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Federal Tax Deadline Extended To May 17
The federal income tax filing due date for individual taxpayers, including individuals who pay self-employment tax, has been extended to Monday, May 17, 2021, for the 2020 tax year. There is no need to file any forms to qualify for this automatic federal tax filing and payment relief.
Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17; however, penalties, interest, and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. The extended tax return due date applies to any individual who files a federal individual income tax return - or has a federal tax payment reported on one of these forms that would otherwise be due April 15, 2021 - using the Form 1040 series, including Form 1040, 1040-SR, and 1040-PR. Additionally, foreign trusts and estates with federal income tax filing or payment obligations that file Form 1040-NR now have until May 17, 2021.
The extended deadline also applies to schedules, returns, and other forms that are filed with a Form 1040 or are required to be filed by the due date of the Form 1040, such as Schedules H, Schedule SE, and Forms 965-A, 3520, 5329, 5471, 8621, 8858, 8865, 8915-E, and 8938.
This extended deadline does not apply to:
File as Soon as Possible for Refunds
Even with the new deadline, however, taxpayers should consider filing as soon as possible, especially those who are owed refunds. Filing electronically with direct deposit is the fastest way to get refunds and can help some taxpayers receive any remaining stimulus payments they may be entitled to.
Individual taxpayers who need additional time to file beyond the May 17 deadline can request a filing extension until October 15, 2021, by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. If you think you need an extension, please contact the office as soon as possible.
Filing Form 4868 gives taxpayers until October 15 to file their 2020 tax return; it does not grant an extension of time to pay taxes due. Taxpayers should pay their federal income tax due by May 17, 2021, to avoid interest and penalties.
Contributions to IRAs and Health Savings Accounts
The May 17 extended deadline also applies to individuals making 2020 contributions to their individual retirement arrangements (IRAs and Roth IRAs), health savings accounts (HSAs), Archer Medical Savings Accounts (Archer MSAs), and Coverdell education savings accounts (Coverdell ESAs). The date for reporting and payment of the 10% additional tax on amounts includible in gross income from 2020 distributions from IRAs or workplace-based retirement plans is also automatically postponed until May 17, 2021.
Estimated Tax Payments
This relief does not apply to estimated tax payments that are due on April 15, 2021. These payments are still due on April 15. As a reminder, taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS by people whose income isn't subject to income tax withholding, including self-employment income, interest, dividends, alimony, or rental income.
Most taxpayers automatically have their taxes withheld from their paychecks and submitted to the IRS by their employer and do not need to pay estimated taxes.
State Tax Returns
The extended federal tax filing deadline of May 17, 2021, only applies to individual federal income returns and tax (including tax on self-employment income) payments that are normally due April 15, 2021. As such, taxpayers also will need to file income tax returns in 42 states plus the District of Columbia. State filing and payment deadlines vary and are not always the same as the federal filing deadline, and it is up to individual states to decide whether to extend tax return deadlines.
Unclaimed Refunds Deadline Extended to May 17
There is a three-year window of opportunity to claim a refund on prior-year tax returns. If taxpayers do not file a return within three years, the money becomes property of the U.S. Treasury. For tax year 2017 Federal income tax returns, the normal April 15 deadline to claim a refund has also been extended to May 17, 2021. Taxpayers must properly address, mail, and ensure the tax return is postmarked by the May 17, 2021, due date.
Help is Just a Phone Call Away
Please call if you have any questions or concerns about your tax situation this year.
Highlights of the American Rescue Plan Act
Signed into law on March 11, 2021, the American Rescue Plan Act (ARPA) contains several tax provisions affecting individuals and families. Let's take a look:
Economic Impact Payments (EIP3). A third round of economic impact payments (EIP3) will be sent to qualifying taxpayers; individuals will receive $1,400 ($2,800 for married taxpayers filing jointly) plus $1,400 for each dependent, which includes college students and relatives who can be claimed as dependents. These payments are sent out as advance payments of the recovery rebate credit. Anyone not receiving EIP3 will be able to claim the recovery rebate credit when they file a 2021 tax return next year. There are specific income phaseouts, and eligibility is determined using a taxpayer's 2019 adjusted gross income unless the taxpayer has already filed a 2020 return. For more information, see, Economic Impact Payments: Round Three, below.
