Skip to main content Skip to search

Archives for Regulations

Balloon 2021

Coronavirus Response and Relief Supplemental Appropriations Act of 2021

The Coronavirus Response and Relief Supplemental Appropriations Act of 2021 is a $900B relief package to deliver a second round of economic stimulus for individuals, families, and businesses. The package provides relief through multiple measures and expands many of the provisions already put into place under the CARES Act.

We are still awaiting guidance from the SBA and tax authorities, but here are some of the tax provisions in the law that was signed on December 27, 2020 that are likely to impact our clients.

Additional Round of Economic Impact Payments (EIP)

  • Direct payments
    • $600 per eligible family member
    • $1,200 for married filing joint returns
    • $600 per dependent child under 17 years’ old
  • Credit phase-out starting at $75,000 of modified adjusted gross income ($112,500 for head of household and $150,000 for married filing joint).
  • Advance payments are based on information on 2019 tax returns.
  • Taxpayers without a social security number are not eligible.
  • If the credit determined on the taxpayer’s 2020 tax return exceeds the amount of the advance payment, the taxpayer will receive the difference as a refundable tax credit. Taxpayers who receive an advance payment that exceeds the credit do not need to repay the amount.

Unemployment Insurance

  • Additional $300 per week for all workers receiving unemployment benefits, from December 26, 2020 to March 14, 2021.
  • Extends and phases out PUA, a temporary federal program covering self-employed and gig workers, to March 14 (after which no new applicants) through April 5, 2021.
  • Provides additional weeks for those who would otherwise exhaust benefits by extending PUA from 39 to 50 weeks — with all benefits ending April 5, 2021.
  • The bill also provides an extra benefit of $100 per week for certain workers who have both wage and self-employment income but whose base UI benefit calculation doesn’t take their self-employment into account.

Paycheck Protection Program Loans

  • Businesses are now allowed to deduct expenses associated with their forgiven PPP loans.
  • The new law provides $284.45 billion to reopen and strengthen PPP for first- and second-time borrowers and reauthorizes the program through March 31, 2021.
  • Develops a process for a small business to receive a second PPP if the small business has less than 300 employees and can demonstrate a revenue reduction of 25 percent.
  • Creates a simplified PPP loan forgiveness application for loans under $150,000 whereby the borrower signs and submits a one-page certification that requires the borrower to list the loan amount, the number of employees retained, and the estimated total amount of the loan spent on payroll costs.
  • Expands the list of eligible expenses to include covered operations (software, cloud computing and other human resources and accounting needs), PPE, covered supplier costs and damage costs due to public disturbances.
  • Repeals the CARES Act provision that requires borrowers to deduct their EIDL Advance from their PPP loan forgiveness amount.

Economic Injury Disaster Loan (EIDL) Advance Program

  • The new law provides $25 billion to restart and extend the EIDL Advance Grant for small businesses in low-income communities.
  • Creates a process for existing EIDL Advance grantees that received less than $10,000 to reapply for the difference between what they received and the maximum EIDL Advance Grant of $10,000.

Extension of the Employee Retention Credit

  • Beginning on January 1, 2021 and through June 30, 2021, the provision:
    • Increases the payroll tax credit rate from 50 percent to 70 percent of qualified wages.
    • Expands eligibility for the credit by reducing the required year-over-year gross receipts decline from 50% to 20% and provides a safe harbor allowing employers to use prior quarter gross receipts to determine eligibility.
    • Increases the limit on per-employee creditable wages from $10,000 for the year to $10,000 for each quarter.
    • Increases the 100-employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees.
  • Employers who receive Paycheck Protection Program (PPP) loans may still qualify for the ERTC with respect to wages that are not paid for with forgiven PPP proceeds.

Conclusion

This $900B relief package delivers a second round of economic stimulus, expands on CARES Act provisions, and provides additional relief through multiple different measures. To are here to help our clients stay on top of these changes, and to take advantage of the right provisions offered, please call us if you need any clarifications.

Read more
Positive female babysitter in casual clothing helping with painting to small blond haired boy sitting on couch at living room at home

Tax Considerations When Hiring Household Help

If you employ someone to work for you around your house, it is important to consider the tax implications of this type of arrangement. While many people disregard the need to pay taxes on household employees, they may do so at the risk of paying stiff tax penalties down the road.

