The IRS released IR-2020-181 on August 17, 2020. This issue notifies taxpayers of deadlines and considerations as they renew Individual Taxpayer Identification Numbers (“ITINs”).
Since 1996, the IRS has issued ITINs to taxpayers and family members who are not eligible to receive a Social Security Number (SSN). Prior to the 2015 Protecting Americans from Tax Hikes (PATH) Act, ITINs could be used indefinitely. ITINs assigned prior to 2013 are scheduled to expire. The PATH Act placed renewal requirement provisions into effect, starting in October 2016. Since then, taxpayers using expired ITINs face refund delays and ineligibility for certain tax credits. Renewals are being processed now. ITINs that do not have a middle digit of 88, 90, 91, 92, 94, 95, 96, 97, 98 or 99 and not used on a tax return for tax years 2017, 2018 or 2019 will not expire in 2020.
Estimates total more than 1 million taxpayers hold potentially expiring ITINs. Expiring ITIN holders may have already received a letter from the IRS informing them of the December 31,2020 expiration date. Those not required to file a tax return are not required to renew the ITIN, however, if future reporting is expected, renewal consideration should be given.
Three groups of taxpayers who need to renew follow:
ITINs that have not been used on a tax return for tax years 2017, 2018 or 2019 will expire December 31, 2020.
ITINs with middle digits 88 (For example: 9NN-88-NNNN) will expire December 31, 2020.
ITINs with middle digits 90, 91, 92, 94, 95, 96, 97, 98 or 99, that were assigned before 2013 and have not already been renewed, will also expire at the end of this year. Even if the ITIN has been used in the last three years, if a filing requirement is expected in 2021, renewal is required. CP-48 Notice, informing taxpayers they need to renew their ITINs, will be sent in the coming months to inform taxpayers.
What should you do if you need to renew your ITIN? To renew an ITIN, the taxpayer should complete Form W-7, “Application for IRS Individual Taxpayer Identification Number,” along with the required documentation. If you fall into one of the above categories, you do not need to wait to receive a CP-48 Notice to renew your ITIN.
Three methods taxpayers can use to submit Form W-7 application package to renew their ITIN follow:
Form W-7 is to be completed and mailed, along with original identification documents or certified copies of the documents from the issuing Agency, to the IRS address listed on the form (identification documents will be returned within 60 days). A federal tax return is not required, however, a note explaining why an extension is being requested is required.
The ITIN assignment date can be found on the CP565 ITIN Assignment notice. If you no longer have your CP565, call the IRS at 1-800-829-1040 within the U.S., or 1-267-941-1000 (not a toll-free number) if you are outside the U.S.
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Although there have been attempts by the Trump administration to repeal the Affordable Care Act (“ACA”), it is still in effect and there is important information you should be aware of for 2020 ACA reporting. As always, healthcare costs need to be affordable under the new 2020 guidelines.
If you are an Applicable Large Employer (“ALE”), which is a company that employs 50 or more full-time, or full-time equivalent employees, healthcare cost for single-only coverage cannot exceed 9.78% of household income for 2020. There are three ways to measure affordability under the ACA. If an employer satisfies affordability under one of these three safe harbors, their insurance is considered affordable.
The Federal Poverty Level (“FPL”) Safe Harbor: The federal poverty level for 2020 is $12,760 for the continental U.S. The federal poverty level safe harbor is calculated by multiplying $12,760 by .0978 and dividing by 12. To use the federal poverty level safe harbor, the monthly cost for single-only coverage should not exceed $103.99 per month, (12,760 x .0978)/12).
W-2 Safe Harbor: This is based on household income for Box 1 – Wages, from the W-2 Form. For example, if an employee had an annual salary of $45,000 a year, you would check affordability by multiplying their salary by .0978 and dividing by 12 to get the maximum amount the employee should pay for single-only coverage per month. In this scenario, the employee should not pay more than $366.75 per month, ((45,000 x .0978)/12)
Rate of Pay Safe Harbor: This is most useful for hourly employees. To utilize the Rate of Pay safe harbor, you should multiply an hourly worker’s lowestrateofpay by 130 hours (for rate of pay employer assumes 130 hours per month regardless of the number of hours worked) and the cost should not be more than 9.78% for single-only coverage. For example, an employee earning $15/hour should not pay more than $190.71 per month, ((130 x $15) x .0978).
