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.

Two Tax “Rescues” Now Uncertain In Minnesota

Americans owe their third round of stimulus payments to the enormous American Rescue Plan Act of 2021. Among its $1.9 trillion of aid, the recent law also issued a couple of tax breaks with broad application.    

Businesses nationwide were allowed to avoid federal taxes for loans that they had taken out and that subsequently were forgiven by the government under the Paycheck Protection Program (PPP).

Many workers who lost jobs also were allowed to exclude the first $10,200 of unemployment compensation they received last year (in 2020). In effect, the law erased that amount from the taxpayer’s income and from federal taxes.  

But what happened in Washington, D.C., hasn’t happened yet in Saint Paul.  Businesses and their workers still owe income taxes on both those “rescues.” A bill authorizing both has been passed by the Minnesota House of Representatives. But a companion bill (SF263) has been bogged down in the Senate, which now has adjourned until early April.

The issue is “conformity,” or adjusting state law to reflect federal changes, Neal Anthony, a columnist for the StarTribune newspaper, notes.

Under the federal PPP, businesses obtain an emergency loan to help pay costs caused by the coronavirus epidemic. If they spend the funds correctly, the federal government forgives the loan and the business does not have to repay it.

Normally, those forgiven amounts of  PPP loans and the first $10,200 of unemployment compensation are taxable in Minnesota. So, unless the Legislature conforms state tax code to exemptions in the federal American Rescue Plan Act, Minnesotans will have to declare both as taxable income.

In fact, last Thursday (March 25), the Minnesota Department of Revenue issued a bulletin telling tax preparers how to add the unemployment compensation into their clients’ state tax returns.

To find expert guidance for planning and filing tax returns, contact EricJohn Ltd. owner Eric Buechler, who is an enrolled agent recognized by the Internal Revenue Service.

Update: Minnesota’s Willing To Wait, Too

Minnesota’s tax collector is just fine with adding about a month to the tax filing season, now underway. The state Department of Revenue announced Friday that it is extending the due date for filing tax returns and paying any taxes until May 17.

The new grace period tracks with last week’s decision by the Internal Revenue Service to accept federal returns for another four weeks, until May 17, before charging any penalties for late filings. They had been due by the normal deadline, April 15.

 The IRS cited effects of the coronavirus epidemic on taxpayers in pushing back the date. So did Minnesota Gov. Tim Walz in a news release.

The Minnesota extension applies to income tax returns and payments for 2020, but it does not cover estimated tax payments for the 2021 tax year. The action was not surprising, because the state tax return draws on figures in the federal return.

Both Minnesota Revenue and the IRS still urge taxpayers to file as soon as possible. But, if a little extra time makes things easier, it’s now officially OK and penalty-free.

For expert advice and tax preparation, feel free to contact Eric Buechler, an enrolled agent and owner of tax service EricJohn Ltd.

Federal Tax Day Pushed Back; Stay Tuned For State

By now, you’ve probably heard the timely taxing news. Reacting once again to the COVID-19 crisis, the Internal Revenue Service has extended the deadline for filing income tax returns by about one more month. The new due date is May 17.

But for now, taxpayers in Minnesota still can’t count on having another month to finish all of their tax chores for 2020.  That’s because the federal tax return is a starting point for their state  income tax returns and possibly for those in as many as 41 other states. The IRS postponement does not automatically push back their due dates.

 Generally, Minnesota does follow the federal lead.  Minnesota’s Department of Revenue did not immediately release any change in its April 15 deadline following  the IRS action on Wednesday (March 17).