Student Loan Debt Forgiveness. Normally, canceled debt - including student loan debt - is considered taxable income and taxed as such. Under the ARPA, however, for eligible loans, the discharge of student loan debt - either full or partial - will not be viewed as taxable income for tax years 2021 through 2025. Eligible loans are those that have been used solely for post-secondary education and that are made, insured, or guaranteed by the US government.
COBRA: Continuing Health Coverage. ARPA requires employers to subsidize at 100 percent premiums paid for COBRA continuation coverage for assistance eligible individuals (AEIs) and is in effect for the period April 1, 2021, to September 30, 2021. Employer costs for the subsidy are offset by a payroll tax credit against the employers' quarterly taxes. Employers whose credit is greater than the amount of payroll tax owed receive a refund when they submit Form 941, Employer's Quarterly Federal Tax Return.
Unemployment Benefits. A $300-per-week supplement to federal unemployment benefits that would have expired March 14, 2021, is now extended through September 6, 2021. ARPA also gives eligible taxpayers a special tax break for 2020: the first $10,200 in unemployment benefits is tax-free for taxpayers whose income is less than $150,000 per year. For more information about this topic see, Q & A: the $10,200 Unemployment Tax Break, below.
Child Tax Credit. ARPA includes several important changes pertaining to families, which are summarized below:
Child and Dependent Care Credit. For tax year 2021, the child and dependent care credit is refundable and is a maximum of $4,000 for one qualifying individual and a maximum of $8,000 for two or more. The credit begins to decrease for households whose income exceeds $125,000 - and as much as 20 percent for households whose income is more than $400,000.
Earned Income Tax Credit. Several special rules pertain to individuals without children. For 2021, the age range of workers without children is expanded to include adults ages 19-24 and older adults age 65 and over. Students under age 24 who are attending school at least part-time are excluded. The maximum earned income credit increases threefold and income levels required to qualify for the credit increase from $16,000 to $21,000. Additional changes under ARPA include:
Affordable Care Act Premium Tax Credit. For 2020, taxpayers who received premium tax credits in advance that were more than what they should have received will not have to repay the excess amount. It applies to taxpayers who have received, or have been approved to receive, unemployment compensation for any week beginning during 2021.
Taxes are Complicated
If you have any questions or would like more information about how recent tax law changes affect your tax situation, please call.
Economic Impact Payments: Round Three
On March 12, following the American Rescue Plan Act's approval and signing, the IRS began sending out the third round of Economic Impact Payments. Most payments were sent out via direct deposit, but approximately 150,000 checks were mailed by the Treasury Department as well. Taxpayers who received EIP1 or EIP2 but didn't receive a third payment (EIP3) via direct deposit will generally receive a check or, in some instances, a prepaid debit card (EIP Card).
Under the new law, an EIP3 cannot be offset to pay various past-due federal debts or back taxes.
A payment will not be added to an existing EIP card mailed for the first or second round of stimulus payments.
Paper Checks and Prepaid Debit Cards
Taxpayers who did not receive a direct deposit by March 24 should check their mail carefully in the coming weeks for a paper check or a prepaid debit card, known as an Economic Impact Payment Card, or EIP Card.
The form of payment for the third EIP may be different than earlier stimulus payments. More people are receiving direct deposits, whereas those receiving the economic impact payments in the mail may get either a paper check or an EIP Card. This may be different from how they received their previous stimulus payments.
Paper Checks. Paper checks will arrive by mail in a white envelope from the U.S. Department of the Treasury. For those taxpayers who received their tax refund by mail, this paper check will look similar but referenced as an "Economic Impact Payment" in the memo field.
EIP Card. The EIP Card will also come in a white envelope prominently displaying the seal of the U.S. Department of the Treasury. The card has the Visa name on the front and the issuing bank, MetaBank, N.A., on the back. The information included with the card will explain that this is an Economic Impact Payment. Each mailing will include instructions on how to activate and use the card securely.
None of the EIP cards issued for any of the three rounds is reloadable; recipients will receive a separate card and will not be able to reload funds onto an existing card. EIP Cards are safe, convenient, and secure. EIP Card recipients can make purchases online or in stores anywhere Visa Debit Cards are accepted.
They can get cash from domestic in-network ATMs, transfer funds to a personal bank account, and obtain a replacement EIP Card if needed without incurring any fees. They can also check their card balance online, through a mobile app, or by phone without incurring fees. The EIP Card provides consumer protections against fraud, loss, and other errors and is sponsored by the Bureau of the Fiscal Service and issued by Treasury's financial agent, MetaBank, N.A. The IRS does not determine who receives a prepaid debit card.
