Employee Retention Credit: Good Through Year-End

The nation’s employers, big and small, surely are pleased that they will continue to have federal help with payroll costs throughout this year.

Congress extended a powerful tax benefit, the “employee retention credit,” in the American Rescue Plan Act of 2021. It would have disappeared on June 30, but now employers hit by economic effects of the coronavirus emergency can count on the credit until Jan. 1, 2022.

Along with renewing it for the upcoming third and fourth quarters, the legislation included some very specific expansions of the credit. Earlier this month, the Internal Revenue Service issued an update about the tax credit and answered some issues brought up by employers.

In general, the employee retention credit can offset as much as $7,000 of employment costs of a worker each quarter. That’s 70 percent of a maximum $10,000 of “qualified wages” (which can include employer-provided health insurance costs, too).
To claim the credit, an employer must have made 80 percent or less revenue than the same quarter in the prior year. Businesses forced to suspend operations for COVID-19 reasons also are eligible.

The new law also acknowledged employers with 10 percent or less revenue year-to-year as “severely financially distressed.”
It also created a category called a “recovery startup business.” Those businesses, which must have been established after Feb. 15, 2020, can claim a total retention credit up to $50,000 per quarter.

As mentioned earlier, the IRS also took the opportunity to clear up some questions by employers. A couple of answers are:
• Employers do not need to include FTE of positions in figuring the sizes of their companies or non-profits for eligibility.
• An employee’s cash tips greater than $20 in any month are included as compensation in calculating qualified wages for the credit.

For more information, see https://www.irs.gov/newsroom/treasury-irs-provide-additional-guidance-to-employers-claiming-the-employee-retention-credit-including-for-the-third-and-fourth-quarters-of-2021
For the technical notice, check out https://www.irs.gov/pub/irs-drop/n-21-49.pdf

The employee retention credit will continue to benefit many employers this year. It also is a very technical credit to interpret and claim. Eric Buechler, principal of EricJohn Ltd., can advise about use of the credit for your business.

Who’s The IRS Going To Call?

The Internal Revenue Service is worried that as many as 100,000 small businesses and other taxpayers with Employer Identification Numbers (EINs) haven’t kept up with their contacts for tax records.

They’ll be getting letters in the mail beginning this month – and, yes, this inquiry is legitimate.

Whom are we talking about? In general, you know who you are, as the saying goes. Most individual taxpayers file their tax returns using their Social Security Number for identification. But some legal entities including small businesses, trusts, estates, charitable organizations, use EINs.

Here’s the problem. The IRS requires someone with power to manage or direct the company/group to be the “responsible party” for each EIN it issues. Usually, that’s a top officer or partner, trust owner, estate executor, etc.

The IRS figures that about 100,000 EINs now have an outdated officer listed. With the letter, it’s prompting those businesses to sign a correct name on the dotted line now. Actually, the IRS points out it is supposed to be informed within 60 days of any change in the responsible party.

How can the EIN holder catch up? There’s a form, of course. It’s IRS Form 8822-B, called “Change of Address or Responsible Party – Business.” See https://www.irs.gov/forms-pubs/about-form-8822-b

Fixing the wrong name is more than a paper chase, the IRS says. In cases of suspicious tax filings or potential identity theft, the agency can lose time tracking down a current contact for the EIN business, the agency said in a recent announcement.

By the way, if the company or partnership goes out of business, it also is supposed to deactivate its EIN.

EricJohn Ltd. is experienced in handling tax issues for small business, partnerships and trusts with EINs. Feel free to contact Eric Buechler, an enrolled agent recognized by the IRS.

May 17 Ahead

Mayday! No, we mean May Tax Day. 

Amid the consternation over COVID, the federal tax deadline could slip by.  Remember, the Internal Revenue Service postponed the target for filing 2020 federal tax returns to May 17.

So here’s a reminder. If, by some chance, you haven’t given the government its due yet, you have until the end of the day on Monday to file.  The IRS continues to stress filing electronically, but a mailed return also works, provided it’s postmarked on May 17.

If you’re still not ready, you can file for extension of time to complete your return. Submit Form 4868, named “Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.” For a copy of the form, see https://www.irs.gov/pub/irs-prior/f4868–2020.pdf

The IRS will automatically delay the deadline for your paperwork until Oct. 15. BUT the IRS still expects you to estimate income and pay any taxes due by May 17.

Don’t forget state tax returns, either. In Minnesota, you don’t have to file an extension form. However, just as with the federal return, you must pay an estimate of taxes due to avoid penalties. Minnesota Department of Revenue accepts tax payments through its Web site.

For tax guidance, feel free to contact Eric Buechler, owner of   EricJohn Ltd and an enrolled agent recognized by the IRS.

Minnesota’s Encouraging Tax Credit

Here’s an encouraging sign for teachers working to earn their master’s degrees.

The State of Minnesota is encouraging by erasing as much as $2,500 from income taxes for their advanced studies. Licensed teachers in the state who completed a master of arts or master of science degree last year are eligible.

The state offers a one-time tax credit for each master’s degree. The write-off covers tuition, required fees and books. Save your transcripts, receipts and other proofs, the Minnesota Department of Revenue suggests.

The type of program is important. The teacher must have studied in a specific “core content area”, such as history or mathematics or fine arts. The subject must be directly related to his/her teaching license. However, the art of teaching itself (e.g. a master’s in education) does not qualify, the agency notes.

Teachers who began their master’s work after June 30, 2017, are eligible for the “Credit For Attaining Master’s Degree in Teacher’s Licensure Field.” Fill out Schedule M1CMD in your 2020 state tax return. It comes with instructions that answer many questions.
Teachers are able to claim the tax credit even if they received scholarships or other reimbursements for some expenses. But they’ll have to report that financial aid on the tax form.

Tax credits are particularly powerful benefits because they lower taxes themselves – not just income that is taxed.

For more information and guidance, contact Eric Buechler of EricJohn Ltd. He is an enrolled agent recognized by the Internal Revenue Service.


A Shot In The Arm For Small Biz

President Joe Biden’s campaign to inoculate Americans nationwide against coronavirus now is coming to small businesses with a no-cost offer.  

The president hopes to persuade small and medium-sized businesses to give paid time off from jobs for workers to get vaccinated against COVID-19.

The government is not ordering the businesses to give the time off. However, using federal tax credits, it will give employers back their entire payments of sick leaves for workers to get vaccinated and, if necessary, to recover from any side effects of the shots. Costs of family leaves also are covered.

The offer is open between April 1 and Sept. 30, the Internal Revenue Service said in an announcement.  Businesses or non-profit organizations with fewer than 500 workers are eligible. That also includes self-employed business owners, IRS noted.

The tax credits were authorized in The American Rescue Plan Act, signed into law by Biden in March.  

See more details in this fact sheet at: https://www.irs.gov/newsroom/employer-tax-credits-for-employee-paid-leave-due-to-covid-19  

Eric Buechler, owner of EricJohn Ltd and an enrolled agent recognized by the IRS, is ready to help small businesses with the details of claiming the COVID-related tax credits.