Understanding Payroll Tax Management

Payroll tax management is something every business needs to maintain success. But understanding how taxes work can be challenging and is essential if you are a small business owner starting to manage costs. Even if you outsource the legwork to your “tax guy,” a solid understanding of payroll is crucial because if something goes wrong, you hold liability, regardless of who you hired for the job.

Yes, taxes can be pretty dull. And when they aren’t dull, they’re scary. Both state and federal governments expect you to know what you should pay and when to pay it, and they levy the full power of the state to enforce their penalties and interest if you fail to do so. Payroll taxes are incredibly daunting because the government expects you to manage the payments for the benefits it provides to your employees.

Forgetting this can bring down a series of penalties and unwanted costs for your business. Thankfully, there are plenty of guides like this one, and there is no shortage of tax professionals and accountants prepared to help explain things to you in minute detail. If you have any questions, give us a call.

What Are Payroll Taxes and Payroll Tax Management?

Payroll taxes usually refer to the money withheld from every paycheck to give to both state and federal governments. Payroll tax management is the process the company takes to manage those taxes. In some cases, when people refer to payroll taxes, they are referring solely to contributions made towards social security and Medicare, as well as additional voluntary benefits employees offer. In other cases, “payroll taxes” refers to those contributions and federal and state income taxes. The basic breakdown for federal payroll taxes (aside from the income tax) is as follows:

  • Social security: 6.2 percent withheld from the employee’s paycheck, and a matching 6.2 percent paid by you.
  • Medicare: 1.45 percent withheld from the employee’s paycheck, and a matching 1.45 percent paid by you.
  • Unemployment tax: 6 percent on the first $7,000 of your employee’s annual income.

Things are different if you’re self-employed and file a Form 1099. In that case, you’re in charge of your self-employment taxes, which are the same thing, only that you pay for all of it. For example, putting aside 15 percent of your monthly income for tax payments should ensure that you cover your self-employment liabilities and may net you a refund at the end of the year. Payroll and income taxes are calculated individually for each employee, depending on their pay.

Payroll vs. Income Taxes

Both income and payroll taxes are paid to respective state and federal governments. The only real difference at the end of the day is that the government earmarks payroll taxes for their programs (in the case of FICA contributions, these are social security and Medicare), and payroll taxes are contributed half-and-half by the employee’s paycheck and the employer. On the other hand, income taxes come entirely from the paycheck and go towards the state or federal government’s total budget. Payroll and individual income taxes constitute the top two most significant sources of income for the government of the United States (with corporate income taxes falling far behind in third place).

Federal vs. State Payroll Taxes

When calculating total taxes pulled out of a paycheck, you can further divide those taxes into federal and state taxes and subdivide each sum into separate tariffs. For federal taxes, you’re looking at:

  • Individual income tax withholding
  • Social security tax
  • Medicare tax
  • Federal unemployment tax

For state taxes, you’re looking at:

  • State income tax withholding (not all states have income taxes)
  • State unemployment tax
  • Local taxes

While federal and state taxes come from your business’ coffers (either employer contributions or a deduction from your employee’s paycheck), employers calculate and pay separately. Your form will have different payroll rules than the next state. The federal government’s powers are the same throughout the country, naturally.

Who Oversees Payroll Tax Management?

As the employer, you must take charge of payroll tax management and make the appropriate payroll tax payments to the government every month. If you’re specifically in charge of payroll at your company, it may be your job rather than the company head. You can make an annual payment if your company’s tax liability is deficient (less than $1,000). The tax liability will depend on your eligibility, as per Form 944.

Alternatively, use Form 941 as your guide for quarterly income withholding and payroll taxes. The IRS comes after anyone who manages employee paychecks when determining who should be penalized and held personally liable for missing payroll checks. These are called Failure to Deposit penalties. The IRS levies interest rates on liabilities and unpaid tax debt, so if you’re in trouble with the IRS, it’s essential to resolve it as quickly as possible. So it’s crucial to set up a payment plan with the IRS.

Calculating Your Taxes for Payroll Tax Management

This calculation can be a post in and of itself, as calculating your employee payroll taxes is far from a walk in the park. Most businesses rely on easy-to-use tax software to do the legwork for them, or you can avail the services of a professional business tax preparer. In both cases, you must provide the requested financial details and let the program or company do its magic. If you want to do things manually, you will need:

  • Your current pay schedule (how often your employees are getting paid).
  • Your preferred calculation method (percentage-based or wage bracket-based).
  • Your employee’s up-to-date Form W-4.
  • IRS Publication 15; your state’s guide for income tax withholding (e.g., California’s guide).

