​In COVID Tax Tip 2021-123, the IRS clarifies some of the confusion surrounding the powerful but complex Employee Retention Credit.

The IRS is addressing changes made by the American Rescue Plan Act of 2021 that apply to the third and fourth quarters of 2021.

These changes include:

• Making the credit available to eligible employers that pay qualified wages after June 30, 2021, and before Jan. 1, 2022.
• Expanding the definition of "eligible employer" to include recovery startup businesses.
• Modifying the definition of "qualified wages for severely financially distressed employers."
• Providing that the employee retention credit does not apply to qualified wages considered as payroll costs in connection with a shuttered venue grant or a restaurant revitalization grant.

For business managers who had questions and needed authoritative answers, the IRS is answering various questions about the credit for tax years 2020 and 2021, including:

• The definition of a full-time employee and whether that definition includes full-time equivalents.
• The treatment of tips as qualified wages, and the interaction with the credit for the portion of employer Social Security taxes paid with respect to employee cash tips.
• The timing of the qualified wages deduction disallowance and whether taxpayers who already filed an income tax return must amend that return after claiming the credit on an adjusted employment tax return.
• Whether wages paid to majority owners and their spouses may be treated as qualified wages.

​
Reporting clarifications

Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their employment tax returns, generally, Form 941 Employer's Quarterly Federal Tax Return, for the applicable period. If a reduction in the employer's employment tax deposits is not sufficient to cover the credit, certain employers may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.

This is just a summary of a series of detailed and technical provisions. The IRS has provided all the details in Notice 2021-49. Managers should consult with a qualified tax professional to make sure they get all the benefits they're entitled to without inadvertently violating the provisions.

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​The Child and Dependent Care Tax Credit is available to parents and caregivers who are either working or looking for work and who claim dependents on their tax return. The credit is available to those who care for children under age 13 or a spouse or dependent of any age who is physically or mentally incapable of caring for himself or herself.

The CTC was created in 1997 and has been expanded several times since, most recently in 2020. The COVID-19 pandemic profoundly affected how, where and when people work. The incredible disruption this caused affected people's incomes and livelihoods, and the federal government responded by approving pandemic relief legislation that included changes to the child care tax credit.

The latest of these changes were mandated by the American Rescue Plan Act (ARPA), which increased the maximum amount of eligible expenses as well as the maximum percentage of eligible expenses for which the credit may be taken. ARPA also modified how the credit is phased out for higher earners. 

Perhaps the most important changes for eligible taxpayers planning to claim this credit for 2021 is that

• (1) the credit is refundable and
• (2) they can receive 50% of their credit in 2021 rather than waiting until after they file their 2021 taxes in 2022.

It is important to note that these changes are available only for 2021 unless Congress extends them.

​Who Can Claim the Credit?

The advance credit is phased out or eliminated completely for taxpayers whose AGI is above $150,000 for married taxpayers filing jointly and qualifying widows or widowers, $112,500 for those who file as head of household, and $75,000 for single filers or married taxpayers filing separately.

The IRS will make the advance payments automatically for July, August, September, October, November and December. Eligible taxpayers do not have to enroll.

You can claim the potentially lucrative federal Work Opportunity Tax Credit (WOTC) for some of the wages paid to the individual who is part of a targeted group.
 
Here’s what you need to know to make the WOTC a tax saver for your business
 
WOTC Basics
The credit generally equals 40 percent of qualified first-year wages paid to an eligible employee, up to a maximum wage amount of $6,000.
The maximum credit is $2,400 (40 percent x $6,000).
 
The credit is reduced to 25 percent of qualified first-year wages for an employee who completes at least 120 but fewer than 400 hours of service.
In this situation the maximum credit is $1,500 (25 percent x $6,000).
 
You can claim the WOTC only if you hire a member of a targeted group. Targeted groups include the following:

• Qualified IV-A recipients
• Qualified veterans
• Qualified ex-felons
• Designated community residents
• Vocational rehabilitation referrals
• Qualified summer youth employees
• Qualified supplemental nutrition assistance benefits recipients
• Qualified SSI recipients (anyone who is certified by the designated local agency as receiving Supplemental Security Income benefits under Title XVI of the Social Security Act for any month ending within the 60-day period ending on the hiring date)
• Long-term family assistance recipients
• Qualified long-term unemployment recipients

 
This link contains links to the names, addresses, phone and fax numbers, and email addresses of the WOTC coordinators for each of the SWAs.
 
Exceptions to the General Rule on Credits

There’s a higher limit of $12,000 for first-year wages paid to a qualified veteran who is entitled to compensation for a service-connected disability and was discharged or released from the military within the past year.

