And yet, the vast majority of small business owners know nothing about this new rule, and just a few months before year-end, guidance is still forthcoming. Too many questions remain regarding how it will affect the targeted small business owners — those who run a business that had to file a document with the Secretary of State to create the company (C-Corps, S-Corps, and LLCs, most commonly).
The super-surprising part here is that exemptions are only designed for larger companies — not small businesses. Corporations or LLCs with more than 20 full-time employees, more than $5 million in gross receipts, and an operating presence at a physical office in the USA — as well as those already regulated by the federal or state government — qualify for a “large operating company” exemption.
The NFIB Government Relations Director Jeff Brabant comments, “anyone who has a 25% or greater stake in the company or senior officer will have to register a copy of their driver’s license and business information. This is a daunting task and probably the biggest regulation that no one is talking about right now.”
“NFIB is pushing for a full repeal of this legislation,” said Brabant. “We feel it’s unnecessary; however, administratively there is a chance that FinCEN delays it, and there’s also a chance that Congress delays it for one year. The statute allowed for up to two years for reporting for companies once this is passed on January 1; however, FinCEN chose one year. So FinCEN can choose to delay it another year and that’s something we hope they do.”
In today’s AICPA Town Hall, they issued a call to action, asking small business owners — CPA firms especially — to contact their representatives by September 15th and request a delay of the implementation. They’ve provided a Word Doc template with background and speaking points for your email or phone call, and have encouraged members to share it widely.
From the AICPA:
Two bills have been introduced in U.S. Congress to delay this rule – H.R. 4035 and S. 2623, both titled the Protecting Small Business Information Act of 2023. These identical bills introduced in the U.S. House by Representative Patrick McHenry and introduced in the U.S. Senate by Senator Mike Rounds would delay the start date of the rule providing additional time for small businesses to learn about and better understand their new reporting requirements. We want to obtain as many cosponsors in both the U.S. House and U.S. Senate as possible, to keep these bills moving. We are asking you to reach out to your House of Representatives Member to ask them to cosponsor H.R. 4035, and to also reach out to your two United States Senators to ask them to cosponsor S. 2623.
Wolters Kluwer has also created a free set of resources for those who may be affected by the new legislation, which you can access here, including an on-demand webinar where you can learn more.
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.
Presented by Thomas Gorczynski Partner/CEO/President Gorczynski & Associates, LLC
One of my favorite presenters — Tom Gorczynski — is giving a free webinar in conjunction with RCReports (one of my favorite apps), and CPA Academy (one of my favorite education platforms) this Thursday, January 12 (to repeat on Thursday, February 2), on Section 199A and how it interacts with Reasonable Compensation requirements.
The course description from CPA Academy:
§199A is a key tax deduction available to pass-through entities through tax year 2025. Reasonable compensation determinations have a substantial impact on a taxpayer’s potential §199A deduction and are an important part of tax planning. This course will describe how reasonable compensation intersects with §199A and tax planning with examples.
Learning Objectives
Name factors impacting S corporation’s reasonable compensation determinations
Describe the effects on §199A of paying less than the reasonable compensation amount
Identify the effects on §199A of paying more than the reasonable compensation amount
Thomas A. Gorczynski, EA, USTCP is a nationally recognized speaker and educator on federal tax law matters. He is editor-in-chief of EA Journal, author of the Tom Talks Taxes newsletter, co-author of the PassKey Learning Systems EA Review Series, and co-owner of Compass Tax Educators.
It’s an extremely important topic, and one of the best presenters out there — and it’s free! (No, I’m not being paid to promote this; I simply want to make sure my readers don’t miss out on a golden opportunity.) If you struggle with entity choice calculations due to Section 199A, or if you are unsure how to calculate Reasonable Compensation, you should take this opportunity to learn more.
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.