Social Security and Other Federal Beneficiaries
Most Social Security retirement and disability beneficiaries, railroad retirees, and recipients of veterans benefits who are eligible for an Economic Impact Payment do not need to take any action to receive a payment. These payments will be automatic, and Social Security and other federal beneficiaries will generally receive this third payment the same way as their regular benefits.
Anyone who didn't file a return but receives Social Security retirement, survivor or disability benefits (SSDI), Railroad Retirement benefits, Supplemental Security Income (SSI), or Veterans Affairs benefits, will receive their third round of economic impact payments the same way as their regular benefits - similar to the first and second rounds of Economic Impact Payments.
If You Don't Normally File a Tax Return
While payments will be automatic for many people based on their federal benefits information, some may need to file a 2020 tax return - even if they don't usually file - to provide information the IRS needs to send payments for any qualified dependent. People in this group should file a 2020 tax return to be considered for an additional payment for their dependent as quickly as possible.
People who don't normally file a tax return and don't receive federal benefits may also qualify for these stimulus payments, including those experiencing homelessness and others. If you're eligible and didn't get a first or second Economic Impact Payment (that is, an EIP1 or EIP2) or got less than the full amounts, you may be eligible for the 2020 Recovery Rebate Credit but will need to file a 2020 tax return.
Q & A: The $10,200 Unemployment Tax Break
Generally, unemployment compensation received under the unemployment compensation laws of the United States or a state is considered taxable income and must be reported on your federal tax return. However, a new tax break - in effect only for the 2020 tax year - lets you exclude the first $10,200 from taxable income. Here's what you should know:
What do I need to do to get the tax break?
The tax break, which is part of the American Rescue Plan Act of 2021 (ARPA is available to all taxpayers whose 2020 modified adjusted gross income is less than $150,00 and allows you to exclude the first $10,200 of unemployment compensation received in 2020. For joint returns, the first $10,200 per spouse (i.e., $20,400 for two workers who are married filing jointly) is not included in gross income.
Amounts over $10,200 for each individual taxpayer are still considered taxable income and the tax break only applies to federal income taxes.
Who doesn't qualify for the tax break?
Taxpayers with a modified adjusted gross income of $150,000 or more last year do not qualify for the tax break and are required to file taxes on the full amount of unemployment compensation.
The $150,000 earnings limit does not include amounts received as unemployment compensation.
How do I know how much unemployment compensation I received and how much tax was taken out?
If you received unemployment compensation, you should have received Form 1099-G, Certain Government Payments (Info Copy Only). Form 1099-G shows the amount of unemployment compensation paid and any federal income tax you elected to have withheld. Many taxpayers chose to have federal income tax withheld from their unemployment benefits by filling out Form W-4V, Voluntary Withholding Request. If you completed the form and gave it to the paying office (e.g., your state's Department of Labor), they should have withheld tax at 10 percent of your payments.
What if I already filed my 2020 tax return?
If you already filed your 2020 tax return and paid tax on unemployment compensation that qualifies for the tax break, in most cases, there is no need to file an amended return. Taxpayers should only file an amended return if the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return. Taxpayers may want to review their state tax returns as well.
The IRS can adjust returns for those taxpayers who claimed the Earned Income Tax Credit (EITC) and because the exclusion changed the income level, may now be eligible for an increase in the EITC amount, which may result in a larger refund. However, taxpayers would have to file an amended return if they did not initially claim the EITC or other credits but now are eligible because the exclusion changed their income.
The IRS will determine the correct taxable amount of unemployment compensation and tax. If there is any overpayment of tax, it will be either refunded or applied to other outstanding taxes owed. The recalculations will take place in two phases; single filers and other taxpayers eligible for the up to $10,200 exclusion, followed by married filing jointly taxpayers eligible for the up to $20,400 exclusion and others with more complex returns.
Don't hesitate to contact the office if you have any questions regarding unemployment compensation and your taxes.
PPP Loan Deadline Extended Through May 31
The Paycheck Protection Program Extension Act of 2021 was signed into law on March 31, 2021, extending the deadline to apply for a loan by an extra 60 days, from March 31 to May 31, 2021. The law also gives the Small Business Administration (SBA) an additional 30 days after the May 31 deadline to review and process loan applications.