Household Employee Defined

Household employees include housekeepers, maids, babysitters, gardeners, and others who work in or around your private residence as your employee. Repairmen, plumbers, contractors, and other business people who provide their services as independent contractors, are not your employees. Household workers are your employees if you can control not only the work they do but also how they do it.

If a worker is your employee, it does not matter whether the work is full-time or part-time or that you hired the worker through an agency or from a list provided by an agency or association. It also does not matter whether you pay the worker on an hourly, daily or weekly basis or by the job.

If the worker controls how the work is done, the worker is not your employee but is self-employed. A self-employed worker usually provides his or her own tools and offers services to the general public in an independent business.

Also, if an agency provides the worker and controls what work is done and how it is done, the worker is not your employee.

  • You pay Kate an hourly wage to babysit your child and do light housework four days a week in your home. Kate follows your specific instructions about household and childcare duties. You provide the household equipment and supplies that she needs to do her work. Kate is your household employee.
  • You pay Nick to care for your lawn. Nick also offers lawn care services to other homeowners in your neighborhood and provides his own tools and supplies, He hires and pays any helpers he needs. Neither Nick nor his helpers are your household employees.

USCIS Form I-9: Employment Eligibility Verification

When you hire a household employee to work for you on a regular basis, they must complete USCIS Form I-9, Employment Eligibility Verification. It is your responsibility to verify that the employee is either a U.S. citizen or an alien who can legally work. Once this is determined, you then complete the employer part of the form.

It is unlawful for you to knowingly hire or continue to employ a person who cannot legally work in the United States. Keep the completed form for your records. Do not return the form to the U.S. Citizenship and Immigration Services (USCIS).

Employment Taxes

If you have a household employee, you may need to withhold and pay Social Security and Medicare taxes, or you may need to pay federal unemployment tax or both. If you pay cash wages of $2,200 or more in 2020 to any one household employee, then you will need to withhold and pay Social Security and Medicare taxes. Also, if you pay total cash wages of $1,000 or more in any calendar quarter of 2019 or 2020 to household employees, you are also required to pay federal unemployment tax.

If neither of these two contingencies applies, you do not need to pay any federal unemployment taxes; however, you may still need to pay state unemployment taxes. Please contact the office if you’re not sure whether you need to pay state unemployment tax for your household employee. A tax professional will help you figure out whether you need to pay or collect other state employment taxes or carry workers’ compensation insurance.

Social Security and Medicare Taxes

Social Security taxes pays for old-age, survivor, and disability benefits for workers and their families. The Medicare tax pays for hospital insurance. Both you and your household employee may owe Social Security and Medicare taxes. Your share is 7.65 percent (6.2 percent for Social Security tax and 1.45 percent for Medicare tax) of the employee’s Social Security and Medicare wages. Your employee’s share is 6.2 percent for Social Security tax and 1.45 percent for Medicare tax.

You are responsible for payment of your employee’s share of the taxes as well as your own. You can either withhold your employee’s share from the employee’s wages or pay it from your own funds.

Do not count wages you pay to any of the following individuals as Social Security and Medicare wages:

  1. Your spouse.
  2. Your child who is under age 21.
  3. Your parent. (Exception. You should count wages to your parent if they are caring for your child and your child lives with you and is either under age 18 or has a physical or mental condition that requires the personal care of an adult and you are divorced and have not remarried, or you are a widow or widower, or you are married to and living with a person whose physical or mental condition prevents him or her from caring for your child.)
  4. An employee who is under age 18 at any time during the year.

However, you should count these wages to an employee under 18 if providing household services is the employee’s principal occupation. If the employee is a student, providing household services is not considered to be his or her principal occupation.

Maximum Taxable Earnings

If your employee’s Social Security and Medicare wages reach $137,700 in 2020, then do not count any wages you pay that employee during the rest of the year as Social Security wages to figure Social Security tax. You should, however, continue to count the employee’s cash wages as Medicare wages to figure Medicare tax. Meals provided at your home for your convenience and lodging provided at your home for your convenience and as a condition of employment are not counted as wages.

