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Important changes to the child tax credit
Recently, there were changes made to the child tax credit that will benefit many taxpayers. As part of the American Rescue Plan Act that was enacted in March 2021, the child tax credit:
- Amount has increased for certain taxpayers
- Is fully refundable (meaning you can receive it even if you don’t owe the IRS)
- May be partially received in monthly payments
The new law also raised the age of qualifying children to 17 from 16, meaning some families will be able to take advantage of the credit longer.
The IRS will pay half the credit in the form of advance monthly payments beginning July 15. Taxpayers will then claim the other half when they file their 2021 income tax return.
Though these tax changes are temporary and only apply to the 2021 tax year, they may present important cashflow and financial planning opportunities today. It is also important to note that the monthly advance of the child tax credit is a significant change. The credit is normally part of your income tax return and would reduce your tax liability. The choice to have the child tax credit advanced will affect your refund or amount due when you file your return. To avoid any surprises, please contact our office.
Qualifications and how much to expect
The child tax credit and advance payments are based on several factors, including the age of your children and your income.
- The credit for children ages five and younger is up to $3,600 –– with up to $300 received in monthly payments.
- The credit for children ages six to 17 is up to $3,000 –– with up to $250 received in monthly payments.
To qualify for the child tax credit monthly payments, you (and your spouse if you file a joint tax return) must have:
- Filed a 2019 or 2020 tax return and claimed the child tax credit or given the IRS your information using the non-filer tool
- A main home in the U.S. for more than half the year or file a joint return with a spouse who has a main home in the U.S. for more than half the year
- A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number
- Income less than certain limits
You can take full advantage of the credit if your income (specifically, your modified adjusted gross income) is less than $75,000 for single filers, $150,000 for married filing jointly filers and $112,500 for head of household filers. The credit begins to phase out above those thresholds.
Higher-income families (e.g., married filing jointly couples with $400,000 or less in income or other filers with $200,000 or less in income) will generally get the same credit as prior law (generally $2,000 per qualifying child) but may also choose to receive monthly payments.
Taxpayers generally won’t need to do anything to receive any advance payments as the IRS will use the information it has on file to start issuing the payments.
IRS’s child tax credit update portal
Using the IRS’s child tax credit and update portal, taxpayers can update their information to reflect any new information that might impact their child tax credit amount, such as filing status or number of children. Parents may also use the online portal to elect out of the advance payments or check on the status of payments.
The IRS also has a non-filer portal to use for certain situations.
Let us help you.
With any tax law change, it’s important to revisit your full financial roadmap. We can help you determine how much credit you may be entitled to and whether advance payments are appropriate. How you choose to receive the credit (partially advanced via monthly payments or solely on your next year’s return) could have many impacts to your financial plans.
Please contact our office today at 941-366-3600 to discuss your specific situation. As always, planning ahead can help you maximize your family’s financial situation and position you for greater success.
Online tools to manage advance Child Tax Credit payments
IRS has announced that there are 2 new online tools available to taxpayers wanting to manage their Child Tax Credit payments.
Taxpayers wanting to find out if they qualify for child tax credit payments, as well as update their eligibility information, including unenrolling from receiving advance child tax credit payments, are now able to do so on irs.gov website.
Click here to read more about the latest IRS announcement.
Clarification of Tax Treatment of Forgiveness of Covered Loans
The Consolidated Appropriations Act, 2021 expands the Paycheck Protection Program (PPP) established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, that provides loans (covered loan) to assist small businesses with certain expenses incurred during the economic challenges due to the COVID-19 emergency. The Consolidated Appropriations Act, 2021 also clarifies the deductibility of certain expenses paid for with funds from a loan under PPP and the tax impact on income for the forgiveness of the related debt.
The Consolidated Appropriations Act, 2021 clarifies that:
- no amount is included in the gross income of the eligible recipient due to the debt forgiveness
- no deduction is denied, no tax attribute is reduced, and no basis increase is denied because of the exclusion from gross income, and
- in the case of an eligible recipient that is a partnership or S corporation—
- any amount excluded from income is treated as tax exempt income, and in general, any increase in the adjusted basis of a partner’s interest in a partnership with respect to any amount excluded from income is equal to the partner’s distributive share of deductions resulting from costs giving rise to the forgiveness.
This clarification under the Consolidated Appropriations Act, 2021 is effective for tax years ending after March 27, 2020, the date of enactment for the CARES Act. This clarification also applies to any subsequent Payroll Protection Loans for tax years ending after the date of enactment of the Consolidated Appropriations Act, 2021.
