by Pete McAllister | Accounting News, CARES Act, COVID-19, News, Relief Bill, Stimulus, Stimulus Package, Tax
President Trump recently signed a second stimulus package—called the Consolidated Appropriations Act, 2021 (Act)—into law. The legislation includes over $300 billion in aid for small businesses. Below is a breakdown of some of the business tax changes and extenders in the new COVID-19 relief bill.
Payroll Tax Credit for Paid Sick and Family Leave
The refundable payroll tax credit for paid and sick family leave, established in the Families First Coronavirus Response Act, is extended until March 31, 2021. The tax credits are modified so that they now apply to practically any payments made to workers for these purposes.
Payroll Tax Repayment
The time frame for employees to repay deferred employment taxes under the President’s executive order, which was issued in August 2020, has been extended from April 2021 to December 31, 2021.
Employee Retention Credit
The Employee Retention Credit (ERC) under the CARES Act has extended to July 1, 2021. Further, the refundable tax credit has increased from 50% to 70%, the per-employee wages limitation has increased from $10,000 per year to $10,000 per quarter, and the determination of a large employer for purposes of the ERC has increased from 100 to 500 employees.
30-Year Depreciation of Certain Residential Rental Property
The new law determines that the recovery period relevant to residential rental property placed in service before Jan. 1, 2018, and held by an electing real property trade or business, is 30 years.
Business Meal Deduction
Rather than the current 50% business expense deduction for meals, the bill temporarily allows a 100% expense deduction for meals provided by restaurants in 2021 and 2022.
Deduction for Energy Efficient Commercial Buildings
The deduction for energy-efficient improvements to commercial buildings, such as lighting, heating, cooling, ventilation, and hot water systems was made permanent. The amount will be inflation-adjusted after 2020.
Changes to the Work Opportunity Tax Credit
If employers hire workers who are members of one of more of ten targeted groups under the Work Opportunity Tax Credit (WOTC) program, they are permitted to use an elective general business tax credit. Previously applicable to hires before 1/1/2021, the TCDTR extends the credit through 2025.
Employer Payments of Student Loans
Section 127, which permits employers to provide certain educational assistance to employees on a tax-free basis, was modified under the CARES Act to authorize the payment by an employer of principal or interest on specific employee qualified education loans through December 31, 2020. The Consolidated Appropriations Act expands this through December 30, 2025. As the pandemic subsides, employers may want to consider this valuable tax-free benefit.
Health and Dependent Care Flexible Spending Arrangements
The bill allows taxpayers to roll over unused funds in their health and dependent care flexible spending accounts from 2020 to 2021 and from 2021 to 2022. This arrangement also permits employers to grant employees a 2021 midyear prospective adjustment in contribution amounts.
by Jean Miller | Accounting News, News, Resources, Tax, Tax Planning - Individual, Tax Preparation - Individual
Beginning in 2018, the new tax laws are officially implemented, which could spell a shift in take home pay for many workers. And, if your employer has begun using the new withholding tables, you could see a change in pay this month. The Congressional Budget Office has approximated that employers could withhold around $10-15 billion less from employees each month by utilizing the new withholding tables.
Many taxpayers may be wondering if they will actually see any of that $10-$15 billion on their regular paychecks? An increase in take-home pay will be based on the number of allowances you take, how often you are paid and if you file jointly or are a single filer. So, for the average single filer who makes between $46,000-$162,000 and is paid bi-weekly, your paycheck will likely increase between $40 and $190. For married filers who make between $61,000-$167,000, you could see a bi-weekly pay increase between $30 and $172.
However, there are other factors in play that could offset any pay increases taxpayers might see. While the federal tax cuts might increase take-home pay for the average workers, other changes in deductions might counteract a boost in pay. Although the federal tax rates changed, some state or local taxes may have increased for some workers. Many companies make health benefits or other benefit changes at the start of a new year as well, which would ultimately influence a worker’s final take-home amount.
Whether you see a pay increase or not, all employees should consider re-evaluating their withholding allowances. Why? Withholding tables are intended to provide a ballpark figure of how much tax should be taken from your pay, but this year’s estimation could be a bit looser than previous years.
