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IRS New Guidance On The Employer Retention Credit

On August 4, 2021 the IRS issued notice 2021-49 providing additional guidance in regards to the Employee Retention Credit (ERC).

The good news is that one of the new provisions extends the ability to claim the ERC credit on eligible wages for the 3rd and 4th payroll quarters of 2021.

The notice also defines what a recovery startup businesses is and how eligible businesses may qualify for the ERC credit.  As long as your start-up business began operations on or after 02/15/2020 and your average annual gross receipts was less than $1,000,000, then you may qualify for the ERC.

Another provision listed in the notice answers the question of whether shareholder wages are eligible for the ERC. In an unanticipated decision, the IRS decided that wages paid to major shareholders and their related parties do not qualify for the ERC. There has been pushback on this decision and we await further clarification. We recommend starting in the 3rd quarter of 2021, no credit should be taken on the ineligible wages.

If you are a large employer with more than 500 full time employees and your business is either fully or partially suspended due to COVID-19 or you experienced a 90 percent decline in gross receipts for the same quarter compared to 2019, you are eligible to claim the ERC for both employees who are performing services and those employees that were not performing services.

The notice also provides that all ERC credit amounts received, must offset your payroll tax expense for the year the employee retention credit was claimed. For example, if you received $10,000 as an employee retention credit for the 1st quarter of 2021, you must offset that $10,000 amount to your payroll tax expense/liability account on your general ledger.

We know that some of the provisions pertaining to the employee retention credit can be confusing, however we here at Diapoules & Feinstein CPA P.C. are here to help guide you in the right direction.

Feel free to contact us at 631-547-1040 or send us an email at st@dfcpaonline.com with any questions. Thank you

Tax Relief for New York Business Owners

New York State has enacted and the IRS has approved a “Pass Through Entity” (PTE) tax. This tax enables the business owners, be they S Corporation shareholders, LLC members or partners, to lower the income flowing to them. In essence, it provides for a work around on the $10,000 limitation of state and local taxes imposed with the Tax Cuts and Jobs Act.

A PTE tax has been deemed a “business tax” on the PTE level and therefore deductible on the PTE’s federal income tax return in calculating the net income of the business. Business net income then flows through to the owners of the PTE.

For 2021 only, this election must be made by October 15, 2021 for the tax year 2021. Another election along with an estimated tax payment will be due on March 15, 2022 for the calendar year 2022.

The amount of PTE tax due is calculated on a pass-through entity’s adjusted net income allocated to New York. The tax rate used for calculated the tax due is 6.85% of adjusted net income of up to 2 million and the rate is then graduated upwards.

NYS allows a credit equivalent for a direct owner. The credit equals their respective ownership percentage applied to the PTE tax paid by the entity. As an example, if the PTE’s net income equals $1,000,000 a tax of $68,500 is due with the PTE return and a 20% owner of the PTE will then receive a credit of $13,700 that would be applied to their NYS personal income tax liability. If an overpayment of an owner’s NYS personal income tax occurs, then any overpayment can be applied to the next year’s tax or refunded. Keep in mind that NYS does require that any NYS PTE tax be added back in determining NYS taxable income.

In addition, New York State allows for a NYS resident to receive a tax credit for any PTE tax paid to another state that is “substantially similar” to the NYS PTE tax.

The owners of a PTE must be careful in electing PTE Status as the PTE tax rate begins at 6.85% while the beginning NYS tax rate on personal income is 4%. In order for any savings to occur the federal tax savings must be greater than any additional NYS tax that maybe due.

Also, businesses that report their income on Form 1040 Schedule C need to determine if there would be any tax savings if they incorporate their business and elect to be treated as an “S” Corporation.

As there remains a number of details that have yet to be worked out, we will do our best to keep you informed of any new developments.

All in all, this is welcome news for overburdened New York business owners.

As always feel free to contact Diapoules & Feinstein CPAs P.C. if you have any questions or need assistance by phone (631) 547-1040 or email st@dfcpaonline.com.

Tax savings through the Small Business Health Options Program

We are writing to you today with new and important information about how to save on your taxes and lower your health insurance costs simultaneously. March 11, 2021, the American Rescue Plan has been signed into law, enhancing the Affordable Care Act by providing new incentives.

