The following blog post is based on a letter from CSI Accounting & Payroll's owner, Brian Paulson, to our clients.
As we all know, 2020 and 2021 have been very challenging years in many respects. Along with everything else, Congress has been doing more things than ever before that have implications on the taxation of both businesses and individuals. It has been very challenging to do so, but we pride ourselves on staying on top of what is coming out of Congress so we can quickly summarize it and convey it to our clients.
NOTE: This information was up-to-date at the time that this post was written, but COVID relief laws are constantly being updated and changed. Please contact us directly for updated information.
The most recent bill passed Congress last week. They are calling it the American Rescue Plan Act. It is a $1,900,000,000,000 ($1.9 trillion) spending bill, some of which is targeted to help businesses and individuals who have been affected by the government's reaction to COVID-19, and the subsequent economy-hurting shut-downs they have mandated as a result.
What is the immediate impact on last year's tax returns, which are being filed as we speak?
This bill includes many provisions that have tax implications on 2020 tax returns.
To make sure our clients get the maximum tax benefits you are entitled to, it might become necessary to delay completion of anyone’s tax returns that are impacted by retroactive changes. It also might be necessary to wait until IRS and Minnesota Revenue guidance becomes available. After all, these rules just changed last week. The best course of action for people is patience. Tax extensions are okay if government changes are to blame, and if by filing an extension, your tax payments can be reduced.
If our clients’ tax returns have already been filed, you can be assured that we are monitoring your situation and will be in touch with each client once the law is clarified and IRS guidance is released. For some, it will be necessary to amend your tax returns. We are here to support and help you and your businesses navigate these constantly changing times.
It appears that the tax deadline of April 15th will be extended again this year by the government. If a further extension is needed for certain clients, we will handle those on a case-by-case basis.
The Most Important Personal Tax & Business-Related Portions of the New Act
- Weekly unemployment benefits have been extended through September 6, 2021, with a weekly benefit amount of $300 added to the recipient’s normal amount.
- The first $10,200 (single) and $20,400 (married) of unemployment benefits received in 2020 will be nontaxable for people who earn less than $150,000 per year.
- COBRA is reducing health insurance premiums payable by providing premium assistance from April 1, 2021 to September 30, 2021.
- Ask your tax professional for more details on this.
- 2021 rebates for individuals
- A 2021 advance rebate (also referred to as a 3rd stimulus payment) of $1,400 (single) and $2,800 (married) will be issued to each qualified person, plus $1,400 for each dependent.
- People who earn more than $80,000 (single); $120,000 (single with children); $160,000 (married) will not receive this money.
- Anyone who is a dependent of someone else will not receive anything.
- This data is based on the 2019 or 2020 tax return already filed and will be reconciled on the 2021 tax return. For example, if the 2019 or 2020 tax return had income below the levels needed and the rebates were received, but then in 2021 the person had higher income than the levels indicated, the person will have to repay the rebates on the 2021 tax return. This is truly a 2021 rebate based on 2021 income.
- Child Tax Credit
- The child tax credit, for 2021 only, is being increased from $2,000 per eligible child to $3,000 or $3,600. The $3,000 is for children between the ages of 6-17. The $3,600 is for children under age 6.
- Half of the $3,000 or $3,600 per child will be sent to qualified families starting in July. The other half will be claimed on the 2021 tax return.
- Only people that earn less than $75,000 (single); $112,500 (single with children); and $150,000 (married) will be eligible for the increased amounts. At income levels above those, the extra credit begins to phase out, becoming fully phased out at $100,000 (single); $150,000 (single with children); and $200,000 (married). The $2,000 existing credit still applies to people who earn higher incomes.
- Earned Income Credit
- For 2021 only, the minimum age to claim this credit for people without children is being reduced from 25 to 19. This does not include full time students. The maximum age to claim this credit for people without children has been eliminated. It used to be 65.
- Dependent Care Assistance
- For 2021 only, this credit is fully refundable. The dollar limit for eligible expenses increased from $3,000 to $8,000 for one child and from $6,000 to $16,000 for two or more. The maximum credit rate is being increased from 35% to 50%, and the income limitation is being increased to $125,000. People who earn between $125,000 and $400,000 will receive a partial credit.
- The exclusion for employer provided dependent care assistance is being increased from $5,000 to $10,500 so watch box 10 on W-2 forms.
- Paid sick and family leave credits
- These are being extended from April 1, 2021 to September 30, 2021 for eligible employers providing sick or family leave.
- Employee Retention Credit
- This business credit is being extended through December 31, 2021 for wages paid between July 1, 2021 and December 31, 2021.
- Student Loan Forgiveness
- There is no part of this legislation that says that student loans will be forgiven. However, if a student loan is discharged for any reason, the debtor is no longer required to include the forgiven amount as income. This will apply from 2021 to 2025.
- For people who have defaulted on student loans in the past, wage garnishments have been suspended until after September 30, 2021.
- Tax treatment of EIDL advances
- Many businesses received an advance EIDL payment of $1,000 per employee up to a maximum of $10,000. These will be treated as tax exempt income. Expenses paid with this money will be deductible. This money does not reduce tax attributes, and it does allow basis increases.
- Tax treatment of restaurant revitalization grants
- This money will also be treated as tax exempt income. Expenses paid with this money will be deductible. This money does not reduce tax attributes, and it does allow basis increases.
- Premium Tax Credit
- Reduces health care premiums for low-income families for 2021 and 2022.
- For 2020, people who received excess PTC will not have to repay it.
- Paycheck Protection Program (PPP)
- The application deadline was March 31, 2021. As of 3/17/2021, the application deadline has been extended into June.
One important thing to remember is that these things are frequently changing. Our accounting, tax, and payroll experts here at CSI Accounting & Payroll will be as up-to-date as possible regarding these things.
Another important thing to remember is that a lot of the information contained in the bullet points above is brief and to-the-point, and in some cases, vague. The actual Congressional bill that is spending this money is over 2,000 pages long. We only pointed out the highlights. If you have any questions about these items and how you or your business are affected, always contact us.
What do you do now?
Don't trust just anyone with your business! CSI Accounting & Payroll can guide your finances on a monthly basis to help your business stay ready for relief fund application and forgiveness.
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