fbpx

What Is the IRS Child Tax Credit 2021 and How Does It Affect Me?

2021 IRS Child Tax Credit Eligibility and Pros and Cons - Rush Tax Resolution

Payments for the new IRS Child Tax Credit are to begin July 15, 2021, but what is this type of credit, how has it changed, and how may it affect you? Will you receive the new Child Tax Credit, or should you opt out?

While the COVID-19 pandemic continues to decline as vaccination programs pick up around the world, millions of families are still left reeling from the financial and social impact of the virus, which has led to the deaths of over 600,000 Americans, and over 4 million deaths worldwide.

As part of the current administration’s larger $1.9 trillion American Rescue Plan, the IRS has announced that about 39 million American families will be eligible receive up to $1,800 in the form of several monthly checks until December 2021, starting July 15. These payments are being distributed in the form of an expanded IRS Child Tax Credit.

However, there is a caveat to this federal bonus – one that may inspire some families to decline it. First, let’s go over the expanded Child Tax Credit, and how it’s been changed this year.

 

What is the IRS Child Tax Credit?

What is a tax credit? Tax credits are different from tax refunds, in that they represent money the IRS gives you to write off your taxes. Anything left over after your taxes are paid gets sent your way in the form of a check.

The IRS Child Tax Credit is designed to help low- and middle-income families eligible for the tax credit alleviate some of the financial pressure of growing a family.

Changes made to the Child Tax Credit this year, to help families still affected by COVID, include additional funds (up to $3,600 per child, up from $2,000) as well as a cash advance.

Because payments this year are starting halfway through 2021, half of the new IRS Child Tax Credit will be sent out to bank accounts across the country (hence the $1,800 to be paid out over the next few months), while the other half can be claimed as a tax credit at the end of the 2021 tax year (on your 2021 tax return).

Furthermore, there has been news that the current administration is proposing to extend the monthly cash advance for five more years. Whether or not we’ll hear more on that idea remains to be seen. If the tax credit payments get extended without any major changes, that would mean the entire annual Child Tax Credit would be paid out in monthly chunks.

 

Potential Downfalls of the Updated IRS Child Tax Credit

The catch? You need to be careful about how much of a tax credit you’re getting. Unlike the stimulus checks, where the government sent you what it sent you, and you were allowed to keep the excess if you received more than you were entitled to, this tax credit is different.

If the amount you receive either in cash or as a tax credit at the end of the year exceeds what you are eligible for based on number of children, filing status, and income, you may need to pay the IRS back what you were overpaid. Whether or not this is subject to change isn’t clear, but the IRS’s current stance is that it is entitled to demand some or all of the excess payments back.

In other words: if you’re entitled to an IRS Child Tax Credit this year, try to be careful about how much you’re entitled to, and be strict with your bookkeeping. Consider working with a tax professional this year.

 

How Do I Qualify for the Child Tax Credit?

The expanded IRS Child Tax Credit applies per child up to age 17 (as of December 31, 2021). Before the recent changes, it was limited to children up to age 16. The maximum annual tax credit per child was also increased, from $2,000 to $3,600 (for children under age 6) and $3,000 (for children between ages 6 and 17).

Qualifying for the Child Tax Credit is largely a matter of income level and filing status. The annual income thresholds for families currently stands at:

    • $75,000 or less for single taxpayers
    • $112,500 or less for heads of household
    • $150,000 or less for married couples filing a joint return and qualified widows and widowers

If you earn more than that, you may still be able to apply for the enhanced IRS Child Tax Credit, but it will be a lower amount per child, depending on how much more you earn.

Right now, the values are at $50 less per child, per $1,000 of annual income above the threshold. At a certain income level, the enhanced IRS Child Tax Credit is no longer available, but regular the Child Tax Credit may still be taken advantage of up to a higher income level.

If you’re having trouble, the IRS has a qualification tool to help taxpayers figure out their eligibility.

 

Determining Your Eligibility

To recap what you generally need to be eligible:

    • You will have had to have filed a tax return in 2019 or 2020, and must have already claimed the Child Tax Credit on said return; or
    • You’ve given your info to the IRS for the Economic Impact Payments of 2020 as a non-filer (you can sign up with that link); and
    • You have a place of residence in the United States for more than half a year, or file a joint return with a spouse with a place of residence in the United States for more than half a year; and
    • You have one or more children under the age of 18 (as of December 31, 2021) with a valid Social Security Number; and
    • You earn less than the cap for the Child Tax Credit.

If this seems confusing, it’s because it is. Consider working with a tax professional who can provide tax preparation services and guide you through these requirements.

 

Should I Have Received a Letter?

