The House of Representatives passed the American Rescue Plan Act, H.R. 1319, on Wednesday by a vote of 220–211. It now goes to President Joe Biden for his signature. He is expected to sign it quickly.
H.R. 1319 was first passed by the House on Feb. 27. The Senate made several amendments and passed its version of the bill on March 6. The bill then came back to the House for a final vote on Wednesday.
Among the act’s many provisions are several tax items. Most of the tax provisions that were in the House version of the bill were unchanged in the Senate’s version, but the tax treatment of 2020 unemployment benefits, the phaseout ranges for economic impact payments, and the treatment of student loan debt forgiveness were changed by the Senate.
Here is a look at the final version of the tax provisions:
The act makes the first $10,200 in unemployment benefits tax-free in 2020 for taxpayers making less than $150,000 per year.
The act creates a new round of economic impact payments to be sent to qualifying individuals. The same as last year’s two rounds of stimulus payments, the economic impact payments are set up as advance payments of a recovery rebate credit. The act creates a new Sec. 6428B that provides individuals with a $1,400 recovery rebate credit ($2,800 for married taxpayers filing jointly) plus $1,400 for each dependent (as defined in Sec. 152) for 2021, including college students and qualifying relatives who are claimed as dependents. As with last year’s economic impact payments, the IRS will send out the advance payments of the credit.
For single taxpayers, the credit and corresponding payment will begin to phase out at an adjusted gross income (AGI) of $75,000, and the credit will be completely phased out for single taxpayers with an AGI over $80,000. For married taxpayers who file jointly, the phaseout will begin at an AGI of $150,000 and end at AGI of $160,000. And for heads of household, the phaseout will begin at an AGI of $112,500 and be complete at AGI of $120,000.
The act uses 2019 AGI to determine eligibility, unless the taxpayer has already filed a 2020 return.
COBRA continuation coverage
The act provides COBRA continuation coverage premium assistance for individuals who are eligible for COBRA continuation coverage between the date of enactment and Sept. 30, 2021. The act creates a new Sec. 6432, which allows a COBRA continuation coverage premium assistance credit to taxpayers. The credit is allowed against the Sec. 3111(b) Medicare tax. The credit is refundable, and the IRS may make advance payments to taxpayers of the credit amount.
The credit applies to premiums and wages paid after April 1, 2021, and through Sept. 30.
Under new Sec. 6720C, a penalty is imposed for failure to notify a health plan of cessation of eligibility for the continuation coverage premium assistance.
Taxpayers who receive the COBRA continuation coverage premium assistance credit are not also eligible for the Sec. 35 health coverage tax credit.
Under new Sec. 139I, continuation coverage premium assistance is not includible in the recipient’s gross income.
Child tax credit
The act expands the Sec. 24 child tax credit in several ways and provides that taxpayers can receive the credit in advance of filing a return. The act makes the credit fully refundable for 2021 and makes 17-year-olds eligible as qualifying children.
The act increases the amount of the credit to $3,000 per child ($3,600 for children under 6). The increased credit amount phases out for taxpayers with incomes over $150,000 for married taxpayers filing jointly, $112,500 for heads of household, and $75,000 for others, reducing the expanded portion of the credit by $50 for each $1,000 of income over those limits.
The IRS is directed to estimate taxpayers’ child tax credit amounts and pay monthly in advance one-twelfth of the annual estimated amount. Payments will run from July through December 2021.
The IRS must set up an online portal to allow taxpayers to opt out of advance payments or provide information that would be relevant to modifying the amount.
The taxpayer in general will have to reconcile the advance payment amount with the actual credit amount on next year’s return and increase taxable income by the excess of the advance payment amount over the actual credit allowed. But taxpayers whose modified AGI for the tax year does not exceed 200% of the applicable income threshold ($60,000 for married taxpayers filing jointly) will have the increase for an excess advance payment reduced by a safe harbor amount of $2,000 per child.
Earned income tax credit
The act also makes several changes to the Sec. 32 earned income tax credit. It introduces special rules for individuals with no children: For 2021, the applicable minimum age is decreased to 19, except for students (24) and qualified former foster youth or homeless youth (18). The maximum age is eliminated.
The credit’s phaseout percentage is increased to 15.3%, and the phaseout amounts are increased.
The credit would be allowed for certain separated spouses.
The threshold for disqualifying investment income would be raised from $2,200 to $10,000.
Temporarily, taxpayers would be allowed to use their 2019 income instead of 2021 income in figuring the credit amount.
Child and dependent care credit
The act makes various changes to the Sec. 21 child and dependent care credit, effective for 2021 only, including making it refundable. The credit will be worth 50% of eligible expenses, up to a limit based on income, making the credit worth up to $4,000 for one qualifying individual and up to $8,000 for two or more. Credit reduction will start at household income levels over $125,000. For households with income over $400,000, the credit can be reduced below 20%.
The act also increases the exclusion for employer-provided dependent care assistance to $10,500 for 2021.
Family and sick leave credits
The act codifies the credits for sick and family leave originally enacted by the Families First Coronavirus Response Act (FFCRA), P.L. 116-127, as Secs. 3131 (credit for paid sick leave), 3132 (credit for paid family leave), and 3133 (special rule related to tax on employers). The credits are extended to Sept. 30, 2021. These fully refundable credits against payroll taxes compensate employers and self-employed people for coronavirus-related paid sick leave and family and medical leave.
The act increases the limit on the credit for paid family leave to $12,000.
The number of days a self-employed individual can take into account in calculating the qualified family leave equivalent amount for self-employed individuals increases from 50 to 60.
The paid leave credits will be allowed for leave that is due to a COVID-19 vaccination.
The limitation on the overall number of days taken into account for paid sick leave will reset after March 31, 2021.
The credits are expanded to allow 501©(1) governmental organizations to take them.
Employee retention credit
The act codifies the employee retention credit in new Sec. 3134 and extends it through the end of 2021. The employee retention credit was originally enacted in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, and it allows eligible employers to claim a credit for paying qualified wages to employees.
Under the act, the employee retention credit would be allowed against the Sec. 3111(b) Medicare tax.
Premium tax credit
The act expands the Sec. 36B premium tax credit for 2021 and 2022 by changing the applicable percentage amounts in Sec. 36B(b)(3)(A). A special rule is added that treats a taxpayer who has received, or has been approved to receive, unemployment compensation for any week beginning during 2021 as an applicable taxpayer.
The act amends Sec. 108(f) to specify that gross income does not include any amount that would otherwise be included in income due to the discharge of any student loan after Dec. 31, 2020, and before Jan. 1, 2026.