Help is Just a Phone Call Away

As you can see, tax rules for hiring household employees are complex; therefore, professional tax guidance is highly recommended. This is an area where it’s better to be safe than sorry so if you have any questions at all, please contact the office to set up a consultation

Read more
Counting on calculator

What Is Form 1099-NEC?

Starting in tax year 2020, payers must complete Form 1099-NEC, Nonemployee Compensation to report any payment of $600 or more to a payee. There is a new form that only applies to business taxpayers who pay or receive nonemployee compensation.

Generally, payers must file Form 1099-NEC by January 31. For 2020 tax returns, however, the due date is February 1, 2021. Be advised that there is no automatic 30-day extension to file Form 1099-NEC although an extension to file may be available under certain hardship conditions.

Nonemployee compensation may be subject to backup withholding if a payee has not provided a taxpayer identification number to the payer or the IRS notifies the payer that the taxpayer identification number provided was incorrect.

Backup withholding refers to situations when the person or business paying the taxpayer doesn’t generally withhold taxes from certain payments. It applies to most kinds of payments reported on Forms 1099 and W-2G. There are, however, situations when the payer is required to withhold a certain percentage of tax to make sure the IRS receives the tax due on this income. This is known as backup withholding.

A taxpayer identification number (TIN) can be one of the following numbers:

  • Social Security
  • Employer identification
  • Individual taxpayer identification
  • Adoption taxpayer identification

If you have questions on nonemployee compensation, contact our office for more information.

Read more
lady with bills noting her purchases at home

Taking Early Withdrawals From Retirement Accounts

While taking money out of a retirement fund before age 59 1/2 is usually not recommended, in certain cases, it may be unavoidable, especially during times of economic crisis. If you need cash and have a retirement fund you can tap, here’s what you need to know.

Background

When retirement plans such as the 401(k) were introduced, company pensions were still the norm. Today, however, very few companies offer pensions anymore and most people rely entirely on social security and whatever savings they’ve accumulated in their retirement account to get them through their golden years.

For many people, retirement accounts are their most significant source of cash, but because they were created to help you save money for your retirement years, withdrawals before retirement age (59 1/2) are discouraged. In fact, early withdrawals from traditional and Roth IRAs are subject to an additional 10 percent tax, unless an exception applies. Exceptions to the additional 10 percent tax apply for early distributions include the following:

  • Beneficiary or estate on account of the IRA owner’s death
  • Totally and permanently disabled
  • Distributions made as part of a series of substantially equal periodic payments for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary
  • Qualified first-time homebuyer
  • Qualified expenses for higher education
  • Medical insurance premiums paid while unemployed
  • Unreimbursed medical expenses that are not more than a certain percentage of your adjusted gross income
  • Distributions due to an IRS levy of the IRA under section 6331 of the Code
  • A qualified reservist distribution, or
  • A qualified disaster distribution (certain rules apply)

Relief Under the CARES Act of 2020

Due to the coronavirus pandemic, there is additional relief for taxpayers experiencing economic hardships. The Coronavirus Aid, Relief, and Economic Security (CARES) Act helps eligible taxpayers in need by providing favorable tax treatment for withdrawals from retirement plans and IRAs and allowing certain retirement plans to offer expanded loan options.

Coronavirus-related withdrawals or loans can only be made to an individual (or the individual’s spouse) if they are diagnosed with the virus SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention or a test authorized under the Federal Food, Drug, and Cosmetics Act.

The individual must also experience adverse financial consequences as a result of the following conditions:

  • Quarantine. The individual, individual’s spouse or a member of the individual’s household (someone who shares the principal residence) is quarantined, furloughed, laid off, has work hours reduced, is unable to work due to lack of childcare, has a reduction in pay (or self-employment income), or has a job offer rescinded or start date for a job delayed, due to COVID-19.
  • Business closures or reduced hours. Closing or reducing hours of a business owned or operated by the individual, the individual’s spouse, or a member of the individual’s household, due to COVID-19.

Coronavirus-related Withdrawals from Retirement Accounts

Under the CARES Act, individuals eligible for coronavirus-related relief may be able to withdraw up to $100,000 from IRAs or workplace retirement plans before Dec. 31, 2020, if their plans allow. In addition to IRAs, this relief applies to 401(k) plans, 403(b) plans, profit-sharing plans, and others.

