A MESSAGE FROM HARPER & PEARSON COMPANY, P.C.
We are fully operational and committed to serving our clients. As the novel coronavirus (COVID-19) continues to spread in the U.S. and across the world, our priority at Harper Pearson is the safety and well-being of our people, clients, families, and community. We are monitoring daily updates and recommendations from the CDC. We have communicated workplace guidelines to our Harper Pearson team members and have implemented strategies in our workplace that align with the recommendations to do our part with the prevention while also minimizing the impact that COVID-19 could have on our services.
We understand that in this time of uncertainty you may have growing concerns for the financial health of yourselves and your businesses, employees, and families. We are closely monitoring federal and state updates that impact our clients and their businesses and will continue to update our COVID-19 Resources page with articles and information as these issues rapidly develop and change.
VICTIMS OF TEXAS WINTER STORMS GET DEADLINE EXTENSIONS AND OTHER TAX RELEIF - 2/22/21
WASHINGTON — Victims of this month's winter storms in Texas will have until June 15, 2021, to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today.
Following the recent disaster declaration issued by the Federal Emergency Management Agency (FEMA), the IRS is providing this relief to the entire state of Texas. But taxpayers in other states impacted by these winter storms that receive similar FEMA disaster declarations will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov.
The tax relief postpones various tax filing and payment deadlines that occurred starting on February 11. As a result, affected individuals and businesses will have until June 15, 2021, to file returns and pay any taxes that were originally due during this period. This includes 2020 individual and business returns normally due on April 15, as well as various 2020 business returns due on March 15. Among other things, this also means that affected taxpayers will have until June 15 to make 2020 IRA contributions.
The June 15 deadline also applies to quarterly estimated income tax payments due on April 15 and the quarterly payroll and excise tax returns normally due on April 30. It also applies to tax-exempt organizations, operating on a calendar-year basis, that have a 2020 return due on May 17.
In addition, penalties on payroll and excise tax deposits due on or after February 11 and before February 26 will be abated as long as the deposits are made by February 26.
The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time.
The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.
In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.
Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2021 return normally filed next year), or the return for the prior year. This means that taxpayers can, if they choose, claim these losses on the 2020 return they are filling out this tax season. Be sure to write the FEMA declaration number – 4586 − on any return claiming a loss. See Publication 547 for details.
The tax relief is part of a coordinated federal response to the damage caused by these storms and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.
SBA & TREASURY ANNOUNCE PPP RE-OPENING ISSUE NEW GUIDANCE
WASHINGTON – The U.S. Small Business Administration (SBA), in consultation with the Treasury Department, announced today that the Paycheck Protection Program (PPP) will re-open the week of January 11 for new borrowers and certain existing PPP borrowers. To promote access to capital, initially, only community financial institutions will be able to make First Draw PPP Loans on Monday, January 11, and Second Draw PPP Loans on Wednesday, January 13. The PPP will open to all participating lenders shortly thereafter. Updated PPP guidance outlining Program changes to enhance its effectiveness and accessibility was released on January 6 in accordance with the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act.
This round of the PPP continues to prioritize millions of Americans employed by small businesses by authorizing up to $284 billion toward job retention and certain other expenses through March 31, 2021, and by allowing certain existing PPP borrowers to apply for a Second Draw PPP Loan.
“The historically successful Paycheck Protection Program served as an economic lifeline to millions of small businesses and their employees when they needed it most,” said Administrator Jovita Carranza. “Today’s guidance builds on the success of the program and adapts to the changing needs of small business owners by providing targeted relief and a simpler forgiveness process to ensure their path to recovery.”
“The Paycheck Protection Program has successfully provided 5.2 million loans worth $525 billion to America’s small businesses, supporting more than 51 million jobs,” said Treasury Secretary Steven T. Mnuchin. “This updated guidance enhances the PPP’s targeted relief to small businesses most impacted by COVID-19. We are committed to implementing this round of PPP quickly to continue supporting American small businesses and their workers.”
