Delays in Filing and Paying
- Federal tax payments and returns were due 5/17/21 at this time
- For individuals, trusts, estates, associations, and C corporations
- Calendar year S corporations and partnerships were due 3/15/21
Direct Stimulus Payments to Individuals (sometimes called Recovery Rebates or Economic Impact Payments)
Round 1
- Individuals with adjusted gross income (AGI) ≤ $75,000 receive $1,200
- Married couples with AGI ≤ $150,000 receive $2,400
- Head of households with AGI ≤ $112,500 receive $1,200
- Parents with children under age 17 receive $500 / child
- Phase-outs occur for individuals from $75,001 – $99,000 (head of household from $112,501 – $136,500)
- Phase-outs occur for married couples from $150,001 – $198,000
- Rebate was reduced by $5 for each $100 that exceeds the above AGI
- Income was based on 2018 return unless 2019 return is filed
- Rebate is not subject to tax
- Receive even if you don’t file a return as long as you have a SSN and are not claimed by someone else
- Get My Payment – IRS website tool for payment status information and entering direct deposit information
- Reconciled on 2020 return (keep if you got too much and claim a credit if you got too little based on 2020 income)
- Rebate was not subject to offset or reduction by amounts owed
Round 2
- Same rules as Round 1
- Second set of payments $600 per taxpayer and $600 per qualifying child
Round 3
- $1,400 per eligible individual and dependent
- Quicker phase-outs: Individuals $75,001 – $80,000 (head of household from $112,501 – $120,000)
- Phase outs for married couples from $150,001 – $160,000
- Parents with children under age 17 receive $600 / child
- 2019 return will be used for eligibility unless the 2020 returns have been filed at time of payment
- Taxpayers deceased before 1/1/21 are not eligible
- Reconciled on the 2021 return (keep if you got too much and claim a credit if you got too little based on 2021 income)
Expanded Unemployment Benefits
- Extra $600 / week through 7/31/2020 (in addition to state benefit). A presidential executive order lowered and extended to $300 / week from 8/1/2020 – 12/27/20. It is now extended through 9/6/21.
- Maximum of 50 weeks for combined federal and state assistance
- Self-employed and independent contractors would be eligible
- Up to $10,200 of unemployment benefits (applies to both spouses) are considered tax free if AGI is < $150K (for all filing statuses)
- Tax free begins in 2020. It is retroactive. The IRS will send refunds.
Retirement Account Withdrawals
- Required minimum distributions (RMD) for 2020 can be waived (even inherited IRA’s)
- 10% penalty is waived on up to $100,000 distributions (must be used for Corona related purposes)
- Started 1/1/20
- It can be repaid within 3 years from the date received; or
- It is taxed over 3 years (2020 – 2022) or you can elect out and pay all the tax on the 2020 tax return
Student Loans Held by the Dept. of Education
- All payments can be suspended through 9/30/20. Extended to 12/31/20.
- Certain student loans forgiven are excluded from income from 1/1/21 to 12/31/25.
- 0% interest will accrue
Health Insurance Premium Assistance
- Premium assistance (subsidies) have been expanded
- Larger subsidies are available to all and some subsidy to some higher income levels now
- Employers who provide coverage and pay premiums may claim a credit for their share of medicare tax.
- Cobra qualified beneficiaries are eligible for a 100% subsidy from 4/1/21 to 9/30/21
Child Tax Credit (for 2021 only)
- 17 year-olds are able to receive credit
- Credit is increased from $2,000 to $3,000 ($3,600 if under age 6)
- Increased credit amounts are phased-out at $50 / $1,000 income
- Phase-out starts at $75,000 single, $112,500 head of household and $150,000 married filing joint
- IRS will develop a program to pay 50% in advance between 7/1/21 – 12/31/21 using 2020 returns if filed (otherwise 2019)
- You can opt out of advance payments
- Credit will be reconciled on the 2021 return
Earned Income Credit (starting in 2021)
- Qualifying minimum age for individuals with no qualifying children is reduced from 25 to 19 with some exceptions
- Being in school at least 5 months is the main exception
- Earned income used can be 2019 instead of 2021 if 2019 is greater than 2021
- Disqualifying investment income was raised to $10,000 starting in 2021
Child & Dependent Care Benefits (starting in 2021)
- Dependent care assistance is increased from $5,000 to $10,500 ($5,250 for married filing separate) starting in 2021.
- Dependent care dollar limit is increased from $3,000 to $8,000 for 1 child and from $6,000 to $16,000 for 2 or more children
- Credit % is increase to 50% reduced by 1% in excess of $125,000 AGI
- Maximum credits are $4,000 for 1 child and $8,000 for 2 or more children
- Old 20% is used once the higher percentage phases-out at $185,000 AGI
- Credit phases-out from $400,000 to $440,000 AGI and is completely gone when AGI exceeds $440,000
Federally Backed Mortgage Loans such as FNMA and FHLMC
- 180 day forbearance can be requested by the borrower. An additional 180 days was added.