Miscellaneous tax provisions
The act provides that targeted Economic Injury Disaster Loan (EIDL) grants received from the U.S. Small Business Administration (SBA) are not included in gross income and that this exclusion from gross income will not result in a denial of a deduction, reduction of tax attributes, or denial of basis increase. Similar treatment is afforded SBA restaurant revitalization grants.
We will keep you updated on these and other relevant matters.
The American Institute of Certified Public Accountants (AICPA) and its business and technology arm, CPA.com, today announced the launch of a Paycheck Protection Program (PPP) loan forgiveness platform, PPPForgivenessTool.com, which automates the forgiveness process for small business owners who received funds from the PPP.
The dynamic platform, powered by fintech lender Biz2Credit, incorporates the PPP forgiveness calculator created by the AICPA in May and is available to any business approved for a PPP loan, regardless of the lender or bank they worked with to receive funding. Borrowers or their CPA advisors can log onto the platform to fill out the forgiveness application and the tool produces all government-mandated forms automatically. The PPP applicant will be able to electronically sign the 3508 or 3508 EZ forms and all the required source documents will also be included in a downloadable file that can be provided to their lenders. The platform will likely save hours of manual work for any applicant going through the process.
Should you have any questions, please contact our office at (301) 622-1200.
Dear Client – last night the Senate passed the House bill that creates more flexibility for borrowers using PPP funds. If signed into law by Trump, the Paycheck Protection Program Flexibility Act would:
- 1. Borrowers can extend the 8 week period to 24 weeks: this makes it easier for borrowers to get full or close to full forgiveness on their loans. Borrowers also have the ability to make an election to have the original 8 week period apply in lieu of the 24 week period. This would make senses for borrowers that have already spent the funds on sufficient expenses that provide for full forgiveness, so they can confirm their loan forgiveness.
- 2. Penalty and calculations for reduction in workforce rolled back from June 30th to December 31st. The provision which reduces forgiveness in proportion to the reduction of the employer workforce during the 8 week period if the same number of employees are not rehired by June 30th is now changed. The new bill would modify the provision by using the 24 week period instead of the current 8 week period, while extending the June 30th amnesty rehire date to December 31st. Example – if a business had 100 employees before the virus and reduces its workforce to 50 employees during the 24 week period, it will receive complete forgiveness if it has 100 employees on December 31, 2020.
- 3. Remove the limits on loan forgiveness for small businesses that were unable to rehire employees, hire new employees or return to the same level of business activity as before the virus. The bill provides an exemption from a reduction in loan forgiveness for employers that have reduced their workforce if, during the period beginning Feb 15,2020 and ending Dec 31, 2020, the employer, in good faith, is able to document one of the following:
- Employer could not find qualified employees to hire
- Employer could not restore business to comparable level of activity because of social distancing or other federal health guidance
- 4. The 75% test now become a 60% cliff. The bill would change the requirement that 75% of amounts forgiven have to be spent on payroll expenses. The borrower will now be required to use at least 60% of the loan amount for payroll costs, and may use up to 40% for permitted rent, utilities, and interest on secured debt, as defined by law. As the bill is written, there would be no partial forgiveness if the 60% test is not met.
- 5. Two year deferral of employer payroll taxes –borrowers would now be eligible for the deferral of payment of the employer's share of social security payroll taxes (6.2%), regardless of whether the borrower received loan forgiveness. This allows borrowers to now defer payment of the employer's share of social security until 2021 (50% payment due) and 2022 (remaining 50% due).
- 6. Repayment period extended to 5 years with 1% interest during the 5 year term.
- 7. Extend the period for when a business can apply for loan forgiveness, from within six months to within 10 months of the last day of the covered period, before it must start making interest and principal payments. Under the new bill, PPP loan interest and payment of principal and fees will be deferred until the loan is forgiven by the lender.
We will keep you updated on these and other developments.
Implementation of the Paycheck Protection Program (PPP) continues to evolve. Below are important updates you should be aware of:
Economic Necessity Certification
On the PPP application, borrowers must make a certification that "current economic necessity makes the loan request necessary to support ongoing operations of the applicant". When the program launched, large public companies were able to secure millions in funding under the program. This was not the intent of Congress when the legislation was enacted. On April 23rd, the Treasury Department issued new guidance in FAQs #31 which provides as an example that it's unlikely that a "public company with substantial market value and access to capital markets" would be able to make this economic necessity certification in good faith. Furthermore, the Treasury Department and SBA issued a new Interim Final Rule on April 24 that included the following loan eligibility certifications:
- Hedge funds and private equity firms are NOT eligible for PPP loans
- Portfolio companies of private equity funds may be eligible for PPP loans, however, they must apply the SBA's affiliation rules and must carefully review the economic necessity certification
Given these developments, all PPP loan applicants should confirm that they meet the required criteria for the economic necessity certification taking into account their particular economic situation and facts surround their business. If the certification cannot be made in good faith, then the PPP loans should be paid back in full by May 7, 2020 to avoid penalties for making the certification in bad faith.
We recommend borrowers take the following action:
- Document the financial analysis made to support your conclusion that your PPP loan request was necessary to support ongoing operations. This should take into account both the revenue and expense sides of the business, with particular focus on how current economic conditions will impact cash flow
- Show how the financial analysis would lead the company, in the absence of the PPP loan, to terminate workers and/or miss mortgage, rent, or utility payments. The use of PPP funds for payroll expenses is the primary component of the CARES Act loan forgiveness program
- Document whether the owners were/are willing to contribute additional capital to the company.
- If you had substantial liquid net working capital and or liquid reserves at the time of your application, you should consider whether you properly made the good faith certification in light of the new guidance, and determine if you should return the PPP funds by the May 7, 2020 amnesty date.
Loan forgiveness: Laid off employee / Attempted to rehire / Employee declined
SBA updated FAQs #40 on May 3, 2020 to state that a borrower will still be eligible for loan forgiveness if they attempted to rehire a laid off employee but the employee declined the offer. SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act's loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee's rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.
I will be participating on a call with Senators Marco Rubio (Chairman), and Ben Cardin (Ranking Member) US Senate Committee on Small Business & Entrepreneurship on Wednesday May 6th to discuss relief programs for small businesses. We will continue to keep you informed on these developments.
Many have begun to receive funds from the Paycheck Protection Program. As you are aware, the program has a loan forgiveness clause if at least 75% of the funds were used for payroll costs over 8 weeks beginning after loan origination. No more than 25% may be used for the specific items of mortgage obligations, rent, and utilities.