KEY PPP Updates Include:
• PPP borrowers can set their PPP loan’s covered period to be any length between 8 and 24 weeks to best meet their business needs;
• PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures;
• The Program’s eligibility is expanded to include 501(c)(6)s, housing cooperatives, direct marketing organizations, among other types of organizations;
• The PPP provides greater flexibility for seasonal employees;
• Certain existing PPP borrowers can request to modify their First Draw PPP Loan amount; and
• Certain existing PPP borrowers are now eligible to apply for a Second Draw PPP Loan.
A borrower is generally eligible for a Second Draw PPP Loan if the borrower:
• Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses;
• Has no more than 300 employees; and
• Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
The new guidance released includes:
• PPP Guidance from SBA Administrator Carranza on Accessing Capital for Minority, Underserved, Veteran, and Women-owned Business Concerns;
•Interim Final Rule on Paycheck Protection Program as Amended by Economic Aid Act; and
•Interim Final Rule on Second Draw PPP Loans.
For more information on SBA’s assistance to small businesses, visit sba.gov/ppp
KEY TAX PROVISIONS IN NEW RELIEF LAW
Roundup of significant tax changes
The new economic relief law passed by Congress at the end of the year—which was signed on December 27—includes a second round of economic stimulus checks, extended unemployment benefits and eviction protections, and much more. Following is a brief summary of several key tax provisions in the new law.
Economic stimulus payments: Under the new law, qualified individuals are entitled to receive a maximum tax-free payment of $600 per individual, plus $600 for each qualified child under age 17, based on information provided on 2019 tax returns. Payments begin to phase out at an adjusted gross income (AGI) of $75,000 for single filers and $150,000 for joint filers.
Charitable donations: The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed earlier last year authorized an above-the-line deduction for monetary charitable donations made by non-itemizers in 2020. The new law extends this tax break to 2021 and doubles it to $600 for joint filers.
Paycheck Protection Program loans: The new law extends and modifies the Paycheck Protection Program (PPP). As before, loans may be forgiven without tax consequences if certain requirements are met. Furthermore, the new law clarifies that a business may deduct expenses paid with PPP loan proceeds, contrary to prior IRS guidance.
Medical deductions: The new law retains the lower medical deduction threshold based on 7.5% of AGI—permanently. The lower threshold, which was reduced by the Tax Cuts and Jobs Act (TCJA) and subsequently extended through 2020, was scheduled to revert to 10% of AGI in 2021.
Employee retention credit: Under the CARES Act, an employer could claim an employee retention credit (ERC), up to $5,000 per employee, for qualified wages paid in 2020. The new law increases the maximum ERC to $14,000 per employee, among other changes, for wages paid in the first two quarters of 2021.
Family and medical leave credit: Another new law enacted last year—the Families First Coronavirus Response Act (FFCRA)—provided employers with a tax credit for family and medical leaves paid in 2020 due to COVID-19. The credit has been modified and extended through March 31, 2021.
Flexible spending accounts: Under the new law, you may roll over unused funds in a flexible spending account (FSA) from 2020 to 2021 and from 2021 to 2022. This applies to FSAs used for either health care or dependent care expenses.
Payroll tax deferral: If an employer chose this option, the deadline for employee payments of the Social Security tax component of payroll tax for part of 2020 was postponed to April 30, 2021. The new law now permits payments to be made as late as December 31, 2021.
Business meals: Previously, deductions for business meals were limited to 50% of the cost. The new law increases the deduction to 100% of the cost for 2021 and 2022.
Higher education expenses: The deduction for tuition and fees, which was due to expire after 2020, has been repealed. In addition, the new law adjusts the phaseout ranges for the Lifetime Learning Credit (LLC) to match those for the American Opportunity Tax Credit (AOTC), beginning in 2021.
Tax extensions: Finally, the new law extends a number of provisions that were scheduled to expire after 2020, including the Work Opportunity Tax Credit (WOTC), the tax exclusion for mortgage forgiveness, and tax incentives for empowerment zones, among others. The extensions for the most common provisions generally last for five years.
