The National Federation of Independent Business is hosting a free webinar with special guest, Matt Evans, CPA, SMA, CFM. Join them as he reviews the benefits of the ERC program, a refundable tax credit that could be worth up to $33,000 per employee for qualified wages an eligible employer pays to employees after March 12, 2020, and before December 31, 2021.
In this FREE webinar, Matt will explain how to:
• Determine ERC eligibility; • Calculate the amount of ERC; • Access and apply for the ERC; and • Utilize both the PPP and ERC programs.
NFIB hosts Beth Milito and Holly Wade will conclude the webinar with LIVE Q&A to answer your PPP, ERC, FFCRA, and EIDL questions. You can submit your questions ahead of the webinar using the registration form so they can make sure to answer them.
Can’t make this webinar? Don’t worry! Register now and they’ll email you an on-demand version.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
The child tax credit has been around for a long time, but as part of the American Rescue Plan Act that was enacted in March 2021, the child tax credit was expanded — the amount has increased for certain taxpayers; it is fully refundable (meaning you get it back even if you don’t owe the IRS); and it may be partially-received in monthly advance payments. The new law also raised the age of qualifying children to 17 (from 16).
The thing is, the amount folks are starting to receive right now is just an advance payment of half of what the IRS thinks your credit will be based on last year’s tax return. The entire credit itself will be calculated and show up on your annual tax return for 2021, and any advance payments will be subtracted from it.
So: let’s say that you qualified for a big credit based on last year’s tax return, but then you made more money this year than last year (which is the case for many small business owners) — then you’d have to pay the difference back on your tax return. As a result, we’re actually recommending to most folks that they just opt-out entirely to be safe. Don’t worry — you will get the entire amount that’s coming to you on the next tax return; you just won’t have to worry about paying back an accidental overpayment.
These tax changes are temporary and only apply to the 2021 tax year. The credit is normally part of your income tax return and would reduce your tax liability. The choice to have the child tax credit advanced will affect your refund or amount due when you file your return. To avoid any unpleasant surprises, I strongly recommend you opt out, or at least contact your tax preparer to run the numbers.
Our colleagues over at Wegner CPAs put together a 5-minute video explaining when you might want to opt out versus receiving the advance payments — it’s worth a watch! She does a great job explaining the situations when you might want to remain enrolled in the program, and other scenarios when you should definitely opt out.
If that wasn’t enough for you, please read on for more details about what it means to qualify and how much you might receive.
Qualifications and how much to expect
The child tax credit and advance payments are based on several factors, including the age of your children and your income.
The credit for children ages five and younger is up to $3,600 –– with up to $300 received in monthly payments.
The credit for children ages six to 17 is up to $3,000 –– with up to $250 received in monthly payments.
To qualify for the child tax credit monthly payments, you (and your spouse if you file a joint tax return) must have:
Filed a 2019 or 2020 tax return and claimed the child tax credit or given the IRS your information using the non-filer tool;
A main home in the U.S. for more than half the year or file a joint return with a spouse who has a main home in the U.S. for more than half the year;
A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number;
Income less than certain limits.
You can take full advantage of the credit if your income (specifically, your modified adjusted gross income) is less than $75,000 for single filers, $150,000 for married filing jointly filers and $112,500 for head of household filers. The credit begins to phase out above those thresholds.
Higher-income families (e.g., married filing jointly couples with $400,000 or less in income or other filers with $200,000 or less in income) will generally get the same credit as prior law (generally $2,000 per qualifying child) but may also choose to receive monthly payments.
Taxpayers generally won’t need to do anything to receive any advance payments as the IRS will use the information it has on file to start issuing the payments.
IRS’s child tax credit update portal
Using the IRS’s child tax credit and update portal, taxpayers can update their information to reflect any new information that might impact their child tax credit amount, such as filing status or number of children. Parents may also use the online portal to check on the status of payments or elect out of the advance payments. (To reiterate: that’s what we’re recommending to most of our clients. In general, we’d rather our clients be happily surprised at tax-time rather than frustrated that they have to return a portion of what they received.) The IRS also has a non-filer portal to use for certain situations where the taxpayers haven’t filed a tax return, similar to the one that existed for the stimulus payments.