The Paycheck Protection funds that subsequently are forgiven are not included in taxable income. This would be considered tax exempt income. IRS released Notice 2020-32 yesterday which clarifies that any expenses related to tax exempt income are not deductible for tax purposes. Therefore, there is no tax deduction for payroll costs, mortgage, rent, and utilities paid with forgiven Paycheck Protection funds.
We also want to highlight the accounting treatment for the funds forgiven. Under Generally Accepted Accounting Principles, when a loan is forgiven it is referred to as an Extinguishment of Debt. Extinguishment of Debt would be considered Income for accounting purposes. The related items of payroll, mortgage (interest portion), rent, and utilities would still be allowed to be expensed for accounting purposes.
In short, when the Paycheck Protection funds are forgiven, they are recorded as Income for accounting purposes with related expenses allowed. For tax purposes, the forgiven funds are Not considered income and the related costs are Not tax deductible.
Statement from SBA and Treasury: "The Small Business Administration will resume accepting PPP loan applications on Monday, April 27 at 10:30AM EDT from approved lenders on behalf of any eligible borrower. This will ensure that SBA has properly coded the system to account for changes made by the legislation." https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-advisories/joint-statement-sba-administrator-jovita-carranza-and-treasury-secretary-steven-t-mnuchin-resumption
On Friday, April 24, Labor will be launching a new, one-stop unemployment insurance application to allow Marylanders to file claims for all unemployment programs entirely online. This includes the Pandemic Unemployment Assistance program, the Pandemic Emergency Unemployment Compensation program, and those who were previously required to file by phone like federal employees, members of the military, individuals who have worked in multiple states, and those who have worked for more than 3 employers in the last 18 months.
The Secretary of the Maryland Department of Labor opted into providing ALL three of the expanded unemployment insurance programs offered through the provisions of the CARES Act:
- Pandemic Unemployment Assistance (PUA)
- Individuals who are not usually eligible for regular UI and who cannot work due to COVID-19 are eligible for a maximum of 39 weeks of benefits, which includes $600 Federal Pandemic Unemployment Compensation (FPUC).
- Effective January 27, 2020 through Dec. 31, 2020.
- Starting Friday, April 24, those who are self-employed, independent contractors, gig workers, or have insufficient work history will be able to apply online. To receive an e-mail with additional information and instructions once the new application is ready, please sign up here
- Federal Pandemic Unemployment Compensation (FPUC)
- $600 per week on top of current regular UI benefits.
- Effective March 29, 2020 through July 31, 2020.
- Starting Friday, April 17, everyone eligible for benefits ending the week of April 4 will begin receiving an additional $600 per week as part of the Federal Pandemic Unemployment Compensation program on top of current regular benefits. Marylanders will begin to see the increase in their next regularly scheduled payment.
- If you have questions specifically about the $600 weekly payment, please visit our Federal Pandemic Unemployment Compensation FAQs.
- Pandemic Emergency Unemployment Compensation (PEUC)
- 3 additional weeks of UI benefits, plus $600 FPUC.
- Effective March 29, 2020 through Dec. 31, 2020.
- Starting Friday, April 24, new claimants and those who are already receiving benefits will automatically receive an additional 13 weeks of benefits under the CARES Act. Current eligible claimants do not need to take any additional steps to receive these extended benefits. Labor will be directly contacting claimants who have recently exhausted their benefits, so they can reapply for the additional 13 weeks.
The United States Chamber of Commerce Foundation has established the Save Small Business Fund to provide short-term relief to small employers affected by the COVID-19 crisis. The Save Small Business Fund will provide a one-time grant of $5,000 to small businesses to use for business expenses.
Save #SmallBusiness Fund: Provides Grants to the Smallest of Small Businesses, Opens Today - April 20. In order to be eligible for the grant, the small business must:
- Employ between 3 to 20 people
- Be located in an economically vulnerable community
- Have been harmed financially by the COVID-19 pandemic.
Learn more. https://savesmallbusiness.com/#eligibility
On its website, the IRS has provided guidance for taxpayers reporting the employee retention credit for certain employers subject to closure due to the COVID-19 crisis, including that the credit with respect to wages paid in March should be reported on the 2nd quarter 2020 employment tax return. For your convenience, we have provided a link to IRS website on the employee retention credit here: https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act
Background. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act, PL 116-136) provides a refundable payroll tax credit (employee retention credit) for 50% of wages paid by Eligible Employers to certain employees during the COVID-19 crisis.
The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.
The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000.
The refundable tax credit is equal to 50% of qualified wages paid to employees after March 12, 2020 and before January 1, 2021.
Reporting the employee retention credit. Eligible Employers who paid qualified wages between March 13, 2020 and March 31, 2020, inclusive, will report 50% of those wages together with 50% of any qualified wages paid during April, May, and June 2020 on their 2nd quarter Form 941, Employers QUARTERLY Federal Tax Return, to claim the employee retention credit. Employers should not include the credit on their 1st quarter Form 941.
This guidance also applies for Form 941-SS, Employers QUARTERLY Federal Tax Return for American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Island, and Form 941-PR, Employers QUARTERLY Federal Tax Return for Puerto Rico.
Please Note: You cannot receive the Employee Retention Credit if you receive a loan under the Paycheck Protection Program.
On March 17, 2020 Treasury Secretary Mnuchin announced that TAX RETURNS ARE STILL DUE APRIL 15. However, payments that are due on April 15th, or due with an extension on April 15th, may be delayed until July 15, 2020 without penalty or interest. If the return is not timely filed, or properly extended the 90-day relief will not apply.
The maximum amount of deferral is $1,000,000 for an individual and $10,000,000 for a corporation
The relief is available solely with respect to Federal income tax payments (including payments of tax on self-employment income) due on April 15, 2020 in respect of an affected person's 2019 taxable year and federal estimated income tax payments due on April 15, 2020, for an affected person's 2020 taxable year.
Refunds remain unaffected. Interest, penalties, and additions to tax for any postponed amount will begin to accrue on July 16, 2020. In addition, interest, penalties and additions to tax will accrue on any amount above the postponed amount that wasn't paid by April 15, 2020. For example, if an individual owes $1,200,000, then $200,000 is still due by April 15, 2020. The remaining $1,000,000 can be paid by July 15, 2020 without interest or penalties.
The Maryland Comptroller's Office will conform with the Internal Revenue Service's 90-day extension of federal income tax payments from April 15 to July 15, 2020. Comptroller Franchot said Maryland individual and corporate income taxpayers will be afforded the same relief for state income tax payments. No interest or penalty for late payments will be imposed if 2019 tax payments are made by July 15, 2020. Taxpayers must file for an extension for the filing of FEDERAL taxes by April 15. Taxpayers should refer to the IRS for further details.
