American Rescue Plan Act of 2021 – Business Provisions

The American Rescue Plan Act of 2021 was passed by congress and signed into law by the president on March 11, 2020. The law has provisions effecting individuals, businesses, pension plans and payroll in addition to funding many other unrelated items. In this post we concentrate on the provisions of the Act affecting Businesses in other posts we have dealt with the provisions that affect individuals and we will be adding posts that address the other portions of the ACT as well as information that clarifies and defines how the law will be applied as released by the IRS, Treasury, SAB and other government agencies.

COBRA Premium Subsidy

Assistance-eligible individuals (AEIs) may receive a 100% subsidy for COBRA premiums for any period of COBRA coverage beginning on April 1, 2021 (the first day of the first month beginning after enactment) and ending on September 30, 2021. Employers are required to administer and will be allowed a quarterly tax credit against the Medicare payroll tax equal to the premium amounts not paid by AEIs. If the credit amount exceeds the quarterly Medicare payroll tax, the excess will be treated as an overpayment refundable. Assistance-eligible individuals will not be eligible for the Health Care Tax Credit for any period of coverage in which they receive a COBRA subsidy.  The requirements are complex and require a business to provide notice to employees and employers to claim the refundable credit on their quarterly federal payroll tax returns.

Employer-Provided Dependent Care Assistance Exclusion Increased

The exclusion for employer provided dependent care expense, directly or through a 125-cafeteria plan, is increased for the year 2021 only, from $5,000 to $10,500, and from $2,500 to $5,250 in the case of a separate return filed by a married individual.

Targeted Economic Injury Disaster Loan Advances

Eligible small businesses may receive targeted Economic Injury Disaster Loan (EIDL) advances from the Small Business Administration. Amounts received as targeted EIDL advances are not included in the gross income of the person or entity that receives the amounts. Expenses paid using these funds are fully deductible

Since the targeted EIDL advances are treated as tax-exempt income, they will be allocated to the partners or shareholders and increase their bases in their partnership interests.

Restaurant Revitalization Grants

Eligible restaurants, food trucks, and similar businesses may receive Restaurant Revitalization Grants from the Small Business Administration.  Amounts received as Restaurant Revitalization Grant are not included in the gross income of the person or entity who receives the amounts. (How to apply has not yet been announced.)

Expansion of Rule on Deduction of Compensation of Publicly Held Corporation Employees

The compensation limit for deduction of publicly held corporations of $1 million per year for compensation paid to any “covered employee” has been expanded to cover more employees and now includes the eight highest-paid employees, rather than the three other highest-paid employees.

It’s important to understand that new laws means that regulations and instructions are not yet in place to provide guidance. The information provided here is meant to assist in awareness of changes, not to be a definitive guide as to how these changes must be implemented or just how they will affect any specific person or business. If you have questions consult a qualified tax advisor.

 

The American Rescue Plan Act of 2021 – Individual Provisions

Today the the President signed the American Rescue Plan Act of 2021 and it is now the law of the land.

The House passed the American Rescue Plan Act of 2021 yesterday, March 10, 2021, and it is became law when signed by the the President today March 11th, 2021.  What does this all mean? It means changes that will affect many 2020 tax returns; including lots that have already been filed. While many people will benefit from additional stimulus payments and the elimination of income tax on unemployment payments received in 2020, this will not be the same for all taxpayers.

Taxpayers and tax professionals alike will have many things to consider for 2020 that were not part of the equation until now. These things include when to file if your 2020 income exceeds the Phaseout thresholds to receive the 2021 Individual Recovery Rebate/credit of $1,400 each for tax filers and dependent, particularly when the taxpayer would have qualified in 2019 based on having less income. Phaseout thresholds begin at $150,000 for a joint return, $112,500 for a head of household and $75,000 for all other taxpayers. In this instance you would want to wait to file until you’ve received your credit.