Lastly, if you haven’t filed a tax return for 2020 yet — do not fret! The credit will show up on your 2021 tax return for the full amount; you are not missing out on getting your fair share.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
For over a year I’ve been answering the question, “when should we apply for PPP Loan Forgiveness?” And for over a year I’ve been responding, “not yet; there’s still so much that’s up in the air” — as AICPA (thankfully) recommended we wait for legislation from Congress as well as guidance from both the SBA and IRS.
Well, on June 24th, they gave us the green light in the AICPA Town Hall Series. Lisa Simpson said that if you have worked out the interplay between PPP and the Employee Retention Credit (ERC), then you should go ahead and apply.
This means that if you are a sole proprietor or partnership and have no employees, you are ready to apply — since ERC is only an issue if you have W-2 employees or are a W-2 employee of your own company. See my recent blog post for easy instructions.
It also means that if you have employees (or are an employee yourself), but you know that your company does not qualify for ERC, you are ready to apply. See below for less-than-easy but still DIY-worthy instructions.
For borrowers of more than $150k who had no wage or FTE reductions, or who qualify for a safe harbor/exemption:
As your loan was higher than $150k, you do not qualify to file the simplest PPP Forgiveness form (3508S). However, presuming you followed all the rules and had no reductions, you do qualify for the “EZ” form (3508EZ). Please make sure your lender allows you to use this approach. For reference, here is the forgiveness application form (pages 1-4) and instructions – but for the actual forgiveness process, instead of filling the form out, you will apply through your lender’s loan portal and it will walk you through the steps. Please carefully read through the checklist and instructions on pages 5-9.
Please also read through this Form 3508EZ Step-by-Step guide before beginning the process at your lender’s portal, as the questions you will be asked mirror the actual application.
Some important tips when going through the process:
Have your original PPP loan application and loan documents handy so you can make sure the info on your forgiveness application matches it exactly (legal name, DBA, address, NAICS code, EIN/SSN, loan number, number of employees at time of loan application).
Number of employees at time of loan application and forgiveness application are both simple head-counts, not FTEs or full- vs. part-time or anything else.
Covered Period is the date you received the funds through 24 weeks later, unless you determined a shorter period would be advantageous.
We recommend the “Amount of Loan Spent on Payroll Costs” total is not any higher than the minimum needed for forgiveness.
“Requested Loan Forgiveness Amount” should be the exact full total of your PPP Loan.
If you were unable to operate at full capacity, you may check the second box on the checklist, which means there is no requirement to fulfill the FTE (full-time equivalent) test.
Regarding backup documentation that you must submit with your application, keep in mind that what is considered acceptable support is up to each individual lender. – Payroll: your lender may ask you for bank account statements, payroll tax form 941s, and canceled checks for benefit invoices as proof of payment. – Nonpayroll: For rent/mortgage/utilities payments, your lender may ask for documentation that the obligation/services existed prior to 2/15/2020. They are likely to ask for proof of payment for all amounts claimed in this section.
If there is any concern that you might not have fulfilled the wage reduction or FTE tests, or that you do not meet a safe harbor or exemption for them, we strongly suggest working with a trusted advisor to prepare your PPP Forgiveness application, as it gets extremely complicated. Our approach, to be safe, has been to download the free Form 3508 PPP Forgiveness Calculator from the AICPA, regardless of which form you qualify to submit, so as to run all the numbers for the wage reduction test, and fill out the information to see if you are exempt from the FTE test or not. If you are not exempt, the AICPA also offers a free FTE calculator. We then suggest you retain these files as backup in case of audit, even if you end up passing all the tests and qualifying to submit a simpler form than the full 3508.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
For over a year I’ve been answering the question, “when should we apply for PPP Loan Forgiveness?” And for over a year I’ve been responding, “not yet; there’s still so much that’s up in the air” — as AICPA (thankfully) recommended we wait for legislation from Congress as well as guidance from both the SBA and IRS.
Well, on June 24th, they gave us the green light in the AICPA Town Hall Series. Lisa Simpson said that if you have worked out the interplay between PPP and the Employee Retention Credit (ERC), then you should go ahead and apply.
This means that if you are a sole proprietor or partnership and have no employees, you are ready to apply — since ERC is only an issue if you have W-2 employees or are a W-2 employee of your own company.
For borrowers of $150k or less who are self-employed with no employees:
For self-employed with no employees, it’s an “owner compensation replacement” approach, which means you will have 2.5 months’ worth of your 2019 net profit automatically forgiven. That is why the form is so simple. Your forgiveness amount should exactly equal your loan amount, presuming the original loan was calculated properly.
