To Our Clients and Friends:
Congress has passed the $1.9 trillion relief bill entitled the American Rescue Plan (ARP) and we assume this will be signed into law in the coming days. The ARP has a number of facets to it that are going to affect the mass majority of Americans. This bill will provide gobs of money for COVID vaccines and testing, and it will also provide a bunch of money to the states. As is the case with virtually every bill that comes through Washington, there are a number of pet projects which are being funded as well. For now, we’ll stick to the highlights as it pertains to the tax world. There’s a lot here to dissect, so I’ve broken this down into sections for hopefully easier reading.
BUSINESS PROVISIONS
Extension of Family and Sick Leave Credits
I know that many of you are tired of dealing with the FFCRA, but the ARP keeps this plan going through September 30 of this year.
As a brief refresher, the FFCRA is the bill that allows you to pay employees who are affected by COVID-19 to be compensated dollar-for-dollar with tax credits.
The ARP extends this program through September 30.
IMPORTANT: The clock is going to restart here for employees who have already used their allotted 10 days for sick leave or their 12 weeks for family leave. Starting on April 1, everyone starts over as if they had used 0 days off under the FFCRA. This means employees who have already gotten their paid family and/or sick leave credits can now go back and capture those credits again for the period between 4/1/2021 and 9/30/2021.
As a reminder, those of you who are self-employed can also stake claim to this credit. If you are unable to work due to the fact that you have COVID-19, have symptoms of COVID-19 or are forced to quarantine because of COVID-19 regulations, OR if you have a child you have to take care who is out of school/daycare because of anything related to COVID-19, you are also entitled to these credits.
Though there was substantial talk about mandating employers to continue with the FFCRA, your company can elect out of these credits so long as you aren’t discriminatory about it. (Meaning you can’t tell Employee A they’re getting paid by Employee B that they aren’t.)
Extension of the Employee Retention Credit
This is a really big one for many of you on this email. The Employee Retention Credit (ERC) is being extended once again, this time through December 31 of this year. This is largely expected to be the last extension of the ERC.
And just a generic reminder that we are not in a position to be calculating anyone’s ERC for 2021 credits yet until we get 2020 behind us. We only just received guidance on the ERC from the IRS less than two weeks ago, and we have received no guidance to date about the 2021 version of the ERC.
What About the PPP?
The PPP program is getting a little more money injected into it, but there are no other substantive changes to the program. The PPP is set to stop funding on March 31, though there is a ton of pressure from a lot of organizations to extend that date.
There was a deal reached this evening to extend this for 2-months and allows the SBA to extend the funding of loans 30-days past the due date. You would still need to apply, but the banks may be able to still fund after. THIS HAS NOT PASSED, BUT IT IS BEING PUSHED BY SEVERAL IN CONGRESS.
If you are still waiting to apply for your PPP, we highly suggest getting in touch with us so we can get your application started. Funding is taking a solid 2-3 weeks from application to funding, and that puts us right up against the March 31 cutoff assuming they do not extend.
For those of you waiting for more information about PPP forgiveness: TBD. We still stand in the corner of waiting for forgiveness.
Restaurant Revitalization Fund
Restaurants are about to come into a huge boon here with the ARP. There will be new grants in place for the food and beverage industry that will provide businesses with revenue loss up to $10 million when comparing 2020 with 2019.
There is A LOT we don’t know about this. SBA is going to have to write rules for the program and get it set up, and if this is anything like the Shuttered Venues Operator Grants, it’s going to be a while before any restaurant gets any amount of money. As details become available, we will reach out to our qualifying clients.
INDIVIDUAL PROVISIONS
Stimulus Payments
The biggest facet of the ARP is a third round of stimulus payments. The checks this time are going to be based off of $1,400 per taxpayer and dependent. There are some crucial differences between the previous stimulus checks and these payments that will hopefully be sent out over the course of the next two weeks.
- ALL dependents are now eligible for stimulus payments. Previously, if you had a child over the age of 16 or if you had an adult dependent, that dependent didn’t receive a stimulus. This time, you’ll receive $1,400 for all dependents.
- The phase out range is significantly shorter than before. Previously, if you made more than $75,000 (if you’re single) or $150,000 (if you’re married), you started to lose your stimulus payment at a rate of $0.05 for every $1 you were over the thresholds for the first stimulus last Spring and $0.056 for every $1 you were over the thresholds for the second stimulus paid in January. Now, if you make more than $75,000/$150,000, the phase out happens a lot quicker to the point that once you make $80,000 (single)/$160,000 (married), you lose the entire stimulus.
Unique Tax Planning Opportunities
Because of this phase out range, we have to be very, very careful of how we plan to maximize your stimulus money. Once again, once the IRS pays you the money, that money is yours, and the IRS can’t take it back from you (absent of fraud, of course).
In some cases for married couples who combine to make more than $150,000 in 2020, we are going to have to look into the idea of filing your tax return as married filing separately instead of married filing jointly to see if we can maximize your stimulus money. For many, this strategy won’t work because the married filing separately tax rates are extremely prohibitive. But there are a few out there who we will be recommending this extreme scenario.