Not all, but many taxpayers who are already eligible for an IRS Child Tax Credit will have received a Letter 6416 or 6416-A from the IRS, titled the Advance Child Tax Credit Outreach letter. These were sent out to taxpayers based on their 2019 or 2020 returns.

To recap, under the new expanded IRS Child Tax Credit, the following changes have been made:

    • Those eligible for the maximum amount under 2021 rules will receive $250 per month, per child between the ages of 6 and 17, and $300 per month, per child under the age of 6, until the end of 2021.
    • Eligibility will include children up to age 17 as of December 31, 2021.
    • The other half of the year’s estimated credit will be available as a refundable tax credit on your income tax return, even if you do not file income taxes. However, you will need to file or apply for the credit to receive it.

If you’re wondering about eligibility or how much tax credit you’re qualifying for this year, be sure to speak to a tax professional.

 

CONTACT OUR TEAM TODAY

What Is the Recovery Rebate Credit and How Does It Affect Me?

Recovery Rebate Credit - Rush Tax Resolution

It’s important to understand what the recovery rebate credit is, and how it may affect you. Here’s what you should know.

Tax credits let you keep more money in your pocket come tax season – provided you’re eligible for them. The recovery rebate credit is available to all Americans who qualify for an economic impact payment (stimulus check), yet haven’t received their first, second, or both checks, or only collected a portion of the money they’re entitled to.

However, this particular tax credit is also available to Americans who might not have qualified for a stimulus check on the basis of their 2018/2019 tax returns but are eligible for one on the basis of their 2020 tax return.

Let’s dive into the details on the recovery rebate credit, and figure out whether you can claim it, how to check eligibility, how to go through the process of getting it onto your return, and what else to watch out for.

What is the Recovery Rebate Credit?

The 2020 and 2021 stimulus checks sent out as part of the coronavirus relief package are essentially cash advances on a tax credit all eligible Americans are entitled to.

Those who didn’t get their checks may potentially get a tax credit instead. Those who only received a portion of the money the government has sent out will receive the remainder in the form of a tax credit.

For most (but not all) Americans, this credit will turn into a tax refund, or bolster your existing tax refund. And for most (but not all) Americans, eligibility for both the stimulus check and the rebate credit are the same. As mentioned previously, the main difference is that the stimulus checks based eligibility on a taxpayer’s 2019 tax returns, and if these were unavailable, used 2018’s information.

The recovery rebate credit is going to be based on your 2020 return – so if the year hit you particularly hard, you may now be eligible for a tax credit you couldn’t previously claim. This is likely the most important piece of information for most taxpayers.

The same goes for dependent bonuses – taxpayers with children receive an extra $500 to $600 per dependent, but if you only just became a parent, that bonus may not have been calculated into your recent stimulus checks. This means you are eligible for a tax credit based on those dependent bonuses, instead.

Some taxpayers just flat out didn’t receive their checks. Some of them didn’t receive payments unlawfully due to being left out of the system (such as prison inmates) or being overlooked. In other cases, the IRS may have just made a mistake. As of October of last year, as many as 12 million Americans hadn’t yet received stimulus checks that they were entitled to, as a result of glitches and systematic issues.

Long story short – if you didn’t receive as much money as you were entitled to, or your circumstances have changed, and reflect eligibility for a greater economic impact payment as a result of your 2020 tax return, you may be eligible for a recovery rebate tax credit.

Eligibility for a Recovery Rebate Credit

First, you may want to check whether you have already claimed the stimulus payments referred to through the recovery rebate credit, by visiting your online IRS account. Alternatively, you can use the IRS’s online Get My Payment portal.

The IRS further clarifies that eligibility for a recovery rebate credit is affected by whether you have already received an economic impact payment. 

    • The first round of economic impact payments was $1,200, plus $500 per qualifying dependent.
    • The second round of economic impact payments was $600, plus $600 per qualifying dependent.

If you received less than the full amount, you may be eligible for a rebate minus whatever the government did send.

Eligibility for economic impact payments is dependent on multiple factors. These include:

    • Being a US citizen or resident alien in 2020.
    • Not being a dependent under another taxpayer.
    • Having a Social Security number valid for employment.

It should be noted that the economic impact payment is reduced for individuals earning an annual adjusted gross income (AGI) of more than:

    • $75,000 filing as a single individual or married filing separately
    • $112,500 filing as head of a household
    • $150,000 filing a joint return

The reduction of the payment (and credit) is equal to 5 percent of the amount exceeding the AGI limit.

Again, even if you weren’t eligible for economic impact payments as a result of your 2018 or 2019 tax returns, you may be eligible based on your 2020 tax return. Individuals who did not receive the first round of stimulus checks due to an incarceration are still eligible for a rebate credit, provided they are also otherwise eligible.

