they provide the bank info, they may have to wait until the next cycle (Monday) to see a confirmation that the bank account info uploaded and IRS can provide a deposit date.
Also, the Tool will not allow you to add bank account info if your paper check has already been generated and sent for printing. Taxpayers with AGI under $10K have already had their EIPs sent for printing, so they will not be able to provide bank info, but should get a message that they are receiving a paper check, sent to the address IRS has on file.
IRS does communicate with USPS to locate the most recent address, so taxpayers that moved but did not file Form 8822 (which IRS cannot process right now) should still get their checks (as long as no one breaks into their mailbox to steal them, potential risk, beyond IRS's control.)
Yes, it is working, except for filers with no bank account info that had zero AGI or zero tax due/zero refund. The Tool won't "authenticate" if you enter zero in those questions, even though your return truly did show zero AGI or zero tax.
The Tool updates daily, but payment releases might be weekly, so taxpayers should check weekly, not daily, if they want good information
This document provides a brief summary of tax provisions contained in the Coronavirus Aid, Relief and Economic Security (CARES) Act, H.R. 748, and the Families First Coronavirus Response Act, H.R. 6201. Further research and analysis are recommended based on each client’s facts and circumstances.
Coronavirus
On April 28, 2021, the White House released details on President Biden’s new $1.8 trillion American Families Plan. The proposal follows the already passed $1.9 trillion American Rescue Plan Act and the recently proposed $2.3 trillion infrastructure-focused American Jobs Plan. The details were released in advance of President Biden’s address to a joint session of Congress.
On April 28, 2021, the White House released details on President Biden’s new $1.8 trillion American Families Plan. The proposal follows the already passed $1.9 trillion American Rescue Plan Act and the recently proposed $2.3 trillion infrastructure-focused American Jobs Plan. The details were released in advance of President Biden’s address to a joint session of Congress.
The plan includes many provisions that would make good on the President’s campaign promises. The proposal would provide universal preschool to three and four year-olds, two free years of community college, and free tuition for certain universities specializing in serving underrepresented students. The plan would also invest in teacher and child care education, provide free or lower cost child care to lower income families, expand paid leave programs, and improve the quality of student lunch programs. It would also establish automatic adjustments to unemployment insurance, depending upon economic conditions.
Personal Tax Breaks Extended
The proposal would also extend tax benefits already signed into law under the American Rescue Plan Act. This includes:
- extending enhanced premium tax credits and making premium reductions permanent;
- extending the enhanced child tax credit through 2025 (currently a fully refundable $3,000 per child ($3,600 for a child under age six) for 2021 only);
- permanently extending the enhancements of the child and dependent care tax credit, which increase the amount of the credit as well as the incomes at which the credit is phased out;
- permanently extending the increased earned income tax credit for taxpayers without children.
Tax Changes, TCJA Rollback
On the campaign trail, President Biden promised to increase taxes on both corporations and higher-income individuals. While the provisions of the American Jobs Plan are largely funded through a proposed increase in the corporate tax rate from 21% to 28%, the provisions of his American Families Plan are funded by the promised increases to individual taxes.
The proposal would increase the top tax rate on individuals to 39.6 percent from the current rate of 37 percent. This would return the tax rate on the highest bracket of income to where it was before the Tax Cuts and Jobs Act took effect in 2018.
The proposal would also increase the tax rate on capital gains and dividends for households making over $1 million, to match the 39.6 percent rate on income. For 2021, capital gains and certain qualified dividends are taxed at 20 percent for joint filers with taxable income of $496,000 or more.
The plan proposes to eliminate the tax-free step-up in basis on inherited property where the gain would be in excess of $1 million (up to $2.5 million in the case of a couple using existing real estate exemptions. The plan also eliminates the carried interest loophole that allows hedge fund partners to pay tax on income at capital gains rates. The plan would also limit a provision allowing for tax deferral on property exchanges, permanently extend the limitation on excess business losses, and ensure that higher income taxpayers cannot avoid the 3.8 percent Medicare tax.
