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

That was quite the week we had and it’s not over yet!

Greetings, clients and friends —

We’re still on the upward slope of COVID-19 disease progression and our hearts go out to all who are impacted, whether suffering through loss, sick, lonely, or anxiety. We hope that you are staying safe and not taking unnecessary risks, following the rules laid down by Gov. Wolf and the suggestions of the CDC and other medical organizations.

As many of you know, President Trump signed a $2 trillion coronavirus relief bill (CARES Act 2020) on Friday March 27, 2020. This email is intended to provide short summary on the impact it will have on individuals. We will have a separate email discussing the business programs. We are currently pushing out updates on our various social media channels; FaceBook, Twitter, LinkedIn and our website https://wernercpa.net/blog/. You can subscribe to our blog to receive notification when we post something.

Individual impacts:

Stimulus Payments

            Who receives one?

• $1,200 per US taxpayer, $2,400 for joint filers. Additional $500 payments for each child under age 17 in the household. Amounts are phased out for taxpayers with an adjusted gross income (AGI) exceeding $75,000, joint filers $150,000 and head of household filers 112,500.

What if my AGI is above the threshold?

• For single filers with an AGI above $75k, your check will be reduced by $5 for every $100 over the threshold. Ex. $80k AGI, your payment will be $950 ($1,200 – $250). For joint filers same calculation but starting at $150k.

What tax year is used to determine eligibility?

• 2019, if that return has not been filed, 2018.

How will checks arrive?

• If the IRS has your bank information on file from your 2018 or 2019 filing, they will submit payments via direct deposit. If that method is rejected because the account no longer exists, they will mail you a check.

Will retirees receive a payment?

• Yes, if you are receiving social security payments, you will receive a payment. If you are not required to file a return because income levels too low, you will still qualify.

Is this payment taxable?

• No.

What if I haven’t filed for 2019 but my income is lower than in 2018?

• You will apply any unused additional credit on your 2020 return.

Retirement provisions:

• Waiver of 2020 required minimum distributions (RMDs) from IRAs and retirement plans. Planning note, if you are having federal withholding from your RMD and plan on not taking one in 2020, contact our office to discuss making estimated tax payments.
• Hardship withdraws, waives the 10% penalty for early withdraws up to $100k.
• 401k loans, increases the loan limits from $50k to $100k or the lessor of 100% of the present value of vested balance. Loan must be made 180 days following CARES Act enactment.

Miscellaneous items

• Existing IRS installment agreements. If you’re under a current installment agreement, payments due April 1 through July 15, 2020 are suspended. The IRS will not default any Installment Agreement during this same period, interest will continue to accrue on unpaid balance.
• Charitable Contributions. The Act is relaxing some of the limitations on charitable contributions by allowing a deduction up to $300, whether the you itemize deductions. Suspending the 50% limitation on individuals.
• Student Loans. Suspends payment on federally held student loans until 9/30/2020. Interest will NOT accrue during this period.

Our intent is to help you stay up-to date about the efforts of the various governments to help you through this troubling time.

Please be careful and call or email us if you have any questions.

As part of our effort to keep everyone informed, we want to share some of the details of the Coronavirus payroll tax credit process so you can apply them in your business or share them with your employers.

As always, please heed the advice of the CDC and other health professionals as you go through each day. We look forward to all of us serving all of you for a long time!

On 18 March, the President signed the Families First Coronavirus Response Act (the Act). The Act provides for expanded paid sick and family leave. Small and midsized employers, those with fewer than 500 employees, will recover the cost of Coronavirus leave through a direct payroll tax credit.

On 20 March the US Treasury Department, IRS and the Department of Labor explained the process for claiming the payroll tax credit. Simply identify the applicable wages and health insurance costs paid to or for the affected employees and do not send those funds to IRS in payroll tax deposits. Instead, use the cash to pay the employees. The taxes that fall under tis credit program are withheld federal income tax, Social Security, and Medicare taxes. Social Security and Medicare taxes include both employee-paid and employer-paid taxes.

The Paid Sick Leave Credit

The amount of the credit is up to $511 per day for 100% of wages paid to employees on Corona virus-related leave or $200 per day (2/3 of normal wage) for employees caring for someone with Coronavirus or for children whose schools or care facilities closed due to the virus. The upper limit is 10 days or 80 hours of wages, $5,110 in the case of employees themselves or $2.000 for care-giving employees.

The credit for paid sick leave applies to an employee who is unable to work because of Coronavirus quarantine or self-quarantine or who has symptoms and is seeking a medical diagnosis, or in the case of child care, due to the closures already mentioned.