Summary of Payroll Tax Management

Payroll tax management involves tax payments constituted partially from the company’s coffers and partially from your employee’s pay, covering essential (statutory) government services on both a federal and state level, as well as other benefits as per your employment contract. Payroll tax payments are made regularly on a monthly or even biweekly basis, and missing payments – or not preparing the money beforehand – can land you in hot water with your respective tax agency, usually the IRS.

Managing payroll is one thing, but calculating it is another. You can do it the old-fashioned way using your state tax agency’s formulas or the formulas of the IRS, or you can use a third-party service or tax firm to do the work of preparing your payroll taxes. Like any other tax responsibility, due diligence is essential here. The IRS generally knows what you owe but won’t tell you. The longer the IRS or any other tax agency penalizes you, the more likely they will start pressuring your business (or you personally) with mounting penalties and tax collection actions.

So, you need to figure it out the right way and hope you’re making the proper payments to avoid a late fee or penalty down the road. Managing personal taxes can be a pain. Collecting the taxes of a business, regardless of how small or large, is even more challenging. It’s okay if this isn’t your forte – but it is your responsibility. Find the right tax professional to work with, and let them walk you through the process of preparing your payroll and income taxes before they’re due.

Understanding California Payroll Tax and How to Calculate It

Starting a business is no easy feat. In addition to the permits and paperwork involved, business owners have far more tax responsibilities than the average employee. It becomes your job to ensure that employment taxes are adequately withheld from your employees’ wages, even if your only employee is yourself. Furthermore, you need to pitch in your employer’s share of employment taxes on each employee from the company’s revenue and beware of the differences in California payroll tax reporting, calculating, and paying.

 

Understanding California Payroll Tax Responsibilities

Payroll taxes are the taxes levied on wages and compensation paid to your employees, including yourself, if you are self-employed. While payroll taxes are sometimes referred to in the singular (e.g., “California payroll tax”), they constitute several different employment taxes on both the federal and state levels, including:

Not all states have an additional income tax. When it comes to California payroll tax, for example, businesses and employees must pay state disability insurance taxes and state income taxes. On the other hand, Florida levies no income tax and no state disability insurance at all, meaning taxpayers in Florida only pay federal income taxes and Social Security/Medicare.

 

FICA and FUTA Taxes

Federal and state income taxes come entirely out of employee paychecks. On the other hand, FICA and FUTA are either shared between employers and employees (FICA) or wholly paid by the employer (FUTA).

FICA Taxes

For 2021, any given paycheck must pay 6.2 percent of its value in Social Security contributions and 1.45 percent of its value in Medicare contributions. This means FICA taxes are 7.65 percent of an employee’s pay. Employers must match these individual contributions out of their business’ revenue.

FUTA Taxes

The FUTA tax for the Unemployment Trust Fund (UTF) also comes out of your business’ revenue. It is equal to 6 percent of the first $7,000 of an employee’s eligible contributions/pay, which is capped at $420 per paycheck. FUTA comes entirely out of your pocket as a business owner, so it doesn’t appear on an employee’s paycheck. Most states, including California, offer a credit of 5.4 percent, reducing a business’ contribution per paycheck to 0.6 percent (or a maximum of about $42) once they file their Annual Federal Unemployment Tax Return. However, suppose a state fails to make all its due payments for FUTA loans taken from the federal government. In that case, businesses in that state may suffer a credit reduction of:

    • 0.3 percent in the first year of a due balance.
    • 0.6 percent in the second year.
    • 0.9 percent in the third year.
    • And additional potential credit reductions afterward.

If you are self-employed, you pay Self Employment Tax and your income taxes. Self-employment taxes are Social Security and Medicare contributions equal to the tax paid by any other employee. You take all 15.3 percent of it out of your net business income (i.e., both halves of 7.65 percent).

 

State Disability Insurance Taxes

Businesses in California can either use a private disability/unemployment insurance plan or use the state’s program. In 2022, California’s state disability insurance taxes equal 1.1 percent of the first $145,600 of an eligible employee’s annual wages. Businesses must also pay the assessment rate to the California Employment Development Department, which is 14 percent of the SDI tax rate (i.e., 14 percent of 1.1 percent in 2022, or 0.154 percent). Unlike FUTA and FICA taxes, federal and state income taxes are calculated, withheld, and remitted to the government every quarter. While FUTA and FICA contributions are set in stone, things become more complicated when calculating federal and state income taxes.

 

Calculating Federal Payroll Tax Withholding

This is crucial. The first thing you will need is each of your employee’s respective Forms W-4, which contain the information you need to calculate their withheld taxes. With this Form, you can choose to calculate income taxes either through the wage bracket method or the percentage method. Use the IRS 2022 Publication 15-T to guide you through the calculation process, as the wage bracket method differs for Forms W-4 created in 2019 or earlier and Forms W-4 made in 2020 or later.