The New York State of Health is a health plan marketplace. Individuals, families, and small businesses can use it to buy high quality health insurance and receive healthcare tax credits. The New York State of Health has two platforms to buy health insurance on:

  1. The Individual Marketplace – For individuals
  2. The Small Business Health Options Program (SHOP) – For businesses

There are new options and very competitive plans on the SHOP Exchange that should be considered. Businesses could be eligible for a 50% Tax Credit on the premiums they pay for health insurance purchased through the SHOP Exchange specifically. This essentially enables some businesses that meet the requirements to cut the net cost of their health insurance in half!

We will be happy to review your current health insurance plan with our insurance expert, Joe Monteleone, to see if you and your business can save on taxes and lower your health insurance costs. Please reply to this email if you would like to take advantage of a free consultation to review your plan at your convenience.

Child Tax Credit (CTC)

The American Rescue Plan, signed into law in March, made important changes to the CTC for many taxpayers. Beside increasing the CTC, the credit is now fully refundable. The maximum annual CTC will be $3,000 per qualifying child between the ages of 6 and 17, and $3,600 per qualifying child under age 6 at the end of 2021. Qualifying children must live with the taxpayer in the United States for more than half the year. Starting July 2021 to the end of the year the IRS will make advance monthly payments of half the estimated annual CTC.   

The maximum credit is available to taxpayers with modified Adjusted Gross Income of:

$75,000 or less for single taxpayers,

$112,500 or less for head of household,

$150,000 or less for married couples filing a joint return and qualifying widow(er)s and 

the maximum credit phases out for higher income taxpayers.

If you don’t wish to receive advance CTC payments, instructions on how to unenroll from these payments will be available by the end of June. 

We recommend that you create an online account with the IRS, in order to keep track of payments received and taxes paid.  In order to do create the account, go to irs.gov then create or view account. 

In order to create an account, the following information is needed:

  1. Your full name
  2. Email address
  3. Birthdate
  4. Social security number or Individual tax identification number
  5. Tax filing status
  6. Current address

 

In order to verify your identity, the IRS will need one of the following:

  1. Last 8 digits of Visa, Mastercard or Discover credit card or
  2. Student loan other than through Nelnet or
  3. Mortgage or home equity loan or
  4. Home equity line of credit or
  5. Auto loan

5 Steps to mitigate cyber-attacks

One of our clients was hit with a ransom ware attack. The attackers demanded 3 bit coins (approximately $150,000) . Fortunately they were prepared and did not pay the ransom but the attack did cause a disruption in their business

These attack are becoming more frequent and everyone needs to be prepared for an attack.

Our friend and IT consultant, Armando D’Accardo of CMIT Solutions of South Nassau, has helped us to be prepared and forwarded to us a list of five steps that need to be taken so that you can mitigate an attack and not be a victim of this extortion scheme.

How can you keep your business safe?

1. Back up your data.

Anne Neuberger, the White House’s Deputy National Security Adviser for Cyber and Emerging Technology, told reporters last week that Colonial was “in a difficult position if their data is encrypted and they do not have backups and cannot recover the data.” If the company had reliable data backups in place, it could have avoided the financial and reputational impact of paying $5 million in ransom and simply wiped its systems clean. This is the most critical step to avoid a data disaster that disrupts your company’s operations.

2. Make sure a recovery plan is in place, too.

This step is just as important as the previous one—after all, data backup is only as useful as the protocol in place to retrieve it. This is the only surefire way to foil a ransomware attack and keep your business up and running in the wake of a cyberattack. If you work with a trusted IT provider, you can outline and understand this plan in advance—before a serious issue affects your company. When it comes to critical infrastructure like gas pipelines, last week showed us the necessity of this kind of plan.

3. Assess and enhance your network security.

The key takeaway here is that one layer isn’t enough. Today’s businesses deserve a multi-tiered approach that combines firewalls, traffic analysis, remote desktop protocols, multi-factor authentication, and incident response to extend cybersecurity to all systems and devices. As hackers continue to refine their malware and ransomware attempts, IT providers like CMIT Solutions strive to stay one step ahead of new developments on the cybersecurity landscape.

