With so many changes in tax law, it is understandable that a great majority of American citizens are overwhelmed with uncertainty and confusion. Riddled with questions each time they hear news about a new stimulus payment or other opportunities to receive money from the government, individuals and businesses are in need of guidance from a knowledgeable Accountant.
We often receive inquiries from taxpayers seeking clarification on how new laws and issuances of funds will affect them in the short and long term.
The following are four areas of concern individuals, of all filing statuses, and businesses are faced with currently:
Delays in Tax Refunds – The Internal Revenue Service, or IRS, has delayed sending millions of much needed tax refunds. This delay is a result of the IRS holding approximately twenty-nine million tax returns which are being manually processed because of the complexities of the recent tax laws passed by Congress. If you are one of the over twenty-nine million taxpayers still waiting for your refund, be advised that one of the six COVID-19 related bills enacted by the US Congress is likely the culprit. Due to the IRS’s decision to manually process selected returns, an abundance of refunds will continue to be delayed until an IRS representative reaches the returns in their queue and processes them.
Quarterly Tax Payments Unprocessed – Due to the unprecedented nature of the 2020/2021 tax season, the IRS was unable to process many estimated tax payments made by individuals that were due April 15, 2021. Although there were pleas from nationally recognized accountant groups to delay the payments until May 17, 2021 to match the extended filing date, the IRS did not adhere to the request. On April 22, 2021 the IRS announced, “The issue has been resolved, and pending payments are being processed. The taxpayer’s account will be credited with the original requested payment date(s). Taxpayers should not resubmit these payments. If a taxpayer re-submitted any of these payment requests due to the delay in processing they may cancel them by calling 1-888-353-4537. Cancellation requests must be received no later than 11:59 p.m. Eastern time, at least two business days prior to the scheduled payment date. We apologize for any inconvenience this may have caused.”
Expanded Child Tax Credit Payments – The new and expanded child tax credit was included in the American Rescue Plan signed into law by Joe Biden in March of 2021. Under the law, families who file a 2020 tax return are scheduled to receive $300 per month for each child under the age of six, and $250 for each child ages 6 to 17 beginning in July and continuing through December 2021. Taxpayers will claim the remaining half of the credit when they file their 2021 income tax return in 2022. As long as they meet the eligibility requirements, there is no limit on the number of children in a family who can receive the credit. What are the eligibility requirements? Individuals who claim children on their 2020 income tax return with an adjusted gross income (AGI) less than $75,000 or married couples filing jointly who claim children on their 2020 tax return with an (AGI) less than $150,000. The credit will phase out for taxpayers with higher AGI’s and cease for individuals with AGI’S of $95,000 and married couples with AGI’s of $170,000. If you are an individual whose AGI exceeds $95,000 and is less than $200,000, or a married couple whose AGI exceeds $170,000 and is less than $400,000 you will still be eligible for the regular child tax credit, which is $2,000 per child under age 17.
Employee Retention Credit – Although the Paycheck Protection Program (PPP) is most popular, the Employee Retention Credit (ERC) also provides employers with a substantial tax credit for retaining workers. Previously, businesses could not qualify for the ERC if they had already received a PPP loan, but the Consolidated Appropriations Act (CAA) which was signed into law on December 27, 2020 has changed that. The American Rescue Plan Act (ARPA), signed into law on March 11, 2021, coupled with the CAA allows employers to receive up to $33,000 in refundable credits per employee. In an effort to give businesses impacted by Covid-19 more time to recover financially, the ERC has been extended until December 31, 2021. The Employee Retention Credit can be somewhat confusing. There are two main factors to consider when determining if your business qualifies :
1. Your business’s ability to prove a decrease in quarterly revenue exceeding fifty percent from one quarter in 2019 to the comparable quarter in 2020, and for 2021 your business’s ability to prove a decline in quarterly revenue exceeding twenty percent compared to the same quarter in 2019.
2. The ability to substantiate the fact your business has been directly or indirectly impacted by the government shutdown. The IRS has issued specific guidelines to make this determination.
Whether you are an individual taxpayer or a business owner, special attention should be given to your finances to ensure you are taking advantage of the programs that are assisting working people with maintaining jobs and helping families recover from the negative impact caused by the pandemic.