tax filing Archives - Whalen & Company, CPAs

Ohio Income Tax Update: Unemployment Benefits

Kathleen Hargrove on April 8, 2021

Last month, Sub. S.B. 18 was signed into law. This incorporates recent federal tax changes into Ohio law effective immediately.

Specifically, federal tax changes related to unemployment benefits in the federal American Rescue Plan Act (ARPA) of 2021 will impact some individuals who have already filed or will soon be filing their 2020 Ohio IT 1040 and SD 100 returns (due by May 17, 2021).

Ohio taxes unemployment benefits to the extent they are included in federal adjusted gross income (AGI). Due to the ARPA, the IRS is allowing certain taxpayers to deduct up to $10,200 in unemployment benefits. Certain married taxpayers who both received unemployment benefits can each deduct up to $10,200. This deduction is factored into the calculation of a taxpayer’s federal AGI, which is the starting point for Ohio’s income tax computation.

Many taxpayers filed their 2020 federal and Ohio income tax returns and reported their unemployment benefits prior to the enactment of this deduction.

As such, ODT offers the following guidance related to the unemployment benefits deduction for tax year 2020:

Taxpayers who previously filed federal and Ohio tax returns and are waiting for IRS to issue a refund based on the unemployment benefits deduction.

All other taxpayers who previously filed their federal and Ohio returns prior to the enactment of this federal deduction and are waiting for the IRS to issue a refund based on the unemployment benefits deduction do not need to take any additional action on their originally filed Ohio IT 1040 return (and/or SD 100) at this time. The Department will provide further guidance when more details are available from the IRS, please continue to monitor our website.

Taxpayers who previously filed federal and Ohio tax returns without the unemployment benefits deduction, but who are not entitled to any additional Ohio refund.

Taxpayers who previously filed their federal and Ohio returns prior to the enactment of this federal deduction and whose Ohio income tax liability amount (IT 1040, line 10) was $0, do not need to take any additional action. Such taxpayers are not entitled to any additional Ohio refund.

Taxpayers who are amending their federal return to claim the unemployment benefits deduction.

Taxpayers who file an amended federal return should wait to file their amended Ohio IT 1040 (and an amended SD 100 if applicable) until the IRS has approved the requested changes.

Please note that the IRS does not recommend filing an amended return for the adjustment at this time.

The IRS’s current guidance on the federal taxation of unemployment benefits can be found here and how they will recalculate taxes on unemployment benefits can be found here.

If you have additional questions or need assistance, please work with your Whalen Advisor.

SOURCE: Ohio Department of Taxation

IRS Extends Filing and Payment Deadline

Kathleen Hargrove on March 18, 2021

The Treasury Department and IRS announced Wednesday that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021.

The IRS states that they will be providing formal guidance in the coming days.

Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17.

Individual taxpayers do not need to file any forms or call the IRS to qualify for this automatic federal tax filing and payment relief.

If you need additional time to file beyond the May 17 deadline, please work with your Whalen advisor to request a filing extension until October 15.

The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds associated with e-filed returns are issued within 21 days.

This relief does not apply to estimated tax payments that are due on April 15, 2021. These payments are still due on April 15. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments.

State Tax Returns:

The federal tax filing deadline postponement to May 17, 2021, only applies to individual federal income returns and tax (including tax on self-employment income) payments otherwise due April 15, 2021, not state tax payments or deposits or payments of any other type of federal tax.

State filing and payment deadlines vary and are not always the same as the federal filing deadline.

Currently, the state of Ohio has not announced an extension and still lists their due date as April 15, 2021. We will keep you informed if Ohio and other states follow suit with this extension and notify you as that information becomes available.

For more information or further assistance with your filing, please contact your Whalen advisor.

SOURCE: IRS.gov

2021 Individual Taxes: Answers to your Questions About Limits

Kathleen Hargrove on February 10, 2021

Many people are more concerned about their 2020 tax bills right now than they are about their 2021 tax situations. That’s understandable because your 2020 individual tax return is due to be filed in less than three months (unless you file an extension).

However, it’s a good idea to acquaint yourself with tax amounts that may have changed for 2021. Below are some Q&As about tax amounts for this year.

Be aware that not all tax figures are adjusted annually for inflation and even if they are, they may be unchanged or change only slightly due to low inflation. In addition, some amounts only change with new legislation.

How much can I contribute to an IRA for 2021?

If you’re eligible, you can contribute $6,000 a year to a traditional or Roth IRA, up to 100% of your earned income. If you’re 50 or older, you can make another $1,000 “catch up” contribution. (These amounts were the same for 2020.)

I have a 401(k) plan through my job. How much can I contribute to it?

For 2021, you can contribute up to $19,500 (unchanged from 2020) to a 401(k) or 403(b) plan. You can make an additional $6,500 catch-up contribution if you’re age 50 or older.

I sometimes hire a babysitter and a cleaning person. Do I have to withhold and pay FICA tax on the amounts I pay them?

In 2021, the threshold when a domestic employer must withhold and pay FICA for babysitters, house cleaners, etc., is $2,300 (up from $2,200 in 2020).

How much do I have to earn in 2021 before I can stop paying Social Security on my salary?

The Social Security tax wage base is $142,800 for this year (up from $137,700 last year). That means that you don’t owe Social Security tax on amounts earned above that. (You must pay Medicare tax on all amounts that you earn.)

I didn’t qualify to itemize deductions on my last tax return. Will I qualify for 2021?

