Various sources are now reporting that the Internal Revenue Service is holding up millions of tax refunds for manual processing. Furthermore, they are faced with manually processing many of the quarterly payments that were required by April 15 as their automated systems were unable to process them.
The recent tax laws passed by Congress created complexities beyond what their systems were able to accomodate. Industry groups such as the National Conference of CPA Practitioners had foreseen these difficulties and had urged the IRS to delay the deadline for the payments until May 15th to align with the modified extended filing date but were rebuffed.
Anyone wanting to check the status of their return can access the IRS website and use their "Where is my Refund" tool to check the status of their submitted return.
The Internal Revenue Service said on Wednesday, it plans to take steps to automatically refund money starting in May and continuing through the summer to taxpayers who filed tax returns reporting unemployment compensation prior to recent changes under the ‘American Rescue Plan’.
The COVID relief package, which President Biden signed into law this month, enables taxpayers who earned under $150,000 in modified adjusted gross income to exclude unemployment compensation up to $20,400 if they’re married filing jointly, or $10,200 for all other eligible taxpayers. The relief package excludes only 2020 unemployment benefits. However, that change happened after some people already filed their taxes early this season, so the IRS said it will take steps in the spring and summer to figure out the appropriate change to their return, and that could result in a refund.
The first refunds are anticipated to go out in May and will continue into the summer.
- The first $10,200 in unemployment benefits are free of tax in 2020 for taxpayers making less than $150,000 per year.
- Individuals will be provided a $1,400 recovery rebate credit ($2,800 for married taxpayers filing jointly), plus a $1,400 credit for each dependent, and like last year’s economic impact payments, the IRS will send out advance payments of the credit. For single taxpayers, the credit and payment begin to phase out at an adjusted gross income (AGI) of $75,000, and will completely phase out for single taxpayers with an AGI over $80,000. For married taxpayers filing jointly, the phaseout begins and ends at an AGI of $150,000 and $160,000, respectively, and for heads of household, the phaseout begins and ends at an AGI of $112,500 and $120,000, respectively.
- The child tax credit is increased to $3,000 per child ($3,600 for children under age six), with a phase out similar to that in item (2), above, for the corresponding filers. The IRS is directed to estimate taxpayers’ child tax credit amounts and pay monthly in advance one-twelfth of the estimated amount, with payments running from July through December of 2021. The IRS will also set up an online portal to allow taxpayers to opt out of advance payments or otherwise modify the amounts to be paid.
- The child and dependent care tax credit is refundable in 2021. It is worth 50% of eligible expenses, up to an income limit, and results in a refundable amount of $4,000 for one qualifying individual and up to $8,000 for two or more. A reduction of the credit begins at household income levels over $125,000.
- The credits enacted by the Families First Coronavirus Response Act are now statutorily codified. The most important changes associated with these credits are:
- the credit for paid family leave is increased to $12,000.
- the number of days that a self-employed individual can take into account in calculating the qualified family leave equivalent amount for self-employed individuals is now sixty, up from fifty.
- paid leave credits are allowed for leave taken due to a COVID-19 vaccination.
- the limitation on the overall number of days taken into account for paid sick leave will reset after March 31, 2021.
- The employee retention credit is extended through the end of 2021. The credit is allowed against the Medicare tax.
- Any amount ordinarily includable in income due to a discharge of any student loan after December 31, 2020 and before January 1, 2026 will not be so included.
Here is a quick recap to the changes to minimum wage for 2021 in New York State:
- New York City: Minimum wage remains at $15.00/hr for all businesses
- Long Island: Minimum wage remains at $15.00/hr for all businesses
- Westchester County: Minimum wage remains at $15.00/hr for all businesses
- Remainder of New York State: Increases to $12.50 per hour.
Some noteworthy exceptions:
- If you get tips, yur employer may be able to p[ay you less, as long as you make minimum wage with the tips
- Some home care workers' base wage reates may be different from the minimum wage if they also get benefits such as health insurance.