For reference, here is the forgiveness application form – but most lenders will have you actually apply through their own loan portal, which will walk you through the process. Just be clear that you are a self-employed individual with no employees, that your loan was $150k or less, and so you qualify for Form 3508S.
It should not matter how long you select for your covered period — anywhere between 8 and 24 weeks — but the first- and second-draws cannot overlap (your first loan covered period must be short enough that it ends before your second loan covered period starts).
You can indicate that you spent the entire loan on payroll.
Have your original PPP loan application and loan documents handy so you can make sure the info on your forgiveness application matches it exactly (legal name, DBA, address, NAICS code, EIN/SSN, loan number, number of employees at time of loan application).
And according to AICPA Funding Partner, Biz2Credit, on today’s July 1 webinar (from their PPP Forgiveness Required Documents Customer Guidebook):
(This had been the case for all the lenders I’ve seen so far, but the jury seemed to still be out for some of them, including Biz2Credit — so this was a relief.)
For self-employed folks with no employees, the PPP Forgiveness process should be very straightforward, from everything I’ve seen so far. Please let me know in the comments if you come across challenges, so others can learn from your experiences. Best of luck to you all!
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
Note to readers: the issue outlined below only applies to 50%-or-greater shareholders — which means the business is a corporation — and their spouses who work at the company. It does not apply to sole proprietors or partners — those two groups do not get paid via payroll and therefore are not eligible. Shareholders who own less than 50% are eligible if the business meets the other requirements to claim the credit.
If you are a 50%-or-greater shareholder and your company qualifies for the Employee Retention Credit for either 2020 or 2021, please read on.
I truly cannot believe that it’s June 2021 and I’m writing a blog post to help people choose the least-worst 2020 Employee Retention Credit interpretation — because even though the pandemic is starting to show in our rearview mirrors, we are still living in a universe totally devoid of IRS guidance on the topic of ERC shareholder eligibility. Accountants jokingly refer to this mystery as the Tax Advisers’ “Area 51” on #TaxTwitter.
What am I talking about? And why am I so annoyed? Let me set the scene:
3) Now that the first round of PPP loans are nearing the end of the payment deferment period — and to be fair, we’re also only a few months away from the tax return extension deadline — we would like to finalize those calculations and returns. (Reminder: there is no “deadline” for applying for PPP Forgiveness — per the SBA, “borrowers can apply for forgiveness any time up to the maturity date of the loan. If borrowers do not apply for forgiveness within 10 months after the last day of the covered period, then PPP loan payments are no longer deferred, and borrowers will begin making loan payments to their PPP lender.”)
What’s that? You’re saying the IRS has still not issued essential guidance on a credit that was created in the first month of the pandemic? Yes. Yes, I am.
Recently, both the AICPA and Tony Nitti, two of my most trusted sources, have weighed in on this with a big “why is the IRS dragging their heels on this” reaction. Nitti went as far as to say, “Are wages paid to greater than 50% owners eligible for the credit? If I had a nickel for every time someone emailed me this question, I could afford to stop shamelessly and relentlessly shilling this newsletter. It is absolutely amazing that a full year after the ERC was created, we still don’t have a definitive answer.”
Okay, enough backstory. As a small business owner, what are your options? I call them Choice 1 (yes) and Choice 2 (no) for short:
#1 Calculate ERC as if owners are eligible and file 2020 income tax returns accordingly. This would result in a higher tax for clients (because more wages are disallowed as deductions). Submit PPP Forgiveness applications, but hold off on submitting ERC claims (941-Xs) until guidance is released. If guidance indicates that owners are eligible, file the ERC claims accordingly. If guidance says owners are not eligible, then amend the income tax returns and file the ERC claims accordingly.
This approach may make the most sense when there are two 50%-owners on payroll, and not many other other staff — as the increased credit would be worth the wait, compared to the total credit without owners.
#2 Calculate ERC as if owners are not eligible and file 2020 income tax returns accordingly. This would result in a lower tax for clients (because fewer wages are disallowed as deductions). Submit PPP Forgiveness applications, and submit ERC claims (941-Xs) — rather than holding off on these as in the above option. If guidance is eventually released that indicates owners are not eligible, then no action is needed. If guidance indicates that owners are eligible, then decide whether it is worth amending the income tax returns and ERC claims to get the additional funds.