As anyone who’s worked with me — clients, team members, colleagues, vendors — knows, I adore Gusto Payroll. They truly changed my life for the better (not to mention the lives of thousands of small business owners) when they decided to create a tech-forward payroll company that seamlessly syncs with QuickBooks Online.
(Note: our affiliate link will earn you a $100 gift card after you run your first payroll — or up to $500 if you are an accountant or bookkeeper who signs up your own clients. We may earn a commission as well — win-win! For our own clients, we offer a 15% discount in lieu of referral fees.)
With so many of our own clients using Gusto, I wanted to share how to properly report S-Corp medical insurance premiums, and decided to make the information available to the public as well.
Much of the following information was collected from the Gusto Help section — which is freely available to the public — but as their dynamic support site changes structure and organization frequently, it seemed like collecting the various instructions into one area would be helpful.
Setting up benefits for S-Corp 2% shareholder-employees
For S-Corps, the IRS requires that health insurance premiums paid by the company to employees with a 2% or greater ownership be reported as wages (not pre-tax benefits), and included on their W-2s in Box 1, but not Boxes 3 or 5.
(This means that the total will be taxable for income taxes but not payroll taxes, and once the self-employed health insurance deduction is taken on the personal return, the wages and deduction net to zero — so in effect the corporation will have taken the deduction for the health insurance. More in this blog post and from the IRS here.)
Note: If your company’s benefits are provided through Gusto, they will manage this reporting for S-Corp owners automatically, as long as they are marked as a 2% shareholder in Gusto (under “Employment Details” in the shareholder-employee’s info in the “People” section).
However, if you offer benefits outside of Gusto (and use Gusto for payroll), then follow these steps to set up benefits for 2% shareholder employees:
Sign in to your Gusto admin account.
Go to the People section and select Team members.
Click on the employee’s name.
Under Employment Details, make sure the employee is designated as a 2% Shareholder.
Under Benefits, click Add Benefit.
Next to Select a Benefit, select “Create New Benefit” from the drop down menu.
Enter a Benefit Name.
Next to Benefit Type, select Medical, Dental, or Vision.
You will have the option to enter a Company Contribution Per Pay Period or Employee Deduction Per Pay Period. (For S-Corp shareholder-employees, this will usually be a company contribution, but check how your plan is set up.)
Company contributions: Taxable at the employee level only, for both federal and state income tax.
Employee deductions: Fully taxable as wages at both the employee and employer level.
Click Save.
As long as the entity is set up in Gusto as an S-Corp and the shareholder-employees that own 2% or more of the company are marked as such under Employee Details, the health insurance premium benefit should be added to Box 1, but not Boxes 3 or 5. You should review your draft W-2 at or shortly after year-end to make sure it is accurate, and contact Gusto immediately if there are issues so they can correct them before the final W-2 is issued and filed with the IRS and SSA.
FAQs about 2% shareholders:
Q: Which benefits must be taxed as wages for 2%+ shareholders?
A: Medical, Dental, Vision, HSAs, and more must be taxed as wages. Refer to Publication 15-B to view all a full list of benefits that are treated as wages.
Q: What if a 2%+ shareholder status changes part way through the year?
A: Change the 2%+ shareholder status in the employee’s account. Employees who are 2%+ shareholders at any point during the year must be taxed as such for the entire year.
Q: What happens if you need to update an employee’s 2%+ shareholder status mid-or-end year, and they have already received pre-tax benefit deductions this calendar year?
A: If your company withheld health insurance premiums rather than having them processed as 2%+ shareholder — contact Gusto Support, as their team will need to assist within adjusting the benefits, since there are tax implications.
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: much of the information below was pulled from the old Polito Eppich website — however, they have since merged with another firm to become Magnus Blue, and as such have removed their former blog content. My 2018 blog post linking to their article on how to properly account for partnership and S-Corp health insurance to avoid double-dipping now points to a web archive of the original site — but since that’s hard to find, I’m borrowing some of their material and sharing it here as well. To-date it’s the most well-illustrated and to-the-point summary I’ve seen on the topic.
