American Rescue Plan Features Several Tax Benefits

American Rescue Plan Features Several Tax Benefits

Please note: The new American Rescue Plan Act signed by President Biden last week includes some items — including unemployment income and healthcare premium assistance — that affect 2020 tax returns.

We will hold all tax returns until more info is released. Depending on how quickly the IRS acts, we may have to file an extension. We will keep you updated!

T he American Rescue Plan Act signed by President Biden last week includes several financial changes and quite a few tax provisions. Here’s a brief look at some of the more important items. We’ll look at them more in-depth in the coming weeks.

Stimulus Checks

A 3rd round of Economic Impact Payments (EIP) worth up to $1,400 per individual and dependent have already started going out. The EIP will begin to phase out for single taxpayers with AGIs of $75,000 and joint filers with AGIs of $150,000.

Unemployment Benefits

A $300-per-week supplement to federal unemployment benefits has been extended through September 6, 2021. Also, the first $10,200 in unemployment benefits are tax-free in 2020 for taxpayers making less than $150,000 per year. (This provision affects your current 2020 tax return as noted above!)

Child Tax Credit

The Child Tax Credit is expanded to provide a credit in advance of filing a return — the IRS will estimate each taxpayer’s child tax credit amount and pay it out monthly in advance from July through December 2021. The credit is also increased to $3,000 per child ($3,600 for children under 6), though the increase phases out above certain incomes.

Earned Income Tax Credit

Special rules now apply for individuals with no children: For 2021, the applicable minimum age is decreased to 19, except for students (24) and qualified former foster youth or homeless youth (18), and the maximum age is eliminated. The credit’s phaseout percentage and amounts are also increased.

Child & Dependent Care Credit

For 2021 only, this credit will be refundable. The credit will be worth 50% of eligible expenses, up to a limit based on income. The exclusion for employer-provided dependent care assistance is increased to $10,500 for 2021.

Family & Sick Leave Credits

The credits for sick and family leave originally enacted by the Families First Coronavirus Response Act are extended to September 30, 2021. The limit on the credit for paid family leave is increased to $12,000.

Employee Retention Credit

Originally enacted in the CARES Act, this credit is extended through the end of 2021, and allows eligible employers to claim a credit for paying qualified wages to employees.

COBRA Continuation Coverage

Eligible individuals may receive premium assistance in the form of a refundable tax credit; this applies to premiums and wages paid after April 1, 2021, and through September 30, 2021.

Premium Tax Credit

This credit is expanded for 2021 and 2022 by changing the applicable percentage amounts.

PPP Loans

Eligible companies that receive a first- or second-draw Paycheck Protection Program (PPP) loan after December 27, 2020, can now also receive a Shuttered Venue Operators Grant (SVOG). The amount of the SVOG will be reduced by the amount of PPP funds approved.

EIDLs

Targeted Economic Injury Disaster Loan grants received from the SBA are not included in gross income, and this exclusion from gross income will not result in a denial of a deduction, reduction of tax attributes, or denial of basis increase. Similar treatment is afforded SBA restaurant revitalization grants.

More to Come

In addition to many tax benefits, the new law allocates $50 billion in funding to benefit small businesses through a variety of programs, including EIDL advance payments and additional PPP funds. There is also money for state and local governments, schools, healthcare entities, vaccine distribution and COVID-19 testing.

Obviously, there is much to digest in the new legislation. We’ll be following up in future newsletters with more details on how it may affect you. In the meantime, please contact us with any questions you may have.

March 26 Last Day to Drop Off Tax Returns!

We are working hard to get to everyone’s returns! With all the law changes for 2020 we want to make sure everyone gets their maximum benefit due.

The deadline for dropping off your tax info to us is March 26. If all your info is to us by that date, we will complete your return by April 15.

If we receive your paperwork AFTER March 26, we will file an extension for you.

Thanks everyone for your patience!

To help you prepare your files, please download a copy of our 2020 Personal Tax Preparation Checklist.

Retirement Planning: Are Your Social Security Benefits Taxable?

Retirement Planning: Are Your Social Security Benefits Taxable?

If you are retired now or planning on retiring soon, you’ll need to determine if any of your Social Security benefits will be taxed. It’s an important part of figuring your income and expenses during this time of your life.

