The Biden administration is likely to dramatically change its approach to tax policy, with the first step in the stimulus package it began pushing through Congress this month.
The House Ways and Means Committee marked up the tax portions of the package during a hearing last week. If the package passes intact in the House and the Senate, it would include Economic Impact Payments of $1,400 for individuals, expand the Child Tax Credit to $3,000 per child and make it fully refundable, and triple the maximum Earned Income Tax Credit and extend eligibility for workers without children.
The $1.9 trillion COVID-19 relief package represents the Biden administration’s response to the urgent needs of the pandemic and includes a host of other provisions, including the extension of enhanced unemployment benefits that are due to expire at the end of March, as well as an extension of the moratorium against evictions and foreclosures through September. Other policies are already provoking pushback from Republicans and some Democrats, such as an increase in the minimum wage to $15 per hour and aid to state and local governments whose budgets were hit by the pandemic.
There could be more tax changes to come under the Biden administration that could roll back parts of the Tax Cuts and Jobs Act of 2017, and even provisions in last year’s CARES Act like the removal of limitations in the TCJA on carrying back the net operating loss deduction. “I think everything's on the table, and there will probably be a lot of give and take,” said Kathryn Kaminsky, vice chair and tax leader at PricewaterhouseCoopers, which recently issued a Tax Policy Outlook report for 2021. “There’s so much out there. My suspicion is there’s going to be a lot put on the table, and they’re going to have to come up with some type of a compromise.”
One reason for compromise is that the Senate for now seems to be preserving the legislative filibuster, which requires at least 60 senators to vote for legislation to advance. “The filibuster is going to be a huge variable in the scope and process that any tax legislative activity is going to have,” said Todd Simmens, a former legislation counsel to Congress’s Joint Committee on Taxation and national managing partner of tax risk management at BDO USA. “Right now, I don’t really hear an immediate desire to remove the legislative filibuster, as has been done for court appointments, etc. And I don’t think there are the votes right now to do that.”
The Democrats appear to be ready to use a budget reconciliation strategy, which requires only 51 votes, to push through the relief package, as Republicans did in 2017 with the TCJA and in 2001 with the Bush tax cuts. But President Biden has indicated that he would prefer to work with Republicans on legislation and has held meetings in the Oval Office with some GOP senators in an effort to persuade some moderates to come on board and support the stimulus package.
However, using budget reconciliation means that some of the tax provisions would likely have to expire at some point in the next few years. “The upside is generally you need only 51 votes,” said Simmens. “But the downside, like we had in ’17 and in ’01, is the bill will likely have a shelf life. The problem is you’re not going to have a permanent tax policy.”
Despite the move toward a reconciliation strategy to get the stimulus package passed to meet the urgent economic needs from the pandemic, Democrats seem to recognize the need to work on a bipartisan basis on tax legislation.
“As the new Congress strives to meet this moment, I expect tax policy to remain central to our efforts to recover from the pandemic and accelerate our nation’s economy,” said House Ways and Committee chairman Richard Neal, D-Massachusetts, during an online symposium last week hosted by the Tax Council Policy Institute and Ernst & Young. “Two key features define the present legislative landscape and will shape our potential: the return of unified Democratic government and the urgent need for extensive, broadly shared economic relief. For the first time in 12 years, Democrats will control the White House, the House of Representatives and, with the help of our vice president, will have the tie-breaking vote in the U.S. Senate. While it’s technically a unified government, it’s a pretty fragile unity upheld with very slim margins in the House and the narrowest possible margin in the Senate. While it does offer a more straightforward path for legislation than the past few years, we should not underestimate how difficult the challenges are in front of us. Congress in this context will require compromise and inclusive decision making.”
The Biden proposal would augment the $900 billion stimulus package that Congress passed in December during the final weeks of the Trump administration. The appropriations package provided Economic Impact Payments of $600 for individuals, $1,200 for families, and an extra $300 per child, plus it revived the Paycheck Protection Program and extended a number of tax credits, in some cases permanently.