The expanded list of eligible expense under the Consolidated Appropriations Act, 2021 includes:
- payroll costs
- certain healthcare benefits
- interest on mortgage obligations
- rent
- utilities
- interest on any other debt obligations
- operations expenses
- property damage
- supplier costs
- worker protection expenses
The Consolidated Appropriations Act, 2021, also provides a simplified process for recipients of a covered loan of not more than $150,000 to apply for loan forgiveness.
Please call our office if you have any questions on covered loans under the Paycheck Protection Program and the expanded relief provided by the Consolidated Appropriations Act, 2021.
Employee Retention Credit Extended and Expanded
The Consolidated Appropriations Act, 2021 extends and expands the employee retention credit first created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The employee retention credit is designed to encourage businesses to keep workers on their payroll and support small businesses and nonprofits through the Coronavirus economic emergency.
Eligible employers may claim the credit against employment taxes equal to a percentage of qualified wages paid to employees who are not working due to the employer’s full or partial suspension of business or a significant decline in gross receipts.
Calendar Quarters Beginning After December 31. 2020
For calendar quarters beginning after December 31, 2020, the amount of the credit is increased from 50% to 70% of qualified wages. The limitation per employee is also increased from amounts paid up to $10,000 per year to amounts paid up to $10,000 per quarter. Eligible wages are wages paid between March 12, 2020, and July 1, 2021, extended from January 1, 2021.
In addition, the definition of an eligible employer is more inclusive under the Consolidated Appropriations Act, 2021 and thereby allows a greater number of employers to qualify.
An eligible employer is defined as:
- An employer whose trade or business is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to the coronavirus disease (COVID-19); or
- An employer that experiences a 20% decline (down from 50%) in gross receipts for the calendar quarter compared to the same quarter in 2019.
However, if the employer was not in existence as of the beginning of the same calendar quarter in 2019, then the employer may use the same calendar quarter in 2020. Employers also have an election to determine if they meet the gross receipts test based on the immediately preceding quarter.
Qualified wages are based on the business’s average number of full-time employees in 2019.
- Small employers, those that had 500 or fewer employees (up from 100), may receive the credit for wages paid to employees whether or not they are providing services to the employer.
- Large employers, those that had more than 500 (up from 100) employees, may only receive the credit for wages paid to employees for time the employees are not providing services to the employer.
There are special rules for seasonal workers. If an employer is eligible due to a full or partial suspension of operations, only wages paid while operations are suspended count as qualified wages.
Employers must report their qualified wages on their federal employment tax returns, usually Form 941, Employer's Quarterly Federal Tax Return. They can reduce their required deposits of payroll taxes withheld from employees’ wages by the amount of the credit. They can also request an advance of the employee retention credit by submitting Form 7200.
No Double Benefit
There are limitations when considering an eligible employer's ability to claim the employee retention credit. This credit is impacted by other credit and relief provisions as follows:
- wages that are paid for with forgiven Payroll Protection Program (PPP) proceeds cannot qualify for the employee retention credit;
- qualifying wages for this credit cannot include wages for which the employer received a tax credit for paid sick and family leave; and
- employees are not counted for this credit if the employer is allowed a work opportunity tax credit.
Contact Us
Because of the enhancements and expansion of the employee retention credit, your business may now have an opportunity to take the advantage of this tax benefit. Please call our office to discuss the employee retention credit and other business tax relief under the Consolidated Appropriations Act, 2021.
Additional 2020 Recovery Rebates for Individuals
As part of the massive Consolidated Appropriations Act, 2021, Congress has included another round of stimulus payments. Eligible individuals will receive $600 ($1,200 for joint filers) plus $600 for each dependent child.
Similar to the stimulus payment under the CARES Act, the amount of each payment is phased out by $5 for every $100 in excess of a threshold amount. This threshold amount is based upon 2019 adjusted gross income. The phaseout begins at $75,000 for single filers, $112,500 for heads of households, and $150,000 for joint filers. Thus, the payments are completely phased out for single filers with 2019 adjusted gross income over $99,000, heads of household with $136,500, and joint filers with $198,000.
In order to be eligible for a stimulus payment, the individual must not be:
- a nonresident alien,
- able to be claimed as a dependent on another taxpayer’s return,
- an estate or trust, and
- must have included a Social Security number for both the taxpayer, the taxpayer’s spouse, and eligible children (or an adoption taxpayer identification number, where appropriate).