The passage of the PPP Extension Act does not provide additional funding; however, as part of the American Rescue Plan Act, an additional $7.25 billion was earmarked for the Paycheck Protection Program to expand eligibility to additional nonprofits and digital news services.
In February 2021, SBA also made four additional changes to open the PPP to more underserved small businesses, generally small and low- and moderate-income (LMI) businesses who have not received the needed relief a forgivable PPP loan provides. Congress set a $15 billion set-aside for small and LMI First Draw borrowers. To advance these goals, SBA has:
Prior to addressing these inequities, the current 2021 round of PPP loans had only deployed $2.4 billion to small LMI borrowers, in part because a disproportionate amount of funding in both wealthy and LMI areas is going to firms with more than 20 employees. As a result, in February 2021, SBA established a 14-day, exclusive PPP loan application period for businesses and nonprofits with fewer than 20 employees. The program opened to all borrowers on March 10, 2021, and, as mentioned, has been extended through May 31, 2021.
Business owners who have not received a PPP loan previously can apply for a First Draw Loan. Certain businesses that have already received a PPP loan are eligible for a Second Draw PPP loan.
Finally, borrowers may be eligible for PPP loan forgiveness. First Draw PPP loans made to eligible borrowers qualify for full loan forgiveness if during the 8 to 24-week covered period following loan disbursement:
Second Draw PPP loans made to eligible borrowers qualify for full loan forgiveness under the same requirements as First Draw PPP loans provided employee and compensation levels are maintained in the same manner as required for the First Draw PPP loan.
If you're thinking about applying for a PPP loan, don't hesitate to contact the office with any questions.
Include Gig Economy Income on Tax Returns
The gig economy is also referred to as the on-demand, sharing, or access economy. People involved in the gig economy earn income as a freelancer, independent worker or employee. Typically, an online platform is used to connect people with potential or actual customers to provide goods or services. Examples include renting out a home or spare bedroom and providing meal delivery services or rides.
During the pandemic, many people joined the ranks of the gig economy to help make ends meet. Whether you are part of the gig economy because it's a primary source of income or want to make extra money with a side business, all taxpayers need to understand that they must report gig economy income on their tax return.
Here's what you should know about the gig economy and your taxes:
1. Money earned through this work is usually taxable.
2. There are tax implications for both the company providing the platform and the individual performing the services.
3. This income is usually taxable even if:
4. People working in the gig economy are generally required to pay:
5. Independent contractors may be able to deduct business expenses. These taxpayers should double-check the rules around deducting expenses related to the use of things like their car or house. They should remember to keep records of their business expenses.
6. Special rules usually apply to rental property also used as a residence during the tax year. Taxpayers should remember that rental income is generally fully taxable.
7. Workers who do not have taxes withheld from their pay have two ways to pay their taxes in advance. Here are these two options:
For more information on the gig economy, please call the office.
Self-Employed Can Claim Sick & Family Leave Tax Credit
A new form is available for self-employed individuals to claim sick and family leave tax credits under the Families First Coronavirus Response Act (FFCRA). The FFCRA, passed in March 2020, allows eligible self-employed individuals who, due to COVID-19, are unable to work or telework for reasons relating to their own health or to care for a family member to claim refundable tax credits to offset their federal income tax.
Self-employed individuals who are eligible for the credits determine their qualified sick and family leave equivalent tax credits by using a new IRS form, Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals. The tax credits are equal to either their qualified sick leave or family leave equivalent amount, depending on circumstances.
For leave taken between April 1, 2020, and December 31, 2020, taxpayers can claim the credit on 2020 tax returns (on Form 1040). They can also claim the credit next year when filing their 2021 tax return (Form 1040) for leave taken between January 1, 2021, and March 31, 2021.
Filing Form 7202
Eligible self-employed individuals are those who:
As always, taxpayers must maintain appropriate documentation establishing their eligibility for the credits as an eligible self-employed individual. Please don't hesitate to call if you need assistance calculating the credit, determining if you are eligible, or have any other tax questions.
Coronavirus-Related Distributions and Loans
The Coronavirus, Aid, Relief, and Economic Security (CARES) Act made it easier to access savings in IRAs and workplace retirement plans for those affected by the coronavirus. This relief provided favorable tax treatment for certain withdrawals from retirement plans and IRAs, including expanded loan options.
Distributions: Certain distributions made from Jan. 1, 2020, through Dec. 30, 2020, from IRAs or workplace retirement plans to qualified individuals may be treated as coronavirus-related distributions. These distributions are not subject to the 10% additional tax on early distributions (including the 25 percent additional tax on certain SIMPLE IRA distributions).
