Here are the highlights you need to know about tax changes resulting from the American Rescue Plan (ARP).

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Greetings and happy holidays!

As another memorable year comes to an end and we look forward to 2022, we would like to assure you that we are here to support your individual and business tax and accounting needs.  Below is a summary of some of the new 2021 tax changes resulting from the passage of the American Rescue Plan (ARP). 

Child tax credit

Increased in 2021 from $2,000 to $3,000 for children ages 6-17 and $3,600 for ages 5 and under.  Further to the increase, this credit is now fully refundable.  Half of this credit is being paid in advance through monthly payments that started in July 2021 and ending in December of this year.  The other half will be claimed on your individual tax return.  You will need to inform our office of the monthly payments that you received from the IRS in 2021 in order for us to prepare your income tax return.  We will need the date and amount received for each payment.

Dependent care credit

This credit is also fully refundable in 2021.  The maximum credit percentage increased from 35% to 50%.  The credit is allowed for up to $8,000 in childcare expenses for one child and a total of $16,000 for taxpayers with two or more children.  We will need you to provide childcare statements showing the total amount paid in 2021, childcare provider, address, and employer identification number to properly calculate the credit.

Stimulus checks

ARP authorized a third round of stimulus checks – $1,400 for each member of your household.  The amount received is not taxable income, this was an advanced credit paid in 2021. Some taxpayers that were eligible for these payments did not receive a payment or received less than what they should have.  Our office will need you to provide the amount received and date.  We will then reconcile that amount on your individual return and if you’re due an additional amount we will take the credit.  If you received a higher amount, you will not need to pay it back. 

Required minimum distributions (RMDs)

These distributions from retirement accounts were suspended in 2020 but are back for 2021.  Anyone that is at least 72 years of age by the end of 2021 is required to take an RMD by December 31, 2021.  If you reached age 72 on July 1, 2021 you can delay your RMD to 1 April 2022, keep in mind if you delay this year’s RMD you will also need to take your 2022 RMD by December 31, 2022.

Health savings account (HSA) contributions

The annual cap on contributions increased from $3,550 to $3,600 for single coverage and from $7,100 to $7,200 for family coverage.  Taxpayers aged 55 and older can contribute an additional $1,000 in 2021.  You must be covered under a high deductible plan – $1,400 for individuals and $2,800 for families.  Contributions can be made up to 15 April 2022 and count towards 2021. 

Student loan debt

Starting in 2021, if any student loan debt incurred for a post-secondary education is canceled, forgiven, or otherwise discharged it will not be treated as taxable income.  Further, employees can exclude up to $5,250 of college loans paid by their employer from taxable wages.  This exclusion was extended through 2025.  The $5,250 cap applies to both student loan repayment benefits and educational assistance offered by employers. 

Estate and gift tax exemption

The lifetime exemption increased to $11.7 million and $23.4 million for couples if portability is elected by timely filing IRS Form 706 after the death of the first to die spouse.  The gift tax exclusion remains $15,000 per recipient without reducing your lifetime exemption. 

Business meals deduction

This deduction has been increased from 50% to 100% for tax years 2021 and 2022. 

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As always, we are available if you have any questions or wish to discuss a specific matter.  We value the trust you place in our firm and would like to extend happy holidays and best wishes for a healthy and happy new year!

Sincerely,
Werner & Co. CPAs

Reopening the U.S. is bringing more important changes as we approach post-pandemic normal. This includes an expansion of the Child Tax Credit (CTC).

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Hello again, clients and friends:

Now that the US is beginning to reopen, many of the sources of pandemic-related assistance will expire.  To help with the transition to a more normal economy and to support families with children, Congress authorized expansion of the Child Tax Credit (CTC) and provided for cash payments of half of qualifying amounts. 

Half now, half later

The full credit is $3,000 for each child over age 6 and under 18 years and $3,600 for each child 5 and under as of 31 December 2021, so the advance payment amount is $1,500 and/or $1,800 per qualifying child.  The other half will be claimed when we file your 2021 tax return.