Calculating Your Recovery Rebate Credit

To calculate and claim your recovery rebate credit, you must prepare a 2020 tax return. Taxpayers who usually do not prepare returns due to their non-filing status must still file a 2020 tax return to claim this tax credit.

Calculating the credit is very simple. Both Form 1040 and Form 1040-SR for this year provide clear instructions on how to calculate the credit based on the information you have, to determine whether you’re eligible, and how much you will receive.

If you make a mistake, the IRS will try and correct it for you. This can result in a delay in processing. The IRS will send a notice explaining the changes they made to your return.

You should also be able to view your economic impact payment history through the following link. If you still have a copy, review your Notice 1444 (information for the first stimulus check), and Notice 1444-B (information for the second stimulus check).

Rebate Credits and Specific Debts

One of the major distinctions between the economic impact payments and the recovery rebate credit is that the latter is not safe against creditors, especially private debt collection, and child support garnishments.

Some taxpayers are having their tax credits claimed to pay off outstanding liabilities. This is currently legal, as there is no provision protecting this tax credit the way the stimulus checks were protected from being garnished to pay private debts.

It should be noted that the IRS is aware of this and has stated that they will not claim the credit for federal tax debts. In other words, your recovery rebate credit is safe from the IRS. It may not, however, be safe from other creditors. It is unclear whether the government will address this issue by applying garnishment protections to the tax credit as well, as it did for the stimulus checks.

For more information and help navigating taxes during COVID-19, work with 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.

COVID-19 Related Tax Fraud: How to Protect Yourself

COVID-19 Tax Fraud and Scams - Rush Tax Resolution

With the rise of COVID-19, the United States has seen an increase in COVID related tax fraud. Here’s how to protect yourself from these scams.

The IRS recently released a statement on the prevalence of COVID-19 related tax fraud, specifically text-based tax fraud scams that prey on people’s vulnerabilities by promising additional tax credits, economic payments, or stimulus checks, in exchange for personal information, an advance deposit, or similar commitments.

This type of scam is decades old but is still popular to fit an uptick of economic anxiety around the holidays after an especially tough year. With many people facing the last few months of the year after struggling to make ends meet, any help from the government – even if unorthodox in its delivery – might seem like a godsend.

However, while the IRS and US Treasury may still deliver additional monetary help if Congress comes to an agreement, neither agency or department would do so via a text message, a suspicious call, or any form of communication demanding personal information or financial information over the phone, or withholding payment until a “transaction fee” is paid out first.

 

Verifying Suspicious Communication

If you have received any suspicious communication from an entity claiming to be part of the IRS or the US Treasury, it’s critical that you double-check with official IRS news or notifications, contact the IRS or US Treasury through their respective hotlines or contact info, and speak with a tax professional.

Phishing attempts (trying to solicit information by pretending to be a legitimate institution) or tax fraud scams can be reported through the FBI, the Treasury Inspector General for Tax Administration, and through the IRS’ email for IRS-related phishing attempts (phishing@irs.gov). You can also report a COVID-19 related scam by calling the National Center for Disaster Fraud hotline (866-720-5721)

 

What Does COVID-19 Tax Fraud Look Like?

COVID-19 related tax fraud scams may include:

      • Stealing economic impact payments (EIPs) from taxpayers.
      • Selling fake testing kits.
      • Offering fake cures or vaccines.
      • Selling advice on fake or unproven treatments and marketing it as “evidence-based”.
      • Marketing large quantities of medication and medical equipment, including personal protective equipment, and then claiming payments and failing to deliver any orders.
      • Setting up fake charities to collect payments meant to go to struggling patients or families affected by COVID-19.
      • Soliciting heavy investment in fake companies purportedly working on or researching the vaccine.
      • Sending messages soliciting personal or financial information in exchange for government help or stimulus checks, from messengers allegedly working for or with the IRS or US Treasury Department.

Any criminal activity related to trying to solicit funds or information through the coronavirus pandemic should additionally be reported to the National Center for Disaster Fraud (NCDF) through their respective hotline (866-720-5721). Alternatively, you can also contact the NCDF through their website, and file a complaint.

 

Economic Impact Payment Tax Fraud

One particularly common scam following the release of the first stimulus check, or economic impact payment (EIP), is the EIP scam. Criminals may contact you claiming to be a bank or financial institution, stating that they would be able to exchange your stimulus check for cash.

Other criminals may attempt to impersonate IRS personnel or send emails claiming to come from the IRS or US Treasury, soliciting sensitive information from financial details to Social Security information, in exchange for an EIP.