Comptroller Franchot also extended business-related tax filing deadlines. The June 1 extension applies to certain business returns with due dates during the months of March, April and May 2020 for businesses filing sales and use, withholding, admissions & amusement, alcohol, tobacco, and motor fuel taxes, as well as tire recycling fee and bay restoration fee returns.
Business taxpayers who file and pay by June 1, 2020 will receive an automatic waiver of interest and penalties.
The Families First Coronavirus Response Act passed by Congress requires private employers with fewer than 500 workers and all public employers to provide paid sick leave to employees affected by the coronavirus (exceptions for health care providers, emergency responders and certain small businesses are allowed). Full-time workers get up to 80 hours of sick leave, while part-time workers get sick leave for the average number of hours they work over a two-week period. A worker is only able to take paid leave if he or she is:
- Subject to a federal, state or local coronavirus quarantine or isolation order:
- Advised by a health care provider to self-quarantine due to the coronavirus concerns:
- Experiencing coronavirus symptoms and seeking a medical diagnosis;
- Caring for someone else who is subject to a coronavirus-related federal, state or local quarantine or isolation order, or who has been advised by a health care provider to self-quarantine due to coronavirus-related concerns
- Caring for a son or daughter if the child's school or daycare has been closed, or the child's care provider is unavailable, due to coronavirus precautions; or
- Experiencing any other substantially similar condition specified by the Secretary of Health and Human Services.
Workers who are sick or quarantined get full pay while on coronavirus leave, up to $511 per day ($5,110 in total). Workers caring for another person or on leave because of an HHS-specified condition get two-thirds of their normal pay while on leave, up to $200 per day ($2,000 in total).
The new law also extends the existing Family and Medical Leave Act (FMLA) to cover a worker's absence (including an inability to telework) to care for a minor son or daughter if the child's school or daycare has been closed, or the child's care provider is unavailable, because of the coronavirus.
Workers receive two-thirds of their regular salary while on coronavirus-related FMLA leave, but compensation is capped at $200 per day and $10,000 in total. However, this leave does not kick in until after 10 days. (During that time, workers are presumably able to take sick leave as described above.)
The expanded FMLA provisions apply to employers with fewer than 500 employees, but not to certain health care providers and emergency responders. Exemptions are also available for small businesses with fewer than 50 employees if the new requirements jeopardize the business's viability.
Tax Credits for Employers
Employers will receive a credit through refundable tax credits against the 6.2% Social Security (or Railroad Retirement) payroll tax imposed on employers. The credits are, however, subject to certain restrictions and limitations.
For the new sick leave benefits, the credit is limited to $511 per day for workers taking leave because they are sick or quarantined. The limit is $200 per day for workers taking leave to care for another person or on leave because of an HHS-specified condition. The credit is further reduced by a 10-sick-days-per-worker limit.
For the expanded FMLA benefits, the credit is limited to $200 per day, per employee. The credit also can't exceed $10,000 in total for any worker.
Employers are also given additional payroll tax credits for group health plan costs for, and the 1.45% Medicare payroll tax on wages paid to, workers on coronavirus sick or family leave.
Tax Credits for Self-Employed
Self-employed people receive refundable tax credits against the self-employment tax that are similar to those allowed for employers.
The sick leave credit is based on a self-employed person's "qualified sick leave equivalent amount." That amount is equal to (1) up to 10 days during the year that the person can't work for a reason that would entitle them to coronavirus-related sick leave if he or she were an employee, (2) multiplied by the lesser of:
- 1 $511 per day for people who are sick or quarantined, or $200 per day for people caring for another person or on leave because of an HHS-specified condition; or
- 2 100% of a sick or quarantined person's average daily self-employment income for the year, or 67% of the average daily self-employment income for a person caring for another person or on leave because of an HHS-specified condition.
A self-employment tax credit is also be available for 100% of a person's "qualified family leave equivalent amount." That amount is equal to (1) up to 50 days during the year that the person can't work for a reason that would entitle them to coronavirus-related family leave if he or she were an employee, (2) multiplied by the lesser of:
- $200; or
- 67% of the person's average daily self-employment income for the year.
Please consult your payroll service provider on utilization of the credits.
Treasury Secretary Mnuchin announced the tax filing deadline has been moved from April 15th to July 15th. If you have sent your tax packages in, we are still working to complete those shortly. If you are still working on your tax packages, we encourage you to still send those in via mail or portal when you are completed. Should you have any questions, please contact Christine at email@example.com.
The U.S. Small Business Administration is offering low-interest federal disaster loans for working capital to the District of Columbia small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19), SBA Administrator Jovita Carranza announced today. SBA acted under its own authority, as provided by the Coronavirus Preparedness and Response Supplemental Appropriations Act that was recently signed by the President, to declare a disaster following a request received from Mayor Muriel Bowser on March 15, 2020.
The disaster declaration makes SBA assistance available in the District of Columbia; the contiguous counties of Montgomery and Prince George's in Maryland; and Alexandria (City), Arlington County and Fairfax County in Virginia. SBA Customer Service Representatives will be available to answer questions about SBA's Economic Injury Disaster Loan program and explain the application process.
"SBA is strongly committed to providing the most effective and customer-focused response possible to assist District of Columbia small businesses with federal disaster loans. We will be swift in our efforts to help these small businesses recover from the financial impacts of the Coronavirus (COVID-19)," said Administrator Carranza.
"Economic Injury Disaster Loans provide vital economic assistance to small businesses to help overcome a temporary loss of revenue. Small businesses, private non-profit organizations of any size, small agricultural cooperatives and small aquaculture enterprises financially impacted as a direct result of COVID-19 since January 31, 2020, may qualify for up to $2 million to help meet financial obligations and operating expenses, which could have been met had the disaster not occurred," said SBA Mid-Atlantic Regional Administrator Steve Bulger, who oversees the SBA's programs in D.C., Virginia, Maryland, Delaware, Pennsylvania and West Virginia. "These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can't be paid because of the disaster."
Eligibility for Economic Injury Disaster Loans is based on the financial impact of COVID-19. The interest rate is 3.75 percent for small businesses, and 2.75% for private non-profit organizations. The SBA offers loans with long-term repayments to keep payments affordable – up to a maximum of 30 years and are available to entities without the ability to offset the adverse impact without hardship.
Applicants may apply online and receive additional disaster assistance information at https://disasterloan.sba.gov/ela. Paper-based application materials may be downloaded for printing at https://disasterloan.sba.gov/ela/Information/PaperForms. Applicants may also call SBA's Customer Service Center at (800) 659-2955 or email firstname.lastname@example.org for help in completing the application process. Individuals who are deaf or hard?of?hearing may call (800) 877-8339. Completed paper-based application packets should be mailed to U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. The deadline to apply for an Economic Injury Disaster Loan is December 17, 2020.