The IRS rules for reporting health insurance premiums for partnership and S-Corp owners are complex, and as a result, easy to accidentally bungle. Sometimes an entity will incorrectly deduct the premium, and so will the owner — on their personal return — leading to what is known as “double-dipping”. This usually happens when the person preparing the personal return did not also prepare the business entity return.
TL;DR? The most important take-aways are: 1) you can’t double-dip; and, 2) though the particular hoops that have to be jumped through are a) different for partnerships than for S-Corps, and b) a PITA for both, they are in fact the law and must be followed.
The key here is that when the entity pays for health insurance for owners, it is deducted as payments for services to the partners or S-Corp shareholders — who are then entitled to take the self-employed medical insurance deduction — which means it will net to zero deduction on the personal return. If you’re not careful, then the deduction is mistakenly taken on both the entity-level and personal returns. In their original article, Polito Eppich illustrated the accidental double-dipping (all charts are copyright of Polito Eppich).
We will use an example of a $10,000 medical insurance premium to illustrate this issue. Here’s what was happening (incorrect approach):
Income (Expense)
Passthrough Business Entity
Owner’s K-1
Owner’s Personal Return
Net Taxable Income
Medical premiums paid
$(10,000)
Ordinary income reduced
$(10,000)
$(10,000)
Self-employed medical insurance deducted
$(10,000)
(10,00)
Total effective deduction on owner’s return
$(20,000)
Accidental double-dipping — the $10k premium becomes $20k.
Here is how it should be handled:
PARTNERSHIPS
The actual deduction occurs at the partnership level and is passed to the partner — via lower income on the K-1.
If the partnership pays for the health insurance premiums for its partners, it deducts the expense as guaranteed payments and reports the amount to each partner on their respective K-1s as guaranteed payments.
The partner then picks up the guaranteed payment as income and reports “self-employed health insurance” deduction. The guaranteed payment offsets the self employed health insurance deduction for a net zero effect on taxable income, thus the single deduction described above on the K-1.
(When a partner pays his (her) own medical insurance premiums, the self-employed medical insurance deduction is allowed if there is self-employment income.)
Correct reporting for partnership:
Income (Expense)
Partnership
Owner’s K-1
Owner’s Personal Return
Net Taxable Income
Medical insurance premiums paid and deducted
$(10,000)
$(10,000)
$(10,000)
$(10,000)
Guaranteed payment to partner
10,000
10,000
10,000
Self-employed medical insurance deduction
(10,000)
(10,000)
(10,000)
Total effective deduction on owner’s return
$(10,000)
Partnership: by following the IRS rules, the $10k premium remains a $10k net deduction.
S-CORPORATIONS
S-Corps are a bit more complex because owners who work for the company are paid payroll via W-2 (rather than guaranteed payments to partners). Keep in mind that these rules only apply to shareholders who own more than 2% of the company. Owners below 2% are not eligible for the self-employed medical insurance deduction.
The S-corporation deducts the expense as compensation and includes the amount on the shareholder’s W-2 — in Box 1, but not in Boxes 3 or 5, which means they are not subject to Social Security or Medicare taxes (commonly known as “payroll taxes” or “employment taxes”). The amount should also be reported in box 14 of the W-2 — this is only for informational purposes, so that the personal tax preparer knows to take the deduction. Some payroll companies will track this reporting properly throughout the year, but others require a call at year-end to make sure this amount shows up properly in Box 1 and 14. (See my blog post on how to handle this for Gusto Payroll.)
The shareholder reports the compensation from their W-2, then deducts the health insurance amount noted in Box 14 on the W-2 as a “self-employed health insurance” deduction on the personal 1040. Because the amount is subject to income taxes, but not employment taxes, taking the self-employed health insurance deduction leads to a net-zero impact to taxable income. The actual deduction is achieved at the corporation level and passed to the shareholder in the form of lower income reported on the K-1.