The Child Care Leave Credit

If an employee provides care for a child as described above, the $200per day credit will apply to an additional 10 weeks, or $10,000 in total,

Small Business Exception

Businesses with fewer than 50 employees will be exempt from the requirement that leave be granted to care-giving employees if the employer would jeopardize the business by granting leave. The news release stated that simple and clear criteria will be forthcoming to help with this particular decision.

Non-Enforcement Period

For 30 days, the Department of Labor will focus on helping employers comply with the Act and will not pursue enforcement action as long as employers act reasonably and in good faith.

Example

This example shows how straightforward the process is for claiming the credits, If an employer would normally pay a quarterly total of $10,500 in federal payroll taxes and in that quarter paid Corona-affected employees $3,500, the required payroll tax deposit total would be $7.000.

What a week and what a time in US history!

To Clients and Friends —

I will cut to the point – Governor Wolf ordered that “all non-life sustaining businesses in Pennsylvania close or face enforcement action.” That enforcement will go into effect 12:01am Saturday March 21, 2020. For this reason, we are not staffing our Allentown office after Friday March 20, 2020. Our staff is working remotely and it’s important that you know we will be serving our clients as earnestly as ever. If you were scheduled to meet in-person with a member of our team, we will be in touch shortly to reschedule that meeting to a phone call.  

Parallel to Governor Wolf’s order, Treasury Secretary Mnuchin announced “We are moving Tax Day from April 15 to July 15, all taxpayers and businesses will have this additional time to file and make payments without interest or penalties.”

What this means to our clients – in the middle of the tension and uncertainty, the tax world is back to normal but pushed back 90 days. If we completed your return and you have a balance due to the IRS, that payment is now due 7/15/2020. You do not need a new voucher or any additional forms, simply make payment on 7/15.  

If your return is not complete as of this email, there is no further action required on your part. Tax Day is now 7/15/2020 and we will continue working on your returns.  As usual, a member of our team will contact you with any questions/information requests.  

We will work as diligently as we can under these new circumstances and your patience is appreciated. It is our responsibility to file your return on time and we will do so. This environment is changing by minute – there are new tax credits, stimulus payments, loan forgiveness among a host of other items in discussion and we update our Emergency Tax Updates webpage as information becomes available.

We at Werner & Company CPAs stand with our community to keep everyone safe and end the spread of COVID-19. Stay safe, everyone – and thank you for the trust you have placed in us. We are confident by working together we will overcome this.

Sincerely,
Kristofer DePaolo, CEO

The Senate Passes COVID-19 economic relief package to combat pandemic.

On Wednesday 18 March 2020, the US Senate passed an economic stimulus plan designed to help employers cushion the impact of the COVID-19 outbreak on themselves and their employees. The act expands the Family and Medical Leave Act and introduces specially designed paid sick leave, covering employees who are sick with the virus as well as those serving as caregivers for others with the virus. This act provides two payroll tax credits for businesses with fewer than 500 employees effective April 2, 2020. In addition to the credits described below, the act includes free virus testing, expands unemployment insurance and provides food assistance to those affected by the virus.

Sick Leave Credit – this credit is for eligible employees that are taking sick leave because the employee is:

• Subject to a federal, state or local quarantine order related to COVID-19:
• Advised by a health care provider to self-quarantine due to COVID-19;
• Experiencing COVID-19 symptoms and seeking medical diagnosis;
• Providing care for an individual subject to a federal, state or local quarantine order or advised by a health care provider to self-quarantine due to COVID-19 concerns;
• Caring for the employee’s child if the child’s school or place of care is closed or the child’s care provider is unavailable due to public health emergency; or
• Experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

The credit cannot exceed $511 per employee per day and is limited to 10 days or 80 hours of sick pay leave. It remains in effect for wages paid through December 2020. The employer cannot use this credit in connection with wages for which the employer is currently receiving the employer credit for paid family and medical leave enacted by the Tax Cuts and Jobs Act.

Self employed individuals also qualify for credit up to the lesser of the self-employment tax on their average daily self-employment income or $511 per day if caring for themselves and $200 if caring for a family member. This credit limit is also 10 days.

On a quarterly basis, the credit is limited to the total tax liability on the employer portion of the social security payroll tax. In certain circumstances the credit can be refundable.

Emergency Family & Medical Leave Expansion Act – The Act amends and expands the family and medical leave act (FMLA) temporarily. Currently only employers with 50 or more employees were covered under FMLA. This change now covers employers with less than 500 employees. Any individual employed by the employer for at least 30 days (before the first day of leave) may take up to 12 weeks of job-protected leave. Employees who meet any of the following circumstances qualify:

• Quarantine because of exposure or symptoms related to COVID-19;
• Provide care to a quarantined family member;
• Provide care for child younger than 18 whose school or day care has closed due to COVID-19

We are making every effort to stay on top of this very fluid situation. Please call or email with questions you may have, info@wernercpa.net or 610.770.9236.