Since 1984, Social Security beneficiaries with total incomes exceeding certain thresholds have been required to pay federal income tax on some of their benefit income. And because those income thresholds have remained unchanged while wages have increased, the proportion of beneficiaries who pay income tax has risen over time. On average, more than half of beneficiaries typically owe federal income tax on part of their Social Security benefits.

Will You Have to Pay?

Here’s how to determine if your Social Security benefits are taxable:

Add one-half of your (and your spouse’s, if married) Social Security income to all your other income, including pensions, wages, interest, dividends and capital gains.

  • If you’re single and your total added-up income equals more than $25,000, then part of your Social Security benefits may be taxable.
  • If you’re married filing jointly and your total income equals more than $32,000, then part of your Social Security benefits may be taxable.

Up to 50% of your benefits may be taxable if you are:

  • Filing single, head of household, or qualifying widow or widower with $25,000 to $34,000 income.
  • Married filing separately and lived apart from your spouse with $25,000 to $34,000 income.
  • Married filing jointly with $32,000 to $44,000 income.

Up to 85% of your benefits may be taxable if you are:

  • Filing single, head of household, or qualifying widow or widower with more than $34,000 income.
  • Married filing jointly with more than $44,000 income.
  • Married filing separately and lived apart from your spouse with more than $34,000 income.
  • Married filing separately and lived with your spouse at any time during the past year.

If you’re like most, a certain percentage of your monthly retirement, survivor and/or disability benefits is potentially taxable, depending on your income and filing status. Of course, there are a lot of other factors that go into figuring your income (and expenses) during retirement. And all of that information can help you figure out the best time for you to retire.

We’re here to help you make those important calculations — and ensure they’re correct — so you can enjoy your retirement without worrying about how to pay for it. Contact us when you’re ready.

Rollover Relief for RMDs

 

If you already took a Required Minimum Distribution (RMD) this year from certain types of retirement accounts, you can roll those funds back into your retirement account, thanks to the CARES Act. The 60-day RMD rollover period has been extended to August 31, 2020.

In addition to rollovers, this also applies if you are an IRA owner or beneficiary who has already received an RMD distribution this year. You can repay the distribution to the IRA by August 31, 2020. Further, this repayment is NOT subject to the one rollover per 12-month period limitation and the restriction on rollovers for inherited IRAs.

This relief applies if you had an RMD due in 2020 from a defined-contribution retirement plan, including a 401(k) or 403(b) plan, or an IRA. It also applies if you turned 70½ in 2019 and would have had to take your first RMD by April 1, 2020. Note that the waiver does NOT apply to defined-benefit plans.

If you have any questions about this RMD relief, please don’t hesitate to contact us.

 

MONEY BRIEF #1

The PPP loan deadline has been extended to August 8, 2020, after being signed by President Trump on Saturday. This 5-week extension re-opens the application window for the Paycheck Protection Program (PPP), keeping open a source of funding for struggling small businesses while Congress works on a second, more targeted funding program. The SBA had stopped accepting loan applications on June 30 before the extension was approved. As of June 30, the SBA had approved more than $520 billion in PPP funding, with approximately $129 billion in funds remaining available.

MONEY BRIEF #2

If you received an Economic Impact Payment, you should keep Notice 1444, Your Economic Impact Payment, with your tax records.

Notice 1444 provides details about the amount of your payment, how the payment was made and how to report any payment that wasn’t received. The IRS mailed this notice to your last known address within 15 days after sending the EIP. It’s especially important to keep this notice if you think your payment amount is wrong.

When you file your 2020 tax return, we’ll use your Notice 1444 to claim any additional credits, if you are eligible for them. Keep this notice on hand with your other important tax records, including W-2s, 1099s, and other income documents and records. Remember, you should be keeping copies of your past tax returns and supporting documents for at least three years.

Coming Due: PPP Loan Updates You Need to Know

Coming Due: PPP Loan Updates You Need to Know

On May 15, the SBA released its Payroll Protection Program Forgiveness Application. The Paycheck Protection Program is the forgivable loan program that allows small businesses to cover up to eight weeks of payroll costs, mortgage interest, rent and utilities. The loan amount is based on your average monthly payroll cost for 2019 multiplied by 2.5.

