by | Aug 12, 2021 | Tax Tips and News
A new safe harbor unveiled by the Internal Revenue Service and the Treasury Department lets employers exclude some items from their gross receipts when figuring if they are eligible for the Employee Retention Credit, or ERC.
This new safe harbor is detailed in Revenue Procedure 2021-33 and allows employers to exclude these amounts when calculating ERC eligibility:
- The amount of the forgiveness of a Paycheck Protection Program (PPP) Loan;
- Shuttered Venue Operators Grants under the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act; and
- Restaurant Revitalization Grants under the American Rescue Plan Act of 2021.
Employers have to determine whether they qualify to claim the ERC on their quarterly employment tax return. To claim the safe harbor, they only have to leave those specific amounts out of the calculations.
The IRS reminds that when it comes to determining an employer’s eligibility for the ERC, the revenue procedure requires the safe harbor to be applied consistently across all quarters where the retention credit is relevant.
There’s also an all-or-none kind of rule when applying the safe harbor. In situations where several employers are treated as a single employer by aggregation rules, the employer claiming the credit has to apply the safe harbor to the others.
Conversely, employers aren’t required to use the safe harbor and the specified amounts can’t be excluded for any purpose other than calculating ERC eligibility.
The IRS is expanding their guidance
Revenue Procedure 2021-33 updates and expands guidance originally handed down in these publications:
- Notice 2021-20, detailing the ERC in terms of qualified wages paid after March 12, 2020, and before Jan. 1, 2021;
- Notice 2021-23, addressing the ERC relating to qualified wages paid after Dec. 31, 2020, and before July 1, 2021; and
- Notice 2021-49, which applies to qualified wages paid after June 30, 2021 and before Jan. 1, 2022.
To claim the ERC on their regular quarterly employment tax return, employers generally use Form 941, Employers Quarterly Federal Tax Return. If filing an adjusted return, Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund is generally used.
There may yet be more to come on the safe harbor for the Employee Retention Credit. Both the IRS and the Treasury Department say they are watching for new legislation and promise to update resources when it’s available.
Source: IR-2021-167
– Story provided by TaxingSubjects.com
by | Aug 11, 2021 | Tax Tips and News
The third installment of the Security Summit’s 2021 “Protect Yourself; Protect Your Client” campaign highlights recent scams targeting unemployment compensation. As part of a five-week focus on identity theft prevention, the Summit is once again asking tax professionals to help spread the word to clients.
Issued last week, the IRS press release noted that thieves had ramped up their efforts following continued Congressional expansion of unemployment throughout the pandemic. This comes as no surprise since criminals frequently target victims of natural disasters: The confusion and urgency created by these events makes people more susceptible to phishing scams and fraud.
Unfortunately, criminals pushing these unemployment scams have already been successful. In 2020 alone, roughly $89 billion in benefits were stolen. And just last week, the Federal Trade Commission sounded the alarm on a spate of new phishing text messages that—at first glance—appear to be from state workforce agencies.
In other words, identity thieves are not content to rest on their laurels.
What are the signs that someone is the victim of an unemployment compensation scam?
The IRS says one surefire sign that someone is the victim of an unemployment compensation scam is receiving a tax form for unreceived benefits.
“States report compensation to the individual and to the IRS by using the Form 1099-G,” the agency explains. “Because of fraud and identity theft, many taxpayers received Forms 1099-G for compensation they did not receive. Some taxpayers received forms from multiple states.”
What should I do if I think my client is a victim of an unemployment compensation scam?
Since unemployment benefits are taxable, the IRS warns that these scams can also affect a victim’s tax return. Luckily, tax professionals specialize in tax-related issues. That’s why the agency recommends six things you can do to help clients who may have been the victim of an unemployment compensation scam:
- File a Form 14039, Identity Theft Affidavit PDF, only if an e-filed tax return rejects because the client’s Social Security number has already been used. Do not file the IRS Form 14039 to report unemployment compensation fraud to the IRS.
- Report the fraud to state workforce agencies, and request a corrected Form 1099-G. Each state has its own process for reporting unemployment compensation fraud. The U.S. Department of Labor has created an information page with all state contacts and other information at DOL.gov/fraud.
- File a tax return reporting only the actual income received. State workforce agencies may not be able to timely issue a corrected Form 1099-G. Even if the client has not received a corrected Form 1099-G, report only wages and income received and exclude any fraudulent claims.
- Consider an IRS Identity Protection PIN. Clients receiving Forms 1099-G are identity theft victims whose personal information could be used for additional criminal activities, such as filing fraudulent tax returns. All taxpayers who can verify their identities can now obtain an Identity Protection PIN to protect their SSNs. Read more about IP PINs at IRS.gov/ippin.
- Follow Federal Trade Commission recommendations for identity theft victims. Taxpayers should consider steps to protect their credit and other actions outlined by the FTC. The DOL also includes this information on its DOL.gov/fraud page.
- Finally, tax professionals’ business clients can also assist in fighting unemployment compensation fraud by responding quickly to state notices about employees filing jobless claims, especially when it has no record of those employees.
