On August 10, 2021, the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) released a safe harbor that allows employers to remove certain goods from their gross revenues exclusively for the purpose of assessing whether or not they are eligible for the Employee Retention Credit (ERC).
According to Revenue Procedure 2021-33, the following are some examples of amounts that may be able to be exempt from taxation:
- The cancellation of a debt incurred via the Paycheck Protection Program (PPP);
- Grants for Venue Operators Who Have Been Forced to Close Their Doors, Provided Under the Economic Aid to Struggling Non-Profits, Businesses, and Venues Act; and
- Grants to rehabilitate restaurants as part of the American Recovery and Reinvestment Act of 2021
When calculating whether or not an employer is qualified to claim the ERC on its employment tax return for a given calendar quarter, an employer may choose to apply the safe harbor by eliminating certain amounts in order to determine whether or not the employer is qualified to do so.
Employers are required under Revenue Procedure 2021-33 to apply the safe harbor in a consistent manner when deciding whether or not an employee is eligible for the ERC. When calculating eligibility to claim the ERC, the employer is required to deduct the applicable amounts from their total gross revenues for each calendar quarter in which total gross receipts are taken into consideration. The aggregation regulations require the employer that is claiming the credit to likewise apply the safe harbor to all of the employers who are being considered as a single employer.
A safe harbor is not obliged to be applied by an employer, and the safe harbor does not apply the amounts in tax to be excluded from gross receipts for any other reason related to federal taxes.
The Internal Revenue Service has provided some clarification about the retroactive elimination of the employee retention credit.
The Internal Revenue Service (IRS) has issued new instructions for businesses about the retroactive elimination of the Employee Retention Credit. These instructions focus on what employers need to do (ERC). The newly adopted Infrastructure Investment and Jobs Act changed previous law to the effect that the ERC would only apply to wages received before to October 1, 2021, unless the employer in question is a recovery startup business. This change came into effect on July 1, 2018. Employers who paid wages after September 30, 2021 and either got advance payments of the ERC or lowered their employment tax deposits in preparation for the credit in the fourth quarter of 2021 are no longer eligible for the credit as a result of the change in legislation.
The use of advance payments
If the amounts are repaid by the time that the employment tax returns are due, the employers that received advance payments for wages in the fourth quarter will not be subject to penalties for failing to pay and will instead be exempt from such penalties.
Reduced Initial Deposits Required for tax Taxes
If all three of the following requirements are satisfied, non-recovery startup enterprises that lowered their deposits before to December 20, 2021, for wages they paid during the fourth quarter with the expectation of receiving the ERC, will not be subject to failure to pay fines.
- The employer complied with the regulations for the lower deposit in expectation of receiving the ERC.
- The employer is responsible for making a deposit of the withheld amounts on or before the due date for wages paid on December 31, 2021, regardless of whether the employer pays the wages on that day. The employer’s deposit schedule will dictate the due dates for the deposits at different times.
- The employer includes a statement in the tax return covering the fourth quarter of 2021 in which they report the tax burden that resulted from the termination of their ERC. Employers that wish to learn more about how to report the tax due can do so by consulting the instructions that are included on their respective tax return.
After the 20th of December in 2021, employers that cut their contributions will not be exempt from the penalty for failing to make deposits. Even if an employer does not meet the requirements for tax relief, they can still provide an explanation in response to a penalty notice, and the IRS will consider granting them reasonable cause relief.
The “Infrastructure Investment and Jobs Act” has several tax-related provisions that are important for you to be aware of.
The Infrastructure Investment and Jobs Act (IIJA), more commonly referred to as the bipartisan infrastructure plan, has been approved by the United States House of Representatives, almost three months after it was approved by the United States Senate. Despite the fact that the vast majority of the law is geared toward making large investments in infrastructure projects all throughout the country, it does contain a few significant tax measures here and there. The following is the information that you must know regarding them.
Credit for Premature Expiration of the Employee Retention Program
The Employee Retention Credit (ERC), which was established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, would be discontinued as a result of the IIJA sooner than was first anticipated. The credit was given to employers who were qualified for it under the American Recovery and Reinvestment Act (ARRA) during the third and fourth quarters of 2021. With the exception of so-called “recovery startup businesses,” the Earned Revenue Credit (ERC), which for 2021 is worth up to $7,000 per qualifying employee per quarter, is no longer available for wages paid after September 30, 2021 (rather than December 31, 2021). This is because the new law prohibits it.
In general, the ARPA considers a recovery startup business to be one that commenced operations after February 15, 2020, and that has had annual gross revenues for the three tax years prior to the current one that were either less than or equal to one million dollars. These employers are eligible to submit an ERC claim for up to a total of $50,000 each quarter for the third and fourth quarters of 2021, even if their activities have been halted or their revenue has decreased.