Correct reporting by S Corporation for 2% or greater shareholders:
Income (Expense)
S-Corp
Shareholders’s K-1
Owner’s Personal Return
Net Taxable Income
Medical insurance premiums paid and deducted as owner wages lower ordinary income
$(10,000)
$(10,000)
$(10,000)
$(10,000)
Owner’s W-2
10,000
10,000
Greater than 2% shareholder medical insurance premium (Noted in Box 14 of W-2)
(10,000)
(10,000)
(10,000)
Net taxable income reported by shareholder
$(10,000)
S-Corp: by following the IRS rules, the $10k premium remains a $10k net deduction.
Either way — partnership or S-Corp, the net result is that the amount paid by the company for health insurance on behalf of owners should only be deducted once, on the entity return, and as payments for services. On the personal return these payments will net to zero after the deduction for self-employed health insurance is taken.
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.
This isn’t the first time I’ve posted about the useful resources offered by RCReports — but as it turns out, it’s been a while. Apparently I take it for granted that everyone knows about Reasonable Compensation requirements all too often, and then I regularly discover that it’s just not true.
Note: I am a loyal paid subscriber to RCReports, and receive no compensation or discounts for promoting their service or resources. I just think they’re great.
In any case, recently I was asked by a colleague to train her on the basics of Reasonable Compensation and walk through my process. I asked her to do these three pieces of homework first:
I know most non-accountants won’t bother with the 2-hour training session that walks through court cases and the history of Reasonable Compensation audits and challenges. And certainly folks who are not in the business of performing these calculations aren’t likely to bother with the 1-hour demo.
But anyone running their own corporation, and those considering electing S-corp status, will want to read about stress-testing. This is something you can do regardless of the calculation process, or how you got to the salary amount in the first place. A helpful excerpt (edited) from the article:
There are six main factors or tests (the IRS lists even more), but “applying just the first three will usually tell you whether a compensation is reasonable or not. In other words – three strikes and you’re out.”
1) Training and experience: Does $X/year seem like enough compensation for somebody who has this level of training and experience? 2) Duties and responsibilities: Does $X/year seem like enough compensation for someone with these duties and responsibilities? 3) Time and effort devoted to the business: Does $X/year seem like enough compensation for someone who worked this many hours/week?
There are different methods of determining Reasonable Compensation — yes, I’m referencing yet additional RCReports articles for details — the cost approach, market approach, and income approach. The Cost Approach generally works best for small businesses where the business owner provides multiple services for the business (wears many hats).
The key with all of these resources is to get shareholder-employees to take a closer look at their own salaries and make sure they are following IRS guidelines. Stress-testing is a great place to start, but for a more thorough approach to calculating Reasonable Compensation, I recommend contacting a CPA with background in this area who can walk you through an RC interview and help you support the amount you ultimately choose.
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.
This Journal of Accountancy article walks through the particular scenario where this relief — only for tax year 2021 — applies. They note that:
The relief announced Wednesday applies where:
In tax year 2021, the direct partners in the domestic partnership are not foreign partnerships, foreign corporations, foreign individuals, foreign estates, or foreign trusts.
In tax year 2021, the domestic partnership or S corporation has no foreign activity, including foreign taxes paid or accrued or ownership of assets that generate, have generated, or may reasonably be expected to generate foreign-source income (see Regs. Sec. 1.861-9(g)(3)).
In tax year 2020, the domestic partnership or S corporation did not provide to its partners or shareholders, nor did the partners or shareholders request, the information on the form or its attachments regarding:
Line 16, Form 1065, Schedules K and K-1 (line 14 for Form 1120-S), and
Line 20c, Form 1065, Schedules K and K-1 (controlled foreign corporations, passive foreign investment companies, 1120-F, Sec. 250, Sec. 864(c)(8), Sec. 721(c) partnerships, and Sec. 7874) (line 17d for Form 1120-S).