If insurance premiums are not considered affordable, the employer can be penalized. The penalty for 2020 is $3,860.00 per employee per year. This is applied to all employees and not just the employees who were not offered affordable coverage. Typically, this penalty is discovered when an employee, who is classified as full-time, has received a premium tax credit, or has gone onto the Marketplace for coverage. These penalties can be significant, so it is important that companies evaluate their workforce and healthcare plans to determine which safe harbor makes the most sense for their organization when it comes to ACA reporting.
To learn more about ACA compliance and what affordability safe harbor might best fit your needs, please contact SPS/GZ at email@example.com or call (888)375-3049.
On July 27, 2020, IR-2020-169 was issued by the IRS, granting a temporary regulation and a proposed regulation to employers under the Families First Coronavirus Response Act (“Families First Act”) and the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). IR-2020-169 issued a proposed regulation to reconcile advance payments of refundable employment tax credits and recapture the benefit of these credits, when necessary, to employers who had paid sick leave and paid family leave.
Employers with fewer than 500 employees are generally required to provide paid sick leave for up to 80 hours and paid family leave for up to 10 weeks if the employee is unable to work or telework due to related COVID-19 reasons. Qualified employers are entitled to fully refundable tax credits to cover the cost of leaves that are required under these acts.
An additional credit available under The CARES Act provides credit for employers experiencing economic hardship due to COVID-19. Certain employers who pay qualified wages to their employees are entitled to the employee retention credit.
The IRS is in the process of revising the following forms: Form 941, Form 943, Form 944, and Form CT-1. Employers will use these returns to claim paid sick and family leave and employee retention credits.
Advance payment of the credits, up to the total allowable amounts, may also be received by employers. Form 7200, Advance Payment of Employer Credits Due To COVID-19has been created for employers to request the advance. On employment tax returns, employers will be required to reconcile any advance payments claimed on Form 7200 with total credits claimed and total taxes due.
Any credit amount that exceeds the allowable taxpayer amount is considered to be an erroneous refund. Regulations released on July 27, 2020 allow the IRS to efficiently recover any refund while preserving taxpayer administrative protections.
SPS/GZ is a full-service Affordable Care Act (“ACA”) reporting firm that provides personalized service and exceptional support, utilizing state-of-the-art technology to create and e-file ACA forms. Reach out today at firstname.lastname@example.org call at (888)375-3049. SPS/GZ welcomes the opportunity to be your trusted ACA tax form reporting provider.
The July 31, 2020 fee deadline for the Patient-Centered Outcomes Reseach Institute (“PCORI”) is quickly approaching. The payment due on July 31st 2020, covers the plan year for the previous calendar year, see schedule below. The IRS released Notice 2020-44 on June 8, 2020. In this notice, a revised applicable rate was increased from $2.45 to $2.54 for plan sponsors and self-insured health insurance polices. The increased rate should be used to calculate the fee for plans within the time frame between October 1, 2019 and before October 1, 2020. The PCORI fee was established under the Affordable Care Act (“ACA”) to fund research, helping physicians, policy makers and patients, make informed healthcare decisions based on evidence-based medicine.
The PCORI fee has been extended to either 2029 or 2030, an additional 10 years, depending on the plan end date, with the enactment of the 2020 Further Consolidated Appropriations Act. Originally under the ACA, they were set to expire for plan years ending after September 30, 2019. The fees are reported annually on the second quarter IRS Form 720 by self-funded plan employers directly. The fee is calculated by multiplying the average number of covered lives under the plan or policy by the applicable rate. In addition to the rate increase, the notice also offers transition relief for companies that were not expecting the fees to be collected. Transition relief applies to plan years ending between October 1, 2019 and October 1, 2020. The IRS is allowing plan sponsors and self-insured companies to use any “reasonable method” to calculate fees. Employers with fully funded health plans are not required to file, at this time, as insurance carriers are paying PCORI fees and pass the cost on to the employer.
Now more than ever, it is prudent for businesses to utilize certified professionals and robust solutions for their ACA reporting needs. Contact SPSGZ to learn more about ACA compliance, click here.