The IRS is going to base your stimulus payment off of your most recently filed tax return. The counter to that is if you made less money in 2020 than in 2019 and are now under the threshold for receiving a stimulus payment, you want to file as quickly as possible to get your stimulus payment.
IMPORTANT: The ARP has a clause in it that stimulus payments will be paid out in two phases this time around. In Phase 1, the IRS will take all of the data that it already has and pay stimulus payments out based on that. If you haven’t filed a 2019 or 2020 tax return, you won’t get a stimulus payment. For anyone who earned less in 2020 than in 2019 and has not filed a tax return yet, there will be a second date in which the IRS pays out to everyone who should have received more stimulus/a bigger stimulus based on their 2020 filing. That date is going to be the earlier of 90 days after tax deadline day OR September 1. What does this mean? It means that we aren’t going to have to rush to get your taxes filed for 2020 just so you can get your stimulus. You’ll ultimately get your money at a later date.
When Am I Going to Get My Stimulus Payment?
We don’t know yet, but it’s going to very likely be soon. The IRS pushed its first stimulus payments out in a matter of six days from the point that President Trump signed the Consolidated Appropriations Act in late December, and we can probably expect payments to start going out as soon as next week. Odds have it, everyone who is eligible will have their stimulus money by the end of March, but we are unsure of that at this time.
Unemployment Benefits are Now (Partially) Non-Taxable (For Most)
The ARP allots for the first $10,200 in unemployment benefits as non-taxable, but only for people who made less than $150,000 in 2020. This is a tremendous help for a number of you; we suspect that this clause alone saves the average person on this email who was on unemployment benefits over $1,500.
If by chance you know anyone who has filed their tax return already and was on unemployment in 2020, there is a good chance they’re going to have to amend their tax return to recoup these taxes, though we aren’t sure that is the case yet.
Unfortunately, timing on this is going to take a while. After Biden signs this bill in the next day or two, the IRS is going to have to write regulations on this, implement it into the tax code, get the information out to the tax software companies, and then the software companies are going to have to implement those changes on their end.
What does this mean for you? It means your tax return is very likely not getting completed until into April, and potentially later than that. It is possible that this means that your tax return could be on hold well after April 15. If necessary, we will extend your tax return. However, we suspect that Tax Deadline Day is going to once again be extended as it was last year. We don’t know that for sure yet, but it’s hard to imagine the IRS not giving us some grace that is badly, badly needed.
If the IRS does decide to change April 15, it’s going to be up to your individual state whether their tax deadline is going to be extended as well. I suspect they would all fall in line, but that is far from a given.
Expanded Child Tax Credit
If you have a child under the age of 17, you typically receive a Child Tax Credit of $2,000. The ARP is extending that Child Tax Credit to $3,600 per child under the age of 6 and $3,000 per child between the ages of 6-17. Dependents who are 18+ remain worth a $500 credit. This change is for Tax Year 2021 only, though it could become permanent at some point.
The expanded Child Tax Credit also comes with another bonus: The IRS is going to be paying out half of the Child Tax Credit on a monthly basis from July 2021-December 2021. This means that if you qualify, you will receive $300 per month per child under the age of 6 or $250 per month per child between 6-17 years old from July-December.
There is an income phase out for the expanded credit, though. As with the stimulus payments, you won’t receive the expanded Child Tax Credit or the advance on the Child Tax Credit if you make more than $75,000 if you’re single or $150,000 if you’re married. Those people will still get the base Child Tax Credit of $2,000, but they won’t receive the advance or the extra money.
Unlike the stimulus payments though, the IRS can and will get this money back from you if you made too much money when you file your 2021 taxes. If 2020 was the only year that you were under the threshold to get the expanded Child Tax Credit, you’re going to want to opt out of the expanded credit and the advance of it. To that point, the IRS is going to set up a portal for those who have children to opt out of getting the advanced payments if you’d like.
This is going to be messy. No two ways around it. But in the end, for the majority of families who make under $75,000 (single) or $150,000 (married), you’ll enjoy an extra $1,000 per child this year an additional $600 on top of that if your child is under the age of 6 in 2021.
Extended Unemployment Benefits
If you remain on unemployment at this time, your benefits were set to expire on March 14. Those benefits have now been extended through September 6. The extra federal assistance which was set to expire as well is maintained at an extra $300 per week during this time. This is widely expected to be the last extension of unemployment benefits.
Changes to Marketplace Insurance
I’m not going to get into the weeds with all of the changes as it pertains to what’s called the Premium Tax Credit, but basically, your Marketplace insurance is going to feature a slightly larger subsidy if you are eligible. The threshold for qualifying for a subsidy will increase to approximately 2.5 million families, and the ones who are getting a subsidy will see an increase in it. That doesn’t mean the cost of your health insurance is going to decrease right away, though. It means the cost of your health insurance is going to be potentially further subsidized by bigger tax credits. Those tax credits though, won’t be realized until you file your 2021 tax return.