Here are a few more details about the IRS extension:

  • The extension is automatic. No forms or requests are necessary.
  • Individual taxpayers can wait until May 17 to pay their federal income taxes for the 2020 tax year. That includes those filers who pay self-employment taxes. Any penalties or interest on amounts due will not begin until the same date.
  • Taxpayers asking for a regular filing extension (with Form 4868) will have until Oct. 15 to turn in their returns. As usual, they also must pay income taxes by due date, which is now May 17.  
  • The delay does not apply to any quarterly estimated tax payments for 2021 that are due on April 15, the IRS noted in its announcement.
  • See https://www.irs.gov/newsroom/tax-day-for-individuals-extended-to-may-17-treasury-irs-extend-filing-and-payment-deadline

Minnesota Revenue has said it will assist individual taxpayers who cannot make tax payments or owe interest on late payments for reasons related to the coronavirus epidemic.

Eric Buechler, owner of EricJohn Ltd., can offer expert advice about filing 2020 state or federal income taxes. He is an enrolled agent recognized by the IRS.

Minnesota Rewards Political Contributions To Winners Or Losers

Election contributions were flowing in Minnesota in 2020. Did you get into the thick of it with a contribution to your favorite candidate? Hope you kept the right receipt.

Politically active Minnesotans can find at least some reward for their donations in state codes. The Political Contribution Refund promises to repay as much as $50 (individual) or $100 (married couple) for gifts to Minnesota office-seekers and political parties in the state last year.

To claim it, you need only to be a registered voter, or just be eligible to become a voter. Of course, you also must have given one or more contributions during 2020.

Here’s the caution about the receipt. To back up their donations, contributors must submit the original receipt – Form EP-3 – issued by the candidate or party. (No, even a handwritten thank-you from the candidate won’t work.)  Minnesota Department of Revenue warns that, without that EP-3, “We will send your (application) form back to you.”   

Let us mention one other important detail. Taxpayers should not send in the Form PCR with an income tax return. Minnesota Revenue says that could delay processing of both the refund and the return.  See the form with its instructions at https://www.revenue.state.mn.us/sites/default/files/2019-12/pcr_20.pdf

The instructions give some specifics about the state offices and political organizations qualifying for contributions and the refund.

The due date for the 2020 Form PCR is April 15, 2021, the same day as for income tax returns. By the way, the PCR for tax year 2021 also is already online at the Minnesota Revenue site.

 Eric Buechler, owner of EricJohn Ltd., can dig deeper into this Minnesota refund or take on more complicated issues in preparing your state or federal taxes.   

Another three months! Feds aid small businesses with sick pay costs through March

Last year, the government offered help to small business inundated with coronavirus-related costs for sick pay and family leaves. Businesses with fewer than 500 employees could receive dollar-for-dollar relief for those expenses.

That all would have ended on Dec. 31, but Congress has extended government help for another three months. It was among the myriad of aid measures in enacted into law on Dec. 27 (Tax Relief Act of 2020).

 So, now, the nation’s small businesses can claim a tax refund for wages paid to their COVID-struck workers for sick leaves taken until March 31.  In addition, those companies also can be reimbursed for as much as 10 weeks of wages for an employee’s family leave if it is related to COVID-19.  For example, caring for his or her child when the regular day care closes could qualify for the payment.

Here’s how it works. The relief isn’t an immediate or direct payment like a stimulus check. Essentially, the business claims a credit against any employment taxes owed on its quarterly return. But this credit also is fully refundable. In short, if there are more credits than taxes, the employer issues a direct payment (electronic deposit or check) for the difference. 

So, small employers – including both for-profit and some non-profit organizations – will want to keep those costs in mind as they prepare quarterly employment tax returns. Unless Congress takes more action, this special tax break lasts only for leave costs up to March 31.

We should note that employers with fewer than 50 workers can ask for a special exemption from providing family leaves. Of course, they also would not benefit from these refunds.  

The Internal Revenue Service talks about the sick pay/family leave reimbursements in more depth at this link: https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-paid-leave-provided-by-small-and-midsize-businesses-faqs

Small business owners also can seek advice about their situations from a tax specialist such as Eric Buechler, owner of EricJohn Ltd. He is an enrolled agent recognized by the Internal Revenue Service.