The advance credit is based on the adjusted gross income reported and the qualifying children claimed on the eligible individual’s 2019 return. The IRS will make the payment via electronic funds transfer to the bank account that the payee authorized, on or after January 1, 2019, for the delivery of a refund,or payment of taxes. However, if an individual has not filed a 2019 return by the time the payments are determined, the payment is based on information provided by the Social Security Administration, Railroad Retirement Board, or Secretary of Veterans Affairs for calendar year 2019.
As soon as practicable after the IRS distributes any payment to an eligible taxpayer, the IRS will send a notice bymail to the taxpayer’s last known address. The notice will indicate the method by which the payment was made, the amount of the payment, anda phone number to contact at the IRS to report any failureto receive such payment.
If you have any questions on the stimulus payments, please call our office. We are here to help you.
Economic Impact Payments
Internal Revenue Service has issued additional information pertaining to the issuance of economic impact payments, also known as stimulus checks, and we highly recommend that you visit the IRS website for up to date information on coronavirus relief. Please click below for more detail:
Filing and payment extension FAQ during COVID-19 emergency
Dear clients and friends,
We hope you are all staying safe and healthy during this unprecedented time. CODIV-19 has changed the definition of normal, and one of them is filing taxes on April 15th. As you are all aware, the IRS has extended the filing deadline and payment deadline of some returns to July 15th. On March 24th, the IRS has published Frequently Asked Questions pertaining to the new filing deadline. Please use the IRS website (click bold text above) to learn more.
As always, should you have any questions, feel free to contact us.
Business expense deduction for meals and entertainment
With the passage of the Tax Cuts and Jobs Act, known as TCJA, you may have heard about some changes to the deductability of some business expenses such as meals and entertainment.
In general, the new law has eliminated the deduction for entertainment, while leaving the deduction for the business meals. In the latest news release, the IRS has provided taxpayers with additional guidance on the law changes.
Reminder about tax scams and phishing
In wake of Hurricane Florence, the Internal Revenue Service is reminding everyone that criminals are once again trying to take advantage of those trying to help out people in need. Please read the following news release to avoid various scams and schemes:
IRS news release on Natural Disasters scams
We also would like to take this time to remind you that tax scammers are continuing making phone calls and sending emails impersonating IRS and at times tax practitioners. Per IRS:
Telltale signs of a scam
The IRS (and its authorized private collection agencies) will never:
- Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS does not use these methods for tax payments. Generally, the IRS will first mail a bill to any taxpayer who owes taxes. All tax payments should only be made payable to the U.S. Treasury and checks should never be made payable to third parties.
- Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
- Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
- Ask for credit or debit card numbers over the phone.
If you receive an email that seems strange, please call our office to verify its validity. We are always here to answer your questions.
Scam Alert
Please read this important Scam Alert from the IRS pertaining to erroneous tax refunds:
As always, when in doubt, call our office with any questions. Do not send money to anyone without speaking to us. IRS does not demand money over the phone and always sends you a correspondence.
Protecting Yourself Against Tax-Related Identity Theft
Tax-related identity theft continues to be an ever-growing national crisis.
The Government Accountability Office (GAO) estimated that in tax year 2013, fraudulent tax refunds misdirected to identity thieves was about $5.8 billion and impacted over 2.4 million U.S. taxpayers. Unfortunately, this fraudulent activity has continued to rapidly expand since 2013. All taxpayers must be diligent in further protecting themselves from becoming identity theft victims.
As a valued client, we want to share with you some proactive steps and resources to help in your defense of tax-related identity theft. However, should you become aware that you are a victim of identity theft or that your private financial information has been compromised, please contact us immediately for additional information and assistance.
Suggestions to Protect You and Your Family from Identity Theft
Secure private personal information. Safeguard family names and birthdates, account numbers, passwords, and Social Security numbers. Carefully consider all requests to provide your Social Security number before giving it out and don’t hesitate to ask why your private information is being requested. Secure your Social Security card in a safe or safety deposit box and never in your purse or wallet. Proactively shred all documents that contain personal data before disposing of them, even solicitations and “junk” mail that may unknowingly contain account numbers and personal information.
Monitor personal information shared on social media. Cybercriminals methodically gather data from online sources, including commonly used identifiers such as birthdate, maiden name, pet name, hometown, significant other, and/or children’s information. Be cautious who you communicate with online and be selective before accepting electronic invitations from people you do not know or recognize. Separate what you post publicly from what you post with your personal contacts. Do not post personal and family data.
Secure your computer. Use current versions of antivirus, malware protection, and firewalls and update these programs frequently. Consider having this software updated automatically, as well as using different computers for business and finances than you do for social media and personal matters. Use strong passwords, change them frequently, and do not share them with others. Review IRS Publication 4524, Security Awareness for Taxpayers, for additional tips.