The domestic partnership or S corporation has no knowledge that the partners or shareholders are requesting such information for tax year 2021.
To learn more, I recommend this excellent Compass Tax Free 10-Minute Webinar update from 2/17/22 on the new FAQ relief for partnerships and S corporations with Thomas Gorczynski, EA USTCP, and Kevin J. Todd, EA, CPA.
(Our original blog post is below, for context and reference.)
K-2 Mountain (courtesy of Wikimedia Commons)
Yes, that photo is of K-2, the second-highest mountain on Earth, where apparently one person dies on the mountain for every four that reach the summit. (Didn’t expect that to show up in my search for a common-usage-right image of an IRS K-2 form.)
The good news is that — as frustrating and arduous as this new IRS K-2 and K-3 reporting requirement is — no one is likely to die while attempting to complete it, and therefore I think we should just all keep this extremely challenging K-2 mountain in mind before we get too frustrated about additional complexities in tax preparation.
In all seriousness, here’s the story: 1) The IRS, in an attempt to deter fraud, for 2021 began requiring all pass-through entities to disclose foreign transactions as part of the tax returns and the K-1 package to shareholders and partners. 2) Initially, the new schedules were only to be used by entities with international transactions to report. 3) In mid-January, the IRS issued revised instructions for the schedules that may require domestic partnerships and S corporations without any foreign source income or assets to prepare Schedules K-2 and K-3. 4) If even one of the partners or shareholders plans to or is required to report foreign tax credits on Form 1116, Foreign Tax Credit, the Partnership or S-Corp must prepare Schedules K-2 and K-3. 5) As a result, the complex and comprehensive “reporting requirement applies to a much larger percentage of pass-through-entity (PTE) returns than perhaps the IRS intended”, as Forbes pointed out.
“This seems like an overly burdensome requirement to quietly clarify in the middle of filing season.” – Tom Gorczynski, EA
All is not lost. Yes, we’re talking about well-over 20 additional pages of tax forms — but it’s likely that you won’t have to fill them all out. An exception from filing Part II and Part III, Section 2, on Schedule K-3 may apply for a pass-through-entity that:
only has US-source income;
does not have income or deductions that the partners can source or allocate and apportion; and
only has limited partners owning less than 10% of the capital and profits of the partnership at all times during the tax year.
(Though the IRS clarified that a business with no foreign-source income must still file Part II (foreign tax credit limitation) and Part III (information for preparing Forms 1116 or 1118) on Schedules K-2 and K-3 if their partners have items of international tax relevance.)
From the NATP Blog: “For preparers who are handling the returns of both the partnership and the partner, the partner can choose alternatives to filing Form 1116 and triggering the Schedules K-2 and K-3 filing requirements if one of the following applies:
The partner neither paid nor accrued any foreign taxes and there was no foreign tax credit carryover for the tax year;
The foreign tax paid was under the $300 individual reporting threshold ($600 for married filing jointly) for Form 1116, or an election is made under Section 904(j) of the Tax Code to report the credit without the form;
Schedule A is used to report a deduction for foreign taxes (which also avoids the $10,000 SALT cap).
“Preparers who are not completing returns for the partner reporting foreign tax payments will need to ask the partners/shareholders directly for their information. If they fail to respond to the request, the preparer will at least have made a documented, good-faith effort to obtain the required information and should be eligible for the good-faith relief outlined in Notice 2021-39.”
Therefore, for preparers who have to file Schedules K-2 or K-3, there are three options. – One is to extend the returns, as e-filing is not available until after the current due date of both the S corporation and partnership returns. – Another option is to paper-file the return, which will cause delays in processing. – The third option (what we will likely do for those returns we cannot reasonably extend) is to prepare the K-2/K-3 forms and attach them to e-filed S-Corp and Partnership returns as a PDF. Generally the IRS is not great about referring to these attachments, and some tax software programs have problems delivering them; but at least it will show a good-faith attempt in the case of an audit.