The new tax laws change elements that affect how many allowances workers claim. For example, some personal exemptions have been eliminated, itemized deductions have been reduced and tax credits have been altered. The new withholding tables do incorporate the tax code changes, but taxpayers were not required to fill out a new W-4 form. Therefore, the number of allowances selected when your last W-4 was filed could be rather inaccurate now.
How do you know if your allowances need to be modified? Taxpayers can speak with a tax adviser to decide the correct withholding amounts. Another option is to use the new withholding calculator the IRS plans to release at the end of February, which is designed to help employees calculate if they are claiming too little or too much in light of the tax changes. If you do decide to change withholding amounts, you will need to submit new instructions to your employer.
by Stephen Reed | Accounting News, Bookkeeping, Business Consulting, IRS, News, Professional Services, Resources, Tax, Tax Consulting, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual
With their first plan shot down in Congress, the GOP has released another, broader tax framework as the Trump Administration attempts to shift the tax code. This new plan has many elements that Congress will need to hash out before anything is signed into law, but taxpayers of all income levels are wondering how this plan may affect them personally. Below are five major developments in the new plan that could affect you come tax season:
- Rate Shift
Our current code has seven different income tax brackets, but the new plan would drop that number down to three: 12, 25 and 35 percent. Although the plan does not specify which income levels would be taxed at each new rate, the wealthy would likely see the greatest benefit since the current top bracket at 39.6% would drop to 35%. The current lowest bracket (at 10%) would see an increase to join the 12% bracket, but the plan claims to aid families in that bracket through an increase in the standard deduction and a greater child tax credit.
- Deduction Increase (for most)
For many taxpayers, the new plan would almost double the current standard deduction. Filers who claim multiple children would not see as high of a increase, but could potentially see that offset by a steeper child tax credit. Presently, about 70% of taxpayers take the standard deduction as it is higher than itemizing. However, experts believe that number would increase significantly if the standard deduction is doubled. The GOP’s plan would remove other deductions to offset the increased standard deduction, but the charitable contribution and mortgage interest deductions would be kept.
- Some Taxes and Deductions Eliminated Entirely
The largest deduction that would meet its end with the new GOP plan is the local and state tax deduction. This deduction is often taken in states where taxes, and average income, is higher, states that are often Democratic. Other taxes that would be eliminated include the alternative minimum tax and the estate tax for those who inherit funds in excess of $5.49 million.
- New Tax Rate for “Pass-Through” Businesses
S corporations, sole proprietorships and partnerships could see a new tax rate at 25% under the new plan. Currently, those “pass-through” businesses pay at the individual rate of their owners, and those businesses make up about 95% of the nation’s business demographic. Although many business owners currently pay a rate lower than 25%, just under 2% of those business owners pay the top rate of 39.6%, which means they could see a significant drop in rate if they are permitted to incorporate as a “pass-through.”
- Change in the Corporate Tax Code
The current plan taxes corporations at 35%, but the new plan would drop that rate to 20%. To offset this steep drop in rate, the proposal submits to eliminate certain business deductions and credits. The plan suggests that the deduction for domestic production could be eliminated, while maintaining exceptions for low income housing and research and development, but leaves many of those choices up to Congress.
Congress must still comb through the GOP’s newest plan and make adjustments before a finalized plan is voted upon, so taxpayers should prepare for more adjustments to be made before anything is signed into law. As developments arise, MKR will continue to keep our clients up to date in future newsletters.
by Jean Miller | Accounting News, Healthcare, News, Resources, Tax, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual
The Trump administration has wasted little time taking action on many of the promises that were made throughout the campaign. One major proposition made by President Trump was the immediate repeal and replacement of Obamacare. While the replacement of our current healthcare system seems to be pending, the repealing of the current system is certainly at the top of the administration’s list. Although the insurance aspect of the current system would seemingly stick around until the GOP and the Trump administration develop a suitable alternative, the tax aspects of Obamacare could be subject to immediate repeal. Thus, the insurance industry may have until 2018 or 2019 before they saw changes, but the tax industry (and therefore taxpayers) could see effects as early as this year.