The plan also provides increased funding for the IRS to improve enforcement, specifically to ensure that higher income taxpayers are unable to avoid proper payment of taxes. While the White House estimates that this will produce an additional $700 billion in revenue over 10 years, many believe this to be a vast overestimate.
Notably absent from the plan is an increase to the cap on the deduction of state and local taxes. The Tax Cuts and Jobs Act set a $10,000 limit for the deduction, but many lawmakers, particularly those representing higher tax states like New York and California, have been pressing to increase the limit or completely eliminate it
Next Steps?
It is uncertain when Congress may take up the process of proposing legislation carrying out the American Families Plan. President Biden has indicated his willingness to negotiate on any proposals he makes. However, the chilly reception to his American Jobs Plan does not indicate a smooth process to get a vote on a legislative package for the infrastructure proposal, let alone passage with razor-thin majorities in both chambers of Congress. With many lawmakers indicated that they want to work on infrastructure before moving on to other proposals, the process from proposal to law could stretch out for months.
The IRS announced that it had started issuing refunds to eligible taxpayers who paid taxes on 2020 unemployment compensation that was excluded from taxable income by the recently enacted American Rescue Plan (ARP) (P.L. 117-2).
The IRS announced that it had started issuing refunds to eligible taxpayers who paid taxes on 2020 unemployment compensation that was excluded from taxable income by the recently enacted American Rescue Plan (ARP) ( P.L. 117-2).
Unemployment compensation is taxable income, but the ARP excludes $10,200 in unemployment compensation from the income used to calculate the amount of taxes owed. The $10,200 per person exclusion applies to taxpayers who are single or married filing jointly, with modified adjusted gross income of less than $150,000. The $10,200 is the amount of income exclusion, not the amount of the refund itself.
The IRS has identified over 10 million taxpayers who filed their tax returns prior to the ARP becoming law in March, and is reviewing past returns to determine the correct taxable amount of unemployment compensation and tax. This could potentially result in a refund, reduced balance due, or with no refund being owed.
The first phase of adjustments is being made for single taxpayers who had the simplest tax returns, such as those filed by taxpayers who did not claim children or any refundable tax credits. Notices explaining the corrections will be sent to taxpayers, and are expected to reach them within 30 days of the correction being made.
The IRS stated that it will issue refunds by direct deposit to taxpayers who provided their bank account information on their returns. Alternatively, refunds will be mailed as a paper check to the taxpayer’s address of record.
These refunds will be subject to normal offset rules, such as past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support or certain federal nontax debts, such as student loans. The IRS will send separate notices to those taxpayers whose refunds could be offset to settle unpaid debts.
Further, corrections to any Earned Income Tax Credit (EITC) without qualifying children and the recovery rebate credit are being made automatically as part of this process. However, some taxpayers may be eligible for certain income-based tax credits that were not claimed on their original return. The IRS also reminded taxpayers to file an amended tax return if the revised adjusted gross income amount makes them eligible for additional benefits.
A safe harbor is available for certain Paycheck Protection Program (PPP) loan recipients who relied on prior IRS guidance and did not deduct eligible business expenses. These taxpayers may elect to deduct the expenses for their first tax year following their 2020 tax year, rather than filing an amended return or administrative adjustment request for 2020.
A safe harbor is available for certain Paycheck Protection Program (PPP) loan recipients who relied on prior IRS guidance and did not deduct eligible business expenses. These taxpayers may elect to deduct the expenses for their first tax year following their 2020 tax year, rather than filing an amended return or administrative adjustment request for 2020.
The IRS had initially determined that businesses whose PPP loans were forgiven or expected to be forgiven could not deduct business expenses paid for by the loan. However, the Consolidated Appropriations Act of 2021 ( P.L. 116-260), enacted on December 27, 2020, subsequently permitted taxpayers to deduct these expenses.
