Last March, as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), employers were presented with the Paycheck Protection Program (PPP) Loan and the Employee Retention Credit (ERC) as relief options to help their businesses in unprecedented times. At a time when countless companies and industries were forcibly shut down and heavy restrictions and lockdowns implemented, many businesses scrambled and took advantage of these opportunities.

Now, a year later, a great number of businesses continue to struggle. If they are even allowed to operate as usual, in-person customers are more hesitant and they are still recovering from a hard-hit year. This past December, as the pandemic was showing to linger longer than anyone expected, Congress updated the legislation and made some key changes businesses might want to explore.

What Is the ERC?

The ERC was introduced as a refundable payroll tax credit to companies that agreed to retain employees. The purpose was to encourage businesses to keep employees on the payroll, even if for part of that time, the government enforced restrictions preventing them from reporting to work.  

According to the original CARES act, employers in the private sector were offered, if qualified, a tax credit equivalent to 50 percent of the wages paid to an employee after March 12, 2020. This enabled employees to receive a refundable tax credit up to $5,000. Businesses that qualified had been suspended in some way for at least some part of 2020 and the business had experienced a significant decrease of 50 percent in gross receipts when compared to the same quarter in 2019. 

Recent Changes Have Been Made

In December of 2020, updates were added to the CARES Act through the Taxpayer Certainty and Disaster Relief Act to give relief to businesses that are continuing to struggle. 

These changes include:

• Receiving the PPP loan no longer disqualifies employers from the ERC. In the original legislation, businesses had to choose. Now, most small business tax accountants will encourage a business facing hardship to apply for the ERC even if they at one point received the PPP loan.
• The ERC credit rate increased to 70 percent of qualified wages, compared to 50 percent with the original CARES Act.
• While before employees were able to receive a tax credit up to $5,000, Congress has now increased the limit to $10,000.
• The credit is now available to some employers in the public sector, such as public colleges and universities and organizations that provide healthcare.
• A business qualifies now if the decline in gross receipts was less than 80 percent of gross receipts (as opposed to 50 percent before the updates) received in the same quarter in 2019. 

The legislation is retroactive, meaning if a business did not apply for the ERC because they had received the PPP, the business is now able to claim the ERC based on its 2020 performance.

Consult Your Business Tax Accountant

To actually claim the ERC, employers who qualify will be asked to report their total qualified wages and health insurance costs on a quarterly basis. This will be filed through Form 941. Reaching out to a local CPA firm in Charlotte can expedite this process for your business, as well as ensure your business is abiding by the proper protocols and maximizing the benefits for which you qualify.

https://www.investopedia.com/what-is-the-employee-retention-credit-and-how-to-get-it-4802575

https://www.accountingtoday.com/news/irs-offers-guidance-on-employee-retention-credit-and-ppp-eligibility

https://www.irs.gov/coronavirus/employee-retention-credit

In the past, the child tax credit has been intended to provide support for each child of American taxpayers. Following the past year, however, one in which many families have faced financial struggle, the American Rescue Plan has expanded that child tax credit in an unprecedented way.

Starting July 15th, low-income and middle-income families started receiving monthly payments for each dependent child. The expansion of this credit hopes to meet the needs of the lowest-income families, and is expected to reduce childhood poverty by 45 percent.

What To Expect

The advanced child tax credit payments for 2021 have increased to $3,000 per child ages 6-17 or $3,600 per child under age 6.  The advanced payments are reduced if your adjusted gross income exceeds $150,000 (married filing jointly), $112,500 (head of household) or $75,000 (single or married filing separately). 

Qualifying taxpayers can expect to receive advance monthly payments between 250 and 300 dollars per child. Following receipt of the payments for the final six months of 2021, they will be able to claim the balance on 2021 tax returns. Payments will not be considered taxable income.

Who Qualifies for the Child Tax Credit

Once a taxpayer’s 2020 tax return has been filed, or you were able to receive a stimulus check from the IRS, qualified taxpayers automatically will receive this benefit. 

Though households that bring in over $150,000 will receive a reduced sum, most will qualify for the standard $2,000 tax credit per child. This is available for households bringing in less than $400,000.

In addition, family members that provide the majority of financial support for a child, including foster children, grandchildren, siblings, and other relatives, qualify for the child tax credits.

In the circumstance of shared custody, only one taxpayer may claim the child tax credit, so the parents must establish an agreement on how the money will be distributed.

Why You Might Consider Opting Out of Advanced Child Tax Credits

It should be noted that if you receive the advanced payments and end up not qualifying for them based on your 2021 income, you will need to repay all or a portion of the advanced credit with your 2021 federal income tax return.  If your 2021 income has changed and you don’t want to deal with the repayment, or if you would prefer to just receive a larger lump sum payment, you have the opportunity to “Opt-Out” of the advanced payments and wait to claim the credit on your 2021 taxes, should you qualify.  

To unenroll starting with the August 15^th payment, you must complete the following steps by August 2^nd, 2021.

1. Go to https://www.irs.gov/credits-deductions/child-tax-credit-update-portal
2. Click on Manage Advance Payments
3. Sign In or create New Account
   1. If you previously signed up to access an IRS.gov application, you may sign in with your existing IRS username; otherwise create a new account
   2. When you select the “create a new account” link,  you will be required to verify your identity.
4. Once you have created your account, you can unenroll from the advance payments

If you filed jointly with your spouse, you will both need to log in and “Opt Out”. 

If you remain unsure of whether you qualify, how to enroll, or whether it is in your best interest to opt out, contact your local CPA in Charlotte to discuss your specific circumstances.

Please feel free to contact our office at 704-372-1167, if you have any questions or concerns.

On Friday, December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The following tax law changes are effective for tax years beginning after December 31, 2017, unless otherwise noted.

INCOME TAX FOR BUSINESSES

There are several provisions pertaining to businesses that we believe will be of interest to you as follows.

• The corporate tax rate has been reduced to a flat 21% and the corporate alternative minimum tax has been repealed;
• The maximum amount a taxpayer can immediately expense for qualified property (Sec. 179) has been increased to $1,000,000 and the phase-out threshold amount is increased to $2.5 million;
• A 100% first-year deduction for qualified property (increased from 50% deduction) for property placed in service after September 27, 2017 and before January 1, 2023;
• The deduction for domestic production activities has been repealed ;
• The deduction of 50% of expenses relating to entertainment has been repealed;
• Net operating losses can no longer be carried back but can be carried forward indefinitely and the deduction is limited to 80% of taxable income.

While this summary is not comprehensive, we hope it will help you understand upcoming changes to your tax liability. As always, we are available to discuss your circumstances and how this new law may affect you.