Amount of credit phases out

The amount of credit available phases out at different amounts, depending on your filing status.  Below are the phase-out ranges:

• Single & married filing separately – full credit to $75,000, phases out at $200,000;
• Heads of households – full credit to $112.500, phases out at $200,000
• Married filing jointly – full credit to $150.500, phases out at $400,000;

Calculator for those interested – 2021 Child Tax Credit Calculator | Kiplinger

The above amounts are important because the IRS is basing your advance credits off your 2019 or 2020 filing (whichever year they have on file).  If your income exceeds the limit, you may have to repay the excess amount with your 2021 tax filing.  For this reason, we have had many clients unenroll from receiving these advances.  Both taxpayers on a jointly filed tax return must unenroll for the changes to take effect. 

Unenrollment

It’s too late to unenroll for the July payment, but you may unenroll for later payments if you choose, according to the following schedule:

August: Unenrollment deadline is 2 August 2021, payment date on 13 August 2021;
September: Unenrollment deadline is 30 August 2021, payment date on 15 Sept 2021;
October: Unenrollment deadline is 4 Oct 2021, payment date on 15 Oct 2021;
November: Unenrollment deadline is 1 Nov 2021, payment date on 15 Nov 2021; and
December: Unenrollment deadline is 29 Nov 2021, payment date on 15 Dec 2021.

IRS help

On the below referenced website, there is a link to upload your banking information if IRS doesn’t already have it as well as links to more information about who qualifies and how to test your eligibility.  You can also unenroll from the program from the same website if your circumstances have changed or if you would rather have 100% of the credit on your 2021 tax return. 

https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021

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Please call or email if you have any questions about this or any other topic.  We are here to help! Have a safe and enjoyable 4^th of July!

The team at Werner & Co. CPAs

This third significant stimulus package impacts both individuals and businesses. And it’s complicated. Here’s what you need to know.

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Dear clients and friends:

Spring appears around the corner and with it, Congress passed a third significant stimulus package—the American Rescue Plan (ARP).  There are several facets that will impact both individuals and businesses.  Much more guidance is needed, but we broke down the key tax sections and highlighted provisions that affect our clients. The first section deals with individual changes and the latter part businesses.  As we learn more we will certainly share.

Stimulus payments

The largest immediate impact of this bill is another round of stimulus payments – $1,400 per taxpayer and all dependents, regardless of age.  If you recall, children age 17 and older were left out of the calculation for the earlier payments, but not this time.

The phase-out range also changed.  The ranges start at $75,000 for Single filers, $150,000 for Married filers and completely phase out at $80,000 for Single filers and $160,000 for Married filers. A married couple filing jointly with adjusted gross income of $160,000 or more will receive no stimulus payments. 

The IRS will base your stimulus payment on your most recently filed tax return.  Clients that have sent in their tax data and have higher income in 2020 than 2019, please know that we will hold your return until stimulus funds arrive.  If your income dropped in 2020 compared to 2019 and you are now under the threshold, we are working to file your return as quickly as possible.

NOTE: The ARP has a clause stating that stimulus payments will be paid out in two phases.  In Phase I, the IRS will take the data on file and pay stimulus payments based on those amounts.  If you have not filed a 2019 or 2020 tax return, you will not receive a stimulus payment.  For anyone who earned less in 2020 than 2019 and has not filed a return, there will be a second date in which the IRS pays out the stimulus funds based on that 2020 filing.  That date is the earlier of 90 days after the tax deadline day OR September 1. 

Unemployment Benefits

This bill allows makes the first $10,200 in unemployment compensation (UC) benefits non-taxable, but only for filers who made less than $150,000 in 2020.  Many of our clients were aware this might happen, and we have held returns until guidance arrived.  We will continue to hold these returns until the IRS updates their system and forms to properly report this change. 