This article only summarizes some of the most important tax changes in the new economic relief law. Please contact your professional tax advisor to determine the impact for your family and business.
CAN YOU CLAIM A RECOVERY REBATE CREDIT?
IRS issues guidance on EIP shortages
The massive law enacted by Congress last year in response to the COVID-19 outbreak—the Coronavirus Aid, Relief, and Economic Security (CARES) Act—authorized the distribution of Economic Impact Payments (EIPs) to qualified individuals. (Late in December, Congress authorized another round of payments.) But some eligible taxpayers were shorted or did not receive any payment at all.
Fortunately, you still have some recourse. If you qualify, you can claim a “recovery rebate credit” on your 2020 tax return. Generally, this credit will increase the amount of your tax refund or lower the amount of the tax you owe.
Background: Under the CARES Act, millions of Americans received EIPs in 2020. The maximum EIP was $1,200 for single filers and $2,400 for joint filers if both spouses were eligible. In addition, you were entitled to receive an extra $500 payment for each qualified child under the age of 17. Advance payments were made by direct deposit or check.
But not everyone received the full amount that they were supposed to collect. For example, the IRS may not have had all the information needed to provide the maximum economic stimulus payment or it may have failed to add $500 for a child born in 2020.
The IRS recently posted guidance reminding taxpayers that you may be able to claim the recovery rebate credit if—
• You are eligible but did not receive an EIP in 2020; or
• Your EIP was less than $1,200 ($2,400 for joint filers) plus $500 for each qualifying child you had in 2020.
To be eligible for the recovery rebate credit, you must have been a U.S. citizen or U.S. resident alien in 2020, you cannot have been a dependent of another taxpayer for the 2020 tax year and you must have a Social Security number (SSN) valid for employment issued before the due date of your 2020 tax return (including extensions).
You can take the recovery rebate credit for any recovery rebate amount that is more than the EIP you received by completing the required information on your 2020 tax return.
As was the case with the first round of EIPs handed out in 2020, the maximum recovery rebate credit is $2,400 if you file a joint return or $1,200 for all other eligible individuals. Those with qualified children will receive up to an additional $500 per child. The recovery rebate amount is phased out if your adjusted gross income (AGI) for 2020 exceeds $75,000 for single filers or $150,000 for joint filers.
Because the EIP received in 2020 was an advance payment, the IRS has included a worksheet in the tax return instructions to determine the amount of any recovery rebate amount. It can be tricky, so contact your professional tax advisor for assistance.
Reminder: Don’t procrastinate. This is especially true if you expect to receive a refund on your 2020 return.
SPEED UP CORPORATE TAX REFUND
If your C corporation overpaid its estimated tax in 2020 due to the pandemic or some other reason, you may be in line for some quick tax relief.
When you file Form 4466 with the IRS, you will receive a faster-than-usual refund. It may arrive within a matter of weeks. The fast corporate refund is available if—
• The overpayment is at least 10% of the estimated 2020 tax liability.
• The overpayment is at least $500.
The sooner you file for the refund, the better. Contact your professional tax advisor for more details.
FACTS & FIGURES
Timely points of particular interest
Standard Mileage Rates—The IRS has announced the standard mileage rates that taxpayers may choose to use to deduct expenses in 2021. If you use a vehicle for business driving, the flat rate is 56 cents per mile, down from 57.5 cents in 2020. For travel for medical reasons (or moving by military personnel), the rate for 2021 is 16 cents per mile, down from 17 cents. Note: The rate for charitable driving, which is set by Congress, remains at 14 cents per mile.
New Tax Form—Your business may be required to file a new tax information form this year. Beginning with payments for the 2020 tax year, you must report compensation of more than $600 paid to nonemployees like independent contractors on Form 1099-NEC. Previously, Form 1099-MISC was used for this purpose. The new Forms 1099-NEC must be sent to both the IRS and recipients by February 1, 2021.