“What one of the provisions clarified was that businesses forgiven for PPP loans could deduct the regular business expenses that are paid for with the loan proceeds,” said Kaminsky. “People were interested in that, as well as the expansion of the Employee Retention Credit and charitable contribution deduction and the temporary full deduction for business expenses for food and beverages, but they had to be provided by a restaurant. People were also focused on the tax extender package. That renewed for at least 12 months all but a few tax provisions that would have expired on Dec. 31. Some provisions were actually made permanent and others extended for as many as five years. Permanent tax provisions included deductions for certain energy-efficient commercial building expenses and reduced the craft beverages excise tax. The look-through rule for payments related to controlled foreign corporations, the New Markets Tax Credit and the Work Opportunity Tax Credit were extended.”
Some of the possible changes coming under the Biden administration could be an increase in the corporate tax rate from the 21 percent that was supposedly made permanent under the TCJA. While the top rate is not likely to go all the way back up to 35 percent, it could be increased to 28 percent as a way of seeking compromise with Republicans.
Other areas of possible agreement under Biden could be expanding the research tax credit, so that instead of amortizing it over five years under the TCJA rules, it could be deducted the same year, as it used to be prior to the passage of the TCJA.
“He really has a big push for manufacturing domestically, and bringing things back to the United States,” said Simmens. “The research credit is a big part of that. I think there’s an interest in bringing that back to closer to what its form was and how it was set up.”
The Biden administration might also try to increase the long-term capital gains tax rate. “The long-term capital gains rate is 15 or 20 percent, depending on the taxpayer’s profile,” said Simmens. “That could become an issue for qualified opportunity zone investors who are able to defer capital gains when they invest in a qualified opportunity fund. The issue there is if they're deferring gains, when that gain comes to roost, they might be unpleasantly surprised if the rates go up. If President Biden has his way, he would at least remove the preferred rate for those earning a million. He would tax long-term capital gains and dividends, for over a million, at the ordinary rate, which he would raise back up to 39.6 [percent] at the top rate. It’s now at 37.”
The Biden administration is also planning to push for tax incentives for green energy and infrastructure. “After meeting President Biden, it is clear as soon as this round of relief is put in place, we will proceed to a major infrastructure initiative,” said Neal. “We will hope to facilitate, upkeep and provide expansions and good infrastructure safety. Last year, the House passed the Moving Forward Act, which could achieve all of these goals. It included the largest tax expenditure investment in combating climate change in history. This year, we will work closely with President Biden to get an infrastructure bill enacted, including a revived Build America Bonds program, a transformative expansion of the Low-Income Housing Tax Credit, an enhanced New Markets Tax Credits I expect to try to make permanent, and a huge investment in broadband expansion and affordability. Alongside the infrastructure provisions, our green energy initiative calls for further investments in clean energy technologies, expanding federal tax incentives for energy efficiency and renewable energy technologies.”
Businesses will need to keep a close watch on further tax changes coming out of Congress this year and in the years ahead. “The key takeaway for businesses is they really need to review how they could benefit from all the COVID relief measures and the tax extender provisions and really look through them as part of their year-end government funding package,” said Kaminsky. “Stakeholders need to engage with policymakers as more legislation and more relief measures are implemented. You’re seeing what's happening and how it affects their business operations and employees in 2021. I think we’re going to see a lot coming.”
Clipped from: https://www.accountingtoday.com/news/tax-policy-shifting-this-year-under-biden?position=editorial_3&campaignname=ACT%20Best%20of%20the%20Week-02202021&utm_source=newsletter&utm_medium=email&utm_campaign=ACT_Weekly_Best+of+the+Week%2B%27-%27%2B02202021&bt_ee=p%2BoV3oIZ68Aki0NZOro62oyYr3UVccflN1ZcADIIPd0z1tCmM9DbTdYBREOCX6H6&bt_ts=1613829693687
A new federal form from the Internal Revenue Service aims to help the self-employed claim sick and family leave tax credits under the Families First Coronavirus Response Act.