"One of the best ways for borrowers to increase cash flow is by making a request to delay monthly loan payments," added Antonio Doss, District Director of the SBA-Washington Metropolitan Area District Office. "The SBA makes that option available on existing 7(a) Business Loans, 504 Business Loans and Microloans." Borrowers must ask their lenders directly for such deferrals, which may be granted for a period of up to six months.
Our Washington Metropolitan Area District Office team, funded resource partners (SCORE, Small Business Development Centers, Veterans Business Outreach Centers, and Women's Business Centers), and participating lenders want to help you successfully navigate through this period of the COVID-19 epidemic. Learn more about SBA's programs and services, including free one-on-one business counseling that may be offered remotely, by accessing the 2020 Small Business Resource Guide for the Washington Metropolitan Area at https://www.sba.gov/sites/default/files/files/resourceguide_3106.pdf.
MD Gov Hogan has issued a stay at home order for non-essential businesses effective 5pm today. The Gov has established through the MD Department of Commerce 3 new business assistance programs in response to the COVID-19 pandemic
- Emergency relief Fund - $75M loan fund offers no interest or principal payments due for the first 12 months, then converts to a 36 mo term loan of principle and interest payments, with a rate of 2% rate.
- Emergency relief Grant - $50M grant program offers grant amounts up to $10,000, not to exceed 3 months of demonstrated cash operating expenses for the first quarter of 2020.
- Emergency Relief Manufacturing Fund: This $5 million incentive program helps Maryland manufacturers to produce personal protective equipment (PPE) that is urgently needed by hospitals and health-care workers across the country
Please see more details here: https://govstatus.egov.com/md-coronavirus-business
We realize you have been inundated with emails from various sources. Below is a recap of recent provisions for small businesses. Of note is the MD Dept. of Labor loans designed as an alternative to laying off employees.
Here are websites for loans. Some of them (MD funds) have a 2-day approval response:
https://govstatus.egov.com/md-coronavirus-business Maryland Corona virus COV-19 Business Response
http://www.labor.maryland.gov/employment/covidlafund.shtml MD Dept. of Labor loans
https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources SBA Small Business Loan
https://commerce.maryland.gov/fund/maryland-small-business-covid-19-emergency-relief-fund-programs MD Dept. of Commerce Loans
On March 12, Governor Hogan issued an executive order that requires the Maryland State Department of Assessments and Taxation (SDAT) extend all expiration and renewal dates to the 30th day after the date on which the state of emergency is terminated. SDAT is automatically extending the Annual Report Filing and/or Personal Property Return filing date from April 15 to July 15th for all entities, although it may take a few days for this to be reflected online. SDAT will soon provide additional information related to the delay of due dates for trade name renewals/expirations, penalty due dates, and any other related items. As always, we will keep you posted with any updates.
WASHINGTON — To help people facing the challenges of COVID-19 issues, the Internal Revenue Service announced today a sweeping series of steps to assist taxpayers by providing relief on a variety of issues ranging from easing payment guidelines to postponing compliance actions.
"The IRS is taking extraordinary steps to help the people of our country," said IRS Commissioner Chuck Rettig. "In addition to extending tax deadlines and working on new legislation, the IRS is pursuing unprecedented actions to ease the burden on people facing tax issues. During this difficult time, we want people working together, focused on their well-being, helping each other and others less fortunate."
"The new IRS People First Initiative provides immediate relief to help people facing uncertainty over taxes," Rettig added "We are temporarily adjusting our processes to help people and businesses during these uncertain times. We are facing this together, and we want to be part of the solution to improve the lives of all people in our country."
These new changes include issues ranging from postponing certain payments related to Installment Agreements and Offers in Compromise to collection and limiting certain enforcement actions. The IRS will be temporarily modifying the following activities as soon as possible; the projected start date will be April 1 and the effort will initially run through July 15. During this period, to the maximum extent possible, the IRS will avoid in-person contacts. However, the IRS will continue to take steps where necessary to protect all applicable statutes of limitations.
"IRS employees care about our people and our country, and they have a strong desire to help improve this situation," Rettig said. "These new actions reflect just one of many ways our employees are working hard every day to assist the nation. We care, a lot. IRS employees are actively engaged, and they have always delivered for their communities and our country. The People First Initiative is designed to help people take care of themselves and is a key part of our ongoing response to the coronavirus effort."
More specifics about the implementation of these provisions will be shared soon. Highlights of the key actions in the IRS People First Initiative include:
- Existing Installment Agreements –For taxpayers under an existing Installment Agreement, payments due between April 1 and July 15, 2020 are suspended. Taxpayers who are currently unable to comply with the terms of an Installment Payment Agreement, including a Direct Deposit Installment Agreement, may suspend payments during this period if they prefer. Furthermore, the IRS will not default any Installment Agreements during this period. By law, interest will continue to accrue on any unpaid balances.
- New Installment Agreements – The IRS reminds people unable to fully pay their federal taxes that they can resolve outstanding liabilities by entering into a monthly payment agreement with the IRS. See IRS.gov for further information.
- Offers in Compromise (OIC) – The IRS is taking several steps to assist taxpayers in various stages of the OIC process:
- Pending OIC applications – The IRS will allow taxpayers until July 15 to provide requested additional information to support a pending OIC. In addition, the IRS will not close any pending OIC request before July 15, 2020, without the taxpayer's consent.
- OIC Payments – Taxpayers have the option of suspending all payments on accepted OICs until July 15, 2020, although by law interest will continue to accrue on any unpaid balances.
- Delinquent Return Filings - The IRS will not default an OIC for those taxpayers who are delinquent in filing their tax return for tax year 2018. However, taxpayers should file any delinquent 2018 return (and their 2019 return) on or before July 15, 2020.
- New OIC Applications – The IRS reminds people facing a liability exceeding their net worth that the OIC process is designed to resolve outstanding tax liabilities by providing a "Fresh Start." Further information is available at IRS.gov
- Non-Filers –The IRS reminds people who have not filed their return for tax years before 2019 that they should file their delinquent returns. More than 1 million households that haven't filed tax returns during the last three years are actually owed refunds; they still have time to claim these refunds. Many should consider contacting a tax professional to consider various available options since the time to receive such refunds is limited by statute. Once delinquent returns have been filed, taxpayers with a tax liability should consider taking the opportunity to resolve any outstanding liabilities by entering into an Installment Agreement or an Offer in Compromise with the IRS to obtain a "Fresh Start." See IRS.gov for further information.