Beware of impersonators. Criminals utilize sophisticated computer technology, such as dialers and automated questions, to contact thousands of targets daily. Do not provide personal information to callers you do not know. If any caller requests that you verify personal information, be extremely cautious and ask for further confirmation of their identity, such as their telephone number, website, email address, supervisor’s name, and mailing address. The IRS never initiates contact by telephone.
Beware of unsolicited emails and current phishing scams. Don’t open attachments or electronic links unless you know the sender. Internet sites should have a lock symbol to show the site is encrypted. Always beware of entering sensitive data. Forward emails received from IRS impersonators to phishing@irs.gov. The IRS never initiates contact by email, text message, or social media channels. For more guidance on phishing scams, go to irs.gov/uac/report-phishing.
Monitor your personal information. Review your bank and credit card statements often.
Consider electronic transmission of financial information. No sensitive tax or personal information should be sent via unsecured email, even information being transmitted to CPAs, bankers, and/or financial advisors. A secure portal, encrypted email, or physical mailing of sensitive information is necessary.
Order your free annual credit report. Call 1-877-322-8228 or go to www.annualcreditreport.com to request your report and/or search for creditors you do not know. Choose to use only the last four digits of your Social Security number on your report. Consider placing a credit card freeze on your account so only creditors you approve are allowed to access your file.
What to Do if You Become a Victim of Tax-Related Identity Theft
You may learn that your identity has been compromised by receiving a letter in the mail from the IRS. Alternatively, your CPA may contact you when your personal income tax return is electronically filed and subsequently rejected. If you receive a notice indicating identity theft, please contact us immediately to schedule a meeting to receive assistance in taking the appropriate steps with the IRS to resolve the matter.
Other ways you may discover your identity has been stolen include:
- Finding purchases on your credit card that you did not make
- Discovering withdrawals from an account that you did not make
- Seeing that your address has been changed for certain accounts, or no longer receiving your regular bills. (Cyber criminals may change your address when filing a return.)
The unfortunate reality is that personal data is already at risk everywhere, but we will work with you to reduce the likelihood of you being victimized by cyber criminals. As your CPA and trusted advisor, we understand the need to protect your privacy and take data protection very seriously. Our security and data integrity meets the highest industry standards established by the IRS and Federal Trade Commission. We have also established protocols to guard access to client files.
Please don’t hesitate to contact us at [phone/email] with questions or concerns or if you would like to meet with us to discuss this issue or any financial or tax needs.
IRS letters and notices
Receiving an envelope from an IRS may seem daunting, however you must always take that first step and make sure to open the envelope to look at its contents. If you have received an IRS notice, timely response is always important, and we can always help you with that process. Please read below these helpful tips on how to handle an IRS notice or a letter. Remember to always contact us for assistance and sucessful resolution.
IRS cautions taxpayers about an increase in tax scams
Next time your phone rings, and you see an unfamiliar number, pause before answering your phone, especially if the number on your display is not a local number. Tax scam is on the rise, and in the latest IRS bulletin, you will find a listing of the latest scams going around. Read below for more, and if you ever get contacted by the IRS, please make sure to let us know.
Reduction in Commercial Leases in Florida in 2018
On May 25, 2017 Governor Rick Scott signed House Bill 7109, which is supposed to reduce the state sales tax rate on commercial leases from 6% to 5.8% starting 1/1/18. This rate decrease will be applicable to new leases. In addition, there is no change to the local surtax, which for Sarasota county is currently 1%. As a result, effective rate in Sarasota County for leases starting on or after January 1, 2018, would be 6.8%.
Be extremely cautious of the new W-2 Phishing scam
IRS has issued a very urgent alert to employers about a W-2 phishing scam that is being distributed via email. Everyone should be on alert and question any request that comes in for a W-2 information from a superior. Please read this alert below and feel free to contact our office with any questions.
Tax Scam warnings from the IRS
Should you ever receive an email, a phone call or a pop-up online informing you that you owe money to the IRS, this is a sign of a scam. The IRS never calls you or emails you or reaches you online, and the IRS never demands that you make any payments over the phone. If you ever receive any communication from the IRS, please contact our office.
Tax records - how long should you keep them?
New tax season is almost upon us, but what do we do with our prior documents and tax returns? According to the IRS, you should keep copies of your tax returns and supporting documentation for at least three years. Certain documents should be kept for 7 years should you need to amend your return. Documents pertaining to the sale of real estate should also be kept for 7 years. For more information, and full text of this informative IRS Newswire, please see the link below. As always, feel free to call our office with any questions.
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