4. Automatically update and patch all systems.

It’s not clear yet which of Colonial Pipeline’s systems were compromised by hackers. But many ransomware attacks in the past have been deployed against outdated operating systems and legacy applications that don’t have the latest security patches and software updates in place. Working with a trusted IT provider, this process can be automated to run behind the scenes, keeping your computers safe without interrupting your employees’ day-to-day work.

5. Provide ongoing training and education to your staff.

Many strains of ransomware target end-users, using cleverly spoofed emails or too-good-to-be-true web ads to trick them into clicking infected links or downloading malicious attachments. Understanding that these scam attempts are a matter of when, not if, your employees can be trained to recognize common ransomware tactics and phishing attempts, providing your company with another layer of defense. After the initial training, ongoing education is essential to keep your business ahead of the curve and mitigate any future threats.

We urge everyone to follow Armando’s recommendations. Please contact us if you need assistance or advice.

If you need any assistance please contact us.

Diapoules & Feinstein CPAs P.C.

FEMA COVID-19 Funeral Assistance Program Blog

FEMA is now offering U.S. citizens, non-citizen nationals, or qualified aliens who incurred funeral expenses after Jan. 20, 2020 for a death in the U.S. attributed to COVID-19 funeral assistance up to $9,000 per funeral or $35,500 per application (for several funerals).


To apply:
visit www.DisasterAssistance.gov,
or call COVID-19 Funeral Assistance Helpline at
844-684-6333 (TTY: 800-462-7585).
Hours of Operation: Monday – Friday 9 a.m. to 9 p.m. Eastern Time

If you already have a FEMA account (e.g. from Hurricane Sandy), you can use it to view your FEMA correspondences to take the next steps after the initial phone call to apply. Within 90 days from your initial FEMA registration phone call for funeral assistance account, you will need to send them funeral expense documents, an official death certificate that clearly states the death was attributed to COVID-19, proof of funds received from other sources, and a signed declaration letter (FEMA will send you this letter in the correspondences of your online account).


If you are eligible, FEMA will reimburse you by paper check or direct deposit.

More about PPP and ERC

Regarding the PPP and ERC: That said we discussed two scenarios this morning.

The first was a restaurant that opened up in November 2019 and their PPP 2nd draw has been rejected by BOA, Stride and Liberty banks. These banks cited SBA guidance that says if you opened in 2019 that you use the receipts you received during 2019 and compare them to 2020. The restaurant was only open for 53 days in 2019 and for all quarters in 2020 the receipts were in excess of the amount of receipts taken in for the short period in 4th quarter of 2019, SBA guidelines say nothing about prorating the receipts for the full quarter. However, in a similar situation, for ERC purposes the IRS allows you to prorate the business’ receipts . Alan is looking for further guidance on the discrepancy between the two programs and whether the SBA will give us some leeway.

In regard to qualifying for ERC the two safe harbors are for 2021 a 20% reduction and for 2020 a 50% reduction in receipts or a full or partial suspension of their business operations due to a “governmental” order. The particular case we were looking at is a podiatry office  that did not meet the 50% reduction for 2020 but has been advise by their payroll company that they qualify due to a partial suspension of their business operations. SBA guidance clearly states that this safe harbor only applies for the period that the governmental order was in place

Except for a period in March and April, the podiatry office was open. It had implemented a policy of more social distancing and used more stringent sanitary procedures which may have reduced its billing. The questions are does this constitutes a “partial” suspension and it was due to a “governmental” order. Of course we will need to research to see whether any of the various governmental levels (federal, state or county) issued an “order” restricting the practices operations. Two things he was clear on though was that an order to social distance is not by itself sufficient to constitute a partial or full suspension of business operations and that guidance by a non-governmental entity, such as the AMA, does not qualify.

As you can see we now have more questions than answers. Before we complete or assist in completing our clients in preparing a 941 or 941X ERC we need to establish that either safe harbor was established and it is best if everyone reviews the situation with someone else in the firm.

More Assistance Has Arrived

Fortunately, this past week the Senate finally passed the house version of a bill to extend the 2nd Draw PPP program for another two months.