If you have alternatively received a notice from the IRS through the USPS stating that you should have received your EIP, but have not received any payments, you should contact the Treasury Inspector General for Tax Administration and report your case. Your payment may have been stolen through identity theft.

 

Text Message Scams

Similar to the EIP tax fraud scam, a new text message scam has arose. Individuals are receiving a text message with the following: “you have received a direct deposit of $1,200 from COVID-19 TREAS FUND. Further action is required to accept this payment… Continue here to accept this payment …”. The link in the text then takes the individual to a phishing website that looks similar to the IRS Get My Payment website.

If you have received a similar text message, the IRS requests that you:

      1. Screenshot the text message and email it to phishing@irs.gov
      2. Include the date/time/time zone that you received the text
      3. The phone number that received the text message

 

Beware of Fake Emails, Phishing Attempts, Suspicious Calls & Texts

Taxpayers must be extremely vigilant as online tax scams are becoming more common towards the end of the year.

Scammers will utilize spoofing techniques to obscure or mislead recipients on the origin of their messages or change names and emails in a minute way to try and fool recipients (such as changing a single letter or symbol).

When trying to scam specific individuals, scammers may take the effort to spoof a close friend’s email and name, claiming to need COVID-19 related help, or solicit important information.

Scammers will usually make their phishing attempts or scams as elaborate and official-looking as possible, with a very threatening message, to pressure taxpayers into taking immediate action without carefully processing the information on screen. Be skeptical of any official information or email you receive, even when it appears completely legitimate.

Finally, never click on links in suspicious emails. Even if you don’t give your information out freely, a hypertext link can lead to extreme adverse consequences by automatically downloading dangerous files onto your computer or leading you to a phishing front that appears like a real organization’s login screen, but is in fact just built to farm login information for criminals.

Instead, if you do receive an email or notification from your bank, the IRS, or the US Treasury, visit their official website first. Remember that no serious institution will ask for important information in an email.

 

Crucial Information on the IRS, US Treasury, and Tax Fraud Scams 

The IRS will not send threatening emails, make threatening calls out of the blue, or ask you for any sensitive information via email or phone. The IRS will instead direct you to their website to login and verify your information.

Calls from the IRS typically only occur after the IRS sends ample notice via their physical mail, and taxpayers have the right to courteous and just treatment – which means they should never feel threatened or explicitly coerced to give out any sort of information.

Always be suspicious of anyone claiming to represent the IRS or the US Treasury. When in doubt, contact the IRS directly or speak with a tax professional. They will be able to verify whether you’re the victim of an ongoing tax fraud scam, and help you report the crime to the relevant federal authorities.

 

For More on Tax Relief and COVID-19

COVID-19 and EIP related scams and other examples of tax fraud and identity theft may be especially prevalent this year, as scammers never fail to capitalize on an opportunity to benefit from disaster or chaos.

If you’ve been told that you’re entitled to a second stimulus check, be sure to first check with official news sources and/or tax professionals if any additional tax credits have been approved by the IRS and US Treasury. If you are contacted by anyone claiming to represent the IRS, consider seeking a tax professional’s help to verify their claims and represent you.

Are PPP Loans Taxable?

Are PPP Loans Taxable - Rush Tax Resolution

*Last Updated January 6, 2021

The Paycheck Protection Program is aimed to keep workers on payroll during the current pandemic, but are PPP loans taxable?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress and signed into law by President Trump on March 27, 2020, and aimed, among other things, to provide assistance to small businesses through the Paycheck Protection Program (PPP).

Under the PPP, authorized lenders would be able to grant eligible companies loans meant to incentivize keeping workers on payroll during the pandemic, allowing companies to avoid layoffs, or even hire back employees who had already been laid off, and pay for critical business expenses.

The CARES Act authorized a total of $350 billion for PPP loans, and in May, Congress provided an additional $320 billion. Lenders were authorized to accept PPP loans from April 3, 2020, until August 8, 2020. The big question now is, are PPP loans taxable?

 

What is the Paycheck Protection Program? 

The Paycheck Protection Program is a U.S. Small Business Administration (SBA) loan provided by the government to encourage small businesses to keep their workers employed.

These loans differ from other small business loans in that businesses receiving them are eligible to total or partial forgiveness, depending on the size of their loan and how the money was used. PPP loans were meant to act as an emergency line of funding for countless businesses struggling under the weight and pressure of the pandemic.