- Field Collection Activities - Liens and levies (including any seizures of a personal residence) initiated by field revenue officers will be suspended during this period. However, field revenue officers will continue to pursue high-income non-filers and perform other similar activities where warranted.
- Automated Liens and Levies – New automatic, systemic liens and levies will be suspended during this period.
- Passport Certifications to the State Department – IRS will suspend new certifications to the Department of State for taxpayers who are "seriously delinquent" during this period. These taxpayers are encouraged to submit a request for an Installment Agreement or, if applicable, an OIC during this period. Certification prevents taxpayers from receiving or renewing passports.
- Private Debt Collection – New delinquent accounts will not be forwarded by the IRS to private collection agencies to work during this period. Field, Office and Correspondence Audits – During this period, the IRS will generally not start new field, office and correspondence examinations. We will continue to work refund claims where possible, without in-person contact. However, the IRS may start new examinations where deemed necessary to protect the government's interest in preserving the applicable statute of limitations.
- In-Person Meetings - In-person meetings regarding current field, office and correspondence examinations will be suspended. Even though IRS examiners will not hold in-person meetings, they will continue their examinations remotely, where possible. To facilitate the progress of open examinations, taxpayers are encouraged to respond to any requests for information they already have received - or may receive - on all examination activity during this period if they are able to do so.
- Unique Situations - Particularly for some corporate and business taxpayers, the IRS understands that there may be instances where the taxpayers desire to begin an examination while people and records are available and respective staffs have capacity. In those instances when it's in the best interest of both parties and appropriate personnel are available, the IRS may initiate activities to move forward with an examination -- understanding that COVID-19 developments could later reduce activities for an agreed period.
- General Requests for Information - In addition to compliance activities and examinations, the IRS encourages taxpayers to respond to any other IRS correspondence requesting additional information during this time if possible.
- Earned Income Tax Credit and Wage Verification Reviews – Taxpayers have until July 15, 2020, to respond to the IRS to verify that they qualify for the Earned Income Tax Credit or to verify their income. These taxpayers are encouraged to exercise their best efforts to obtain and submit all requested information, and if unable to do so, please reach out to the IRS indicating the reason such information is not available. Until July 15, 2020, the IRS will not deny these credits for a failure to provide requested information.
- Independent Office of Appeals – Appeals employees will continue to work their cases. Although Appeals is not currently holding in-person conferences with taxpayers, conferences may be held over the telephone or by videoconference. Taxpayers are encouraged to promptly respond to any outstanding requests for information for all cases in the Independent Office of Appeals.
- Statute of Limitations - The IRS will continue to take steps where necessary to protect all applicable statutes of limitations. In instances where statute expirations might be jeopardized during this period, taxpayers are encouraged to cooperate in extending such statutes. Otherwise, the IRS will issue Notices of Deficiency and pursue other similar actions to protect the interests of the government in preserving such statutes. Where a statutory period is not set to expire during 2020, the IRS is unlikely to pursue the foregoing actions until at least July 15, 2020.
- Practitioner Priority Service – Practitioners are reminded that, depending on staffing levels and allocations going forward, there may be more significant wait times for the PPS. The IRS will continue to monitor this as situations develop.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the ''CARES Act"). This is the 3rd piece of legislation aimed at the coronavirus (COVID-19) pandemic and is sometimes referred to as "Phase 3." ("Phase 1" was the $8.3 billion spending bill enacted March 6. "Phase 2" was the Families First Coronavirus Response Act enacted March 18.) The CARES Act is a massive stimulus bill which includes lending facilities to large and small businesses (including targeted distressed businesses), expanded unemployment benefits and individual and business tax changes. The projected cost of the bill is over $2 trillion, of which about $500 billion is allocated to tax changes.
In this Alert we summarize selected individual tax provisions. For Businesses, we refer you to this link from the Senate. It summarizes the business provisions including:
- The Paycheck Protection Program
- Small Business Debt Relief Program
- Economic Injury Disaster Loans and Grants
- Small Business Counseling
- Small Business Contracting
- Small Business Tax Provisions
Individual Stimulus Payment: Who and How Much?
The CARES Act includes stimulus payments of $1,200 for each individual and $500 for each dependent child, defined by the child tax credit rules as under age 17.
Individuals with adjusted gross income (AGI) up to $75,000 a year are eligible for the full $1,200 payment. The payment is reduced by $5 for every $100 in income above $75,000. The payment amount is entirely phased out at an AGI of $99,000.
Married filing joint couples with AGIs up to $150,000 a year are eligible for a $2,400 payment. The payment is reduced by $5 for every $100 in income above $150,000. The payment amount is entirely phased out at an AGI of $198,000 (if the taxpayers have no dependent children). Married couples also will receive an additional $500 for every dependent child under 17.
Example - MFJ with no children. Keith and Norma are married filing joint. They have no dependent children. If they have AGI of $150,000 or less, they are eligible for a $2,400 payment. If they have AGI above $150,000, their rebate will be reduced and finally phased out at an AGI of $198,000.
Example - MFJ with two children. Chris and Pat are married filing joint. They have two dependent children under age 17. If they have AGI of $150,000 or less, they are eligible for a $3,400 payment. If they have AGI above $150,000, their rebate will be reduced and finally phased out if their income hits the top of the threshold amount.
Head of household filers with AGIs up $112,500 a year are eligible for the full $1,200 payment and an additional payment of $500 for each dependent child under age 17. The payment is reduced by $5 for every $100 in income above $112,500. Head of household taxpayers will also receive an additional $500 per dependent child under age 17. With no eligible children, a head of household filer is phased out at AGI of $137,000. With one eligible dependent child, a head of household filer is entirely phased out of the rebate payment at AGI of $146,400.
Example. Head of Household- no children under 17. Heather has an 18-year-old high school senior living with her and qualifies as a head of household filer. If her AGI is $100,000, Heather's payment is $1,200. Her dependent child does not qualify her for the additional $500 payment because the child is not under age 17. If Heather's dependent child is under age 17, her payment is $1,700.
Phaseout of the rebate. If your income is above the threshold amounts, a reduced payment will result. The reduced amount using your own income (AGI) can easily be calculated using the Washington Post calculator.
What needs to be done to get the Stimulus Rebate?
Nothing. The IRS will deposit the calculated amount directly into your bank account, using the AGI and the bank information on your 2019 tax return. If your 2019 return hasn't been filed, the IRS will use the AGI and the bank information from your 2018 tax return. If there's no bank information on the return, the IRS will mail a check.
When Will the Payments Arrive?
The IRS says that a direct deposit should be in your bank account in about three weeks. Checks should start arriving in six to eight weeks.