The 2021 Recovery Rebate/credit of $1,400 for a married couple with 2 qualifying children could be as much as $5,600.00.  Making a child that qualified in 2019 but will not qualify in 2020 another reason to delay filing.

The child tax credit is also expanded for 2021 from $2,000 per qualifying child to $3,000 per qualifying child which now includes children under 18 years of age rather than under 17 years of age. The credit was also expanded to $3,600 for children under age 6 as of the close of the year. This credit is also subject to phaseouts so nothing is ever as straight forward as it seems.

For 2021 The EITC (Earned Income Tax Credit) has also been expanded for both those with and without qualifying dependents. Additionally, the law expands the credit so that qualifying married people filing may not automatically be excluded from claiming the credit. It also expands the amount of investment income allowed before being excluded from the credit. In many cases eligibility and requirements have more changes to come as the rules get written.

Obama Care (Affordable Care Act) premium tax credit also increases for 2021 and 2022. New percentage tables will allow taxpayers with household income over 400% of federal poverty level to be eligible for credit. ARPA (American Rescue Plan Act) provides special rules for taxpayers who have received, or been approved to receive, unemployment compensation for any week beginning during 2021.

Student loan debt discharge is now excluded from income for qualifying student loans discharged on and between January 1, 2021 and December 31, 2025.

Be sure to consult a tax professional who is staying up to date with all the changes as they happen before you file your return. Need help? At RMS Accounting we are here year-round to provide tax planning and filing assistance when you need it.

𝗘𝗺𝗽𝗹𝗼𝘆𝗲𝗲 𝗥𝗲𝘁𝗲𝗻𝘁𝗶𝗼𝗻 𝗖𝗿𝗲𝗱𝗶𝘁

𝗜𝗥𝗦 𝗣𝗿𝗼𝘃𝗶𝗱𝗲𝘀 𝗚𝘂𝗶𝗱𝗮𝗻𝗰𝗲 𝗳𝗼𝗿 𝗘𝗺𝗽𝗹𝗼𝘆𝗲𝗿𝘀 𝗖𝗹𝗮𝗶𝗺𝗶𝗻𝗴 𝘁𝗵𝗲 𝗘𝗺𝗽𝗹𝗼𝘆𝗲𝗲 𝗥𝗲𝘁𝗲𝗻𝘁𝗶𝗼𝗻 𝗖𝗿𝗲𝗱𝗶𝘁 𝗳𝗼𝗿 𝟮𝟬𝟮𝟬: The IRS has issued a Notice on claiming the employee retention credit for calendar quarters in 2020. The guidance, which is similar to FAQs published on www.irs.gov , clarifies the credit and describes retroactive changes under the Taxpayer Certainty and Disaster Tax Relief Act of 2020. For example, the Notice explains how employers that received a PPP loan can claim the employee retention credit for 2020. The Notice also provides answers to the following questions: (1) who are eligible employers; (2) what constitutes full or partial suspension of trade or business operations; (3) what is a significant decline in gross receipts; (4) how much is the maximum amount of an eligible employer’s employee retention credit; (5) what are qualified wages; (6) how does an eligible employer claim the employee retention credit; and (7) how does an eligible employer substantiate the claim for the credit. Notice 2021-20.

For additional information see the IRS website at https://www.irs.gov/newsroom/irs-provides-guidance-for-employers-claiming-the-employee-retention-credit-for-2020-including-eligibility-rules-for-ppp-borrowers

 

PPP Update For Schedule C Filers

PPP Update for the Self-Employed SBA Revises Loan Calculation and Eligibility

A new SBA, Interim Final Rule revises loan amount calculations and eligibility to permit self-employed individuals who file Form 1040, Schedule C to calculate their maximum loan amount using gross income. It also removes the eligibility restriction that prevents businesses with owners who have non-financial fraud felony convictions in the last year from obtaining PPP loans and removes the eligibility restriction that prevents businesses with owners who are delinquent or in default on their Federal student loans from obtaining PPP loans.