• The maximum credit is $4,800 (40 percent x $12,000).

 
There’s an even higher limit of $14,000 for first-year wages paid to a qualified veteran who was unemployed for at least six months in the prior year.

• The maximum credit is $5,600 (40 percent x $14,000).

 
If a qualified veteran both has a service-connected disability and was unemployed for at least six months in the prior year, the limit for first-year wages is $24,000.

• The maximum credit is $9,600 (40 percent x $24,000).

 
The WOTC for a long-term family assistance recipient equals 40 percent of qualified first-year wages, up to a maximum wage amount of $10,000.

• ​The maximum credit is $4,000 (40 percent x $10,000). 

In addition, for long-term family assistance recipients, the WOTC can be claimed for 50 percent of qualified second-year wages, up to a maximum wage amount of $10,000.

• The maximum second-year credit is $5,000 (50 percent x $10,000) and a maximum combined credit for the two years of $9,000 ($4,000 + $5,000).

 
The WOTC for a qualified summer youth employee (a 16-year-old or 17-year-old who lives in an empowerment zone) equals 40 percent of first-year wages paid during any 90-day period between May 1 and September 15, up to a maximum wage amount of $3,000.

• The maximum credit is $1,200 (40 percent x $3,000).

​If you would like my help with the WOTC, please don’t hesitate to contact us at info@ramlcpa.com​.

The six-month free COBRA period is from April through September 2021

2021 Standard Deduction and Personal Exemption
​The standard deduction for single filers will increase by $150 and by $300 for married couples filing jointly (Table 2).
The personal exemption for 2021 remains eliminated.

The Alternative Minimum Tax (AMT) was created in the 1960s to prevent high-income taxpayers from avoiding the individual income tax. This parallel tax income system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT. The taxpayer then needs to pay the higher of the two.

The AMT uses an alternative definition of taxable income called Alternative Minimum Taxable Income (AMTI). To prevent low- and middle-income taxpayers from being subject to the AMT, taxpayers are allowed to exempt a significant amount of their income from AMTI. However, this exemption phases out for high-income taxpayers. The AMT is levied at two rates: 26 percent and 28 percent.
​
The AMT exemption amount for 2021 is $73,600 for singles and $114,600 for married couples filing jointly (Table 3).

In 2021, the 28 percent AMT rate applies to excess AMTI of $199,900 for all taxpayers ($99,950 for married couples filing separate returns).
AMT exemptions phase out at 25 cents per dollar earned once taxpayer AMTI hits a certain threshold. In 2021, the exemption will start phasing out at $523,600 in AMTI for single filers and $1,047,200 for married taxpayers filing jointly (Table 4).

​The maximum Earned Income Tax Credit in 2021 for single and joint filers is $543, if the filer has no children (Table 5). The maximum credit is $3,618 for one child, $5,980 for two children, and $6,728 for three or more children. All these are relatively small increases from 2020.

​​2021 Child Tax Credit

2021 Qualified Business Income Deduction (Sec. 199A)
​
The Tax Cuts and Jobs Act includes a 20 percent deduction for pass-through businesses against up to $164,900 of qualified business income for unmarried taxpayers and $329,800 for married taxpayers (Table 7).

2021 Annual Exclusion for Gifts
​
In 2021, the first $15,000 of gifts to any person are excluded from tax. The exclusion is increased to $159,000 for gifts to spouses who are not citizens of the United States.

​HSA's are still so underutilized as a tax tool it’s a bit unreal especially considering its 2019 & HSA's have been around for years.

While we’ve been delayed a bit longer than planned with the clients only section to our website, we are now just a short time away.  The emphasis in the end is to touch on matters like this in greater and greater detail, and move BEYOND the OBVIOUS, and instead supercharge wealth creation for ALL our clients. 
 
Here are a few of my favorite perks of HSA's.
 
1) Maximizing your contribution(s) when able.  As some who's been through hell and back with health scares in the past, and the money crunch that can come after (even with insurance), HSA's that are well planned and funded long before an event arises can save a ton of heart ache and years of hard work.
 
2) IT’S TAX FREE MONEY - Literally!!   When you put money into an HSA it's tax deductible up to the limits, it then grows tax free, and as long as distributions (and growth) are used for qualified medical the entire transactions costs you nothing in tax.  How many tax breaks save you money to start, and charge no tax on the back end (even on the growth)?  Not many believe me.
 
3) If you're Married and Your Spouse is the Beneficiary the funds transfer TAX FREE, better yet the spouse isn't even required to carry an HSA-eligible health plan.  There are other rules if the beneficiary is not your spouse which can be very tax beneficial in their own right if done properly. 
 
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