Wage Bracket Method Tables for Manual Payroll Systems

Forms W-4 From 2019 or Earlier

Navigate to the Employer’s Withholding Worksheet 3 and follow the steps below:

Step 1: Figure the tentative withholding amount.

1a. Enter the employee’s total taxable wages this payroll period.
1b. Use the amount on line 1a to look up the tentative amount to withhold in the appropriate Wage Bracket Method table in this section for your pay frequency, given the employee’s marital status (line 3 of Form W-4) and number of allowances claimed. This is the Tentative Withholding Amount.

Step 2: Figure the final amount to withhold.

2a. Enter the additional amount to withhold from line 6 of the employee’s Form W-4.
2b. Add lines 1b and 2a. This is the amount to withhold from the employee’s wages this pay period.

Forms W-4 From 2020 or Later

Navigate to the Employer’s Withholding Worksheet 2 and follow the steps below:

Step 1: Adjust the employee’s wage amount.

1a. Enter the employee’s total taxable wages this payroll period.
1b. Enter the number of pay periods you have per year (see Table 5).
1c. Enter the amount from Step 4a of the employee’s Form W-4.
1d. Divide the amount on line 1c by the number of pay periods on line 1b.
1e. Add lines 1a and 1d.
1f. Enter the amount from Step 4b of the employee’s Form W-4.
1g. Divide the amount on line 1f by the number of pay periods on line 1b.
1h. Subtract line 1g from line 1e. If zero or less, enter -0-. This is the Adjusted Wage Amount.

Step 2: Figure the Tentative Withholding Amount.

2a. Use the amount on line 1h to look up the tentative amount to withhold in the appropriate Wage Bracket Method table in this section for your pay frequency, given the employee’s filing status and whether the employee has checked the box in Step 2 of Form W-4. This is the Tentative Withholding Amount.

Step 3: Account for tax credits.

3a. Enter the amount from Step 3 of the employee’s Form W-4.
3b. Divide the amount on line 3a by the number of pay periods on line 1b.
3c. Subtract line 3b from line 2a. If zero or less, enter -0-.

Step 4: Figure the final amount to withhold.

4a. Enter the additional amount to withhold from Step 4c of the employee’s Form W-4.
4b. Add lines 3c and 4a. This is the amount to withhold from the employee’s wages this pay period.

The percentage method is even more complicated and is thoroughly explained through IRS Publication 15-T. As for your state taxes, the California Franchise Tax Board offers a comprehensive income tax calculator for each respective tax year, with the respective tax tables.

 

Working With a Tax Professional

Calculating and properly withholding wages for tax purposes is complicated. And risky. The consequences for failing to calculate the payroll tax you owe the government are steep, with up to 15 percent penalties on unpaid payroll taxes. Even 24 hours behind your payroll taxes can cost you a 2 percent penalty on the amount due. You can save yourself the headache and financial woes of federal and state tax trouble by contacting a payroll tax expert to manage your taxes and ensure that you’re paying your employees and the federal and state government what they’re owed.

Many companies and tax services offer tax suites to businesses, including payroll tax calculation and management for each of their employees and new hires, often at lower costs than what you might owe the government if you make a few essential clerical errors. Anything and everything can go sideways when setting up a business. Keep payroll taxes from being yet another hurdle on your path to success by working with our tax professionals at Rush Tax Resolution.

5 Tips for Filing Your Employment Tax Returns

Learn how to avail specific tax credits and get the relief your business needs. Read tips on how to properly file your employment tax returns with Rush Tax Resolution.

Businesses must file quarterly or annual tax returns detailing what and how their employees were paid, and report wages withheld for payroll tax purposes (for Social Security and Medicare). This means both the employee portion (withheld from wages) and employer portion.

There are several forms to consider when filing employment tax returns. Business owners must make sure to file the right one. The IRS issues harsh payroll tax consequences for failing to file, and audits returns that don’t match the information they received from employee tax returns and third parties.

 

Use the Right Form When Filing Returns

Some small businesses pay employment tax once a year. Others must pay on a quarterly basis. Businesses file either Form 941 or Form 944 based on how they file employment taxes. These should not be used interchangeably. There are designated filing requirements for both forms.

Form 941

This is the Employer’s Quarterly Federal Tax Return. It is used to report:

      • Payroll taxes
      • Taxes withheld from employee wages
      • Income taxes on a quarterly basis (every three months)

The IRS may specifically advise an employer to file quarterly.

Form 944

This is the Employer’s Annual Federal Tax Return. It is used to report the same taxes as Form 941, if the total amount of calculated tax owed is $1,000 or less.