The IRS also notes that the American Rescue Plan Act included an exclusion for tax year 2020 unemployment compensation that could help some victims of an unemployment compensation scam deal with the fallout:
- Up to $10,200 for individuals
- Up to $20,400 for married couples filing jointly ($10,200 per spouse)
However, this exclusion is only available to taxpayers with an adjusted gross income that is less than $150,000.
What other data security resources does the IRS recommend?
The IRS suggests checking out the following links for additional information about data security:
Source: IR-2021-163
– Story provided by TaxingSubjects.com
by | Aug 10, 2021 | Tax Tips and News
New guidance from the Internal Revenue Service aims to help employers better understand the employee retention credit—and how they can qualify for it.
The new guidance spotlights employers who pay qualified wages after June 30 of this year and before Jan. 1 of 2022. Additional guidance tries to answer various miscellaneous questions around the credit in both the 2020 and 2021 tax years.
Why is the IRS issuing new employee retention credit guidance?
Additional instructions were needed after the American Rescue Plan Act of 2021 (ARP) made changes to the employee retention credit that apply to the third and fourth quarter of 2021.
This new guidance is contained in Notice 2021-49, which builds on guidance on the employee retention credit that was originally published in Notice 2021-20 and Notice 2021-23.
Some of the changes outlined in Notice 2021-49 include:
- Making the credit available to eligible employers who pay qualified wages after June 30, 2021, and before Jan. 1, 2022,
- Expanding the definition of eligible employer to include “recovery startup businesses,”
- Modifying the definition of qualified wages for “severely financially distressed employers,” and
- Providing that the employee retention credit does not apply to qualified wages taken into account as payroll costs in connection with a shuttered venue grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, or a restaurant revitalization grant under section 5003 of the ARP.
The Treasury Department also uses Notice 2021-49 to respond to various questions it has received about the employee retention credit. The IRS says these issues are addressed in the latest guidance:
- The definition of full-time employee and whether that definition includes full-time equivalents,
- The treatment of tips as qualified wages and the interaction with the section 45B credit,
- The timing of the qualified wages deduction disallowance and whether taxpayers that already filed an income tax return must amend that return after claiming the credit on an adjusted employment tax return, and
- Whether wages paid to majority owners and their spouses may be treated as qualified wages.
Those employers who qualify for the employee retention credit should report their total qualified wages and the related health insurance costs for each quarter on their employment tax returns for the period. Generally, this will be done using Form 941.
If a reduction in the employer’s employment tax deposits isn’t enough to cover the amount of the credit, some employers could get an advance payment from the IRS. Employers seeking the advance should file Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Both the Treasury Department and the IRS say they recognize that the employee retention credit is a changing landscape and are closely watching for new legislation that can change the current guidance.
New guidance will be issued, they say, whenever it’s warranted.
For more information on the employee retention credit, check out the Frequently Asked Questions on Tax Credits for Required Paid Leave and other topics found on the Coronavirus page on the IRS website, IRS.gov.
Source: IR-2021-165
– Story provided by TaxingSubjects.com
by | Aug 6, 2021 | Tax Tips and News
Long-haul truckers now have an extra chore on their August to-do list, right up there with an oil change and a truck wash. It’s time to file Form 2290, Heavy Highway Vehicle Use Tax Return for Tax Year 2021.
Form 2290 is required of those who have registered—or who are required to register—large trucks, buses and other vehicles with a taxable gross weight of 55,000 pounds or more.
The deadline to file and pay for those vehicles on the road in July 2021 is Aug. 31.
For taxpayers who may be unsure if their vehicle qualifies, the Internal Revenue Service has their handy online tool, “Do I Need to Pay the Heavy Highway Vehicle Use Tax?”
The tool’s question-and-answer format helps owners determine if they owe the highway use tax. A recorded webinar, “Understanding Form 2290 – Heavy Highway Vehicle Use Tax” is also available.
What are some IRS tips for filing a highway use tax return?
Taxpayers will need some information handy before they start the filing process. They’ll need:
- An Employer Identification Number (EIN). Note that this is not a Social Security Number. If the taxpayer doesn’t already have an EIN, it could take up to four weeks to get one. How to Apply for an EIN has more information on the IRS website.
- The Vehicle Identification Number (VIN) and the taxable gross weight of each vehicle.
To file the Form 2290, e-file is the preferred method for sending it to the IRS; in fact, e-filing is required if the taxpayer is reporting 25 or more vehicles. Check out IRS.gov for a list of e-file providers approved by the IRS.
When the form is e-filed, the IRS sends the taxpayer a watermarked Schedule 1 just minutes after the electronic file is accepted.
If not sending Form 2290 via e-file, the taxpayer is left with sending a paper Form 2290 through the mail. Paper filers can expect a stamped Schedule 1 anywhere from one to six weeks after the IRS receives it. Taxpayers filing by mail will need the correct IRS mailing address, available on Tax Year 2021 Instructions for Form 2290.