Pending President Trump’s signature on the recently passed COVID-19 relief bill, the new PPP loans (“PPP2”) will be available to first-time qualified borrowers and, for the first time, to businesses that previously received a PPP loan.
Specifically, previous PPP recipients may apply for another loan of up to $2 million, provided they:
- have 300 or fewer employees.
- have used or will use the full amount of their first PPP loan.
- can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.
PPP2 also makes the forgivable loans available to Section 501(c)(6) business leagues, such as chambers of commerce, as well as certain other statutorily specified organizations, provided that they have 300 or fewer employees and do not receive more than 15% of their receipts from lobbying. The lobbying activities must comprise no more than 15% of the organization’s total activities and have cost no more than $1 million during the most recent tax year that ended prior to February 15, 2020.
PPP2 will also permit first-time borrowers from the following groups:
- businesses with 500 or fewer employees that are eligible for other SBA small business loans.
- sole proprietors, independent contractors, and eligible self-employed individuals.
- nonprofits, including churches.
(4) accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location.
The new program allows borrowers that returned all or part of a previous PPP loan to re-apply for the maximum amount available to them.
As with the preceding PPP loans, the costs eligible for loan forgiveness under PPP2 include payroll, rent, covered mortgage interest, and utilities. PPP2 also makes the following potentially forgivable:
- covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
- expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
- covered operating costs such as software and cloud computing services and accounting needs.
To be eligible for full loan forgiveness, PPP2 borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or twenty-four weeks, just as in the original PPP. PPP2 borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year, but the maximum loan amount has been cut from $10 million in the first round to the previously mentioned $2 million maximum. PPP2 borrowers with NAICS codes starting with 72 (hotels and restaurants) can get up to 3.5 times their average monthly payroll costs, again subject to a $2 million maximum.
Notably, PPP2 loans of $150,000 or less can follow a simplified forgiveness process.
“As you may or may not know, as of October 8th the Treasury Department and SBA released a simplified PPP forgiveness application (Form 3508S). In accordance with this Interim Final Rule (IFR), qualifying PPP borrowers will not need to document compliance with the targeted FTE and wage level maintenance requirements. Loan forgiveness amounts will not be reduced, even if FTE or wage levels decreased during or after the covered period, as long as the loan was $50,000 or less, and the borrower, when combined with any affiliates, collectively received less than $2 million.
Many borrowers who received PPP loans have already completed their specified “covered period” and spent the PPP loan proceeds and may be ready to submit the related forgiveness applications (SBA Form 3508, 3508EZ or 3508S). The SBA began approving PPP forgiveness applications and remitting forgiveness payments to PPP lenders for PPP borrowers on October 2, 2020. It is not urgent that forgiveness applications be submitted soon. As a reminder, under the PPPFA, loan repayments for any amounts not forgiven are not required until ten months after the expiration of a borrower’s covered period. Borrowers should check with their lenders directly to determine if they are prepared to accept forgiveness applications. ADP clients can obtain the appropriate reports in their ADP solution and should gather other documentation demonstrating how PPP loan proceeds were used, including mortgage interest, rent payments and utilities. ADP will continue to closely monitor federal legislation and guidance affecting PPP loans.”
The link for the actual form and instructions is here.
Please note, I have reached out to several lenders who worked with me to obtain PPP for clients but they are not yet ready to receive any forgiveness applications. The Best thing to do is reach out to the lender you worked with.
I just received an email from Dime Community Bank last week related to the opening of their portal for PPP forgiveness.
Please check with the financial institution that you work with to see if they have begun to accept the forgiveness applications.
If they have, I strongly recommend that you process your application as soon as possible to start the procedure.
With all that is going on in 2020, one might lose sight of certain requirements and/or
possible law changes on the horizon. Please be aware:
- The sexual harassment training obligations in New York State and New York City have not been waived for 2020. Therefore, new employees must be trained and all existing employees must be retrained annually with proof of training. To learn more, go here.
- In 2017, the federal estate tax exemption was doubled and continues to increase annually for inflation. Currently the exemption is $11,580,000 per person. Assuming no interim change in the law, the exemption will be reduced by half as of January 1, 2026.