Coronavirus-related Loans from Retirement Accounts

Loans are not available from an IRA. Individuals who were eligible to take coronavirus-related withdrawals until September 22, 2020, were able to borrow as much as $100,000 (up from $50,000) from a workplace retirement plan if their plan allows.

For eligible individuals, plan administrators can suspend, for up to one year, plan loan repayments due on or after March 27, 2020, and before January 1, 2021. A suspended loan is subject to interest during the suspension period, and the term of the loan may be extended to account for the suspension period. Taxpayers should check with their plan administrator to see if their plan offers these expanded loan options and for more details about these options.

Tax Treatment of Coronavirus-related Withdrawals

The distributions generally are included in income ratably over a three-year period, starting with the year in which you receive your distribution. For example, if you receive a $12,000 coronavirus-related distribution in 2020, you would report $4,000 in income on your federal income tax return for each of 2020, 2021, and 2022. However, you have the option of including the entire distribution in your income for the year of the distribution.

In summary, coronavirus-related distributions:

  • May be included in taxable income either over a three-year period (one-third each year) or in the year taken, at the individual’s option.
  • Are not subject to the 10 percent additional tax on early distributions that would otherwise apply to most withdrawals before age 59 1/2,
  • Are not subject to mandatory tax withholding, and
  • May be repaid to an IRA or workplace retirement plan within three years.

Questions?

Before withdrawing funds from a retirement account please call the office and speak to a tax professional. While you may be able to minimize or avoid the 10 percent penalty tax using one of the exceptions listed above including those under the Cares Act, remember that you are still liable for any regular income tax that’s owed on the funds that you’ve withdrawn and you may be liable for more tax than you anticipated when filing future tax returns.

Read more
Handsome businessman working with documents on his desk.

How does this new employee withholding W-4 form work?

Five Step Process in place of Exemptions:

Form W-4, Employee’s Withholding Certificate, has been redesigned for 2020. Previously, income tax withholding was based on an employee’s marital status and withholding allowances or tied to the value of the personal exemption. With the revised Form W-4, however, income tax withholding is generally based on the worker’s expected filing status and standard deduction for the year. Furthermore, workers can also choose to have itemized deductions, the Child Tax Credit, and other tax benefits reflected in their withholding for the year.

The redesigned Form W-4 makes it easier for withholding to match tax liability. While it uses the same underlying information as the old design, it replaces complicated worksheets with more straightforward questions that make accurate withholding easier for employees.

Here’s what taxpayers should know about the new Form W-4 for 2020:

Five Steps

The form is divided into 5 steps. The only two steps required for all employees are Step 1, where you enter personal information such as your name and filing status, and Step 5, where you sign the form. The form is not valid unless it is signed and dated by the employee. Taxpayers should only complete Steps 2 – 4 only if they apply to your tax situation because doing so will make your withholding more accurately match your liability.

New Employees

All new employees starting employment in 2020 are required to fill out the new Form W-4; however, employees who have furnished Form W-4 in any year before 2020 are not required to furnish a new form merely because of the redesign. Employers will simply continue to compute withholding based on the information from the employee’s most recently furnished Form W-4.

*Employees with a change in life events such as marriage, buying a house, or the birth of a child, however, may want to fill out the form, however.

More than One Job

It is important for people with more than one job at a time (including families in which both spouses work) to adjust their withholding to avoid having too little withheld. For most taxpayers, using the Tax Withholding Estimator located on the IRS website is the most accurate way to do this, although they may fill out the Multiple Jobs Worksheet found in the instructions instead.

If a spouse works both should check the box on their respective Forms W-4; however, only one spouse should fill out the rest of the form (i.e., Steps 3 and 4). If not, and both spouses claim the child tax credit, for example, it is possible that not enough will be withheld and they will owe money at tax time.

*Withholding will be most accurate if the highest paid spouse completes Steps 3 – 4(b) on the Form W-4.

Additional Withholding

As in the past, employees can also choose to have an employer withhold an additional flat-dollar amount each pay period to cover, for example, income they receive from the gig economy, self-employment, or other sources that are not subject to withholding.

If you have any questions about tax withholding, need assistance filling out the redesigned 2020 Form W-4, or would like more information about this topic, please call.

Read more