UPDATES TO TAX CALENDAR, UNEMPLOYMENT, PPP, AND RECOVERY REBATES APRIL 4, 2021

IMPORTANT FILING DEADLINES

As most, if not all, of you know 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.

If you are a taxpayer that makes estimated tax payments, make sure to pay your first quarter by April 15th. If you have been unable to complete enough of your 2020 income tax return to calculate your first quarter estimate, then do your best to approximate the amount. It’s better to make an estimate, even if it’s not totally accurate, then to not make any payment. If you pay in either too much or too little in the first quarter, you can adjust that in subsequent quarters.

If you file C corporation returns, trust returns or income tax returns of Estates make sure to file by April 15th, or file for extension.

Additionally, individuals must check to see if their state income tax deadlines are moved.

IRS TO ISSUE REFUNDS TO TAXPAYERS THAT REPORTED UNEMPLOYMENT INCOME NOW EXEMPTED BEGINNING IN MAY

The Rescue Plan allows the first $10,200 of unemployment received by a taxpayer (or, in the case of a joint return, received by each spouse), to be excluded from income if the Adjusted Gross Income (AGI) of the taxpayer is less than $150,000. This rule only applies to 2020. The new law does not currently extend this same income tax treatment to unemployment received in 2021, therefore taxpayers should be aware of the tax ramifications.

The IRS stated last week that it will begin sending refunds to those taxpayers that filed their income tax returns before the Rescue Plan became law and paid income tax on unemployment benefits that are now not taxable. The IRS has stated that since the law was passed taxpayers that filed returns and paid income tax on these unemployment funds do not have to file amended returns. The IRS will automatically issue refunds.

The IRS changed the way the $150,000 of AGI is calculated. Originally, taxpayers were required to include unemployment compensation when calculating AGI for purposes of the $150,000 limitation. The calculation was changed and taxpayers do not have to include unemployment received. This increases the number of taxpayers that are eligible to exclude unemployment benefits from taxable income.

You must keep in mind that not every state has decided to exempt the first $10,200 of unemployment compensation received from taxable income. Currently, New Jersey my home state, never includes unemployment compensation as taxable income, same with Pennsylvania. New York, however, does not exempt the first $10,200. All unemployment compensation is currently taxable in New York.

PPP

Last week (Tuesday March 30th) Joe Biden signed the law extending the Paycheck Protection Program (PPP) from March 31, 2021 to May 31, 2021.

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.

This also potentially allows taxpayers that received a first draw loan in 2021 to receive a second draw loan if their covered period for the first draw loan has expired and all funds have been expended.

RECOVERY REBATES

The IRS and Treasury announced last week that they would begin to send Recovery Rebates to Social Security recipients and other federal beneficiaries who do not normally file a tax return this weekend.

Per the IRS website, “Many federal beneficiaries who filed 2019 or 2020 returns or used the Non-Filers tool last year were issued Economic Impact Payments, if eligible, during the last three weeks. The update applies to Social Security retirement, survivor or disability (SSDI), Supplemental Security Income (SSI), and Railroad Retirement Board (RRB) beneficiaries who did not file a 2019 or 2020 tax return or did not use the Non-Filers tool.”

The IRS announced that as of March 18, 2021 the Recovery Rebate Credit will no longer be applied to past due federal income tax debts. While the IRS has the authority to offset these payments against prior tax obligations, they will not do so. This announcement does not apply to debts owed to other federal government or state agencies. This means money recovery rebates may be applied to debts owed to federal agencies (other than for income tax debt) as well as state agencies.

Below is a brief description of the current Recovery Rebate program:

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. 

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Hang in there and stay safe,

Jeff Skolnick, CPA, M.S. Taxation