Eligible self-employed individuals will determine their qualified sick and family leave equivalent tax credits with IRS Form 7202, “Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals.”
Taxpayers can claim the credits on their 2020 Form 1040, for leave taken between April 1 and Dec. 31, 2020, and on their 2021 Form 1040 for leave taken between Jan. 1 and March 31, 2021.
The FFCRA, passed last March, allows refundable tax credits to eligible self-employed individuals who, due to COVID-19, can’t work or telework for reasons relating to their own health, or to care for a family member. The credits can offset their federal income tax and are equal to either their qualified sick leave or family leave equivalent amount, depending on circumstances.
Eligible self-employed individuals must conduct a trade or business that qualifies as self-employment income and be eligible to receive qualified sick or family leave wages under the Emergency Paid Sick Leave Act as if the taxpayer was an employee. Taxpayers must maintain appropriate documentation establishing their eligibility.
IRS.gov has instructions to help calculate the qualified sick leave equivalent amount and qualified family leave equivalent amount.
Clipped from: https://www.accountingtoday.com/news/new-irs-form-lets-self-employed-claim-sick-and-family-leave-credits?position=editorial_4&campaignname=ACT%20Best%20of%20the%20Week-02132021&utm_source=newsletter&utm_medium=email&utm_campaign=ACT_Weekly_Best+of+the+Week%2B%27-%27%2B02132021&bt_ee=uKuH%2F8eIYxheSK4d45g6zkuyxZu36%2F7j6DqNhiPh1Ua4j0wvx3Zr3%2F%2FgcnnhL9Sn&bt_ts=1613224893237
Now, don’t go to sleep on me, please. I know that a tax article won’t exactly be the most riveting thing you’ll read today. But it could be the most profitable.
That’s because taxes can eat up anywhere from 15% to 25% of a small-business owner’s income. Every dollar saved on federal taxes means more cash in your bank account, and that can mean surviving or failing these days.
The good news is that the latest $900 billion anti-virus stimulus bill, signed by then-President Donald Trump in late December, contains a number of tax benefits for small businesses that take the time to take advantage. Here are the six biggest:
1) The Employee Retention Tax Credit has been enhanced and extended through June 30.
To qualify for the credit for the first or second quarter in 2021, your business must have fewer than 500 employees (it was previously 100). You also must have been forced to at least partially suspend business operations due to COVID-19 or had a 20% revenue decline in any quarter compared with the same quarter of 2019.
If that’s the case, then you’re entitled to a tax credit equal to 70% of each employee’s wages (which now includes health insurance payments), up to $10,000 per worker per quarter. You use the credit to cut the employer’s portion of Social Security taxes (FICA). The credit is refundable — if the credit is larger than your tax debt, you get the difference back in cash.
You can also take this credit even if you’re getting money from the Payroll Protection Program, provided you don’t use the same wages in both the credit and forgiveness calculations. In short, no double-dipping. The credit is available for both the first and second quarters of 2021.
Some employers might be able to go back to 2020 and retroactively claim this credit. Talk to a tax professional about this.
2) The Families First virus tax credit has been extended through March 31.
This had required employers to keep paying employees forced to miss work due to COVID-19 (such as staying home with children while schools were closed), but offered a tax credit to help cover the cost. Employers no longer must pay such workers. But the new stimulus bill extended the refundable tax credit through the first quarter for those bosses that voluntarily choose to continue paying such employees.
3) You can continue to defer your employer’s Social Security tax, also through March 31.
Regardless of whether your company has been affected by COVID-19, you are still able to defer your employer’s Social Security (FICA) taxes for the first quarter this year. This is not a credit or a forgiveness. It’s merely a push back in the due date — and you will still be required to pay up. Half will be due by the end of 2021, the rest at the end of 2022. But, in effect, it’s an interest-free loan from the government.
4) The Work Opportunity Tax Credit has been extended through 2025.