2020 Tax Return
Technically the stimulus rebate is a 2020 refundable tax credit. The payment received in the next few weeks is an IRS advance. If you have less income in 2020 than in 2019 because of layoffs, reduced hours and closed businesses, and your rebate payment was reduced by the income threshold, you'll receive a credit for the difference on your 2020 return. If for some reason, you receive too much of an advanced payment, you do not have to pay back the excess.
Other provisions affecting individuals:
- 1 Tax favored withdrawals from retirement plans- withdrawals up to $100,000 from retirement plans during 2020 are not subject to the 10% penalty for those under 59 ½. The monies can be repaid over 3 years. The amounts not repaid within 3 years can be included in taxable income ratably over 3 years.
- 2 Loans from Retirement plans: Currently the limit for loans is $50,000. Under the Act, loans up to $100,000 is allowed during the 180-day period beginning March 27.
- 3 Waiver of Required Minimum Distributions: - You do not have to take RMDs for 2020. For beneficiaries who inherit a plan that requires the 5 year rule for distributions, the deadline can be ignored for 2020 which effectively makes it a 6 year rule.
- 4 Charitable contributions: Up to $300 of charitable donations can be deducted by those who do not itemize. Contributions must be made in cash and cannot be made to a donor advised fund and certain supporting organizations.
- 5 Student Loan Relief – all federal student loan payments are suspended for 6 months through Sept 20, 2020.
Contact us if you have questions and stay safe.
Dear Client – treasury has published the application for the Paycheck Protection Program. The application and guidance can be found at this link: https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses
The Small Business Administration (SBA) will begin accepting applications on the following dates:
- April 3, 2020 for small businesses and sole proprietorships
- April 10, 2020 for independent contractors and self-employed individuals
To help prepare for the application, we recommend that business owners begin to gather the following information and documents:
- 1 2019 IRS Quarterly 940, 941 or 944 payroll tax reports
- 2 Last 12 months of Payroll Reports beginning with your last payroll date and going backwards 12 months (e.g. gross wages for each employee, paid time off for each employee, vacation pay for each employee)
- 3 1099s for 2019 for independent contractors that would otherwise be an employee of your business
- 4 Documentation showing total of all health insurance premiums paid by the Company Owner under a group health plan
Document the sum of all retirement plan funding that was paid by the Company Owner (do not include funding that came from the employee's out of their paycheck deferrals
Treasury Secretary Steven Mnuchin announced yesterday that small businesses can start applying for the Paycheck Protection Program today. Applications can be received by any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating.
We must inform you that there are unanswered questions the financial institutions are trying to address with Treasury. The current uncertainty regarding the program may result in delays in when you can apply with your financial institution. We encourage you to reach out to your business banker or branch manager to discuss their application process in more detail.
We will keep you informed on these developments.
Dear Friends, Clients, Colleagues:
Twenty-six years ago I took a risk and opened my own tax and accounting firm. It has been one of the most rewarding and challenging experiences of my life. Some of you may even remember meeting in my home to discuss taxes while my kids were running through my office. I am humbled to have grown this firm to where it is today, all thanks to my dedicated staff and loyal clients. I cannot be more grateful for the opportunity to serve your tax and accounting needs.
At this time, I am very pleased to announce that James Marshall, a colleague of many years, will be joining and ultimately taking over my practice. This will provide me with more time to spend with family and to pursue interests outside of accounting, including the remote possibility of tackling my wife’s to-do list.
I believe that James’ calm demeanor, work ethic, and extensive tax and accounting knowledge will be great assets in seamlessly transitioning the firm. James graduated from Penn State University in 1991 with a BS in Accounting & Finance. He joined the Big 4 Accounting Firm Price Waterhouse in 1992 (now PricewaterhouseCoopers – PwC) and subsequently completed a Masters in Taxation Degree at American University in 2010. Seeking more time with his family, James left PwC after 17 years and started J Marshall & Associates LLC in July 2008.
James grew up in Harrisburg, Pennsylvania. After graduating high school, James joined the Pennsylvania Air National Guard, serving our country for 29 years prior to retiring as a Lieutenant Colonel in December 2015. He has been married to his wife Camilla for 13 years and together they have two sons, James III, 10 and Joshua, 8.
Effective August 1, 2018, I became a member of J Marshall & Associates LLC. The combined firms will do business under the trade name of Marshall and Reumont CPAs. All staff at Reumont CPA, including myself, have transitioned to the combined firm and will continue to support your tax and accounting needs, headquartered at our Silver Spring office on Tech Road. Accordingly, you will not experience significant change other than the way we answer the phone or update our website.
We are excited about this change and are happy to field any questions or concerns that this time. I greatly value our relationship and I look forward to continuing them as I gradually transition into retirement over the next few years.
David A. Reumont CPA CFP CVA MAFF PFPS
David A. Reumont CPA, PC
A significant legislative issue related to health savings accounts (or HSAs) and high-deductible health insurance plans (or HDHPs) could impact you in the near future. The Contraceptive Equity Act was enacted in Maryland in 2016. Effective on Jan. 1, 2018, the Act mandates that male contraceptive services (vasectomies) must be covered as a preventive service — i.e., without any deductible or cost-sharing required.
HSA-qualified HDHPs are prohibited from covering any benefits before the deductible is met, except for IRS-approved preventive care services. This effectively means HSAs may be no longer available in Maryland, since the Contraceptive Equity Act made no exemption for HSA-qualified HDHPs. This would be a big loss to Marylanders as 2 out of 3 Americans rely upon the use of a HDHP in conjunction with an HSA account to combat rising health insurance costs.
I encourage you to read on if:
- You are an individual planning to make additional contributions into your HSA for calendar year 2018—either directly or via payroll deduction: You may want to delay your 2018 contributions until dust has settled. Meanwhile, perhaps you can top off your account for calendar year 2017 by making a direct contribution before April 15th if you have not already maxed out; if you do this, be sure to designate the contributions as catch up for year 2017.
- You are an individual who was planning to start an HSA account in 2018: Consider putting in just a few dollars or whatever minimum the financial institution will accept for the purpose of activating the account; then wait until dust has settled before making additional contributions.
Why the few dollars? To keep any penalties to a minimum while simultaneously trying to establish an earlier start date for your new HSA account so more of you upcoming medical expenses will qualify for payment via the HSA. For example, let's say you create an HSA account on 1/2/18 by contributing $5 and then sit tight. In between account creation and a legislative fix to allow contributions for 2018, your toboggan collides with a tree and you incur $1,200 in medical expenses. Your HDHP will not cover these expenses since you have not yet met your deductible. Having the HSA account in place before the accident may enable you to ultimately use pre-tax dollars to pay those bills. How do we figure that when you only have $5 in the account??
