| UPDATES TO FILING DEADLINE, RECOVERY REBATES, SOFTWARE UPDATES, RMDs & PPP FILING DEADLINE EXTENDED The IRS announced last week that the Federal income tax deadline is extended from April 15th to May 17th, 2021. This extension is for individual income tax returns and any payments due on these returns. Any balances normally due on April 15th are extended to May 17th with no additional penalties or interest due regardless of the amount owed. What the law does not extend are C corporation income tax returns, Trust and Estate income tax returns and Estimated income tax payments. Each of these are still due on April 15th. Additionally, individuals must check to see if their state income tax deadlines are moved. I would assume most, if not all states, will make the decision shortly on whether or not they will move their filing deadline to coincide with the extended Federal due date. RECOVERY REBATES The IRS has started sending recovery rebate checks, also known as Economic Impact Payments ($1,400 per person) to individuals ever since the President signed the American Rescue Plan Act into law on March 11th. Many individuals have or will receive payment without having to do anything. Payments are based on either taxpayer 2020 income tax returns or 2019 if 2020 has not been filed. Individuals that have provided the IRS with banking information on their income tax returns or through the non-filer tool last year will most likely receive a direct deposit. Some taxpayers will receive paper checks. As with the rebates issued in 2020 if taxpayers have not received their payments, then they may go to the “Get My Payment” site (https://www.irs.gov/coronavirus/get-my-payment)to to check the status. If the taxpayer is unable to use this tool (sometimes it doesn’t work), then ultimately the payment will be reconciled on the 2021 income tax return. This is the same way the rebates issued last year have worked. If taxpayers did not receive the payments in 2020, they may take credit on their 2020 income tax return. The downside with reconciling this on the 2021 return is taxpayers will be waiting over a year to receive this money. The other issue is if taxpayers receive payments based on their 2019 or 2020 income tax return that they would not have been entitled to because their 2021 income exceeds the limits for eligibility, they will not have to repay it, if these same taxpayers do not receive the money and reconcile on their 2021 returns they will not receive it if their income exceeds eligibility limits. Below are the AGI limitations for the Recovery Rebate Single taxpayers with AGIs of no more than $75,000 are fully eligible for the credit. The credit phases out for those with AGI in excess of $75,000 until they reach $80,000. There is no credit allowed for those with AGI of $80,000 or more. Married taxpayers filing jointly must substitute the figures $150,000 for $75,000 and $160,000 for $80,000. Taxpayers classified as Head of Household must substitute the figures $112,500 for $75,000 and $120,000 for $80,000. SOFTWARE UPDATES Unemployment Benefits When the American Rescue Plan Act was passed it contained provisions that exempted the first $10,200 of unemployment received by an individual (or by each spouse if filing jointly) if Adjusted Gross Income (AGI) was less than $150,000 in 2020. Many tax software programs have been updated to correct this for returns being filed from this point forward. The IRS director indicated last week that taxpayers that had already filed income tax returns claiming 100% of unemployment as taxable should not amend their returns. He indicated the IRS will automatically issue refunds to these individuals. Premium Tax Credit The law also eliminates the requirement, for 2020 only, that a taxpayer that received advanced credits in excess of what would be allowed based on their 2020 income figures shown on their tax return, has to repay the amount they were overpaid. For example, let’s say a taxpayer, based on estimated income and family size amounts provided to an insurance carrier received a credit on their health insurance of $300 per month, or $3,600. When the 2020 income tax return is prepared it shows that the taxpayer should have only received a credit of $3,000. In all other years, the taxpayer would be required to pay back the $600 difference. Again, in 2020 only, this money does not have to be repaid. I know my software company has not yet updated the tax program for this. They stated they are awaiting guidance, which was provided for the unemployment change, but so far has not been provided for the premium tax credit. The IRS director indicated for income tax returns already filed that included payments from taxpayers because this provision had not yet become law should not file amended income tax returns. As with the unemployment change, the director stated the IRS will automatically refund these payments to taxpayers. REQUIRED MINIMUM DISTRIBUTIONS (RMDs) In 2020 RMDs were suspended. This included retirees who turned 70 ½ in 2019 and were going to take their first distribution by April 1st of 2020. For those individuals who reached 70 ½ before 2020 and terminated employment in 2020 and would normally have a 2020 RMD due by April 1, 2021, the RMD is also waived. Individuals that reached age 70 ½ in 2019 or earlier will be required to take an RMD in 2021. Individuals that reach age 72 in 2021 must take their first RMD by April 1, 2022. This RMD would be for 2021 but they are allowed a first-time extension of 3 months. Keep in mind that the 2022 RMD, and all subsequent years RMDs, are due by December 31st. Therefore, if a taxpayer takes their initial 2021 RMD in 2022 (before April 1st), they will also be required to take their 2022 RMD by December 31, 2022. Taxpayers should look at their income tax situation to decide whether it is better to take their initial RMD in 2021 or 2022, bearing in mind that the 2022 RMD must be taken in 2022. PPP Last week (Tuesday March 16th) the House of Representatives voted 415 -3 to extend the Paycheck Protection Program (PPP) from March 31, 2021 to May 31, 2021. Although this bill must pass in the Senate and be signed into law by the President, with almost unanimous support I feel it is likely to become a reality. With the changes made to the program both recently (an example would be Schedule C filers being allowed to use Gross income instead of net profit) and since the Consolidated Appropriations Act passed on December 27th, it makes sense to extend the deadline. The changes made since passing the Act in December are, among other items, error codes put in place by the SBA to reduce fraud. While that is a very good idea, these codes have caused significant delays on applications that are legitimate. The extended time gives borrowers, the SBA, and professionals, like me, that are assisting borrowers much needed time to properly file necessary paperwork.I will update everyone when and if this bill becomes law. Join me, Every Monday at 12:30pm (EST) here: https://www.facebook.com/jeffcpaworld/ If you’d like to book an appointment with me, please click on the link below: https://calendly.com/jeffskolnickcpa/30min?fbclid=IwAR3GkP_soaRRmP1nq_HgOOO_jksAc2G-nhMvzvudPCG-bsg1NuhATWjbTJs&month=2020-07 Hang in there and stay safe, Jeff Skolnick, CPA, M.S. Taxation |