- No fees, penalties or interest beyond contractual amounts will be added
Above-the-Line Charitable Deduction
- Maximum $300 ($600 Married Filing Joint Filers for 2021)
- Permitted if you don’t itemize
- Donations to a donor advised fund don’t count
Qualified Family Leave (Extended to 9/30/21)
- Employees unable to work or telework who leave for care of a child under age 18 (school or childcare is closed)
- Employed at least 30 days
- First 10 days may be unpaid but the employee can use vacation, personal, medical or sick leave benefits
- The 10 days can reset.between 4/1/21 to 9/30/21
- After 10 days, paid leave is required (2/3 of normal gross pay not to exceed $200 / day)
- The aggregate maximum is 10 weeks and $10,000
- Increased from $10,000 to $12,000 for 4/1/21 – 9/30/21
- Self-employed qualify up to 50 days at $200 / day ($10,000 maximum)
- Self-employed individuals qualify for up to 60 days for 4/1/21 to 9/30/21
Qualified Sick Leave (Extended to 9/30/21)
- Unable to work or telework for specific virus-related reasons
- Subject to quarantine, isolation order, advised by health provider to self-quarantine, and experiencing symptoms
- 80 hours of paid sick time to full-time employees
- Part-time employees based on average hours worked over a 2 week period
- No limit for length of service
- Regular rate up to a maximum of 10 days at $511 / day not to exceed $5,110 / employee to take care of self
- Regular rate up to a maximum of 10 days at $200 / day not to exceed $2,000 to take care of someone else
- Self-employed qualify up to 10 days at $200 / day ($2,000 maximum)
Qualified Family or Sick Leave General Rules
- Administered by the Department of Labor
- Increased by portion of qualified health plan expenses
- Increased by 6.2% Social Security and 1.45% Medicare tax
- Refundable tax credit if it exceeds the credit on employer’s payroll tax
- Comparable credits are offered to self-employed individuals (prior year net earnings divided by 260 days)
- This can be claimed even if you received a PPP loan
Small Business (generally < 500 employees) Loans (Paycheck Protection Program)
Round 1
- Covers employee and owner payroll costs
- Administered by banks who are certified SBA Lenders (guaranteed 100% by SBA)
- Eligible if in operation on 2/15/20
- Sole proprietors and independent contractors (self-employed) are eligible and use net Income from self-employment
- Qualified expenditures include payroll, group health care, mortgage interest, rent, utilities, interest on existing debt
- Payroll costs include salary, commission, tips, health care insurance, and state unemployment
- Employees have qualifying costs up to $100K with an 8 week max of $15,385 and a 24 week max of $46,154
- Owners have qualifying costs up to $100K with an 8 week of $15,385 and a 24 week max of $20,833
- Those having a principal residence outside the US do not qualify
- Utilities include electric, gas, water, transportation, phone, and internet
- 8/8/20 is last day to apply or receive a loan but it is first come first serve…move quick!!!
- Loan is 2.5 * monthly payroll costs (2019) (special seasonal and industry rules) up to $10 million
- Interest at 1% loan
- Loans issued before 6/5/20 have a 2 year maturity and loans issued starting 6/5/20 have a 5 year maturity
- Payments will be deferred for a minimum of 6 months from date of loan disbursement
- No collateral, personal guarantees or recourse to owners
- Funds should be used during the covered period in the 8 or 24 weeks after loan origination (loan can be forgiven in whole or part)
- Loan principal is forgiven for proceeds used over an 8 or 24 week period for qualified costs listed above
- The 8 or 24 week period begins on the date of the loan origination
- Expected forgiveness is the amount lender expects borrower to expend
- At least 60% of the loan must be used for payroll costs to have full forgiveness
- Amount forgiven is reduced if FTE headcount or salaries decrease (↓ >25% during covered period compared to 1/1/20 – 3/31/20)
- Start gathering monthly payroll (W-2’s and 941’s) and self-employed information (Sch. C and bank statements) for 2019
- Applicant must submit SBA Form 2483 to the bank and whatever forms the bank requires (varies by bank)
- Applicant may be able to use shortened SBA Form 3508 EZ (check this first!)