Once the dust settles, and the green light is back on for making contributions, you can put more money into the HSA account and then pay the bills directly from the HSA account. Or, if you've already paid the bills directly from your pocket, you can put more money into the HSA account and then reimburse yourself. Either way, you've saved money by using pre-tax dollars to pay. At a minimum, you've saved income taxes; if you contribute via a cafeteria plan at work, you've also saved social security and Medicare taxes.
- You work for a bank: Consider policy changes/exposures/client communications in regards to accepting new HSA accounts as well contributions for 2018 into HSA for Maryland residents.
- You are a payroll service provider: Consider policy changes/exposures/client communications in regards to accepting new HSA accounts as well contributions for 2018 into HSA for Maryland residents. A significant portion of HSA contributions occur via payroll activity—via employee cafeteria plan elections and/or via contributions employers "gift" on your behalf. HSA contributions made via payroll generally impact the calculation of social security and Medicare tax withholdings and employer match.
- You are a health insurance broker: Consider alerting employers to issue/helping evaluate exposures/employee communications and payroll strategies. Note, cessation of HSA contributions via a cafeteria plan will result in more tax to both employee and the employer (FICA match.)
If the IRS determines after Jan. 1, 2018 that male sterilization is a preventive service AND that position is treated retroactively, no further legislative action will be needed. However, if no such determination is made, new Maryland legislation would be required to preserve HSA contributions in Maryland.
Emergency legislation is expected to be introduced in the upcoming General Assembly session, which convenes on Jan. 10. If this legislation is passed in the 2018 session, there is still a strong possibility it will NOT BE retroactive to Jan. 1, 2018.
Please email Mari@reumontcpa.com if you have any questions.
"Tax Cuts and Jobs Act" (TCJA)
Congress has passed the tax reform law, commonly called the "Tax Cuts and Jobs Act" (TCJA). It is the biggest federal tax law overhaul in 31 years, and it has both good and bad news for taxpayers.
YOUR ACTION ITEM
While the changes are significant, there is one item in particular that all taxpayers should consider doing before December 31, 2017 and that is to pay all state income taxes and real estate income taxes due for 2017 or earlier years before December 31, 2017.
Beginning in 2018 the tax deduction for the combination of state, local and real estate taxes will be capped at $10,000 per year. The provision only pertains to schedule A expenses (itemized deductions).
So check your 2016 Form Schedule A and add together the real estate taxes and state income taxes. If the combination is greater than $10,000, pay your 2017 state estimated payments, any additional estimated state income taxes and any real estate taxes currently due before December 31, 2017. If you are unsure, please contact our firm as soon as possible.
Highlights of the new tax reform law:
Below are highlights of some of the most significant changes affecting individual and business taxpayers. Except where noted, these changes are effective for tax years beginning after December 31, 2017.
- • Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37% — through 2025
- • Near doubling of the standard deduction to $24,000 (married couples filing jointly), $18,000 (heads of households), and $12,000 (singles and married couples filing separately) — through 2025
- • Elimination of personal exemptions — through 2025
- • Doubling of the child tax credit to $2,000 and other modifications intended to help more taxpayers benefit from the credit — through 2025
- • Elimination of the individual mandate under the Affordable Care Act requiring taxpayers not covered by a qualifying health plan to pay a penalty — effective for months beginning after December 31, 2018
- • Reduction of the adjusted gross income (AGI) threshold for the medical expense deduction to 7.5% for regular and AMT purposes — for 2017 and 2018
- • New $10,000 limit on the deduction for state and local taxes (on a combined basis for property and income taxes; $5,000 for separate filers) — through 2025
- • Reduction of the mortgage debt limit for the home mortgage interest deduction to $750,000 ($375,000 for separate filers), with certain exceptions — through 2025
- • Elimination of the deduction for interest on home equity debt — through 2025
- • Elimination of the personal casualty and theft loss deduction (with an exception for federally declared disasters) — through 2025
- • Elimination of miscellaneous itemized deductions subject to the 2% floor (such as certain investment expenses, professional fees and unreimbursed employee business expenses) — through 2025
- • Elimination of the AGI-based reduction of certain itemized deductions — through 2025
- • Elimination of the moving expense deduction (with an exception for members of the military in certain circumstances) — through 2025
- • Expansion of tax-free Section 529 plan distributions to include those used to pay qualifying elementary and secondary school expenses, up to $10,000 per student per tax year
- • AMT exemption increase, to $109,400 for joint filers, $70,300 for singles and heads of households, and $54,700 for separate filers — through 2025
- • Doubling of the gift and estate tax exemptions, to $10 million (expected to be $11.2 million for 2018 with inflation indexing) — through 2025
- • Replacement of graduated corporate tax rates ranging from 15% to 35% with a flat corporate rate of 21%
- • Repeal of the 20% corporate AMT
- • New 20% qualified business income deduction for owners of flow-through entities (such as partnerships, limited liability companies and S corporations) and sole proprietorships — through 2025
- • Doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets — effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023
- • Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phase-out threshold to $2.5 million
- • Other enhancements to depreciation-related deductions
- • New disallowance of deductions for net interest expense in excess of 30% of the business's adjusted taxable income (exceptions apply)
- • New limits on net operating loss (NOL) deductions
- • Elimination of the Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers' deduction — effective for tax years beginning after December 31, 2017, for non-corporate taxpayers and for tax years beginning after December 31, 2018, for C corporation taxpayers
- • New rule limiting like-kind exchanges to real property that is not held primarily for sale
- • New tax credit for employer-paid family and medical leave — through 2019
- • New limitations on excessive employee compensation
- • New limitations on deductions for employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation
More to consider
This is just a brief overview of some of the most significant TCJA provisions. There are additional rules and limits that apply, and the law includes many additional provisions. Contact us to learn more about how these and other tax law changes will affect you in 2018 and beyond at 301-622-1200 or 31-475-0100.
© 2017 Reumontcpa.com
With many valuable tax provisions made permanent by last December's PATH Act while others were extended only temporarily, tax planning is more complicated, yet more important than ever. To save the most, you need to be sure you're taking advantage of every tax break you're entitled to.
This is exactly what our Tax Planning Guide is designed to help you do. We hope you find this complimentary copy helpful in understanding recent tax-related legislation and identifying steps you can take to reduce your personal and business tax liability. Click HERE to read our guide.
As you look through the guide, please note the strategies and tax law provisions that apply to your situation or that you would like to know more about. Then contact us with any questions you may have about these or other tax matters.