Taxpayers, of course, will have to pay the Highway Use Tax when they file, and there are some options for this. The quickest and easiest way, many times, is through electronic funds withdrawal; this can be done as part of the e-file process.
The Electronic Federal Tax Payment System allows online payments, but requires enrollment ahead of the actual payment. Payment by credit or debit card is also available, as is paying with a Form 2290-V, Payment Voucher.
Vouchers should be mailed to:
Internal Revenue Service
P.O. Box 932500
Louisville, KY 40293-2500
Taxpayers should keep in mind that the filing deadline has nothing to do with the registration date of the vehicle. The IRS says taxpayers are required to file their Form 2290 by the last day of the month following the month the vehicle was first used on public highways during the taxable period.
The Trucking Tax Center on the IRS website has more information at IRS.gov/trucker. This site is also available in Spanish.
In addition, the Form 2290 Call Site is available for U.S. callers from 8 a.m. to 6 p.m. Eastern time at 866-699-4096 (toll-free). If calling from Canada or Mexico, call 859-320-3581 (NOT toll-free).
Help is also available through Frequently Asked Questions for Truckers Who e-File (also available in Spanish) and Frequently Asked Questions for Indian Tribal Governments Regarding Highway Use Tax.
Source: IR-2021-164
– Story provided by TaxingSubjects.com
by | Aug 5, 2021 | Tax Tips and News
Some IRS forms are considered “file and forget” documents, meaning once filed they normally don’t require any additional attention. The Internal Revenue Service, though, is reminding that the application for an Employer Identification Number (EIN) isn’t one of them.
The IRS says that those with an EIN—including businesses, partnerships, trusts and estates, charities and others—are required to update their EIN application with current information within 60 days of any change in the Responsible Party.
Keeping current isn’t difficult. Any changes to the EIN application may be made by filing Form 8822-B, Change of Address or Responsible Party – Business.
This information, the agency says, is critical should there be a question of identity theft or other fraud issues tied to the EIN or its parent organization. Wading through out-of-date information can waste valuable time.
“The data around the “responsible parties” for business-type entities is often outdated or incorrect, meaning that the IRS does not have accurate records of who to contact for identity theft issues. This means a time-consuming process to identify the point of contact so the IRS can inquire about a suspicious filing,” an IRS release states.
To increase awareness of the need for updates, the IRS is sending out letters to some 100,000 EIN holders who appear to have out-of-date responsible party information on file.
Current information is required
IRS regulations demand that all applications for an EIN have to show the name of the principal officer—the responsible party. This responsible party can be a general partner, grantor, owner or trustor.
The application also has to include the Taxpayer Identification Number of the responsible party, whether it’s a Social Security number, Individual Taxpayer Identification Number or an EIN.
The IRS defines the responsible party as the person who “controls, manages, or directs the applicant entity and the disposition of its funds and assets.”
The responsible party must be an individual, not an entity such as a board of directors, for example. If there are in fact more than one person who could be a responsible party, the applicant has to choose just one to appear on the EIN application.
If circumstances change and an organization no longer needs its EIN, the IRS says the organization should give up its Employer Identification Number. For information on shedding one’s EIN, see the IRS’ Canceling an EIN – Closing Your Account on the IRS website.
Source: IR-2021-161
– Story provided by TaxingSubjects.com
by | Aug 4, 2021 | Tax Tips and News
The Internal Revenue Service has updated its guidance on expanded paid sick and family leave tax credits available to employers who provide the leave to their workers. Put in place by the American Rescue Plan Act of 2021, also known as ARP, the credits permit eligible employers to be reimbursed for providing paid sick and family leave to their employees for COVID-19-related reasons.
The IRS has revised its frequently asked questions (FAQs) on the credits to clarify that eligible leave now includes that taken by employees to accompany a family member or another member of their household to get immunized against COVID-19, or to care for them as they recover from an immunization. This expanded eligibility is also extended to credits for self-employed taxpayers.
Coverage was extended by the American Rescue Plan.
The expansion of the paid leave tax credit is the latest improvement in an effort that started in 2020 with the Families First Coronavirus Response Act (FFCRA). While “the tax credits under the FFCRA, as amended and extended by the Tax Relief Act, covered leave taken beginning April 1, 2020, through March 31, 2021,” the IRS notes that ARP has further extended the credit to apply to leave taken from April 1, 2021 to September 30, 2021.
Additionally, under the American Rescue Plan, eligible employers include businesses and tax-exempt organizations that have fewer than 500 employees. Employers deemed eligible can claim tax credits for qualified leave wages and some wage-related expenses, including health plan expense and some benefits obtained through collective bargaining.
How do I learn more about the credit?
The newly expanded IRS FAQs explain how employers can claim the paid sick and family leave credits, as well as how to file for the credits and how to calculate applicable credit amounts. The FAQs also detail how employers can get advance payments or refunds of the credits.
The IRS closes the release by reminding self-employed taxpayers that they can “claim comparable credits on Form 1040, US Individual Income Tax Return.”
Source: IR-2021-160
– Story provided by TaxingSubjects.com
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