This approach may make the most sense with only one 50%+ owner and many employees, as the cost to amend all returns and claims will probably not be worth the additional credit.
The goal with both approaches is to get PPP Forgiveness applications and tax returns filed as soon as possible, with the best balance between wage deductions and potential wage credits.
While I was tempted to pick one of these two approaches and inform all clients of our choice, I decided — especially with advice from an AICPA Town Hall — that this is a decision that each client needs to make for themselves. We’re happy to explain the potential costs and benefits of each approach and make a personal recommendation for each client’s individual situation, but the decision should be theirs. We recommend other CPA firms take a similar approach.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
I recently received a few questions based on earlier blog posts, discussions with colleagues, and Slack conversations, and thought it might be helpful to readers to share them all here.
Q: I attended the Compass seminar you recommended and it was super-helpful. I noticed that she didn’t have anything on row 30 of her 941-X, but on the other example we discussed, there were Line 30 entries on her 941-X that was generated by Gusto. Should I have something on line 30?
A: The Compass seminar presenter made a couple mistakes and they issued corrected pdfs afterwards – if you took the course, make sure you have the file called “Corrected_Forms_941-X_for_Case_Study.pdf” to refer to as you are preparing amended 941s to claim the Employee Retention Credit.
The first correction was that column 4 on the 941-X should be negative (even though that math makes no sense on the face of the form).
The other correction was that Lines 30 and 31 are blank in their original examples and should have totals on them. In the seminar, they had entered amounts on the Worksheet 1, Step 3, Line 3a (and 3b if there was health insurance), but then I think they just forgot to also enter them on the face of the form. (In the Worksheet it says these numbers come from Form 941, Lines 21 & 22 – and those correspond to Form 941-X, Lines 30 & 31.)
We built our own Excel version of Worksheet 1 to make all these calculations easier — not hard to do: just copy the last page of the IRS Form 941 instructions, paste into Excel, and set it up to do the simple math. We also made the following notes in Step 3: a) For Step 3a, “This data will come from the ERC spreadsheet Total Wages row 20 (make sure to add Q1 + Q2 when preparing Q2). Enter on 941-X line 30.” b) For Step 3b, “This data will come from the ERC spreadsheet Total Benefits row 21 (make sure to add Q1 + Q2 when preparing Q2). Enter on 941-X line 31.”. c) For Step 3d, “Enter on 941-X line 27 *make sure amount in column 4 is a negative.” d) For Step 3h, “Enter on 941-X line 18 *make sure amount in column 4 is a negative.” e) For Step 3i, “Enter on 941-X line 26 *make sure amount in column 4 is a negative.”
Q: Let’s say your PPP2 window is March 1 through August — it sounds like you’re not required to use wages from March 1-31 for your PPP2 forgiveness? You can take all of 1Q 2021 towards ERC and then use wages from April 1 and beyond for PPP2 forgiveness?
A: Yes, exactly – what we are doing in our firm is this: we calculate the minimum amount of wages + health insurance that are needed for PPP – and we use SUTA and retirement first, so that we use as few actual wage + health insurance dollars as possible (because ERC doesn’t use SUTA & retirement). That gives us a “target” that we use in our ERC calculations.
Then we assign wages + health insurance for the PPP period to each employee so as to maximize what’s left over for ERC. The difference has been really amazing, and worth the extra work.
So rather than picking wages to use for ERC based on which quarter they’re in to make it easier for filing, we’re picking them based on what maximizes the amount for ERC.
But the point is — that you can do it however you want, which was the second-to-last big piece of guidance I needed to make this system work to my clients’ advantage the most. (The other piece, whether 50%+ shareholder-EEs count for ERC, is something we’re still waiting on the IRS for. No one can believe they haven’t shared this yet.)
Follow-up question: Where did we land if we have to use every employee for the same duration for PPP forgiveness? So let’s say in the 24-week window you only need 13 weeks to get to forgiveness if you’re including everyone. Instead, could you use 3 employees for 24 weeks and then 2 employees for just 8 weeks (as an example off the top of my head). Or do you have to use all 5 employees for 13 weeks, or whatever it takes? Because in option 2, you’d have 3 extra weeks for the lower paid employees to use for ERC. If that makes sense what I’m asking.
A: There’s no requirement for PPP on a per-employee basis – it’s just a total dollar amount. Amazingly flexible. This analysis is accurate.