This is a credit for hiring a person from selected categories — veterans, ex-felons, welfare recipients — but, most important, people who have been jobless for more than six months. The credit, which is calculated per employee and ranges from $1,200 from $9,600, is taken on your company’s tax return and is also available for pass-through (i.e. S-Corps, Partnerships) organizations. Considering today’s massive unemployment and the hope that many will returning to the workforce, this credit may prove an enormous financial benefit to employers who hire this year. (See more in the "Senators propose to make Work Opportunity Tax Credit permanent" article.)
5) Nonprofits will get a revenue boost because of extended tax deductions.
The new legislation extends the increased deductions for charitable contributions through the end of 2021. That means that individuals can take a $300 ($600 for joint tax returns) deduction on this year’s taxes above the standard deduction for charitable donations. Corporations will also be allowed to deduct up to 25% of their taxable income for charitable contributions, an increase from the normal 10% allowed.
6) Finally, if you lost money in 2020 and earlier, file your tax returns quickly.
A little-known, but significant tax benefit remains from the first round of stimulus funding last March. For one time only, companies that lost money in 2020 (2019 and 2018 tax years are also eligible) can carry back that loss for up to five years against their prior tax returns. Which means that if you paid taxes in those years, you can get a tax refund. It’s not automatic, so if you need the cash, file that return.
Still awake? I hope so. Your reward for doing so may be more cash in the bank.
Clipped from: https://www.inquirer.com/business/small-business/stimulus-bill-tax-tips-small-business-file-covid-virus-20210121.html
The Internal Revenue Service alerted tax professionals Wednesday about a dangerous new phishing scam in which a cybercriminal is sending emails claiming to come from the IRS in an effort to steal Electronic Filing Identification Numbers (EFINs).
The IRS and its security partners in private industry and state government said the latest scheme, which comes only days before the beginning of tax season, offers a reminder that tax professionals are among the main targets of identity thieves who are trying to steal client data and tax preparers’ identities so they can file fraudulent tax returns for refunds. The latest scam email claims to come from “IRS Tax E-Filing” and bears the subject line “Verifying your EFIN before e-filing.”
The IRS and its tax industry partners in the Security Summit routinely alert tax professionals about the latest phishing scams they are receiving. There is usually an surge in such emails around the time of tax season when tax professionals expect to receive more communications from the IRS.
“Phishing scams are the most common tool used by identity thieves to trick tax professionals into disclosing sensitive information, and we often see increased activity during filing season,” said IRS Commissioner Chuck Rettig in a statement. “Tax professionals must remain vigilant. The scammers are very active and very creative.”
The IRS is cautioning tax professionals to avoid following any of the steps in the email, or even to respond to the email. The email states:
“In order to help protect both you and your clients from unauthorized/fraudulent activities, the IRS requires that you verify all authorized eFile originators prior to transmitting returns through our system. That means we need your EFIN (eFile identification number) verification and Driver's license before you eFile.
“Please have a current PDF copy or image of your EFIN acceptance letter (5880C Letter dated within the last 12 months) or a copy of your IRS EFIN Application Summary, found at your e-Services account at IRS.gov, and Front and Back of Driver's License emailed in order to complete the verification process. Email: (fake email address)
“If your EFIN is not verified by our system, your ability to eFile will be disabled until you provide documentation showing your credentials are in good standing to eFile with the IRS.
© 2021 EFILE. All rights reserved. Trademarks 2800 E. Commerce Center Place, Tucson, AZ 85706”
The IRS asked tax professionals who receive the email to save it as a file and then send it as an attachment to firstname.lastname@example.org. They also should reach out to the Treasury Inspector General for Tax Administration at www.TIGTA.gov to report the IRS impersonation scam, even though both TIGTA and the IRS Criminal Investigation division are already aware of the scam.
Phishing emails typically try to convince the recipient to take some action (such as clicking on a link or attachment), while threatening consequences for failing to do so (such as disabling the recipient’s account). The links or attachment can be set up to steal information or download malware onto the tax professional’s computer.