This form cannot be used unless the IRS provides an official notification to a business that they are eligible to use it. When a business’s tax liabilities expand, said business can switch to Form 941 if the IRS sends a notification that they are eligible for that form now, instead.

Again, it’s important that you continue to file the form the IRS notifies you about, until you receive a newer notification stating otherwise, regardless of the tax you owe. The IRS may notify you about filing the other form next year/quarter if your current tax liabilities do not match the form you have filed.

It should be noted that both Form 941 and Form 944 were changed in 2020 to integrate coronavirus-related tax relief, specifically payroll tax deferral options. Be sure to contact your tax professional about COVID-19 related tax relief if your business and/or employees chose to defer taxes last year. These forms are also used to report and qualify for other employer tax relief options, including the Sick and Family Leave Tax Credit, and the Employee Retention Tax Credit.

 

If You Fail to File the Right Return, the IRS Can File One for You

As with individual returns, the IRS can make employment tax returns (and other business returns) for you, utilizing information provided through your previous tax returns, employee taxes, and third-party information returns. This is called a Substitute for Return.

These estimated returns will be less kind to your bottom line than any return you might draft yourself, so it should be mentioned that there is a significant downside in letting the IRS file for you. Additionally, there are steep penalties and consequences for failing to file.

 

There Are Penalties for Failing to File Employment Tax Returns

Your business will incur a penalty of 5 percent of the due tax on the first late month, and an additional 5 percent each month, up to 5 months (25 percent). These are separate from penalties incurred for being late on estimated payments or having a tax debt (due to the results of an examination/audit).

Late business and employment tax returns are given additional scrutiny, so you should take additional care when preparing them. Consider seeking help from a tax professional to make sure you are as meticulous with your paperwork as possible and aren’t giving the IRS any reasons to further audit your business.

Once you do file a return (or after the fifth month), the IRS will inform you of the balance due on your business’s account via a CP161 notice. Your debt to the IRS will be assessed, and you will be given a deadline to pay.

There are further penalties (failure to pay penalties) for failing to meet that deadline, as well as interest on any due balance. The penalties for failing to pay are 0.5 percent of the unpaid amount per month. Penalties may increase or decrease based on whether the IRS has issued a tax lien against your business (which it can), or whether you have entered into a payment plan with the IRS.

 

The IRS Can (and Does) Audit Employment Tax Returns

Just like individual tax returns, the IRS can audit business tax returns, including employment tax returns, if they have information that leads them to believe the returns and associated payments are incorrect. The IRS determines if an examination (an audit) is needed based on two major factors:

      • Computer programs. The IRS utilizes computer programs to determine the likelihood of an employment tax returns legitimacy based on the business’s previous returns, information returns by other organizations, data compiled through studies of other returns, and more.
      • Compliance projects. These are data sets compiled through public and news media, as well as other sources of information to cross reference individual and corporate returns, to find returns that qualify for an audit.

Once the IRS completes its examination, it either decides that you owe additional taxes, it owes your business a refund, or that no change will occur on your business’s tax account.

 

Tax Professionals Can Help You Navigate Employment Taxes

With the option to defer both your portion and employee portions of the social security (payroll) tax available in 2020, and recent changes in how and when those deferred taxes are due, navigating employment taxes in 2021 can be a little complicated.

Experienced tax professionals can help answer all your questions about business taxes in the new year and keep you up to speed on deferred tax deadlines, employment tax returns, filing requirements, and much more. Tax professionals can also help you accurately file your business back taxes and compile all the information needed for a late return. Learn how to avail specific tax credits and get the relief your business needs through a tax professional at Rush Tax Resolution.

Deferred Payroll Taxes and COVID-19 Relief

Learn the ins and outs of the recent COVID-19 tax relief measures and how it may impact you and your company’s deferred payroll taxes. 

 

In 2020, the government rolled out several COVID-19 relief measures, including Economic Impact Payments and several forms of tax relief. One particular option that has received little love from businesses, tax advisors, and political commentators alike has been the option to defer employee payroll taxes until 2021, with the caveat that all employee-deferred taxes are to be paid back early this year.

Just a few weeks into 2021, the IRS has issued a statement pursuant to the COVID Tax Relief Act of 2020 stating that the deadline on these deferred payroll taxes has been extended. Several other forms of tax relief have also been extended into the new year.

Many government employees and workers who have opted to defer their portion of payroll taxes last year would otherwise have had to have a larger portion of their wages withheld in the first few months of the year to pay back what they deferred. With this newest statement, that deadline has been extended until the end of the year. 

Navigating the changes made to tax and economic relief options last year can be challenging, so let’s walk through them step-by-step.

 

When Were Payroll Taxes Deferred? 