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Transaction processing from start to finish
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On July 13, 2020, the IRS released Drafts of the Forms 1094-C and 1095-C for tax year 2020 Affordable Car Act (“ACA”) reporting. The Form 1094-C has remained the same as previous years, but there have been some significant changes to the Form 1095-C. In Part II of the Form 1095-C, the IRS has added two new fields: “Employee’s Age on January 1” in the top portion of Part II, as well as Line 17, “Zip Code”. Additionally, there were new codes added to Line 14, “Offer of Coverage,” labeled 1K through 1S. These changes were made in response to the Departments of Health and Human Services, Labor, and Treasury’s final ruling, “Promoting Healthcare Choice and Competition Across the United States”, which now allows companies to offer Individual Coverage Health Reimbursement Arrangement (“ICHRAs”) to their employees, to be used in combination with nongroup coverage. ICHRAs are a type of Health Reimbursement Accounts (“HRAs”). The coding on Form 1095-C for companies using ICHRAs (a type of HRAs) is complex and requires significant modification to the existing software platforms and service offerings for ACA.
An HRA is an account-based health plan that allows employers to offer a monthly allowance, tax-free, to employees, which can be used to reimburse qualified out-of-pocket medical expenses including reimbursement for the monthly cost of individual plans through the Marketplace or private insurance companies. Currently, there are four types of HRAs:
HRA Integrated with Employer-Sponsored Health Coverage – An integrated HRA, is an HRA that is offered with another group health plan, that on its own meets the ACA requirements.
This type of HRA is typically linked with a high deductible health plan.
Individual Coverage HRA (ICHRAs) – If an employer offers employees an individual coverage HRA, Employees and their dependents must be enrolled in individual health insurance coverage before being eligible for any reimbursements under the Individual Coverage HRA.
Qualified Small Employer HRAs(QSEHRA)– Small Employers, non-applicable large employers, who don’t offer group health plans to their employees can help employees pay for medical expenses through a QSEHRA.
Excepted Benefit HRA (EBHRAs) – The Excepted Benefit HRA offers employers of any size an opportunity to use pretax money to reimburse certain limited expenses such as, vision, dental or other benefits that would not fall under the ACA required covered health benefits. Companies offering EBHRAs must also offer group health coverage. Employees do not need to enroll in the group health plan to participate in the excepted benefit HRAs. An employer cannot offer both an excepted benefit HRA and an ICHRA to the same employee.
As of January 1st, 2020, Individual Coverage HSAs (ICHRAs) is an option for companies to meet the ACA regulation of Minimum Essential Coverage (“MEC”) for Applicable Large Employers (“ALEs”), which are companies with 50 or more full-time or full-time equivalent employees, as long as the ICHRA is affordable. Line 17 was added to the Form 1095-C, which is populated monthly, with the zip code the employer used to determine affordability. Affordability can be based on either the employee’s primary residence or the employee’s primary employment site zip code. As discussed above, there also has been an addition of eight Series 1 codes (1L, 1M, 1N, 1O, 1P, 1Q, 1R & 1S) for Line 14, to report the employer’s offer of an Individual Coverage HRAs (ICHRAs) and seven Series 1 codes that are identified as “reserved for future use.”
The variety of HRAs and their requirements can be very complicated. Therefore, if your company is considering incorporating an HRA plan as part of your healthcare strategy, it is advisable to discuss your options with your company’s insurance broker. Also, if your company is an ALE, it is important to ensure that the plans are compliant and that the ALE is meeting all obligations under the Affordable Care Act, including the reporting requirements, to avoid exposure to possible penalties.
Now more than ever, it is prudent for ALEs to utilize certified professionals and robust solutions for their ACA reporting needs.