- Applicants with less than $150K of PPP loan proceeds can use SBA Form 3508S…easiest…changing the form again soon
- PPP proceeds are tax exempt and related expenses are deductible if the loan is forgiven
- There is a really good calculator at the website below
Round 2
- A second PPP loan program (PPP 2.0) has been approved
- PPP 2.0 will be based on a 25% decrease in quarterly gross receipts in 2020 as compared to 2019
- PPP 2.0 uses the same 2.5 times 2019 monthly payroll costs will be used except for restaurant industry that can use 3.5 times
- PPP 2.0 lowers qualifying employers to ≤ 300 employees
SBA Economic Injury Disaster Loans (EIDL) (< 500 employees)
- Emergency advance (grant) up to $10,000 within 3 days of applying (have not seen any of these after weeks)
- Up to $2M in loans (amounts over $10,000 are loans at 3.75% for up to 30 years) (Non-profits get 2.75%)
- Must have been in business as of 1/31/20
- Loans available from 1/31/20 – 12/31/20
- Includes sole proprietors with and without employees
- Can still do the paycheck protection program above but the $10,000 will be applied against the loan
- Targeted EIDL advances are considered tax free income
Employee Retention Credit (Extended to 12/31/21)
- For employers whose operations were fully or partially suspended as a result of a government order; or
- For employers who had a significant decline in gross receipts (declined by > 50% from same quarter in prior year)
- Employers with ≤ 100 employees, all wages are eligible (limits if >100)
- Refundable payroll tax credit of 50% of wages (new IRS Form 7200)
- Up to $10,000 / employee / quarter
- Cannot use this credit and the PPP loan above for the same expenses
- Relates to wages paid 3/13/20 – 12/31/21
- Extended to 6/30/21 with credit increased to 75% of qualified wages, ≤ 500 employees, and a > 20% gross receipts decline
- Extended to 12/31/21 with credit decreased to 70% of qualified wages, claimed against medicare tax only
- Severely financially distressed companies (90% decrease in a quarter between 2019 and 2020) treat all wages as qualified
Payroll Tax Payment Delay
- Employers and self-employed
- 6.2% employer’s matching money
- 3/27/20 – 6/31/21
- 50% of qualified wages through 12/31/20 up to $10,000 / year
- Increased to 75% from 1/1/21 – 6/30/21 up to $10,000 / quarter
- Pay ½ by 12/31/21 and ½ by 12/31/22
Employer Payments of Student Loans
- Tax free to the employee with a maximum of $5,250
- Paid by employer for employee (3/27/20 – 12/31/25)
Net Operating Loss Expansion
- NOL’s generated in 2018, 2019 or 2020 can be carried back 5 years
- The 80% limit on NOL’s is suspended to fully offset income
- Farmers can elect to retain the 2-year carryback, claim 5-year carry back, or waive the carryback
Business Interest Deduction
- Business interest deduction was increased from 30% of taxable income to 50% of taxable income
Qualified Improvement Property Technical Correction
- 100% bonus depreciation is permitted on interior improvements for non-residential property
- Retroactive for improvements after 9/27/17 filed on Form 3115 Change in Accounting
Loans to Certain Industries (the Big Winners)
- Air and cargo carriers
- Businesses critical to national security
- Hospitals & COVID care providers
- Many government branches
- Education
- Restaurants have a revitalization grant program based on decline of gross revenue
Disaster Relief
- Qualified disaster areas declared 1/1/20 – 2/25/21 with incidence period 12/27/19 – 12/27/20
- Waives 10% penalty on retirement withdrawals up to $100,000
- Borrow up to $100,000 from a retirement plan
Ohio Considerations
- Ohio and most Ohio cities have delayed filing and payment date to 7/15/20
- Ohio Dept. of Insurance – employees with reduced hours still can have group coverage, health insurance payments can be delayed for 60 days, COBRA and continuation rules are loosened for now
- Ohio unemployment pays 50% of average weekly wage with a $118 minimum / week and a $424 maximum / week for 26 weeks
Other Considerations
- Business meals can be 100% deducted for 2021 and 2022 when bought at a retail restaurant even if taken offsite
- Business interruption insurance – hard to prove claim
- Business liability insurance – are you exposing employees or clients to the virus
- Workers compensation – probably not but health care workers maybe
- Off premise insurance – have you thought about property being kept offsite now
- Employee rights must be posted by 4/1/20
- Proactively call lenders and work out payment arrangements
- Teachers can use their $250 educator deduction on PPE and other COVID related supplies
- 7.5% medical expense limit has been made permanent
- Can deduct cash charitable contributions up to 100% of income in 2020 and 2021 (does not apply to 20% / 30% property)
- Stay safe!!!
Some Helpful References
- Coronavirus Aid Relief and Economic Security Act (CARES Act) (3/27/20)
- Families First Coronavirus Response Act (3/18/20)
- IRS People First Initiative
- Loan Forgiveness Details
- SBA emergency $10K advance for EIDL
- IRS Interim Final Rule
- DOL Q&A
- SBA EIDL Loans
- SBA Paycheck Protection Program
- IRS information
- IRS Notice 2020-32 – Deductibility of PPP expenses
- SBA Interim Final Rules Filed 6/16/20
- Non-filers for stimulus payment registration
- PPP loan calculator
- Consolidated Appropriations Act, 2021 (12/27/20)
- American Rescue Plan Act of 2021 (3/11/21)