Payroll taxes were nominally deferred in two separate occasions – first, earlier in 2020, the CARES Act allowed employers to defer their portion of the payroll tax (half of the 6.2 percent per employee wage used to pay for Social Security and certain railroad retirement taxes) for the rest of the calendar year (from March through December 2020), with two separate deadlines for paying back deferred taxes. These are:

      • December 31, 2021 for the first half of deferred payroll taxes
      • December 31, 2022 for the second half of deferred payroll taxes. These deadlines have not changed yet.

Then, later in August 2020, a Presidential Memorandum issued by President Trump to the Secretary of the Treasury urged him to provide a similar option to employees to defer their half of the payroll tax for the remaining months of 2020 (September through December), with the caveat that these taxes would be additionally withheld from wages in the first quarter of 2021. Failure to completely pay back all deferred taxes by April 30, 2021 would lead to the accruement of penalties and interest starting May 1, 2021.

This option was seen as less favorable, as the individual financial impact made by deferring these taxes would be generally minimal, whereas the additional strain on the employee’s wages in 2021 would be a larger issue for most. Other questions surrounding the deferral of employee taxes included liability (if the employee were to quit/leave before the new year). It was also only available to workers who earned less than $4000 on a biweekly basis.

However, recent changes made through the Consolidated Appropriations Act at the end of 2020 have extended that original deadline to give employers charged with withholding their employees taxes more time to accumulate the deferred amount.

 

When Are Deferred Payroll Taxes Now Due? 

Instead of being due from the period of January 2021 to April 2021, all deferred payroll taxes are now due December 31, 2021. All associated penalties, interest, and additional payments on unpaid amounts would begin to accrue on January 1, 2022

This means that instead of being made to pay back all deferred payroll taxes in the first quarter of the year, employees whose portion of the payroll tax was deferred by their employers now have until the end of the year to accumulate the deferred amount through additional withholding.

Employees are required to accrue the total applicable taxes ratably through “wages and compensation” between January 1, 2021, and December 31, 2021. They can alternatively “make arrangements to otherwise collect the applicable taxes” from their employers.

 

What If Deferred Payroll Taxes Aren’t Paid?

If the deferred payroll taxes aren’t paid, then the IRS can charge the affected taxpayer additional penalties and interest. Failure-to-pay penalties for taxes owed to the government start at 0.5 percent of the total debt per month, up to 25 percent.

Additional interest is based on the federal short-term rate, plus three percentage points. Should your debt continue to grow, the IRS can pursue collection actions against you.

 

What About Other COVID Tax Relief? 

Employers were granted other forms of payroll tax relief throughout the year to help reduce the financial and personal impact of the coronavirus, as well as combat the rising unemployment numbers throughout the country.

The New Employer Tax Credits included two different credits for eligible employers looking for relief – the Credit for Sick and Family Leave, as well as the Employee Retention Credit. Both have been extended to a degree in the new year.

 

Credit for Sick and Family Leave

The Credit for Sick and Family Leave was provided to small and mid-sized businesses under the Family First Coronavirus Response Act, and helps employers finance a mandatory sick leave period provided to affected employees who have had to call in sick due to COVID, had to care for someone who was sick, or had to care for their children due to school and daycare closures in 2020.

This paid sick period was mandated to be a minimum of ten days at the employee’s regular rate of pay, up to $511 per day (maximum of $200 a day if the employee was caring for someone else, or their children)

An update late in 2020 extended the tax credit until March 2021, but did not extend the mandatory sick leave period, meaning only employers who do decide to continue to provide sick leave can avail of an additional tax credit in 2021 under the FFCRA. The qualifications and caps haven’t been altered either.

 

Employee Retention Credit

The Employee Retention Credit was a refundable tax credit of up to 50 percent of at most $10,000 in qualifying annual wages per employee (maximum of $5,000 per employee) paid between March 13, 2020 and December 31, 2020. This tax credit is only available to businesses that have been partially or fully affected by government-mandated lockdowns caused by COVID-19 or have quarterly gross receipts that are less than 50 percent of what they were for the same quarter in 2019.

The Taxpayer Certainty and Disaster Relief Act of 2020 further extended the eligibility period through to June 30, 2021 and amended the tax credit to apply to up to 70 percent of at most $10,000 per employee per calendar year. Additionally, businesses with a decline in gross receipts in the first quarter of 2021, wherein their gross receipts are less than 80 percent of what they were in the first quarter of 2019, are also eligible.

If you have been personally affected by the COVID tax relief efforts and have further questions about how your requirements and/or deadlines have changed, consider getting in touch with our tax professionals at Rush Tax for an in-depth and individualized look at your coronavirus tax relief. Rush can also work with you on cases of tax debt and debt resolution, and help you negotiate with the IRS.