In order to be forgivable, at least 75% of your loan must be used for payroll costs (not including payments to independent contractors). Your forgivable amount will scale in proportion to the amount you spend on payroll, up to the total loan amount. And you must maintain the number of employees on your payroll (within certain guidelines).

Restaurant owners and other businesses have requested an extension on the eight-week forgiveness period due to extended closures. Current bi-partisan support in Congress is looking to make this change, though nothing is certain yet. If the timeline is not extended, then the portion of your loan that is not forgiven will be assessed at a 1% interest rate over 2 years, with no payments due for the first six months. There is no pre-payment penalty.

Safe Harbor Given

If you borrowed less than $2 million from the PPP, you will be given a “safe harbor.” That means that, should you be audited, you will not need to certify that your business needed the money due to economic uncertainty.

If your business borrowed more than $2 million, it may be subject to further review from the SBA. If the SBA deems that your firm lacks adequate basis for certifying that it needed the loan, the SBA will seek repayment of the loan balance and inform your lender that your loan is ineligible for forgiveness.

Tax Surprise Coming?

PPP loan recipients may be in for a tax surprise. As of now, you will NOT be able to write off expenses that would otherwise be deductible if the expenses are covered by the PPP proceeds and the loan is forgiven. That could result in a higher tax bill as you prepare to pay your first and second quarter estimated taxes, both due on July 15.

The IRS is currently blocking the deduction to prevent PPP borrowers from “double-dipping” — both exempting the PPP loan from taxes and permitting the write-off of salaries and other expenses. However, lawmakers in Congress have proposed a bill to fix the rule and allow the deductibility of expenses. The bill, the Small Business Expenses Protection Act of 2020, is currently under review in the Senate Finance Committee.

Contact Us for Help

Here at Premier CPA Services, we’re doing our best to stay on top of the constantly changing tax and financial rules — so you can make the most of these changes, keep your doors open and stay in business. If you have any questions or need guidance, please don’t hesitate to contact us. We’re here to help you, and we appreciate your business!

Are Your Important Papers Up-to-Date?

With so much going on right now, it brings to mind the need to make sure your essential documents are current and secure. Now is a good time to contact your attorney to establish or update your:

  • Will, which not only distributes your assets, but also names guardians for your children under 18.
  • Durable power of attorney for financial matters, which names someone to handle legal matters related to your finances.
  • Beneficiary designations for assets such as retirement accounts, which may be affected by the Setting Every Community Up for Retirement Enhancement (SECURE) Act.
  • Living will, which includes your healthcare wishes and considerations (i.e., medical directives and DNR orders).
  • Healthcare proxy, which authorizes another person to make medical decisions for you if you are unable to.
  • HIPAA release permitting another person to talk with medical providers about your medical history and treatment.

MONEY BRIEF #1

The IRS announced temporary changes to Section 125 Cafeteria Plans because of the Coronavirus. The IRS is offering extra flexibility to users by:

  • Extending the claims periods for you to apply unused amounts remaining in your health FSA or dependent care assistance program for expenses incurred through December 31, 2020.
  • Expanding your ability to make mid-year elections for health coverage, health FSAs and dependent care assistance programs in response to changes in needs as a result of the pandemic.
  • Applying earlier relief for high-deductible health plans to cover expenses related to COVID-19, and a temporary exemption for telehealth services retroactively to January 1, 2020.
  • Increasing (for inflation) the $500 permitted carryover amount for health FSAs to $550.

MONEY BRIEF #2

More taxpayers are using IRS.gov than ever before. As of May 8, the agency’s website had been visited a record 1 billion times — that’s up 141% compared to the same time last year.

MONEY BRIEF #3

Nearly 4 million people are receiving their Economic Impact Payment by prepaid debit card instead of a paper check or direct deposit. These EIP Visa cards are issued by MetaBank, and can be used to make purchases, get cash from ATMs or transfer funds to a personal bank account — all without fees. You can learn more at www.eipcard.com. Other EIP questions and answers can be found here: https://www.irs.gov/coronavirus/economic-impact-payment-information-center