The changes apply to both First Draw and Second Draw PPP loans. SBA forms have also been updated to reflect this new guidance. The new forms are SBA Form 2483-C (Borrower Application Form for Schedule C Filers Using Gross Income) and SBA Form 2483-SD-C (Second Draw Borrower Application Form for Schedule C Filers Using Gross Income).

 

PPP Changes Announced 2/22/2021

PPP Changes Announced by New Administration Intended to Create Greater Access for Small Business

Biden

In a Fact Sheet released by the White House 2/22/2021 the administration discloses that funding to small business has increased and that the administration will institute a 14-day period, starting Wednesday, during which only businesses with fewer than 20 employees can apply for relief through the program. In addition, they intend to help sole proprietors, independent contractors, and self-employed individuals receive more financial support.

The Fact Sheet includes the above along with a number other actions, some of which require congressional approval.

The administration plans to take to make PPP loans available to borrowers that were previously excluded due to things like, delinquent federal student, prior non-fraud felony convictions, and non-citizen small business owners who are lawfully in the U.S.

For additional information see the Fact Sheet on the White House’s web site or talk to one of the Accounting, Tax and Business Advisory professionals at RMS Accounting.

Important Crypto & Virtual Currency Update

BitCoin

𝐓𝐡𝐞 𝐈𝐑𝐒 𝐡𝐚𝐬 𝐦𝐨𝐯𝐞𝐝 𝐭𝐡𝐞 𝐯𝐢𝐫𝐭𝐮𝐚𝐥 𝐜𝐮𝐫𝐫𝐞𝐧𝐜𝐲 𝐪𝐮𝐞𝐬𝐭𝐢𝐨𝐧 from Schedule 1 of the 2019 Form 1040 to the first page of the 2020 Form 1040 and Form 1040-SR. The question asks, “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”  Reportable items include but are not limited to (1) the receipt or transfer of virtual currency for free; (2) an exchange of virtual currency for goods or services; (3) a sale of virtual currency; (4) an exchange of virtual currency for other property; and (5) a disposition of a financial interest in virtual currency. For more information, go to www.IRS.gov/virtualcurrencyfaqs.

Economic Recovery Rebate Credit

The Economic Recovery Rebate Credit has caused many people to question their filing status. The amount of the credit as well as qualifying for the credit (payment) depends a lot on filing status and income. Dependents attending college have heard that they can get the credit only if their parents don’t claim them and that what they receive will be greater than the amount their parents would receive if they were claimed as a dependent.

The truth is that filing status and dependency are not based on how you get the most money. Filing status is based on circumstances. Married people must file either, Married Filing Jointly or Married Filing Separately unless they have not lived with their spouse at all during the last half of the year and provided more than half the expense of a household for a qualifying child or qualifying relative. Then they may qualify as a Head of Household.

If a taxpayer provides more than half the support of a Qualifying Child or Qualifying Relative, that person is a dependent of the taxpayer and should be included on the taxpayer’s return.

Thus, while it may seem prudent for a child that you support not to be shown on your return so that they can get an Economic Recovery Rebate Credit (payment), that is just not how the systems works. The question that must be answered is not, does someone else claim you as a dependent on their return, but could you be claimed by someone else as a dependent?

Chart of requirements for dependency

PPP and PPP2 Updates & Highlights

Payroll Protection Loan Update Banner

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.

PPP2 takin a second bite:

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.

For more information on SBA’s assistance to small businesses, visit sba.gov/ppp or treasury.gov/cares.

2020 Tax Organizer Avaliable

Did we complete your 2019 tax return?

If we completed your prior-year return we can provide you with a custom tax organizer that includes last year’s information so that you can compare it to this year’s information just send an email to info@RMSAccounting.com. Be sure to include your first and last name along with your address and phone number.

Your first tax year with RMS Accounting or just need help collecting your tax information?

Download our 2020 Tax Organizer right here.

2020 Tax Organizer

PPP Update – NEWS RELEASE – 01/08/2020

SBA and 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.