Payroll Tax Relief Options for Employers

COVID-19 has created many uncertainties for employers. If you are a business owner or employer, here are payroll tax relief options to consider this year.

With the new year come new tax considerations, as well as new aid for businesses aiming to stay afloat amid the COVID-19 pandemic. Although 2020 has ended, and even as we enter the vaccination stage, experts suggest that we are still months away from a return to normal, and it will be some time still before economy improves.

As part of the effort to help businesses severely impacted by the coronavirus, the IRS has announced two new employer tax credits designed to take some of the pressure off businesses impacted by cases of sick employees, and employee family members, as well as provide aid to employers who are struggling to pay the bills due to COVID-related government orders.

Those that deferred payroll taxes in 2020 should know what to look out for in 2021, as well as keep an eye on this year’s payroll tax changes and how they might impact businesses.

 

Taking a Look at Payroll Taxes in 2021

The biggest priority change of employer tax relief to look out for is the Social Security wage base increase (i.e. the maximum amount of taxable wage for Social Security), from $137,000 in 2020 to $142,800 in 2021. This means a total of $142,800 of an individual’s wages may be taxable for Social Security.

The FICA tax rate (combined Social Security and Medicare taxes) remains 7.65 percent (6.2 percent for Social Security, 1.45 percent for Medicare), just as last year. This means that 6.2 percent of the first $142,800 of an employee’s wages must be withheld, alongside another 6.2 percent covered by the employer. There is no wage base limit for Medicare, and employers are required to withhold an additional 0.9 percent for wages earned past $200,000 ($250,000 for married couples who file jointly).

If your employee is working multiple jobs, they may ask you to stop withholding Social Security taxes once they’ve reached their wage base limit. Most of the time, you can’t actually do that – but you can inform them that they’ll be eligible for tax credit the following tax season.

 

Did You Opt to Defer Payroll Taxes in 2020? 

If you were among the minority of employers who opted to defer employer and employee payroll taxes last year, then understand that you are obligated to withhold additional wages to pay back the deferred amount on the employee’s share.

To recap: as part of the government’s efforts to provide aid during the coronavirus pandemic, employers were given the option to defer their share of the payroll taxes for the year, with the caveat that half of the total deferred amount would be due by December 31st, 2021, and the other half by December 31st, 2022. This wasn’t a particularly popular employer tax relief effort, and there was bipartisan criticism of its implementation.

The same option was later made available to certain employees, giving them the choice to defer their share of the payroll taxes for the year (provided they earned $4000 in biweekly wages or less, and other eligibility requirements), with the understanding that the taxes deferred during these months (September through to December 2020) would be added to their withheld taxes during the months of January through April 2021.

This means if your employees were eligible for deferred taxes in the last four months of 2020, the amount deferred would have to be paid back in the first third of this year. Furthermore, your first deadline for half of any payroll taxes you opted to defer will be at the end of the year.

However, it’s important to note that with a new administration, the government may handle this employer payroll tax relief differently, if you did opt to defer. This may become a big ticket issue this year as the federal government and military made it mandatory for own employees to defer their payroll taxes. Be sure to discuss this with your tax professional if the deferrals are relevant to your concerns and keep an eye on any developments.

 

New Employer Tax Relief Credit Options This Year

Whether you chose to take advantage of the government’s so-called tax holiday or not, there are other ways for you to seek employer payroll tax relief aid this year, particularly if you are struggling to support employees and employee costs.

Last year, the IRS announced two new employer tax credit options to help businesses who have been hit hard by COVID-19 and need relief. These options were the Credit for Sick and Family Leave, as well as the Employee Retention Credit.

 

– Credit for Sick and Family Leave

These payroll tax relief efforts for employer-provided sick and family leave benefits were meant to coincide with the government’s Families First Coronavirus Response Act (FFCRA), wherein the government required employers with under 500 employees to provide sick and family leave benefits.

Although many people thought that the government’s last relief package for the year (the Consolidated Appropriations Act of 2021, or CAA21) would extend the FFCRA into 2021, it did not.

It did, however, extend the credit for sick and family leave until the end of March 2021 – meaning employers with up to 500 employees are no longer mandated to provide sick and family leave benefits but can receive aid from the government if they choose to provide leave benefits for the first quarter of the year anyway.

Do note that there are stringent documentation requirements to take advantage of the credit, as well as caps in how many benefits are paid out/how long the sick leave or family leave can be, as well as a list of qualifying reasons.

Also keep in mind that the benefits covered by the FFCRA and the Family and Medical Leave Act (FMLA) are separate, meaning that while an employee can’t reset their caps on FFCRA-covered medical and family leave, employers providing medical and family leave in 2021 may still get a tax credit under the FMLA.