Safe Harbor Eligibility
To be eligible for the safe harbor, the taxpayer must have received an original PPP covered loan and filed a federal income tax return or information return for the 2020 tax year on or before December 27, 2020. The taxpayer must have paid or incurred original eligible expenses during the taxpayer’s 2020 tax year that the taxpayer did not deduct because:
- the expenses resulted in forgiveness of the original PPP covered loan; or
- the taxpayer reasonably expected at the end of the 2020 tax year that the expenses would result in forgiveness.
Electing the Safe Harbor
A taxpayer elects the safe harbor by attaching a statement to a timely, including extensions, federal income tax return or information return for the taxpayer’s first tax year following the 2020 tax year in which the original eligible expenses were paid or incurred. The statement must include:
- the taxpayer’s name, address, and social security number or taxpayer identification number;
- a statement that the taxpayer is applying the safe harbor provided by section 3.01 of Revenue Procedure 2021-20;
- the amount and date of disbursement of the taxpayer’s original PPP loan; and
- a list, including descriptions and amounts, of the original eligible expenses.
Certain Expenses and Loans Not Covered
The safe harbor applies only to original eligible expenses, and not to additional expenses that were added by the Consolidated Appropriations Act. The safe applies only to original PPP loans. It does not apply to PPP second draw loans.
Individuals may use two special procedures to file returns for 2020 that allow them to receive advance payments of the 2021 child credit and the 2021 Recovery Rebate Credit.
Individuals may use two special procedures to file returns for 2020 that allow them to receive advance payments of the 2021 child credit and the 2021 Recovery Rebate Credit. Under the procedures:
- individuals who are not required to file returns for 2020 can use a simplified federal income tax return filing procedure; and
- individuals with zero adjusted gross income (AGI) for 2020 can file electronic returns by entering "$1" in several fields.
Simplified Return Procedures
Individuals may file simplified 2020 returns electronically or on paper if they have not filed and are not required to file 2020 returns. The simplified procedures apply to Forms 1040, 1040-SR and 1040-NR.
The individual should write "Rev. Proc. 2021-24" at the top of a paper return. The procedure includes detailed instructions for providing identification, income and direct deposit information.
Zero AGI
Many filing systems for electronic returns will not accept returns that report zero AGI. To file an electronic return, in addition to all other information required to be entered on Form 1040, Form 1040-SR, or Form 1040-NR, an individual with no AGI should report:
- $1 as taxable interest on line 2b of the form;
- $1 as total income on line 9 of the form; and
- $1 as AGI on line 11 of the form.
Filers of Form 1040-NR with no AGI should also report $1 as itemized deductions on lines 7 and 8 of Schedule A (Form 1040-NR) and line 12 of Form 1040-NR.
Returns Must Be Accurate
Simplified returns and zero-AGI electronic returns are federal income tax returns for all purposes. Thus, the individual must properly sign the return under penalties of perjury. The returns must also provide accurate information. However, the IRS will not challenge the accuracy of income items reported by taxpayers using these special procedures.
Individuals Who Filed 2020 Returns
Individuals who have already filed their 2020 returns do not have to do anything further to:
- receive advance child credit payments for an eligible child shown on that return;
- receive a third-round Economic Impact Payment (EIP) for the 2021 recovery rebate credit that is attributable to a dependent shown on that return; or
- claim a previously claimed 2020 recovery rebate credit and additional 2020 recovery rebate credit for themselves and for each eligible qualifying child.
Similarly, an individual who filed a federal income tax return for 2019, including by entering information in the "Non-Filers: Enter Information Here" tool on the IRS website, also do not need to file any additional forms of contact the IRS in order to receive advance child credit payments for a qualifying child shown on that return. An individual who did not receive EIPs for the full amount of the 2020 Recovery Rebate Credits may claim them by filing a 2020 federal income tax return.
U.S. Territory Residents
The simplified return and zero-AGI procedures do not apply to residents of American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, the Commonwealth of Puerto Rico, or the U.S. Virgin Islands.
- Residents of Puerto Rico may be eligible to claim the child tax credit from the IRS under procedures to be announced at a later date, but they are not eligible to receive advance child tax credit payments.
