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April 2021

Federal Tax Return Extension Issues for Texas Practitioners

If you did not file extensions at March 15 or April 15, you may be required to file them by paper. Extensions can still be e-filed for individual returns up through May 17, but as it stands right now, these will not be available for e-file after May 17. This is because the IRS has not programmed the disaster area ZIP codes into its system with a June 15 due date.

We have reached out to our IRS stakeholder liaison and asked that the IRS remedy this. The issue is being elevated, so hopefully it will be resolved. Our IRS contact has indicated that any incorrect penalties will be reversed if you are in the disaster area or have self-certified for the disaster. Whether the reversal is automatic has yet to be determined.

For now, if you need to get an extension filed for some reason, you should send a paper extension. Consider a notation at the top “Federally declared disaster area – filed under Section 7508A.”

We will keep you updated on any changes to this issue.

 


Employee Retention Credit Update

In accordance with the American Rescue Plan Act (ARPA) passed in March of 2021, Notice 2021-23 expands the benefits of the “employee retention credit” (ERC) for 2021.

The ERC available to an employer is claimed as a credit against the employer’s share of Social Security tax. There is also a refundable portion of this credit that can help offset other portions of the employer’s payroll tax liability.

Generally, the ERC is available to employers whose business gross receipts in 2020 and 2021 were at least 50% or 20%, respectively, less per qualified quarter for the same period in 2019 or that fully or partially suspended its operations due to government-imposed restrictions related to COVID-19. For 2021, eligibility can also be made for a quarter based on the gross receipts’ comparison for the previous quarter. As an example, a business may choose to qualify for the first quarter of 2021 based on a comparison of the fourth quarter 2020 gross receipts with the fourth quarter 2019 gross receipts.

Under prior law and IRS guidance, the employer (or any member of its controlled group) was not eligible for the ERC if it received a Paycheck Protection Program (PPP) loan. The new guidance, in accordance with the ARPA, retroactively revokes this limitation. However, limitations on the credit are imposed to the extent wages were used to qualify for forgiveness of a PPP loan.

The maximum credit amounts are:

  • For 2020, the lesser of $5,000 or 50% of the first $10,000 of “qualified” wages per employee.
  • For 2021, the ARPA increased the credit to the lesser of $7,000 or 70% of the first $10,000 per employee in each quarter of the year not to exceed $28,000 per employee per year.

The definition of “qualified” wages:

  • For small employers, wages and expenses paid to qualified health plan expenses for all employees:
    • For qualification in 2020, a small employer is defined as having had 100 or fewer full-time employees in 2019 and 500 or fewer in 2021 to qualify in that year. Full-time employees are defined as those averaging 30 hours of service per week or 130 hours of service per month.
  • For large employers, only the wages paid to a qualified health plan on behalf of an employee for periods the employee was not actively employed.

Additionally, the ARPA extended the qualification for credit to colleges, universities, hospitals and entities that provide medical care.

How to claim the employee retention credit for the first half of 2021 (journalofaccountancy.com)

N-2021-23 (irs.gov)

FAQs: Employee Retention Credit under the CARES Act | Internal Revenue Service (irs.gov)


Several IRS Payment P.O. Boxes Closing in 2022

The IRS is closing several individual payment post office boxes (or lockbox addresses) in San Francisco, CA, and Hartford, CT, areas beginning Jan. 1, 2022. Payments are currently being forwarded to Louisville, KY, and Cincinnati, OH, through Dec. 31, 2021. However, payments mailed to these closed payment locations after Jan. 1, 2022, will be returned to sender.

To help ensure timely receipt, the IRS encourages practitioners and taxpayers to avoid mailing to these closing addresses as there could be mail delays. Please check Where to File for active addresses before mailing your payments. If you receive an IRS payment letter, send your payment to the address located in the letter.

IRS Lockbox Addresses for 2021


Administration Considering Tax Increases

As discussed in our Nov. 20 blog, the Biden Administration is considering increasing taxes. Whether that will be accomplished is, of course, speculative. But given that the Democrats have a majority in the House and Senate, we are experiencing a historically high federal deficit and President Joe Biden is proposing a sweeping two-part “infrastructure, climate and jobs” plan estimated at $3 trillion, a tax increase is perhaps a bit more likely now.

To pay for this infrastructure package, the following are likely to be the proposed federal tax changes:

  • Raise the corporate tax rate from 21 to 28%,
  • End subsidies for fossil fuel companies,
  • Require multinational corporations to pay the U.S. tax rate rather than the lower rate paid by their foreign subsidiaries,
  • Increase the top individual income tax rate from 37 to 39.6%,
  • For taxpayers reporting more than $1 million in taxable income, their capital gains would be subject to the 39.6% rate, and
  • An increase in taxes for appreciated assets passed through an estate.

While obviously controversial, the plan does not necessarily need Republican support to become law.

Biden Announces Huge Infrastructure Plan to 'Win the Future'

Biden Wants to Pay for Infrastructure Plan With 15 Years of Corporate Taxes


PPP Deadline Extended

On March 30, President Joe Biden signed into law the PPP Extension Act of 2021, H.R. 1799 extending until May 31, 2021, the application deadline to participate in the “Second Draw” Payroll Protection Program loans.

The lender financial institution should have the appropriate forms for the application. The list of approved lenders is available online with the Small Business Administration’s lender match tool. Accounting firms can also prepare and process applications using the CPA.com CPA Business Funding Portal.

Generally, the Second Draw maximum amount is equal to 2.5x the average monthly 2019 or 2020 payroll costs up to $2 million. For businesses in the Accommodation and Food Services sector, the 2.5x average monthly payroll is increased to 3.5x (based on NAICS 72 classification).

It is important to remember that the PPP loans can be forgiven if the employee and compensation amount are maintained and at least 60% of the proceeds are spent on payroll costs. The borrower must apply through the financial institution that managed the loan for the forgiveness within 10 months after the final day of the covered period.

Biden signs PPP deadline extension into law - Journal of Accountancy

Paycheck Protection Program (sba.gov)

Second Draw PPP loan (sba.gov)