It is important that employers make sure they are aware of the distinction between a small employer and a large employer when it comes to the health care laws and other tax provisions. According to the Affordable Care Act (“ACA”), companies that have 50 or more full-time or full-time equivalent employees are considered Applicable Large Employers (“ALEs”). As an ALE, companies are subject to the employer shared responsibility provision, which requires employers to offer minimum essential coverage that is “affordable” and provides “minimum value” to their full-time employees and their dependents, or face a possible penalty by the IRS. Along with offering health coverage that meets ACA requirements, ALEs are responsible for furnishing Form 1095-C to employees and e-filing these forms with the IRS. Form 1095-C, which is entitled, “Employer-Provided Health Insurance Offer and Coverage,” indicates the months employees were offered affordable, minimum value health insurance during the year. ALEs are also required to file Form 1094-C, “Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns,” with the IRS. The reporting requirement is necessary to determine if an employee is eligible to claim the Premium Tax Credit, offered pursuant to the ACA, for any months during the calendar year.
To determine if your company is an ALE for the current tax reporting year, an employer would add its total number of full-time employees (someone who works 30 or more hours a week) for each month of the prior calendar year to the total number of full-time equivalent employees for each calendar month of the prior calendar year and divide that total number by 12. Full-time equivalent employees are calculated by adding all the part-time employees’ hours for the month divided by 120. If the number of full-time AND full-time equivalent employees is over 50, the employer must offer health coverage to their employees and fulfill this reporting obligation. If a company has affiliates with common ownership, the consolidated employer group is treated as a single employer for determining ALE status and thus, the employee counts of FT and FTEs employees should be combined.
If an employer is not considered an ALE and has fewer than 25 employees, it may be eligible for a Small Business Health Care Tax Credit (“SBHCTC”), which could offer a savings of 50% off the costs it pays for its employees’ premiums. To be eligible for the SBHCTC, an employer needs to meet the following criteria:
– Purchase coverage through the Small Business Health Options Program (SHOP) Marketplace
– Pay average wages of less than $50,000 a year per full-time equivalent, adjusted for inflation.
– Pay at least 50% of the qualified employees’ health care premiums
It is important to note that the employer mandated reporting requirements under the ACA apply to any self-insured company, regardless of size. The annual reporting requirement for self-insured companies include the disclosure of health coverage for their employees and dependents. Self-insured employers that are not ALEs need to complete Forms 1095-B and the transmittal Form 1094-B to meet the ACA reporting requirements. If an employer is an ALE and self-insured, they need to report health coverage information as required by fully-insured companies. In addition, they also need to complete information on the health coverage for their dependents in Part III of the 1095-C Form.
For more information on ACA reporting requirements depending on the size of your company please visit the IRS website.
Sound complicated? It is! Now more than ever, it is prudent for ALEs to utilize certified professionals and robust solutions for their ACA reporting needs.
To learn more about ACA compliance, click here.We are here to help! Please contact SPS/GZ with any questions you may have about ACA reporting. email@example.com.
On June 3,2020, the IRS released Notice 2020-42. This notice provides temporary administration relief and flexibility to participants or beneficiaries and plan administrators in qualified retirement plans and other tax-favored retirement arrangements.
For the period between January 1,2020 through December 31,2020, participants or beneficiaries and plan administrators will be relieved of the physical presence requirement. In states that allow remote notarization, individuals are now able to access electronic mediums to be used to make participant elections. The electronic system must be designed to preclude any person other than the participant to make the election. In addition, the system must also provide reasonable time to review, make changes or to rescind the terms of the election before it becomes effective, as well as provide a way to confirm the election, either in writing or under a system to include applicable notice requirements. In the case where a participant election is witnessed by a plan representative, the individual may use an electronic system with audio-video technology. As permitted by the Coronavirus, Aid, Relief, and Economic Security Act (“CARES Act”), guidance is also given to accommodate social distancing practices in local shutdowns where the intent is to safely facilitate payments of COVID-19 related plan loans and distributions. SPS/GZ is a full-service ACA reporting firm that provides personalized service and exceptional support, utilizing state-of-the-art technology to create and e-file ACA forms. Let SPS/GZ be your trusted ACA tax form reporting provider.
The IR 2020-119 was released by the IRS on June 11, 2020. Highlighted is Notice 2020-46 where guidance is given to employers regarding cash payment donations that are made to charitable organizations that aid and assist COVID-19 victims. Notice 2020-46 explains that in situations where employees have forgone sick, vacation and person leave time, employees will not receive the value of the donation as income and therefore, cannot be claimed as deductions. This notice clarifies that employers may deduct these cash payments as a business expense or as a charitable donation. Respective requirements must be met in either section.