- Residents of other U.S. territories should contact their local territory tax agency for additional information about the child tax credit and advance child tax credit payments, third-round economic impact payments, the 2020 recovery rebate credit, and the additional 2020 recovery rebate credit.
The IRS has provided guidance for employers, plan administrators, and health insurers regarding the new credit available to them for providing continuation health coverage to certain individuals under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) during the COVID-19 (Coronavirus) emergency.
The IRS has provided guidance for employers, plan administrators, and health insurers regarding the new credit available to them for providing continuation health coverage to certain individuals under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) during the COVID-19 (Coronavirus) emergency.
COBRA provides eligible former employees, retirees, spouses, former spouses, and dependent children with the right to temporary continuation of health coverage at group rates. COBRA generally covers health plans maintained by private-sector employers with 20 or more full and part-time employees. It also covers employee organizations or federal, state or local governments. State mini-COBRA laws often provide similar benefits for insured small employers not subject to Federal COBRA.
The American Rescue Plan Act ( P.L. 117-2) provided a temporary 100% reduction in the premium that individuals would have to pay when they elect COBRA continuation health coverage following a reduction in hours or an involuntary termination of employment. The new law provides a corresponding tax credit for the entities that maintain group health plans, such as employers, multiemployer plans, and insurers. The 100% reduction in the premium and the credit are also available with respect to continuation coverage provided for those events under comparable state laws, sometimes referred to as "mini-COBRA."
Under the new law, COBRA premium assistance is available to eligible individuals as of the first period of coverage beginning on or after April 1, 2021, and will not be available for periods of coverage beginning after September 30, 2021. For each Assistance Eligible Individual, COBRA premium assistance does not extend beyond the period of COBRA continuation coverage in the event that the period ends prior to September 30, 2021. If an individual receiving premium assistance becomes eligible for coverage under any other group health plan or for Medicare, the premium assistance period ends.
Example: On April 1, 2021, the individual’s employment is terminated, and the individual becomes a qualified beneficiary. The individual elects COBRA continuation coverage and becomes an Assistance Eligible Individual with COBRA continuation coverage beginning on April 1, 2021, the date the individual lost coverage. On July 1, 2021, the individual becomes eligible for coverage under a group health plan sponsored by the employer of the individual’s spouse and ceases to be an Assistance Eligible Individual. The individual ceases COBRA continuation coverage as of July 1, 2021, and enrolls in coverage in the group health plan sponsored by the employer of the individual’s spouse. On August 1, 2021, the individual’s spouse has an involuntary termination of employment, and as a result the individual and spouse lose coverage. The individual and spouse become qualified beneficiaries due to the loss of coverage and elect COBRA continuation coverage with the plan sponsored by the spouse’s employer. The individual and spouse become Assistance Eligible Individuals with respect to COBRA continuation coverage as of August 1, 2021.
In Notice 2021-31, the IRS has provided information regarding the calculation of the credit, the eligibility of individuals, the premium assistance period, and other information vital to employers, plan administrators, and insurers to understand the credit.
The IRS has reminded employers that under the American Rescue Plan Act of 2021 (ARP) ( P.L. 117-2), small and midsize employers and certain government employers are entitled to claim refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees due to COVID-19. This includes leave taken by employees to receive or recover from COVID-19 vaccinations.
The IRS has reminded employers that under the American Rescue Plan Act of 2021 (ARP) ( P.L. 117-2), small and midsize employers and certain government employers are entitled to claim refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees due to COVID-19. This includes leave taken by employees to receive or recover from COVID-19 vaccinations.
ARP tax credits are available to eligible employers that pay sick and family for leave from April 1, 2021, through September 30, 2021. Under the Act, eligible employers include any business, including tax-exempt organizations with fewer than 500 employees who are not able to work or telework due to reasons related to COVID-19, including needing to recover from any injury, disability, illness or condition related to the vaccinations.