Q: The Compass presenter mentioned something about the more than 50% shareholder and whether those wages count. I’ve got two clients who have employee shareholders, and I hadn’t really considered this yet. Do I count their wages?
Follow-up question: Regarding the Shareholder wages— Let me see if I understand it. I have a C-corp where one employee was the founder and basically has 90% of the stock. Is it a question as to whether he counts? And his wife works there as well. So it sounds like either way I cannot include her? Another employee has 10% of the stock. So he counts for sure, right?
A: The 10% employee counts for sure, and we don’t know about the 90% C-corp owner or the spouse that works there, which is why I’m making my clients choose Option 1 or 2 in the blog post I referenced. By coincidence, they reiterated in today’s AICPA Town Hall that we still don’t freaking know the answer here.
Q: What date do I date the JE for “ERC Receivable”? Is it the last date of the quarter for that 941X? (Rather than the date I send the amendment.)
A: Yes, because the IRS decided to be massive jerks and require this to be subtracted from deductible wages in the year of the payroll, rather than the year of the amendment, even for cash-basis tax filers.
Personal rant: after the past two tax seasons, have to admit that I hate Chuck Rettig with a passion.
Q: So if I do form 941Xs, do I need to also send 7200s? Or is that an either/or situation? We definitely want refunds (not just applying refund towards future payments.)
A: No, the Form 7200 is only for advance payments — you would file it to get an advance payment of the refund before the end of the quarter in which you qualify. Once the quarter ends, you claim the credit on the Form 941, and reconcile the amount you’ve already applied to receive in advance. By all accounts I’ve heard, it’s not worth the trouble.
Q: Finally–if I do the 941x’s myself, then do I need to notify that particular payroll company what I’ve done?
A: Not according to Gusto, because it only affects the cash paid, not the liabilities or reported amounts. It’s treated as an overpayment that will be refunded, so it doesn’t change things on their end — but I’m not sure about other payroll companies.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
It’s that time again… Tax Day (May 17th this year, aka my birthday) is upon us and it’s the end of what is certainly one of — if not the — roughest tax seasons in history. Millions of taxpayers will need to have their returns extended for various reasons. What does this mean? The AICPA has released a “Tax Extension FAQ” for CPA members to share with their clients.
What does filing an “extension” do?
• An extension is a form filed with the IRS to request additional time to file your federal tax return. This extends the due date for submitting your individual return to October 15. In some states, filing an extension with the IRS will automatically extend the time to complete a state income tax return. • Filing an extension grants you additional time to submit your complete and accurate return, but you still need to estimate whether you will owe any taxes and pay that estimated balance by the original due date. • Extending your return allows you and your CPA more time to prepare your tax return to ensure the filing of an accurate tax return. In many cases, you may still be waiting for additional information (e.g., Schedules K-1, corrected Forms 1099, etc.) to complete your return.
Why does my CPA suggest we extend my tax return?
• If your CPA has recommended that you file an extension, it may be due to many reasons, such as: – The volume of data or complexity of certain transactions (e.g., sale of a rental property) on your return requires additional time. – The amount of time remaining in filing season is limited for the CPA to complete client returns by the due date* due to late-arriving information. – My note: this year exacerbated the situation by requiring small business CPAs to simultaneously navigate the Restaurant Relief Fund (RRF), PPP1 Forgiveness, and 2020 Employee Retention Credit. • Many CPAs have a “cutoff” or deadline for clients submitting their tax information so they can plan their workload to ensure all client returns and extensions are completed by the due date.* • Your CPA may suggest filing an extension if there are aspects of your return affected by pending guidance or legislation. My note: this is the case for many more clients this year than usual; late-changing tax rules delayed the start of tax season, and waiting for guidance has further stretched it thin.
Am I more likely to be audited if I extend?
• Extending will NOT increase your likelihood of being audited by the IRS. • It is better to file an extension than to file a return that is incomplete or that you have not had time to carefully review before signing.
What are the primary benefits of extending my tax return?
• It provides for additional time to file returns without penalty when you are waiting for missing information or tax documents (such as corrected Forms 1099). Just remember that an extension provides additional time to file, but no additional time to pay. Penalties may be assessed if sufficient payment is not remitted with the extension. • You may qualify for additional retirement planning opportunities or additional time to fund certain types of retirement plans (e.g., SEP IRA). • It is often less expensive (and easier) to file an extension rather than rushing and possibly needing to amend your return later.