PPP loans will be forgiven by the SBA provided certain eligibility criteria are met, and if funds were used for eligible expenses. Some other things to note about PPP loans include that:

    • They have an interest rate of 1 percent.
    • Loans issued before June 5, 2020 have a maturity of 2 years (period for paying off the loan).
    • Loans issued after June 5, 2020 have a maturity of 5 years.
    • No guarantees are required for PPP loans.
    • There are no added fees or charges for PPP loans.

Eligibility for loan forgiveness is quite simple – most or all of the loan will be forgiven provided at least 60 percent of the funds were spent on employee payroll, and the rest was spent on business mortgage interest, utilities, and rent. From there, you will want to contact your lender to gather the appropriate forms needed to request loan forgiveness, namely either:

At first glance, there are no clear drawbacks to accepting a PPP loan, and subsequently requesting loan forgiveness.

Many businesses who relied on PPP loans to survive the early stages of the pandemic are now eager to get rid of the several thousand dollars of potential debt hanging over their head.

However, some businesses might want to think twice before seeking loan forgiveness this year, or at least consider how the loan affects their 2020 tax returns.

 

PPP Loans, Cancellation of Debt Income, and Deductible Expenses

The first question on PPP loans and taxation is simple: are PPP loans taxable? Will the IRS tax your loan as income?

The answer is no. The IRS will not take a chunk of your PPP loan directly. Neither will the IRS consider PPP loan forgiveness to count as a normal Cancellation of Debt, which would usually require you to report the forgiven debt as income to be taxed accordingly.

Announcement 2020-12 notifies lenders that they shouldn’t file information returns to report the amount of qualifying forgiveness made under the PPP. It clarifies that lenders are not to file a Form 1099-C information return with the IRS, which is a Cancellation of Debt information form for forgiven amounts of $600 or more.

However, you may be owing more taxes in a different manner. The bulk of the uncertainty behind PPP loans comes from deductible expenses. Say you utilized PPP funds solely to cover payroll expenses, and then sought PPP loan forgiveness.

Under normal circumstances, if you had used your business’s revenue, those payroll expenses would be deductible from your taxable income. However, the IRS has released a statement that any business expenses covered by funds from a forgiven PPP loan will currently not be deductible.

This means that while the IRS will not tax the funds you receive through the PPP as income, and will not consider any forgiven PPP loan to count as income either, you may be missing out on deductibles if you choose to seek loan forgiveness. That last detail is important. If you pay the loan off, you can claim deductibles on any expenses covered with the funds.

Businesses who stand to lose out a decently sized chunk of revenue from not reporting their expenses as deductibles will have to consider if they’re better off seeking loan forgiveness or claiming the deductibles this year and paying the loan off.

Businesses may also have the option of seeking loan forgiveness in 2021, instead, giving them the ability to claim deductibles this year, but not next year – or, potentially, getting the chance to wait for the IRS to change their decision.

The American Institute of Certified Public Accountants (AICPA) is arguing that the IRS’s decision on making expenses paid through PPP loans non-deductible goes against what legislators in Congress were attempting to do, and it’s possible that any future stimulus bill may address this issue in particular, as the recently proposed HEROES Act also proposed to reverse the decision that PPP loan paid expenses aren’t deductible.

For now, you should continue to plan under the assumption that any expenses paid for with your PPP loan are not deductible. However, keep in mind that this may change, and keep an eye out for any news coming from Congress or the IRS on the subject.

 

*January 2021 Updates

As of January 6, 2021, the IRS issued guidance allowing deductions for the payments of eligible expenses when such payments would result (or be expected to result) in the forgiveness of a loan (covered loan) under the Paycheck Protection Program (PPP).

It amended the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to say that no deduction is denied, no tax attribute is reduced, and no basis increase is denied by reason of the exclusion from gross income of the forgiveness of an eligible recipient’s covered loan. This change applies for taxable years ending after March 27, 2020.

Managing the CARES act and PPP loans can be difficult, if you or your business is suffering, contact our COVID-19 Emergency Task Force.

 

Should You Apply for Forgiveness? 

It might be a good idea to consult a tax attorney professional and find out whether you are better off waiting for a change or requesting loan forgiveness as soon as possible. It’s important to note that payments for any PPP loans are currently deferred for 10 months from the last day of the 8-week or 24-week period during which the loans were being provided. This means many businesses might have the option of seeking forgiveness next year.

Whether that’s a wise decision is entirely up to your circumstances and expenses. It’s also important to note that not everyone is eligible for total loan forgiveness. A tax professional can help you figure out what you might end up paying if you seek partial forgiveness now, and what you might end up saving if you wait and claim your deductibles.

How Do the IRS Economic Impact Payments Affect Me?

IRS Economic Impact Payments - Rush Tax Resolution

*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.

START YOUR FREE CONSULTATION

Skip to content