The IRS has informed taxpayers that the paid leave credits under the ARP are tax credits against the employer’s share of the Medicare tax. The tax credits are refundable, and the employer is entitled to payment of the full amount of credits if it exceeds the employer’s share of the Medicare tax. The tax credit for paid sick leave wages is equal to the sick leave wages paid for COVID-19 related reasons, for up to two weeks at 100 percent of the employee’s regular rate of pay. Further, the tax credit for paid family leave wages is equal to the family leave wages paid for up to twelve weeks, at 2/3rds of the employee’s regular rate of pay. Importantly, the amount of these tax credits increases according to allocable health plan expenses and contributions for certain collectively bargained benefits, as well as the employer’s share of social security and Medicare taxes paid on the wages.
Eligible employers are recommended to report their total paid sick and family leave wages, health plan expenses and collectively bargained contributions, including their share of social security and Medicare taxes on the paid leave wages for each quarter on their federal employment tax return. Form 941, Employer’s Quarterly Federal Tax Return, can be used to report income tax and social security and Medicare taxes withheld from employee wages.
Further, in anticipation of claiming the credits on the Form 941, eligible employers can retain the federal employment taxes that they otherwise would have deposited, including federal income tax withheld, the employees’ share of social security, Medicare taxes and their share of social security and Medicare taxes with respect to all employees up to the amount of credit for which they are eligible. If, however, an eligible employer does not have enough federal employment taxes set aside for deposit to cover amounts provided as paid sick and family leave wages, the eligible employer may request an advance of the credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. The eligible employer will then have to account for the amounts received as an advance when they file Form 941, Employer's Quarterly Federal Tax Return, for the relevant quarter. Finally, self-employed individuals may claim comparable tax credits on their individual Form 1040, U.S. Individual Income Tax Return.
The IRS has reminded taxpayers who owe 2020 taxes that there are different ways to pay their taxes online, including payment options for many people who cannot pay in full.
The IRS has reminded taxpayers who owe 2020 taxes that there are different ways to pay their taxes online, including payment options for many people who cannot pay in full.
The IRS stated that the most important thing that taxpayers with a tax bill should do is file a return by the May 17 due date, even if they cannot pay in full, or request a six-month extension to avoid higher penalties for failing to file on time. The IRS emphasized that even though automatic tax filing extensions are available, these extensions do not change the payment deadline.
Further, interest, plus the much smaller late-payment penalty, will apply to any payments made after May 17. Normally, the late-payment penalty is one-half-of-one percent (0.5%) per month. The interest rate, adjusted quarterly, is currently 3% per year, compounded daily.
The IRS urges taxpayers to use Direct Pay, which is the fastest and easiest way to pay a personal tax bill. In addition, the IRS has noted that online payment plans are processed more quickly than requests submitted with electronically-filed tax returns.
There are two main types of online payment plans:
- Short-term payment plan: The payment period is 120 days or less and the total amount owed is less than $100,000 in combined tax, penalties and interest. A 180-day payment plan is also possible, but is only available by calling or writing the IRS.
- Long-term payment plan ( "installment agreement"): Payments are made monthly, and the amount owed must be less than $50,000 in combined tax, penalties and interest. If the IRS approves an installment agreement, a setup fee normally applies, but low-income taxpayers may qualify to have the fee waived or reimbursed. In addition, for anyone who filed their return on time, the late-payment penalty rate is cut in half while an installment agreement is in effect. This means that the penalty accrues at the rate of one-quarter-of-one percent (0.25%) per month, instead of the usual one-half-of-one percent (0.5%) per month.
Taxpayers who do not qualify for an online payment agreement may still be able to arrange to pay in installments. If the IRS determines a taxpayer is unable to pay, it may delay collection until their financial condition improves. Taxpayers can request a delay by calling the phone number on their IRS notice or 800-829-1040.
Some taxpayers can qualify to settle their tax bill for less than the full amount due through an offer in compromise. Though there is typically a $205 non-refundable application fee, it is generally waived for low-income taxpayers, and for offers based on doubt as to liability. The Offer in Compromise Pre-Qualifier tool can help determine eligibility for anyone interested in applying.
The IRS reminds taxpayers that May includes National Hurricane Preparedness Week and National Wildfire Awareness Month. It urges taxpayers to create or review emergency preparedness plans for surviving natural disasters.