Should I do anything differently if I am filing an extension or “going on extension?”
• No, you still should give your CPA whatever information you have as early as possible or as soon as it becomes available. • Expect to pay any anticipated taxes owed by the due date.* You still need to submit all available tax information to your CPA promptly so they can determine if you will have a balance due or if you can expect a refund. • If you are required to make quarterly estimated tax payments, individual first quarter estimated tax payments are due April 15. Your CPA may recommend that you pay the balance due for last year and your first quarter estimated tax payment for this year with your extension. • If you are anticipating a large refund, your CPA will likely try to get your extended return completed as soon as possible once all tax information is available. Your CPA may also want to discuss tax planning opportunities with you so that, in future years, you don’t give the IRS an interest-free loan.
Have there been any changes to the due dates of returns for this year?
• For tax year 2020, the IRS is postponing the deadline for all individual tax returns. – Individual returns otherwise due April 15 will not have to be filed until May 17, 2021. – Certain states have also postponed their filing and/or payment due dates. • Note that victims of natural disasters may be granted extensions, such as victims of the Texas winter storms have until June 15, 2021 to file various individual and business tax returns and to make payments.
My note: I’d like to add that we take filing extensions for our clients very seriously. We collect as much information as we possibly can about the year’s taxable income and deductions, extrapolate based on information from the prior year, and build a complete tax return — filling in estimates where needed. This way, we get as accurate a picture as we can so as to project how much might be owed to the tax agencies. We do our best, although it’s not perfect, and as a result, much more work is involved in putting together an extension than most folks might think.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
The Restaurant Revitalization Fund (RRF) is a grant calculated by subtracting 2020 revenue from 2019 revenue to calculate the total drop between the two years — presumably caused by the Covid-19 pandemic. To substantiate the amount of the revenue decrease between 2019 and 2020, the SBA will be requesting tax returns for both years. There are other documents that will be acceptable, but the way to get the application through the system as quickly as possible – processed by computers rather than slowed down by human review – is to use tax returns.
(In the past two days, both the AICPA and Tony Nitti, two of my most trusted sources, have weighed in on this with a big “why is the IRS dragging their heels on this” reaction. Nitti went as far as to say, “Are wages paid to greater than 50% owners eligible for the credit? If I had a nickel for every time someone emailed me this question, I could afford to stop shamelessly and relentlessly shilling this newsletter. It is absolutely amazing that a full year after the ERC was created, we still don’t have a definitive answer.”)
So the options are:
#1 Calculate ERC as if owners are eligible and file 2020 income tax returns accordingly. This would result in a higher tax for clients (because more wages are disallowed as deductions). Submit PPP Forgiveness applications, but hold off on submitting ERC claims (941-Xs) until guidance is released. If guidance indicates that owners are eligible, file the ERC claims accordingly. If guidance says owners are not eligible, then amend the income tax returns and file the ERC claims accordingly.
This approach may make the most sense when there are two 50%-owners on payroll, and not many other other staff — as the increased credit would be worth the wait, compared to the total credit without owners.
#2 Calculate ERC as if owners are not eligible and file 2020 income tax returns accordingly. This would result in a lower tax for clients (because fewer wages are disallowed as deductions). Submit PPP Forgiveness applications, and submit ERC claims (941-Xs) — rather than holding off on these as in the above option. If guidance is eventually released that indicates owners are not eligible, then no action is needed. If guidance indicates that owners are eligible, then decide whether it is worth amending the income tax returns and ERC claims to get the additional funds.
This approach may make the most sense with only one 50%+ owner and many employees, as the cost to amend all returns and claims will probably not be worth the additional credit.
To clarify, neither approach will hold up the RRF or cause a smaller amount to be awarded, because ERC is not considered income (that’s why the wages they pay for cannot be deducted). The goal with both approaches is to get tax returns ready for the RRF application as soon as possible, with the best balance between wage deductions and potential wage credits.
While I was tempted to pick one of these two approaches and inform all clients of our choice, I decided — especially with advice from the AICPA Town Hall yesterday — that this is a decision that each client needs to make for themselves. We’re happy to explain the potential costs and benefits of each approach and make a personal recommendation for each client’s individual situation, but the decision should be theirs. We recommend other CPA firms take a similar approach.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
However, many have already filed their taxes and have scheduled their tax payments to be direct-debited on April 15th. IDOR has released instructions for how to move these payments to the new due date.