Reporting of Updated Information Regarding Digital Assets
In the same manner as securities brokers report stock and bond trades, the IIJA mandates that brokers must report to the Internal Revenue Service (IRS) the cost basis of any digital assets that are transferred from their customers to third parties who are not brokers. The term “digital assets” refers to “any digital representation of value that is recorded on a cryptographically protected distributed ledger or any equivalent technology.” This definition describes “any digital representation of value that is recorded on a distributed ledger.” This term has the potential to encompass not only cryptocurrencies such as Bitcoin and Ethereum, but also specific nonfungible tokens (NFTs). The definition of “broker” is broadened by the IIJA to cover those who run trading platforms for digital assets, such as cryptocurrency exchanges.
In addition, the IIJA would modify the present tax law such that cash-like treatment will be given to digital assets. When they receive such amounts in one transaction or numerous linked transactions, people who are involved in a trade or business are required to submit IRS Form 8300, “Report of Cash Payments Over $10,000 Received in a Trade or Business.”
The requirements regarding digital assets become active for returns that are necessary to be filed and statements that are required to be provided after the date of December 31, 2023. It is expected that the IRS will issue guidelines prior to that time, but some companies may conclude that the reporting burden associated with taking cryptocurrency as payment isn’t worth the potential benefits.
Tax Provisions That Do Not Fit Any Other Category
The International Infrastructure Investment Joint Act (IIJA) authorizes private activity bonds for eligible broadband projects and carbon dioxide capture facilities, extends and changes some Superfund excise taxes, and extends various excise taxes that are used to pay highway expenditures. It provides assistance for pension financing and offers some administrative relief for the Internal Revenue Service for taxpayers who have been affected by disasters declared by the federal government and “major fires.”
There will be four major tax issues to keep an eye on in 2021.
The new tax filing season has begun, and because the epidemic has resulted in new tax regulations and revised instructions relating to them, this year’s filing season is guaranteed to be one to remember. The committed tax experts at Doeren Mayhew identify four tax-related topics that taxpayers should be aware of in 2021:
- Loans via the Paycheck Protection Program (PPP). Those who have been awarded PPP loans are still grappling with the question of how to account for and pay taxes on the tax they have received. The most recent stimulus measure provided some clarity by stating that the loans were exempt from taxes and that costs paid using PPP money would be tax-deductible. This was one of the issues that needed to be addressed. There are still a few concerns that need to be answered about loan applications and forgiveness from tax experts, and further advice is expected to be provided in 2021 by the Internal Revenue Service (IRS) and the Small Business Administration (SBA).
- Credit for Keeping Employees on Staff (ERC). This credit has had improvements made to it in a retroactive manner, and the Consolidated Appropriations Act of 2021 has prolonged it. Employers now have the opportunity to benefit from the SBA’s PPP and make a claim for the ERC. The provision of this new law that allows SBA PPP beneficiaries to retrospectively claim ERC is applicable to the part beginning in March 2020.
- Making Donations to Charities The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) included several temporary tax changes to help charities. One of these changes was a special provision that allowed taxpayers who made cash donations of up to $300 before the end of 2020 to take a special “above-the-line” deduction when filing their taxes in 2021. This provision was one of several temporary tax changes included in the CARES Act. Other temporary tax changes included in the CARES Act included a provision that allowed taxpayers who made stock donations In the year 2020, the deduction is capped at $300 per return rather than per person; however, the most recent stimulus package increased the deduction so that it would be $300 per person or $600 per married couple beginning in the year 2021.
The CARES Act also abolished the constraint that cash donations may only be deducted up to 60 percent of the donor’s adjusted gross income (AGI). This means that beginning in 2020, taxpayers who itemize their deductions will be able to completely deduct cash donations that are up to 100 percent of their AGI. Keep in mind that some gifts, such as those made through donor-advisor funds or private foundations that are not actively functioning, may not qualify.
- Retirement Plans. As part of the relief efforts during the pandemic, taxpayers were given a number of alternatives connected to retirement, including the following:
a. Doing away with the mandate that individuals withdraw money from their individual retirement accounts (IRAs) and retirements by the year 2020. Please take notice that this also applies to Roth IRAs, which do not call for mandatory withdrawals on a consistent basis.
B. Permitting taxpayers who needed to take money out before retirement to withdraw up to $100,000 from qualifying plans without being subject to the additional 10% tax that is imposed on early releases of funds from retirement plans.
Even if payouts are still subject to tax, it is possible to repay them over a period of three years. The owners of the plan also have the option, which is free of any penalties, to recontribute or refund all or a part of the distributions made within three years after receiving them. The Internal Revenue Service (IRS) will make Form 8915-E, which allows taxpayers to report repayments and establish the amount of any tax-favored payout, available to taxpayers in order to assist them in navigating the payback process.