Taxes on coronavirus-related distributions are includible in taxable income:
Coronavirus-related distributions may be repaid to an IRA or workplace retirement plan within three years.
If you had an outstanding loan balance when you left employment, the plan sponsor usually offsets the loan balance against your benefit.
RMDs: An IRA owner or beneficiary who received an RMD in 2020 had the option of returning it to their account or other qualified plan to avoid paying taxes on that distribution. RMDs in 2020 that were not rolled over or repaid may be eligible to be treated as coronavirus-related distributions if the individual is a qualified individual. A 2020 RMD that otherwise qualifies as a coronavirus-related distribution may be repaid over a 3-year period or have the taxes due on the distribution spread over three years.
A withdrawal from an inherited IRA to a qualified individual may also be a coronavirus-related distribution. Income from the withdrawal may be spread over three years for income inclusion; however, the withdrawal may not be repaid to the inherited IRA.
The one rollover per 12-month period limitation and the restriction on rollovers to inherited IRAs did not apply to repayments made by August 31, 2020. The RMD suspension did not apply to qualified defined benefit plans.
The CARES Act included special rules for plan loans made to qualified individuals. Plans could suspend loan repayments for up to one year. However, typically, repayments resumed in January 2021 effectively give up to six years (instead of five) to repay a typical plan loan.
As always, don't hesitate to call the office with any questions.
Personal Protective Equipment Qualifies for Deduction
As a quick reminder, the purchase of personal protective equipment, such as masks, hand sanitizer, and sanitizing wipes, for the primary purpose of preventing the spread of coronavirus are deductible medical expenses.
The amounts paid for personal protective equipment are also eligible to be paid or reimbursed under health flexible spending arrangements (health FSAs), Archer medical savings accounts (Archer MSAs), health reimbursement arrangements (HRAs), or health savings accounts (HSAs).
Medical costs that exceed 7.5 percent of adjusted gross income (AGI) can be deducted on tax returns. For example, if your AGI is $50,000, you can claim the deduction only for medical expenses exceeding $3,750. Medical expenses are only deductible if you itemize on Schedule A of IRS Form 1040.
For more information on determining what a deductible medical expense is, please call the office for assistance.
Donating a Car To Charity as a Tax Write-Off
If you donate a car to a qualified charitable organization and intend to claim a deduction, you should be aware of the special rules that apply to vehicle donations.
Charities typically sell donated vehicles. If the charitable organization sells the vehicle you donated it to, the deduction claimed by the donor (you) may not exceed the gross proceeds from the sale.
If the donated vehicle sells for less than $500, you can claim the fair market value of your vehicle up to $500 or the amount it is sold for if less than fair market value without the need to file any additional paperwork with the IRS. The donee organization should furnish you with Copy B of Form 1098-C, , Contributions of Motor Vehicles, Boats, and Airplanes, stating the donation amount.
The taxpayer can generally deduct the vehicle's Fair Market Value (FMV), if:
If the donated vehicle sells for more than $500 and your deduction is $500 or more, you must obtain written, contemporaneous (timely) acknowledgment of the donation from the charitable organization. You must also attach Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, to your tax return.
The written acknowledgment generally must include your name and taxpayer identification number, the vehicle identification number, the date of the contribution, and one of the following:
If the written acknowledgment does not contain all of the required information, the deduction may not exceed $500.
For more information about donating a car to charity, please contact the office.
Tax Due Dates for April 2021
Employees who work for tips - If you received $20 or more in tips during March, report them to your employer. You can use Form 4070.
Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in March.
Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in March.
Individuals - If you are not paying your 2021 income tax through withholding (or will not pay in enough tax during the year that way), pay the first installment of your 2021 estimated tax. Use Form 1040-ES.
Corporations - File a 2020 calendar year income tax return (Form 1120) and pay any tax due. If you want an automatic 6-month extension of time to file the return, file Form 7004 and deposit what you estimate you owe in taxes.
Corporations - Deposit the first installment of estimated income tax for 2021. A worksheet, Form 1120-W, is available to help you estimate your tax for the year.
Employers - Federal unemployment tax. Deposit the tax owed through March if more than $500.
Employers - Social Security, Medicare, and withheld income tax. File form 941 for the first quarter of 2021. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until May 10 to file the return.
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