If you scheduled an electronic payment for 2020 income taxes to be paid on or before April 15, 2021, your payment will not automatically be rescheduled to May 17, 2021. If you do nothing, the payment will be made on the date you chose.
If the payment has not been processed, you may be able to cancel or reschedule it. You must cancel or reschedule the payment before its scheduled date.
Here is information on how to cancel and reschedule your payment:
If you scheduled a payment through MyTax Illinois, you can login to your account and cancel any pending payment. If you made your payment through the non-login option, you can use Retrieve Saved or Submitted Request to view and withdraw any pending future payment using the email address and confirmation code associated with your payment. For specific instructions, see Cancel a MyTax Illinois Payment.
If you scheduled a payment through a credit card or your bank, you must contact your financial institution to stop the payment. (financial institution stop payment fees may apply.)
If you scheduled a payment through a tax professional or using tax preparation software, you may cancel your payment or request the date be changed. You must email us at REV.TaxPay@illinois.gov to make a payment cancellation no later than 11:59 p.m. CT two business days prior to the scheduled payment date and include ALL of the following information:
Your first and last name or your company name if you are a business
Identification number:
For individuals, last four of your social security number (SSN) or your Illinois PIN
Mailing address and phone number
Specify if you are requesting to Cancel or Reschedule your payment
Exact dollar amount of your original payment
Date the original payment was scheduled to be paid (Month, Day, and Year)
If rescheduling, you must include the new date to which the payment will be changed.
Note: Checks and money orders are cashed upon receipt. We are unable to stop these transactions, therefore your check or money order will be cashed. You may contact your financial institution for more information regarding your options.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
My trusted colleagues over at Wegner CPAs are putting on a two-week series of FREE webinars geared toward small business owners. They will go through each of the following current Federal relief programs designed to help small businesses make it through to a brighter day:
Employee Retention Credit 2021
Employee Retention Credit 2020
Shuttered Venue Operator Grants
Paycheck Protection Program
Restaurant Revitalization Fund
Economic Injury Disaster Loans
All of these programs have been changed over the past month to make them more useful to small business owners — often with the effect that multiple programs are available simultaneously. The resulting complexity is a real challenge, but the amount of financial relief available makes it worth learning what you can (and potentially working with a professional to make it happen).
We have been reaching out directly to clients who we believe qualify for each of these programs — but if you work with us and think you are eligible, yet haven’t been contacted, please let me know.
Employee Retention Credit 2021 Tuesday, March 30, 2021 10:00 am – 10:30 am CDT (8:00 am PT / 11:00 pm ET) ERC in 2021 can result in big dollars for your organization. We will discuss how to determine if you’re eligible and how to be sure you file for the credit timely. Register
Employee Retention Credit 2020 Wednesday, March 31, 2021 10:00 am – 10:30 am CDT (8:00 am PT / 11:00 pm ET) Were you eligible for ERC in 2020? Find out as we take a deeper dive into the credit eligibility requirements and rules for last year. We’ll also review what you need to do to claim the credit for 2020. Register
Shuttered Venue Operator Grants Thursday, April 1, 2021 10:00 am – 10:30 am CDT (8:00 am PT / 11:00 pm ET) The SVOG portal opens on April 8th. Are you eligible and ready to apply? Join us to learn more about the program and what you need to be doing now to prepare. Register
Paycheck Protection Program Tuesday, April 6, 2021 10:00 am – 10:30 am CDT (8:00 am PT / 11:00 pm ET) Updates continue to roll out for PPP. We’ll discuss what the soon to be signed extension means for applicants and tips on getting through the application process. We’ll also review the updated loan calculation for Schedule C filers. Don’t forget about PPP loan forgiveness! Register
Restaurant Revitalization Fund Wednesday, April 7, 2021 10:00 am – 10:30 am CDT (8:00 am PT / 11:00 pm ET) The SBA announced that they hope to have RRF up and running by early April. We will review timely released guidance and how to prepare for applying to the program. Register
Economic Injury Disaster Loans Thursday, April 8, 2021 10:00 am – 10:30 am CDT (8:00 am PT / 11:00 pm ET) The EIDL program has continued to evolve over this last year. There are EIDL loans and EIDL grant advances. Are you eligible for either? Learn more about this program and the changes that have come from the last two stimulus bills. Register
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