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When many states implemented stay at home orders to help slow the spread of COVID-19, small businesses were faced with many challenges on how they would pay bills and cover their payroll when they weren’t allowed to open and conduct business. In the rush to help individuals and small businesses, the government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which had a provision specifically focused on helping small businesses, the Paycheck Protection Program (PPP) Loan program. This component of the bill allowed businesses to apply for a loan in which the funds would be used to maintain their payroll and cover some operating costs. If the employer met the criteria under the PPP loan guidelines, the loan would be forgiven. While the money was helpful, there were issues with the initial parameters to have the loan forgiven.
On June 5th, 2020 President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020 which amends the original PPP Loan requirements to have the loan forgiven by borrowers. These changes were in response to many small businesses that claimed they would be unable to meet the strict criteria that were laid out originally to have the loan forgiven because of the delayed opening of their businesses and reduced occupancy as a result of the social distancing obligations. The chart below summarizes the changes.
If you are a small business and have been affected by the COVID-19 pandemic, now is the time to act if you want to apply for a PPP loan. The Small Business Association (SBA) is in charge of determining loan forgiveness and has released the application and instructions. Seeing that the future spread of the Coronavirus is unknown, there could be additional changes in the months ahead.
California Assembly Bill 5 (“AB5”), also known as the “gig worker bill,” went into effect on Jan. 1, 2020. AB5 is based on a September 2018 case in which the California Supreme Court ruled in the Dynamex Operations West, Inc. vs. Superior Court of Los Angeles. With few exceptions, this bill was designed to require California companies that hire freelancers and independent contractors to reclassify them as employees. Some in the trucking industry are moving out of California in response to AB5 fears and others are taking the wait-and-see approach. Uber, Lyft, DoorDash, Instacart, and Postmates are watching court cases involving the trucking industry. More than 50 professions and types of businesses are exempt, including insurance agents, attorneys, real estate agents, service providers, certain photographers & graphic designers, HR professionals, and other specific types of business-to-business contractors and referral agencies.
AB5 assumes that workers are employees unless the company that hires them can pass an “ABC” Test.
The worker is free to perform services without control or direction of the business.
The worker is performing work tasks that are outside the usual course of business activities.
The worker is customarily engaged in the work performed in an independently established trade, occupation, or business of the same nature.
The Amway Corp. has found itself back in court in 2020, being sued by William Orage, former Amway IBO. Orage is seeking back minimum wages from the giant for himself and others in California. Amway, the 8+ billion-dollar, largest direct selling giant, has been using the independent business owner model for 60 years and is not a stranger to court cases. Other MLM companies in California and across the US are watching to see how this case plays out.
Judicious employers will best prepare by seeking legal counsel that specializes in employment law and independent contractors. When establishing business-to-business relationships with independent contractors, companies will need to take appropriate steps to stay compliant. Risk assessments, in the way of audits, are recommended to understand the classification of independent contractor processes. Comprehensive audits should include the following:
Billing and invoicing processes
Independent Contractor or Freelancer incorporation interactions
Independent Contractor or Freelancer incorporation requirements
Levels of control
AB5 specifically exempts business-to-business contractors from the ABC Test. The IRS uses a different test than California for differentiating employees and independent contractors. We have yet to see how the IRS will treat this differentiation with respect to ACA reporting. Employers with more than 50 or more full-time employees are required to offer affordable, Minimum Essential Coverage (MEC) for at least 95% of their full-time workforce and their dependents. California businesses, starting in 2020, following AB5 rules, will most likely need to extend health insurance coverage offers to more of their employees.
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The Paycheck Protection Program (“PPP”) was designed to help small businesses keep their workforce employed during the Coronavirus (COVID-19) pandemic. In order to take advantage of this special loan program, businesses must complete and file Small Business Association (“SBA”) Form 3508, the Loan Forgiveness Application. This form must be completed by the borrower, according to the instructions, and submitted to the SBA Lender who will be servicing the loan. Borrowers can also submit this form electronically through their lender. You should confirm with your lender that they are participating in this program.