The IRS reminds taxpayers that May includes National Hurricane Preparedness Week and National Wildfire Awareness Month. It urges taxpayers to create or review emergency preparedness plans for surviving natural disasters.
The IRS advises taxpayers to do the following:
- Secure key documents such as tax returns, birth certificates, deeds, titles and insurance policies inside waterproof containers in a secure space. Keep duplicates of these documents with a trusted person outside the area of the taxpayer. Scan these documents for backup storage on electronic media such as a flash drive.
- Take current photos or videos of a home or business’s contents, especially expensive and high value items. The IRS disaster-loss workbooks in IRS Pub. 584-B can help individuals and businesses compile lists of belongings or business equipment.
- Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.
- Reconstructing records after a disaster may be required for tax purposes, getting federal assistance or insurance reimbursement. Taxpayers who have lost some or all their records during a disaster can visit IRS’s Reconstructing Records webpage as one of their first steps.
Dependent care assistance benefits carryovers and extended claims period amounts that would have been excluded from income if used during the preceding tax year will remain excludable in tax years ending in 2021 and 2022. In addition, these benefits will not be taken into account in determining the dependent care benefits exclusion limit for the tax years ending in 2021 and 2022.
Dependent care assistance benefits carryovers and extended claims period amounts that would have been excluded from income if used during the preceding tax year will remain excludable in tax years ending in 2021 and 2022. In addition, these benefits will not be taken into account in determining the dependent care benefits exclusion limit for the tax years ending in 2021 and 2022.
Dependent Care Assistance Exclusion
Employees may exclude amounts their employer pays or incurs for dependent care assistance benefits if furnished pursuant to a dependent care assistance program. For 2020, the exclusion could not exceed $5,000, $2,500 if married filing separately (for 2021 only, increased to $10,500, $5,250 if married filing separately). Unused benefits may be used during a 2 1/2 month grace period following the plan year’s end. However, if the sum of the benefits used in the tax year (including unused benefits used during a grace period that falls in the tax year) exceeds the limitation, the excess is taxable.
Carryovers and Extensions
Beyond the grace period, carryovers of unused dependent care assistance program amounts generally are not permitted. However, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 ( P.L. 116-260) allowed employers to amend their plans to permit carryovers to plan years ending in 2021 and 2022, or to extend the permissible period for incurring claims to plan years over the same period.
Under Notice 2021-15, I.R.B. 2021-10, 898, if an employer adopts the carryover or the extended period, the annual limits apply to amounts contributed for a year, and not to amounts reimbursed or otherwise available for reimbursement.
Notice 2021-26 clarifies that dependent care assistance program benefits that would have been excluded from income if used during the tax year ending in 2020 or 2021, remain eligible for exclusion from the participant’s gross income, and are disregarded in applying the limits for the employee's subsequent tax years when they are carried over from a plan year ending in 2020 or 2021 or permitted to be used pursuant to an extended claims period.
Notice 2021-26 also provides examples illustrating the possible tax consequences of electing $10,500 in benefits for a plan year beginning in 2021 but ending in 2022.
The Treasury Department has released a statement discussing investment in the IRS and improving tax compliance.
The Treasury Department has released a statement discussing investment in the IRS and improving tax compliance. While roughly 99 percent of the taxes due on wages are remitted to the IRS, compliance across other forms of income is substantially less, because the IRS has had difficulty verifying whether income from unverified sources is properly reported. The Treasury states that noncompliance is concentrated at the top of the distribution: according to a recent study, the top one percent failed to report 20 percent of their income, and failed to pay nearly $175 billion in taxes owed annually.
The Treasury states that lower levels of compliance not only negatively impact tax progressivity, but also lower tax revenue and deteriorate the country’s fiscal position. If left unaddressed, the difference between taxes owed to the government and taxes actually paid will total approximately $7 trillion in the next 10 years. This massive gap in revenue would mean that policymakers must choose between higher taxes elsewhere in the tax system, lower spending on fiscal priorities, or rising budget deficits. This tax gap has many underlying causes, with insufficient resources being at the forefront. In addition, budget cuts over the past decade have resulted in an IRS that lacks the capacity to address sophisticated tax evasion efforts. Over this period, audit rates for taxpayers making over $1 million in income have fallen by almost 80 percent.