Further, if you remain unemployed, your benefits were set to expire on March 14^th. Benefits have been extended through September 6, 2021.  The $300 extra federal assistance will also continue through September 6. 

Expanded Child Tax Credit   

The current Child Tax Credit claimed on your form 1040 is $2,000 for children under age of 17 and $500 for age 17 and older.  The ARP expands that credit to $3,600 per child under the age of 6 and $3,000 for children ages 6-17.  Dependents 18 years and older remain at $500.  This change is for tax year 2021 only and not permanent. 

Added bonus –the IRS will pay half of the child tax credit on a monthly basis from July 2021-December 2021.  For example, if you qualify, you will receive $300/month per child under age 7 and/or $250/month per child aged 7 through 17 from July – December. 

This additional credit comes with the same phaseout for stimulus payments – if you make more than $75,000 single or $150,000 married joint, you will not receive the expanded credit.  Please note, if you end up receiving the advance and your income exceeds the phaseout limitation, the IRS will require this to be repaid when you file your 2021 taxes. The IRS will create a portal to allow taxpayers to OPT OUT of receiving advanced payments. 

Expanded Earned Income Credit

If you are a low-income taxpayer and have earned income (W2 wages, self-employment income) you can qualify for the earned income credit (EIC).  The ARP nearly triples this credit from $543 to a maximum of $1,502 annually.  Also, the credit was only available for taxpayers aged 25-65, now all full-time students who are at least 19 years of age can qualify if they meet the income requirements.

No Minimum Wage Increase or Loan Forgiveness

What didn’t the bill include?  Raising the minimum wage to $15/hour and student loan forgiveness. 

For business owners there are few extensions to existing programs.

Extension of Family and Sick Leave Credits

The ARP extends the credits through September 30, 2021, allowing employers to pay employees affected by COVID-19 to be compensated dollar for dollar with tax credits.  Note:  This includes self-employed individuals.  The requirements are the affected person cannot work due to contracting COVID-19, having symptoms, or being compelled to quarantine because of COVID-19. 

Extension of the Employee Retention Credit

This is a big one. The extension continues through 12/31/2021.  We have not had the opportunity to calculate anyone’s ERC for2021 as we are still working on the changes to this program that were enacted at the end of 2020, but we will share new guidance as we learn it. 

PPP application two-month extension

Earlier law required eligible businesses to apply by March 31, but the ARP extended the deadline till May 31, 2021.  If you qualify for Round 2, we recommend getting in touch with your bank and applying sooner than later.  In the ARP, Congress injected more money into the program.  As for the forgiveness application, many banks are waiting for new forms to be released before allowing applications.  If you are looking to apply, get in touch with your bank and talk to us before submitting the forgiveness application.  We want to make sure your loan is forgiven.

Restaurant Revitalization Fund

SBA will have new grants for the food and beverage industry (and rightfully so) that will compensate for most operating expenses paid up to $10 million.  Amounts available will depend on lost revenue in 2020 compared to the same time period in 2019.  As more details become clear we will share. 

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Again, we appreciate the opportunity to work with you.  This tax season certainly appears to be more challenging than the last, but our goal is to continue servicing you all.  If you have questions, please let us know.

The team at Werner & Co. CPAs

In case you missed it—or wish to review!

We saved the Powerpoint from our webinar presentation earlier today,
which you can download here: Paycheck Protection Program Round 2

Get all the latest information you need about Payroll Protect Program (PPP) best practices and what you need to know NOW. Save your spot. Register now.

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Register in advance for the webinar presentation by clicking the link. After registering, you will receive a confirmation email with further instructions to join the meeting.

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PPP best practices new year update
January 15, 2021 Monday 1:30 PM Eastern Time (US and Canada)
https://zoom.us/meeting/register/tJArcu2rqD8tE9EPnztmZnZ9auN1xBl9Xkc0
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