 

– Employee Retention Credit

As part of CAA21, Employee Retention Credit eligibility has been expanded to last until June 31st, 2021. It has also been modified – while it initially provided a 50 percent refundable tax credit for companies closed or shut down by government-mandated COVID-19 lockdowns, this has been changed to 70 percent for the first half of 2021.

Because the coronavirus remains a developing issue, and it’s uncertain what the next few months will look like – and because we are on the cusp of a new administration – it’s possible that employer tax credits and payroll tax relief will be greatly expanded in 2021. It’s also possible that no other changes will occur.

If you’re worried about your taxes this year and how they might be affected by the continued pandemic and multiple successive tax updates, consider discussing your options and concerns thoroughly with a tax professional.

How Do the IRS Economic Impact Payments Affect Me?

*Last Updated on March 23, 2021

When the coronavirus crisis first began, Congress responded by rolling out a number of bills aimed at providing financial aid to individual Americans as well as state and local governments, in order to help subdue the hemorrhaging effects of the virus on the American economy.

One of these bills, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) included IRS Economic Impact Payments, a one-time $1200 cash check to individuals, and $2400 to married couples, with an additional $500 per dependent.

The IRS is responsible for sending these checks out, and has been doing so since April 24, 2020, at a rate of about 5 million checks per week. As of late August, the IRS has released a public statement detailing how many checks they have sent to individuals per state, and it continues to advise taxpayers and citizens who have not yet received a stimulus check to review their eligibility, and understand that checks are still being sent out.

 

What are the IRS Economic Impact Payments? 

The IRS Economic Impact Payments (EIP) are, as of now, a one-time payment of $1200 to every eligible American, and $2400 to married couples, with an additional $500 per dependent. Most taxpaying Americans who are up to date on their tax returns and earn an adjusted gross income of up to:

      • $150,000 for married couples with joint returns,
      • $112,500 for head-of-household filers,
      • $75,000 for other individuals,

Are eligible to receive the full EIP and have likely already received their check. Americans with a total adjusted gross income above these thresholds will receive a reduction on their EIP, based on 5 percent of how much more they earn.

Recipients of Social Security retirement, survivor, or disability benefits, Railroad Retirement benefits, SSI, and VA C&P will automatically receive their $1200.

In addition, Non-Filers can also request an Economic Impact Payment by November 21, 2020 if:

      • Your income is less than $12,200
      • You’re married filing jointly and together your income is less than $24,400
      • You have no income

Note that you should not use the Non-Filers tool if you will be filing a 2019 return.

 

Who Does Not Qualify for an EIP?

Some taxpayers do not qualify for an EIP. Non-qualifying criteria include:

  • An adjusted gross income of more than:
      • $198,000 for married couples filing jointly,
      • $136,500 for head-of-household filers,
      • $99,000 for individuals,
  • Individuals who are dependents on someone else’s tax return,
  • Individuals without a Social Security number valid for work,
  • Nonresident aliens,
  • Incarcerated individuals,
  • Non-persons (estates and trusts),
  • Deceased individuals,
  • Taxpayers who in 2019 have filed a:

Other Americans who have not filed tax returns for 2018 or 2019 due to no or low income, and aren’t eligible for the government benefits listed above, are still eligible for an EIP, but must register through the IRS’s website using their non-filer tool. This is important, as the IRS otherwise wouldn’t know to send you a check.

 

How Long Will Economic Impact Payments Be Available? 

Economic Impact Payments will be available by the IRS throughout the entirety of 2020. It is unclear whether that period will be extended should Congress decide to authorize a second round of Economic Impact Payments. Refer to the IRS’s official website on EIPs and the IRS’s news releases for updates or information on second stimulus checks, if or when they’re authorized.

 

Will We Get a Second Round of Economic Impact Payments?

Whether or not taxpayers will receive another round of IRS Economic Impact Payments, or stimulus checks, is a question that Congress has been wrestling with for months. While there is still bipartisan approval for some type of aid, the details of that aid remain completely undecided.

However, the looming threat of rising infections and an unemployment rate of 8.4 percent may push both parties to try and reach a compromise sooner rather than later.

Any aid package will also include unemployment benefits and other forms of aid, as well as the divisive decision on how best to fund state and local government aid, further complicating discussions. Whether a second stimulus check arrives, and how large that check will be, is thus still up for debate. Be sure to check the IRS’s official portal on coronavirus relief for up-to-date information.

 

Why Haven’t I Received My Economic Impact Payment? 