To ensure a fair and effective tax system, the Treasury says that a robust and sustained investment in the IRS is necessary. The IRS requires access to 21st century technology and to better information, so that it can target its efforts at offenders while helping compliant taxpayers avoid unnecessary and costly audits. Importantly, this investment will also put the IRS in a position to provide taxpayers with timely answers to questions.
The Treasury has listed some considerations that provide the basis for a series of proposals in the American Families Plan (AFP). The AFP intends to overhaul tax administration and provide the IRS with the resources and information it needs to address tax evasion. These reforms are expected to generate an additional $700 billion in tax revenue over the course of a decade. The reforms are expected to:
- Provide the IRS with necessary resources to stop sophisticated tax evasion. A key component of this initiative is the provision of a sustained, multi-year stream of funds to help the IRS tackle costly tax evasion.
- Provide the IRS with more complete information on third parties. When the IRS has information from third parties, income is accurately reported, and taxes are fully paid. Importantly, this proposal intends to provide additional information to the IRS without an increased burden on taxpayers. It leverages the information that financial institutions have about account holders, requiring that they add to their regular, annual reports information about aggregate account outflows and inflows.
- Overhaul outdated technology to help IRS identify tax evasion, by providing the IRS with resources to modernize its technological infrastructure.
- Improve taxpayer service and deliver tax credits. Service enhancement will improve the ability of the IRS to communicate with taxpayers securely and promptly. The proposal would also include the necessary resources to ensure that the IRS efficiently delivers credits to families and workers, including newly expanded child tax credits and child and dependent care tax credits.
- Regulate paid tax preparers by providing the IRS with legal authority to implement safeguards in the tax preparation industry. This includes stiffer penalties for unscrupulous or "ghost preparers" who fail to identify themselves on tax returns and defraud taxpayers.
Michael Jackson’s image and likeness, as well as his interests in two trusts—one trust (NHT II) that held his interest in the Sony/ATV Music Publishing, LLC, and one trust (NHT III) that held Mijac Music—were valued for estate tax purposes.
Michael Jackson’s image and likeness, as well as his interests in two trusts—one trust (NHT II) that held his interest in the Sony/ATV Music Publishing, LLC, and one trust (NHT III) that held Mijac Music—were valued for estate tax purposes.
Image and Likeness
The estate claimed that the decedent’s image and likeness was valued at about $2,000. However, at trial, the estate brought in additional experts and increased the value to about $3 million. This amount was based on a 10-year revenue projection, which examined pre-death revenue, post-death rights, and growth and decline rates using pre-death marketability and a potential post-death boom. An estimate of expenses incurred in administering the image and likeness and expenses related to rehabilitation of the decedent’s image reduced the revenue stream. As a result, the Tax Court determined that the date-of-death value of the decedent’s image was $4.1 million.
Interest in Sony/ATV
In the years prior to his death, the decedent had borrowed against his interest in the Sony/ATV company. The company was valued using the discounted cash flow method. After finding the value of the company as a whole, a discount for lack of control was applied to one-half of that amount to reflect the decedent’s 50-percent interest. Because of the debt secured by the interest, however, the Tax Court determined that the date-of-death value of NHT II was zero.
Interest in Mijac Music
The major asset of NHT III was Mijac Music, which owned compositions from many artists, including the decedent. The decedent also assigned the income he earned from his writer’s share of certain performance revenue to NHT III. The discounted cashflow analysis was used again and the court determined the revenue streams of Mijac Music and the writer’s share of revenue. After subtracting the trust’s liabilities from the revenue, the Tax Court determined the value of NHT III was $107 million.
No Penalties
Although the values differed widely, the estate was not liable for accuracy-related penalties. Its reliance on the appraisal values was reasonable.