How exactly the current administration chooses to repeal the tax aspects of Obamacare could be positive or negative for most taxpayers though. Under current law, there is an individual insurance mandate that penalizes monthly those who do not have insurance coverage, as well as an employer mandate penalizing employers (with more than 50 full-time employees) who do not offer affordable health care. However, if individuals obtain coverage through the state marketplaces and their income is between 100% and 400% of the federal poverty level, they receive a tax credit to assist in paying for their insurance premiums. Additionally, Obamacare levies a 0.9% Medicare tax and a 3.8% net investment income tax on certain high wage earners, or the wealthiest 2% of Americans.
Where repealing taxes associated with Obamacare could be positive for Americans is if Congress removed all taxes while maintaining the premium tax credit (until a replacement system is established). This would mean employers are no longer charged for not providing insurance coverage, taxpayers are not penalized for not having insurance and high wage earners will not be levied the additional taxes discussed above. If Congress chose this route, tax experts estimate that low to middle income wage earners could receive a tax break in the hundreds of dollars, whereas high end wage earners could receive a break in the thousands of dollars.
However, if Congress chose to repeal all tax aspects, including the premium credit, certain tax brackets would most certainly see negative effects. Without the credit, lower income brackets could see their taxes rise by an average of $4,000, middle income brackets could see their taxes rise by an average of $6,000, but higher income brackets would still see their taxes lowered by the thousands of dollars. But, these negative changes would only exist for lower or middle income brackets who currently claim the premium tax credit. Fortunately, at this point, Congress nor the Trump administration has made any claims about what they will do in terms of repealing Obamacare-related taxes, so Americans will simply have to wait and see what direction our nation’s leaders choose and how their wallets will be affected.
by Jean Miller | Accounting News, Audit and Accounting, CPA, IRS, QuickBooks, Tax Consulting, Uncategorized
By AccountingWEB Staff
Time is running out before the payroll tax rate automatically increases in two weeks, and the dispute over how to fund it continues.
The tax measure at issue would maintain the payroll tax rate at 4.2 percent for the year 2012 instead of allowing it to revert to 6.2 percent January 1. It’s a tax cut worth about $1,000 to families earning $50,000 a year. The payroll tax bill also would renew benefits for the long-term unemployed and prevent a cut in Medicare benefits for seniors.
This morning (December 19), the Associated Press reported that “Boehner spoke after a chaotic weekend in which Senate leaders first failed to agree on a full-year bill, then coalesced around the two-month extension that passed overwhelmingly, only to spark a revolt among GOP conservatives in the House.”
Here’s a summary of what’s been happening:
While the GOP-led House passed a bill on December 14 extending the tax cut, the legislation relied on a pay freeze and increased pension contributions for civilian federal employees. In addition, it raised Medicare premiums for seniors, and it raised a fee that’s charged to banks with mortgages guaranteed by Fannie Mae and Freddie Mac. The bill didn’t have the votes to pass the Senate.
On Friday, December 16, Senate leaders reached an agreement to pass a two-month extension on the payroll tax cut, keeping the 4.2 percent rate through February. The agreement requires the administration to decide within 60 days if the controversial 1,700-mile Keystone XL pipeline is in the nation’s best interests. Some environmental groups oppose the project, but several unions support it.
Senate Republican Leader, Mitch McConnell, said Keystone XL would create about 20,000 jobs. Critics say the figure would be fewer than 3,500, including fewer than 1,000 that would be permanent.
House Speaker, John Boehner, said Friday that his chamber will not sign off on an extension of the payroll tax cut without including a provision to force a quick decision on the pipeline construction.
Obama would prefer to postpone the controversial matter, and he threatened to veto any bill that forces a decision. Because the project crosses international borders, it requires White House approval. The administration complained that House Republicans are injecting “ideological issues into what should be a simple debate about cutting taxes for the middle class.”
Original Article: http://www.accountingweb.com/topic/tax/wrangling-continues-over-payroll-tax-cut