The loan is forgivable if the borrower keeps employees on their payroll for eight weeks and uses the funds towards payroll, rent, mortgage interest, or utilities. The Loan Forgiveness Application consists of three parts: PPP Loan Forgiveness Calculation Form, PPP Schedule A, and the PPP Schedule A Worksheet. There is an optional component to the application, the PPP Borrower Demographic Information Form, which requests information on the veteran status, gender, race, and ethnicity about each of the borrower’s principals.
The PPP Loan Forgiveness Calculation Form summarizes the types of payments and the amounts that are eligible for loan forgiveness.
The PPP Schedule A is used to calculate the total loan forgiveness amount based on the information provided on the Schedule A Worksheet, including any required reductions. Also, the PPP Schedule A lists the documentation that must be submitted along with the application.
The PPP Schedule A Worksheet is used to calculate the individual employee compensation that is eligible for forgiveness, determine the number of full-time equivalent employees of the borrower, and determine if there is any reduction in the total loan forgiveness amount based on prior calculations in the worksheet.
The Lender has 60 days to make a decision on your forgiveness application. According to the National Federation of Independent Business, 80% of small business owners have applied for a PPP loan and of those, 90% received funding. There is still much concern among small business owners regarding if they will be able to meet the requirements to have the loan forgiven under the current guidelines. The SBA and the Department of Treasury have said they will release more guidance for borrowers and lenders. Many businesses are reporting that it will be difficult for them to use the loan in the eight-week window and they may not be able to get employee headcounts back to the previous year numbers due to businesses being restricted in the number of customers allowed in their establishments. To view the application and detailed instructions for the loan please click here.
The IRS released Notice 2020-95 on May 12, 2020 detailing Notice 2020-29 and 2020-33. The IRS provides new, relaxed rules for cafeteria plan elections.
Notice 2020-29 provides increased flexibility guidance for mid-year employer sponsored health insurance coverage, Health FSA and DCAP cafeteria plan elections during 2020 calendar year. Grace period and carryover period flexibility is detailed with application of unused amounts in Health FSAs to medical care expenses, as well as unused amounts in dependent care assistance programs through December 31, 2020. Employees may be permitted to apply unused amounts to pay or reimburse medical care or dependent care expenses incurred during that same time frame.
Notice 2020-33 If there are amounts remaining in a Health HSA that may be carried over, this notice increases the maximum $500 carryover amount for a plan year to an amount equal to 20% of a maximum salary reduction contribution under Code Section 125(i) for that plan year. For 2020, this limit is $2750. The carryover limit for 2020 is $550.
This notice also provides the ability of an Individual Coverage HRA (“ICHRA”), or Cafeteria plan, to reimburse individual insurance policy premium expenses incurred prior to the beginning of the plan year for coverage provided during said plan year. An ICHRA with a calendar year plan year may immediately reimburse a substantiated premium for health insurance coverage that begins on 1/1 of that plan year, even if the covered individual paid the premium for the coverage prior to the first day of the plan year.
SPS/GZ is a full-service ACA reporting firm that provides personalized service and exceptional support, utilizing state-of-the-art technology to create and e-file ACA forms. Let SPS/GZ be your trusted ACA tax form reporting provider.
Tax Tip 2020-57 was issued on May 14, 2020 to explain relief that will be provided on a variety of issues as part of the People First Initiativedue to COVID-19. Most importantly, the IRS has modified 2019 filing and payment deadline from April 15, 2020 to July 15, 2020.
The IRS is not expected to start new field, office, or correspondence audits during this historic time. The agency will continue to distribute refund claims without in-person contact, where possible.
The IRS may start new audits to preserve the statute of limitations when needed. In-person meetings for current field and office audits are on hold. Examiners, however, are working remotely when possible. Taxpayers are expected to respond to all requests for any information during this time whenever possible. Businesses and Corporations may begin previously scheduled audits if people and records are available. The IRS may move forward with an audit in the best interest of all parties, understanding that COVID-19 developments may show activities.
Taxpayers have until July 15, 2020 to respond to the IRS to verify income or that they qualify for the earned income tax credit. Taxpayers are to continue to submit all requested information. If they are not able to, the appropriate response is to contact the agency to explain why the information is not available. The IRS will not deny credits for failure to provide information until July 15, 2020.
