The federal tax deadline changed to May 17.
First, the IRS has postponed the filing deadline for individual taxpayers, who can postpone their federal income tax returns and income tax payment due on April 15 until May 17, 2021 without filing for an extension. For us, this is good news. This has been a very difficult year, and some additional time is welcome. However, this change also has some issues:
- At this point, it is uncertain how the states will respond to the change. As of today, the states that we deal with mostly have not announced if they will follow the IRS lead in extending the due date.
- The change does not apply to other tax return types—in other words, corporations, partnerships, and non-profit entities’ tax deadlines are not changed.
Our office will continue to push towards the April 15 deadline – please do not delay in providing your information to our office if you have not already done so.
PPP program update
The PPP forgivable loan program, originally started under the CARES act in the spring of 2020 has been modified in several different ways:
- The program allows those businesses who have not yet filed for their first PPP loan to request a PPP loan now.
- The program changes the loan amount formula for sole proprietorship (Schedule C businesses) to request a much larger forgivable loan than under the original CARES act provisions.
- The program has also been modified to allow larger forgivable loan amounts to businesses in the restaurant, bar, and entertainment industries.
- The PPP program also allows businesses who were severely impacted by COVID (defined as a revenue drop of more than 25% from 2019 to 2020) to obtain a second PPP forgivable loan.
- The SBA has modified the forms and procedures to allow for easier applications for loan forgiveness.
- We also now have certainty regarding the taxability of PPP loans. The income is not taxable on federal and most state returns (although it will be taxable in some states).
- One important caveat on the PPP—the program is currently slated to expire on March 31. So, if your business might be eligible for a first-round or second-round PPP loan, please consider getting your application in very soon. A bill has passed the US House of Representatives to extend the close of the program, but we don’t yet have certainty that the program will be extended.
New legislation and tax landscape changes
As you are aware, another economic stimulus bill aimed at assisting the United States in recovering from the COVID-19 pandemic, the American Rescue Plan Act, H.R. 1319, was signed into law on March 11, 2021. Contained in this legislation are several important provisions:
Recovery rebates/economic impact payments
The act provides individuals with a $1,400 recovery rebate credit ($2,800 for married taxpayers filing jointly) plus $1,400 for each dependent. This also includes college students and qualifying relatives who are claimed as dependents (those dependents were excluded from previous rounds of payments). The stimulus payments begin to phase out at an adjusted gross income (AGI) of $75,000 (single), $150,000 (married filing joint), and $112,500 (head of household). Many of these payments have already been delivered. Use the IRS’s Get My Payment tool to check the status of your payment.
Unemployment benefits
Under the act, the first $10,200 in unemployment benefits are tax-free in 2020 if the AGI of the taxpayer(s) is less than $150,000. Note that this is retroactive to 2020. At this point, we do not have direction on if states will follow this treatment. If we have already filed your return, do not worry. We will be running a report of all our clients who received unemployment whose returns were already filed and work with you on amendments to ensure you can recoup unnecessary tax paid.
Child tax credit
The amount of the credit is increased to $3,000 per child ($3,600 for children under age 6) and the IRS must estimate each taxpayers’ child tax credit amount and make payments in advance of 50% of the estimated amounts. Those payments will begin in July and run through December 2021. There are AGI phaseouts of this credit.
It is also now fully refundable (for 2021) and makes 17-year-olds eligible as qualifying children. When filing the 2021 tax return, the amount of the advanced credit received must be reconciled against the actual eligible amount. The balance will either be due to the IRS or paid to you.
The IRS is also tasked with developing an online portal for individuals to update their income, marital status, and the number of qualifying children to adjust the advance payments. People can also opt-out of the advance payments and receive the full amount of the child tax credit on their 2021 tax return.
If the advance payments on the child tax credit are overpaid to the taxpayer, families with AGI in 2021 below $40,000 for single, $50,000 for the head of household, or $60,000 for married filing jointly, will not be required to pay back any of the overpayment. For families with AGI’s above $80,000 for single, $100,000 for the head of household, or $120,000 for married filing jointly, they will be required to pay back the full overpayment.
Child and dependent care credit
For 2021, the child and dependent care credit will be refundable. The credit is worth 50% of eligible expenses, up to a limit based on income, making the credit worth up to $4,000 for one qualifying individual and up to $8,000 for two or more. The act also increases the exclusion for employer-provided dependent care assistance.
Premium tax credit
The premium tax credit is a refundable credit that helps eligible individuals and families cover the premiums for their health insurance purchased through the Health Insurance Marketplace. The act increased and expanded eligibility for the Affordable Care Act (ACA) premium subsidies for people enrolled in marketplace health plans. This will result in higher tax credits for many individuals. This law change was also retroactive to 2020. Similar to the change in the taxation of unemployment, we will search returns already filed and amend those who would benefit from this recent law change.
Earned income tax credit.
For 2021, the earned income tax credit will be available to those 19 and older (from 25), except for students (24). Qualified former foster youth or homeless youth will be eligible at 18. The maximum age is eliminated. The credit’s phaseout percentages and levels have also been adjusted. Temporarily, taxpayers can use their 2019 earned income instead of 2021 earned income in figuring the credit amount.
Employee retention credit, family & sick leave credits,
The employee retention credit was originally enacted in the Coronavirus Aid, Relief and Economic Security (CARES) Act, and it allows eligible employers to claim a credit for paying qualified wages to employees. It has been extended and slightly modified.
The credits for sick and family leave originally enacted by the Families First Coronavirus Response Act is extended to Sept. 30, 2021. These fully refundable credits against payroll taxes compensate employers and self-employed people for coronavirus-related paid sick leave and family and medical leave.
The act increases the limit on the number of wages qualifying and makes various other modifications that may result in increased credits, including expanding availability to certain governmental organizations. The paid leave credits were also expanded to allow for leave that is due to a COVID-19 vaccination or to recover from a vaccine-related illness to be eligible.
Please also note that a variation on these credits is also allowed for self-employed persons.
EIDL grants not taxable income
The act specified that targeted Economic Injury Disaster Loan (EIDL) grants received from the U.S. Small Business Administration (SBA) are not included in gross income and that 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. This is in keeping with the treatment of forgiven PPP loans.
COBRA continuation coverage
The act provides COBRA continuation coverage premium assistance for individuals who are eligible for COBRA continuation coverage between April 1, 2021, and Sept. 30, 2021, as well as a COBRA continuation coverage premium assistance credit to taxpayers.
OUR COMMITMENT: As the coronavirus continues to affect local communities and global economies, Williams & Schiller remains committed to serving your tax and financial planning needs. Whether you have tax or financial planning questions or need advice on ways to navigate the new tax laws, we’re here for you. If you have any questions or concerns, please don’t hesitate to contact us.
To view archived versions of our previous client updates, read more from our blog.