If you are a qualifying taxpayer who is up to date with their tax returns, it may be that the IRS has not gotten around to sending you your check. However, as mentioned previously, some Americans need to take action in order to claim their checks. If you haven’t filed a tax return in two years due to no or low income, enter your payment information through the IRS’s non-filer tool by November 21, 2020.

If you have received a $1200 check automatically as a government benefits recipient without a tax return, but have not received the additional $500 payments per dependent/child, you had until September 30th to register through the same non-filer tool.

 

Economic Impact Payment Cards

Some of the IRS Economic Impact Payments will be sent via a debit card, known as the Economic Impact Payment Card. You cannot specifically request that the IRS sends you your EIP in card form.

Right now, the IRS is sending out EIPs via direct deposit, paper check, or debit card. If you received a debit card, but lost it, you can request a free replacement through MetaBank®’s customer service. MetaBank® is the US Treasury’s financial agent. Please see January 2021 Updates to EIP for more information on payment cards.

 

Other Information to Note

It’s important to note that the IRS will not request information from you via mail or otherwise regarding your Economic Impact Payment, especially personal or financial information. Anyone masquerading as the IRS requesting information in order to send payment is likely a coronavirus scam artist. You must provide your information to the IRS either via previous tax returns, or the IRS’s own official non-filer tool.

 

*October Updates to Economic Impact Payments

On October 23, 2020 the IRS set November 10 as “National EIP Registration Day” to help non-filers. This final push on Economic Impact Payments is to encourage individuals who do not usually file a tax return to register to receive an Economic Impact Payment.

“Our partner groups have been a critical part of the unprecedented IRS outreach and education campaign this year to contact as many people as possible about these payments,” said IRS Commissioner Chuck Rettig. “As a result, millions of Americans have successfully used the Non-filers portal and received their Economic Impact Payment. Registration is quick and easy, and we urge everyone to share this information to reach as many people before time runs out on Nov. 21.”

 

*January 2021 Updates to EIP

A second round of Economic Impact Payments has been issued by the Treasury Department and the IRS. The payments include up to $600 for individuals or $1,200 for married couples and up to $600 for each qualifying child. According to the IRS, “most people who have an adjusted gross income for 2019 of up to $75,000 for individuals and up to $150,000 for married couples filing joint returns and surviving spouses, will receive the full amount of the second payment.”

This second round of payments has been scheduled to begin delivery on January 4, 2021.

Direct deposit payments may take several days to reach individual accounts, while paper checks and debit cards have begun being mailed and will continue to be mailed throughout January. These mailed payments will take more time to be delivered than direct deposits.

Millions of second-round EIP payments are being issued as prepaid debit cards to speed up the delivery of payments. These Economic Impact Payment Cards (debit cards) issued by Treasury’s financial agent, MetaBank and the IRS does not determine who receives a card.

According to the IRS, cardholders have the opportunity to use the debit card to:

      • Transfer funds to a personal bank account
      • Make signature or PIN-debit purchases anywhere Visa Debit
      • Cards are accepted — in stores, online or over the phone
      • Get cash back with a PIN debit purchase where available
      • Get cash from in-network ATMs
      • Get a replacement EIP Card, if needed
      • Check their card balance online, through a mobile app or by phone

The form of payment to individuals may be different than the first round of stimulus checks. For example, if you received a paper check in the first round, you may receive a prepaid debit card this second round.

To check the status of your EIP, use the IRS Get My Payment tool.

 

*March 2021 Updates to EIP

A third round of Economic Impact Payments have been issued by the IRS. These payments will be issued via direct deposit and through the mail as a check, or debit card. Most taxpayers will receive this third round of stimulus the same way they received the first and second rounds of EIP’s.

For most individuals, you will receive $1,400. Those with qualifying dependents will also receive an additional $1,400 for each dependent on their returns.

The latest round of EIP’s are based on the taxpayer’s latest processed tax return – from 2020 or 2019, and includes those individuals who registered with the IRS’ Non-Filers tool.

Those eligible for the third round of Economic Impact Payments include U.S. citizens or U.S resident aliens that have a valid Social Security number and adjusted gross income on their tax return lower than:

      • $150,000, if married and filing a joint return or if filing as a qualifying widow or widower.
      • $112,500, if filing as head of household.
      • $75,000 for eligible individuals using any other filing statuses, such as single filers and married people filing separate returns.

To find more information on the third round of stimulus checks, please check IRS.gov or speak to our professionals.

 

Contact a Tax Professional for More Information 

If you’re worried about your stimulus checks, haven’t received your payments, or are unsure regarding eligibility, you can contact a professional tax attorney for more information.

The IRS advises that you do not call or contact them directly with questions regarding Economic Impact Payments. If you cannot find the information you need on their portal and FAQs, a tax professional may be able to provide you with a clear answer.

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