Per Amber Gray-Fenner in Forbes, “These alternatives, while prudent, present some potentially serious unintended consequences:
The IRS may be inundated with PDF attachments that it is not prepared to process and review. PDF attachments are often separated from original returns never to be seen again—at least not until the taxpayer receives a notice looking for the “missing” information.
Many more PTE returns may be put on extension than would normally be the case.
Extended PTE returns mean extended 1040s, which is unsatisfactory to many taxpayers and tax professionals.”
In that same article, my colleague Fred Stein hopes “Occam’s Razor ‘kicks in and IRS realizes the unintended consequences this creates for many small businesses.’ If not, the additional work involved could cause PTE return preparation prices to increase by thirty to fifty percent.”
A summary from last week’s AICPA Town Hall:
We will be reaching out to all our S-Corp and Partnership clients to let them know about these new rules, and to ask that they obtain signed confirmation from each of their owners as to any personal requirement to file Form 1116 or another foreign-related tax form on the 1040 returns.
As you may have guessed, this unexpected new guidance will cause additional time, effort, and cost to all our small business S-Corps and Partnerships — almost none of whom actually have any foreign transaction exposure. After all the requests we’ve made of the IRS to reduce the tax preparation burden on small business owners and their CPAs, I wish I could say this is laughable.
In case that wasn’t enough for you, we’ve compiled a rich list of resources for your reading and watching enjoyment.
Compass Tax Resources: • 2/10/22 Free 15-Minute Webinar – discussion on the new requirements for partnerships and S corporations with Thomas Gorczynski, EA USTCP, and Kevin J. Todd, EA, CPA Compass Tax Resources: • 2/17/22 Free 10-Minute Webinar – update on the new FAQ relief for partnerships and S corporations with Thomas Gorczynski, EA USTCP, and Kevin J. Todd, EA, CPA
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.
UPDATE 12/31/21: Sigh. The step-by-step instructions I painstakingly wrote out below, with screenshots (for making business replacement income tax estimated and extension payments) are now out-of-date because IDOR revamped their MyTaxIllinois website in September (grrrrr). Please see this blog post instead: How To Make IL Dept Of Rev (IDOR) Business Tax Payments Online: Estimates & Extensions – UPDATED | The Dancing Accountant — the basic concepts are the same, but the layout and workflow is totally different now.
Unlike individual tax payments — extensions, estimated tax, etc. — for business payments you will need to log in to MyTax Illinois, using the same credentials you usually use for paying sales tax or monitoring state payroll taxes.
On the main page, you should see a list of all your accounts with IDOR & IDES, something like this:
Click on the “Business” link. You will see a list of periods.
Click on the period for which you want to make the payment. It is very important to pick the correct period. Keep in mind this is usually the prior year’s ending date, if you’re trying to pay income tax (aka “business replacement tax”) for a return or an extension. You would choose the current year’s ending date if you are trying to make a quarterly estimated tax payment for your business.
Then click “Make a Payment” in the upper-right corner of this portion of the screen, under “I Want To”.
Then click “Bank Account Debit”.
That link will take you to a page where you will select a payment type. It is very important that you select the correct payment type.
They changed the forms a couple of years ago so that there’s no separate extension tax payment form — you just make a payment under the type of income tax form that your business usually files.
For example, a partnership or multi-member LLC would usually select IL-1065 payment — whereas an S-Corp would file an IL-1120-ST. Confirm that you are selecting the correct type that corresponds with your annual business tax return.
It will prompt you to enter your payment information.
And then click Submit. Make sure to save or print the confirmation page that pops up as a pdf — for your files, but also please send it along to your amazing and dedicated tax preparer.
(If you miss that last bit, then please go into your payment history for this account and do a print-screen that includes the status section; it will show the amount, confirmation number, and date/time.)
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.