In the case of this latest scam, tax preparers are being asked to email documents that would disclose their identities and EFINs to identity thieves. The cybercriminals can then use the information to file fraudulent returns by pretending to be the tax preparer.
There have been earlier phishing scams that seek EFINs, Preparer Tax Identification Numbers (PTINs) or e-Services usernames and passwords from tax pros. Some cyberthieves pose as potential clients, which can be a particularly effective scam currently because there are so many remote transactions during the COVID-19 pandemic. The cyberthief may interact repeatedly with a tax preparer and then send an email with an attachment claiming to be their tax information. However, the attachment could contain malware enabling a hacker to track keystrokes and eventually steal all the user’s passwords or even take over control of their computer systems.
Some phishing scams turn out to be ransomware schemes in which the cyberthief gains control of the tax preparer’s computer server and holds the data hostage until a ransom is paid. The FBI warns against paying a ransom because cybercriminals frequently leave the data encrypted even after the ransom has been paid.
For more information, see Publication 4557, Safeguarding Taxpayer Data, and Identity Theft Information for Tax Professionals.
Clipped from: https://www.accountingtoday.com/news/irs-warns-of-e-file-identity-theft-scam?position=editorial_5&campaignname=ACT%20Best%20of%20the%20Week-02132021&utm_source=newsletter&utm_medium=email&utm_campaign=ACT_Weekly_Best+of+the+Week%2B%27-%27%2B02132021&bt_ee=uKuH%2F8eIYxheSK4d45g6zkuyxZu36%2F7j6DqNhiPh1Ua4j0wvx3Zr3%2F%2FgcnnhL9Sn&bt_ts=1613224893237
A bipartisan group of Senate lawmakers has introduced legislation to make the Work Opportunity Tax Credit a permanent part of the Tax Code.
The WOTC offers employers a tax credit of between $1,200 and $9,600 per employee if they hire and retain workers who belong to some targeted groups representing populations that have a hard time finding work, or are often out of the labor force altogether. The credit amount is based on the qualified wages paid to employees within the targeted groups. They include veterans, ex-felons, disabled people, the long-term unemployed, summer youth employees, along with recipients of government aid programs such as Temporary Assistance for Needy Families, Supplemental Security Income and the Supplemental Nutrition Assistance Program.
The stimulus package that Congress passed in December extended the Work Opportunity Tax Credit through the end of 2025, among a number of other tax extender provisions. The program has long enjoyed bipartisan support as it incentivizes employers to provide jobs to people who would be dependent on government assistance.
“Because of the ongoing COVID-19 pandemic, now more than ever individuals who are in the shadows are struggling to find meaningful employment,” said Sen. Rob Portman, R-Ohio, in a statement Monday. “Encouraging employers to hire those who have the most trouble finding work is good policy, and while securing a five-year extension last year was a positive step, it’s critical that we make the Work Opportunity Tax Credit permanent.”
Co-sponsors of the bill include Sen. Ben Cardin, D-Maryland, Roy Blunt, R-Missouri, Sherrod Brown, D-Ohio, Bill Cassidy, R-Louisiana, and Bob Menendez, D-New Jersey. Cardin pointed out that making the program permanent would provide more certainty to employers.
The bill has received support from the Retail Industry Leaders Association and the National Employment Opportunity Network, which estimated that the tax credit has helped more than 30 million people on public assistance programs transition into the workforce in the past 35 years, saving federal and state governments over $20 billion a year in expenditures on TANF, SNAF, federal housing and Medicaid.
Clipped from: https://www.accountingtoday.com/news/senators-propose-to-make-work-opportunity-tax-credit-permanent?position=editorial_10&campaignname=ACT%20Best%20of%20the%20Week-02132021&utm_source=newsletter&utm_medium=email&utm_campaign=ACT_Weekly_Best+of+the+Week%2B%27-%27%2B02132021&bt_ee=uKuH%2F8eIYxheSK4d45g6zkuyxZu36%2F7j6DqNhiPh1Ua4j0wvx3Zr3%2F%2FgcnnhL9Sn&bt_ts=1613224893237