 

To recap, in order to qualify for the PPP 2nd Draw request a business must experience a 25% drop in revenue for a quarter in 2021 as compared to a similar quarter of 2019. In addition, the expenses that qualify for forgiveness has been expanded to include administrative and other expenses.

 

Please remember that a business needs to apply for forgiveness of the PPP proceeds within 10 months from when the last of the PPP funds have been used up.

 

Another program that does not get enough attention is the Employee Retention Credit (ERC) This is a credit that can be applied to an employer’s current payroll taxes. While the ERC was introduced with the PPP, it was under-utilized due to the fact that a business had to choose between taking the PPP or the ERC. Businesses can now partake in both.

 

The changes in the ERC are that it has now been extended to include all of 2021; that in order to qualify a business has to have seen a 20% reduction in business down from 50%; that the amount of qualified wages has been increased to $10,000 per employee per quarter from $10,000 per employee per annum and the credit was raised from 50% of qualified wages to 70% of qualified wages. This effectively means that the maximum per employee credit, on an annual basis, has been raised from $5,000 to $28,000.

 

Unfortunately, the IRS has fallen desperately behind on processing paper returns so it behooves a business that the credit be claimed when it electronically files its current quarter 941 in lieu of filing a paper amended Form 941.

 

If you have any questions regarding the PPP or ERC please call our office and we will gladly discuss them with you.

Tax and Financial News Updates

1-The biggest tax news regarding the filing of your 2020 tax return contained in the recent stimulus bill passed signed by President Biden is that up to $10,200 of unemployment benefits will not be subject to federal income tax. Unfortunately, no state has yet to follow suit. The filing of some returns maybe delayed as the tax software companies have yet implement changes to their software.

2-This bill has also expanded the businesses that qualify for and the amount of the Employee Retention Tax Credit they can receive. This is a very generous but forgotten tax break for employers. The federal government will reimburse employers up to $30,000 a year for each employee employed if they meet the criteria. We are working diligently assessing our clients’ financial situation to see it they qualify.

3-The IRS has extended the filing date for individual tax return and payment of any tax due to May 17, 2021. As this is breaking news, we haven’t heard if any states will follow suit. 

4-C Corporation tax returns filing due date still remains at April 15 as does the payment of the 2021 1st quarter estimated tax for individuals.

5- A bill extending the filing of application for the 2nd draw of PPP to May 31 is making its way through Congress and is expected to be sign into law.

6-The SBA announced that they will defer the start of payments on EIDL loans for one more year.

Currently our office has been very busy trying to address our clients’ needs but due to the extraordinary demands of complying with SBA’s and IRS’ rules and regulation we have fallen slightly behind in our preparation of individual tax returns.  We ask for your understanding and are working hard to remedy the situation.

Important changes were made to the Employee Retention Credit

Important changes were made to the Employee Retention Credit (ERC) that increases its availability and benefit. The most important factors are that the credit is now available for those businesses that availed themselves of the Payroll Protection Program (PPP) and extended the credit through the second quarter of 2021. In order for a business to qualify for the ERC they needed to incur a significant decline in revenue for a quarter compared to the similar quarter in 2019. As this procedure may sound simple it becomes more complex when combined the PPP forgiveness.

To summarize if your business had the following, they should be eligible for the ERC

  1. They had payroll and filed the quarterly form 941’s in 2020
  2. If the 2020 quarterly revenue decreased greater than 50% from the corresponding 2019 quarter you become eligible. For the subsequent quarters you must have at least a 20% reduction when compared to the similar 2019 quarter

Once eligible, important points are:

  1. Their PPP forgiveness, from the 1st round, has to be properly calculated in order to maximize the ERC.

2)    The maximum credit allowed for 2020 is 50% of the 1st $10,000 each employee earns.

  1. In order to claim the credit, the appropriate quarterly Form 941 for 2020 must be amended.
  2. Wages reported on the 2020 business tax return must equal the wages paid less the ERC, even through the credit will be received in 2021. 

For tax year 2021 to claim the credit the 2021 quarterly revenue has to decrease by greater than 20% (instead of 50%) from the corresponding 2019 quarter and the maximum credit allowed is equal to 70% of the first $10,000 each employee earns during the quarter.