Tag Archives: employee retention credit

IRS Updates Early August

IRS Updates August 1 by Paul Davis

Security Summit Commences

The IRS has begun its annual education effort regarding online security for tax professionals and taxpayers. This year includes a five-part “Protect Your Clients; Protect Yourself series to help tax pros, especially smaller practices, protect against tax-related identity theft and fraud.

New Employee Retention Credit Procedures

Having cleared the backlog of valid Employee Retention Credit (ERC) claims, the IRS has entered a new phase of “increasing scrutiny on dubious submissions” while continuing warnings against aggressive ERC marketing. The IRS has increased audit and criminal investigation work on the remaining ERC claims, both on the promoters as well as those filing questionable claims. The misleading marketing creates an array of problems for tax professionals and the IRS, and anyone improperly claiming the ERC must pay it back, possibly with substantial penalties and interest. Phone calls, text messages, direct mail, radio, tv, and online ads are luring businesses and tax-exempt groups into applying for the credit. They often leave out key details about the very limited scope of the credit. The best way to avoid these risks is to work with a trusted tax professional.

No More Unannounced Visits

The IRS has announced a major policy change that will end most unannounced visits to taxpayers by revenue officers. This aims to reduce public confusion and enhance safety measures for both taxpayers and IRS employees. This is a reversal of a decades-long practice by IRS officers and will be replaced in most cases by mailed letters to schedule meetings. The National Treasury Employees Union (NTEU) praises the change, as such jobs “have only grown more dangerous in recent years because of false, inflammatory rhetoric about the agency and its workforce.” Additionally, scammers have tried to impersonate revenue officers. There will still be very limited situations where unannounced visits will occur, but these will mostly be for serving summonses and subpoenas, or for sensitive enforcement activities.

 

 

 

IRS Updates April 12, 2021

Student COVID Emergency Aid Not Taxed

Students who received emergency financial aid grants from a federal agency, state, tribe, higher education institution or scholarship-granting organization because of the COVID-19 pandemic do not have to include these funds in their gross income. They also do not have to reduce their amount of qualified tuition and expenses by the amount of the grant, but may be eligible to claim a tuition and fees deduction or other credit on their 2020 tax return.

Unemployment Taxes To Be Recalculated

The March 11 American Rescue Plan legislation made changes to how 2020 unemployment benefits are taxed for certain taxpayers. Those who filed their tax return before this date and figured their tax based on the full amount of unemployment compensation will have their return adjusted and their tax recalculated by the IRS. For those who overpaid under the new law, refunds are expected to begin in May and will continue into the summer.

Guidance On Food & Beverage Deduction

The Taxpayer Certainty and Disaster Relief Act of 2020 (Relief Act) added a temporary exception to the 50% limit on the amount that businesses may deduct for restaurant food and beverages. The exception allows a 100% deduction beginning January 1, 2021 through December 31, 2022. During this time businesses can claim 100% of their food and beverage expenses paid to a restaurant as long as the business owner or an employee is present, and the expense is not lavish or extravagant. 

Guidance On Employee Retention Credit

The IRS has issued guidance for employers claiming the Employe Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Relief Act for the first two quarters of 2021. The guidance explains the changes, and eligible employers can now claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after December 31, 2020, through June 30, 2021. The American Rescue Plan Act expands this credit through the third and fourth quarters of 2021, with further guidance to become available.

 

Tax Updates January 29

We are very busy with the tax season, but life continues. Here are the most recent updates from the IRS’s website.

Deferred Social Security Taxes Coming Due

Employers were given the option last year of deferring employees’ Social Security tax withholdings from September through the end of 2020. Those who elected to do so were originally obligated to begin withholding the deferred tax to be paid back over the first four months of 2021. However, as part of the Consolidated Appropriations Act, 2021, signed into law December 27, employers now have the entire year, from January 1, 2021 until December 31, 2021, to withhold and pay the deferred tax. Penalties, interest and additions to tax will now start to apply on January 1, 2022, for any unpaid balances.

COVID Employee Retention Tax Credit Extended

The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted December 27, 2020, made a number of changes to the employee retention tax credits, modifying and extending the Employee Retention Credit (ERC) fr six months, through June 30, 2021. Eligible employers can now claim a refundable tax credit against the employer share of Social Security tax equal to 70% of wages paid to employees in the first half of 2021.

Qualified wages are limited to $10,000 per employee per calendar quarter, making a maximum ERC of $7,000 per employee per quarter.

Filing Season – Agency Preparing

The IRS has announced that the tax filing season will begin Friday, February 12. After the December 27 changes to tax law, including a second round of Economic Impact Payments (EIPs), further programming was required. Proper programming is critical to ensure refunds are not delayed, and that eligible people will receive any remaining EIP monies as a credit when they file their 2020 return. The IRS urges individuals and tax professionals to file electronically for the speediest processing. Note: Free File is open and returns can be filed. Software companies and Free File partners will begin transmitting returns to the IRS beginning February 12.

Beware Unemployment Fraud

The IRS is warning taxpayers who receive Forms 1099-G for unemployment benefits they did NOT actually get, to contact their state agency for a corrected form.

Unemployment benefits are taxable income, but receiving a 1099-G in error suggests identity theft. Scammers took advantage of the pandemic by filing fraudulent claims using stolen personal information from individuals who had not filed claims. See Identity Theft Central for more information about identity theft and steps to be taken if one believes they’ve been a victim of fraud in this way.