TAX CHANGES PER NEWLY-PASSED LAW

The webinar I attended yesterday about the American Rescue Act that just passed covering tax changes to the unemployment exemption, premium tax credit, stimulus check, child tax credit, earned income credit, dependent care credit, sick and family leave and employee retention credit.

Unemployment

·        If your Adjusted Gross Income (not total income) is under $150,000.00, you are not taxed on unemployment up to $10,200.00 for single individuals or $20,400.00 for married filing joint. 

·        There are no rules yet on married filing separate and this is something that could be considered. 

·        It was also suggested that contributing to an individual retirement account (IRA) could be the difference between receiving this exemption or not.

Premium Tax Credit

·        The change to this credit is during 2020 no one will be responsible for repaying any overage from the advance tax credit they receive through the health insurance marketplace.

·        It eliminates 400% less than poverty level requirement. It now uses 8.5% of income limit to qualify. If unemployed, even for just one week in 2021, it is treated as if total income is 133% of poverty level.

·        Amend if necessary, but consider the materiality of the amount. If a client is receiving $27.00 more refund, but taking 15 minutes to half hour to prepare amendment for just that issue, it is not worth the cost.

·        If an return was e-filed originally, it can be superseded and re-e-filed before extended due date. This will require the tax programs to have a button to supersede. It might take them awhile to update the software.

2021 Stimulus Check

·        This is the third stimulus check to be received. 

·        This includes self, spouse, dependents (w/ SSN), qualifying relative and college students. 

·        It is for income under $75,000.00 (single) and $150,000.00 married filing joint. It totally phases out at $80,000.00 and $160,000.00, respectively. If deceased prior to 1/1/21 no rebate. 

·        There are no offsets for tax debts, bank garnishments or private collection levies. 

·        It will be reconciled on 2021 returns.

To see when receiving stimulus, go to: www.irs.gov/coronavirus/get-my-payment

Child Tax Credit for 2021

·        Increases age from 17 to 18

·        Fully refundable

·        Credit increases from $2,000.00 to $3,000.00 if 6 years old or older and $3,600.00 if under 6

·        Can receive ? credit in advance and 1/12 per month from 7/2021-12/2021

·        The government will send a statement at yearend

·        Phase-out greatly reduced AGI $75,000.00 (single) and $150,000.00 (MFJ)

·        It will be reconciled on 2021. If receive too much, you will pay it back unless $40,000.00 (single) and $60,000.00 (MFJ) with full phaseouts after $80,000.00

·        In July, the IRS will have a portal to opt-out or update any changes

Earned Income Credit 2021

·        Doubles the credit

·        Doubles phase-out without children for 2021 only

·        Lowers age from 25 to 19 (except students) for allowance of taking credit

·        Eliminates upper age limit

·        Raises the amount of investment income from $3,650.00 to $10,000.00 after 12/31/20

·        Allows 2021 EIC filers to use earned income of 2019 if 2021 less  than 2019

Dependent Care Credit 2021

·        Fully refundable

·        Qualified expenses increases from $3,000.00 to $8,000.00 per child and family limit from $6,000.00 to $16,000.00

·        Increases credit rate from 35% to 50%

·        Phase-out increases from $15,000.00 to $125,000.00

Employer dependent care assistance

·        Increases from $5,000.00 to $10,500.00

·        This is a qualified fringe which is tax-free to employee

Employee Retention Credit

·        70% credit up to $10,000.00 (per employee, per quarter)

·        Instead of 2 quarters it is all 4 quarters

·        20% revenue decrease from equivalent quarter in 2019

Finally, 2021 Sick and Family Leave changes

·        No longer mandatory for small business (under 500 employees)

·        Voluntary though 4/1-9/30/21

·        Also includes testing, vaccine and recovery from vaccine

·        10 more days again this year beginning 4/1/21

·        Wages increase from $10,000.00 to $12,000.00 per employee

·        Includes self-employed individuals

In defense of all of us tax professionals: Everyone should understand why tax prep fees are higher than the cost of off-the-shelf tax programs bought in any store. We pay for seminars, spend lots of time learning new tax law (even during tax season) and the knowledge it takes to actually know how to enter the dollar values in the programs.