Appeals employees will continue to work appeals cases; however, in-person meetings are being replaced with phone or video conferences. Taxpayers are to respond to information requests from their Independent Office of Appeals.
The IRS is continuing protection of statutes of limitations. Taxpayers are encouraged to cooperate in extending statutes if statute expirations might be jeopardized during this period. The IRS will issue Statutory Notices of Deficiency and will pursue similar actions to protect the interests of the government. SPS/GZ is a full-service ACA reporting firm that provides personalized service and exceptional support, utilizing state-of-the-art technology to create and e-file ACA forms. Let SPS/GZ be your trusted ACA tax form reporting provider.
The IRS released Fact Sheet, FS-2020-05, in May 2020. This fact sheet details specific Employer Retention Credit points made in The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) that encourage businesses to keep employees on their payroll. IR-2020-62, “the original Employer Retention Credit,” was first posted on 3/31/2020. Both documents describe assistance for businesses with workers not being forced to choose between their paychecks and the public health measures needed to combat COVID-19. Eligible employers can claim an Employee Retention Credit for wages paid after 3/12/2020 and before 1/1/2021.
The Employee Retention Credit (“ERC”) is available to all employers that have experienced an economic hardship due to COVID-19. This includes tax-exempt organizations. Two exceptions apply:
Federal, state & local governments and their instrumentalities
Small businesses that receive small business loans under the Paycheck Protection Program.
For purposes of the ERC, employers experiencing an economic hardship include those with suspended operations due to government orders related to COVID-19 or those who have experienced a significant decline in gross receipts. In addition, an employer may have had to fully or partially suspend operations because a governmental order limited commerce, travel, or group meetings due to COVID-19 in a manner that prevented the employer from operating at normal capacity during the specified time.
The ERC states that in order to qualify, a “significant decline in gross receipts” begins in the first calendar quarter of 2020 in which an employer’s gross receipts are less than 50% of its gross receipts for that same quarter in 2019. Further stating that “the decline ends the first calendar quarter in 2020 after the quarter in which the employer’s gross receipts are greater than 80% of its gross receipts for the same quarter in 2019.” It is the responsibility of the employer to calculate the measures each calendar quarter.
The tax credit is comprised of 50% of up to $10,000 in qualified wages paid to each employee. The employer’s maximum credit for qualified wages paid to any employee is $5,000. Qualified wages also include the cost of employer-provided health care premiums and expenses.
Wages that qualify for the ERC vary. The ERCs are based on the average number of an employer’s full-time employees in 2019. For example, if the employer had 100 or fewer employees on average in 2019, the ERC is based on wages paid to all employees, regardless if they worked or not.
Another example is If the employer had more than 100 employees on average in 2019. The ERC is then allowed only for wages paid to employees for the time they did not work. In each case, the wages that qualify are for wages paid for a calendar quarter in which the employer experiences an economic hardship.
The amount of qualified wages for which an eligible employer may claim the ERC does not include the amount of qualified sick and family leave wages for which the employer received tax credits under the Families First Coronavirus Response Act (“FFCRA”). The employer is not allowed to use the same wages to determine the amount of the ERC.
To claim the ERC, beginning with the second calendar quarter of 2020, employers must report their total qualified wages and the related health insurance costs for each quarter on quarterly employment tax returns. Form 941, Employer’s Quarterly Federal Tax Return is the usual form used. Employers can receive the benefit of the ERC even before filing by reducing their federal employment tax deposits by the amount of the ERC. They will account for the reduction in deposits due to the ERC on Form 941. The IRS recently posted an FAQ about the ability both to reduce deposits for the ERC and to defer the deposit of all of the employer’s share of social security tax due before 1/1/21 under a separate provision in the CARES Act (PDF).
Advance payment of the ERC may be requested if employers do not have enough federal employment taxes to cover the amount of the ERC after deferred deposits of employer social security taxes under the CARES Act. As explained in the FAQ, employers are allowed to request advance payment credit by submitting completedForm 7200 via FAX # 855-248-0552. Subject Line: Advance Payment of Employer Credits Due to COVID-19. Employers claiming the ERC are required to keep all employment tax records supporting the credit for a minimum of four years.
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