A 2017 tax law eliminated the tax benefit of itemizing deductions for many people by increasing the standard deduction and reducing or eliminating various deductions. For 2021, the standard deduction amount is $25,100 for married couples filing jointly (up from $24,800). For single filers, the amount is $12,550 (up from $12,400) and for heads of households, it’s $18,800 (up from $18,650). If the amount of your itemized deductions (such as mortgage interest) are less than the applicable standard deduction amount, you won’t itemize for 2021.

If I don’t itemize, can I claim charitable deductions on my 2021 return?

Generally, taxpayers who claim the standard deduction on their federal tax returns can’t deduct charitable donations. But thanks to the CARES Act that was enacted last year, single and married joint filing taxpayers can deduct up to $300 in donations to qualified charities on their 2020 federal returns, even if they claim the standard deduction. The Consolidated Appropriations Act extended this tax break into 2021 and increased the amount that married couples filing jointly can claim to $600.

How much can I give to one person without triggering a gift tax return in 2021?

The annual gift exclusion for 2021 is $15,000 (unchanged from 2020). This amount is only adjusted in $1,000 increments, so it typically only increases every few years.

Your tax situation

These are only some of the tax amounts that may apply to you. Contact us for more information about your tax situation, or if you have questions

Employee Retention Tax Credit Update

Kathleen Hargrove on January 22, 2021

The Consolidated Appropriations Act, 2021 that was signed into law on December 27, 2020 includes several significant changes to the Employee Retention Tax Credit.

The new law affects the credit for both 2020 and 2021. The most significant change is that taxpayers who previously received PPP funding that was forgiven (or is expected to be forgiven) can now also qualify for the Employee Retention Tax Credit.

Here are the key updates regarding the Employee Retention Tax Credit for 2020 for businesses who employed 100 or fewer employees in 2019, or paid employees who are not performing services in 2020:

Businesses with operations that were fully or partially suspended during 2020 due to government orders related to COVID-19 may qualify for the credit

Businesses with a 2020 quarterly decline of more than 50% in gross receipts when compared to the same quarter in 2019 may qualify for the credit

The maximum credit is 50% of the first $10,000 in wages paid to an employee between March 12, 2020 and December 31, 2020

Aggregation rules apply to the 100 employee limit

Here are the key updates regarding the Employee Retention Tax Credit for 2021 for businesses who employed 500 or fewer employees in 2019, or paid employees who are not performing services in 2021:

Businesses with operations that were fully or partially suspended during 2021 due to government orders related to COVID-19 may qualify for the credit

Businesses with a 2021 quarterly decline of more than 20% in gross receipts when compared to the same quarter in 2019 may qualify for the credit

The maximum credit is 70% of the first $10,000 in wages paid to an employee during the first quarter of 2021 and another 70% of the first $10,000 in wages paid to an employee during the second quarter of 2021. This allows for a maximum credit of $14,000 per employee over the first two quarters of 2021.

Aggregation rules apply to the 500 employee limit

The same wages that were used for PPP forgiveness or any other tax credit, such as the Work Opportunity Tax Credit, cannot be used for the Employee Retention Tax Credit. The new tax legislation also allows group health plan expenses to be considered qualified wages for the Employee Retention Tax Credit.

There are also new rules that allow businesses who were not in existence for all or part of 2019, or all or part of 2020, to be able to claim the Employee Retention Tax Credit.

The 2020 Employee Retention Tax Credit can be obtained by filing or amending the 4th quarter 941 tax return due January 31, 2020. The 2021 Employee Retention Tax Credit can be obtained by filing or amending the 1st quarter 941 tax return due April 30, 2021 and/or the 2nd quarter 941 tax return due July 31, 2021.

CLIENT RESOURCES:

We are providing two flowcharts that visually show the process of qualifying for the Employee Retention Tax Credit. One flowchart is for 2020 and the other is for 2021.

In addition, we are providing a questionnaire that can assist us in identifying if your company is a candidate for the Employer Retention Tax Credit.

Please complete the questionnaire and email it back to your advisor at Whalen & Company if you feel you may qualify for this tax credit. Your advisor can provide assistance navigating the new rules pertaining to the Employee Retention Tax Credit and help determine whether you qualify.

U.S. Chamber of Commerce Says Many Members Won’t Defer Payroll Taxes

Kathleen Hargrove on August 21, 2020

The U.S. Chamber of Commerce has submitted a coalition letter to House Speaker Pelosi, Senate Majority Leader McConnell, and Treasury Secretary Mnuchin regarding concerns with President Trump’s recent memorandum deferring payroll tax obligations.

On August 8, 2020, President Trump signed a memorandum that defers the obligations of employers for the employee’s portion of Social Security tax for many employees from September 1, 2020 through December 31, 2020. The memorandum orders Secretary Mnuchin to provide implementation guidance for the deferral and is intended to provide additional economic relief in response to the coronavirus (COVID-19) pandemic.

However, there are questions regarding the payroll tax deferral. Specifically, if an employer defers the employee’s portion of Social Security tax for the time period indicated, will employees need to repay those taxes in 2021?

The Chamber of Commerce’s letter explains that under the current law, the memorandum will create “a substantial tax liability for employees at the end of the deferral period.” The letter notes that: “Without Congressional action to forgive this liability, it threatens to impose serious hardships on employees who will face a large tax bill as a result of deferral.”

A suspension of the employee’s portion of Social Security tax, so that employees would not need to repay the tax at a later date, “would be less challenging,” the letter adds.

The letter continues by saying many of its members see the temporary deferral as unfair to employees and furthermore “unworkable” regarding putting a system in place for employees to make such a decision.

The letter concludes by saying many of its members will likely decline to implement the payroll tax deferral and will instead continue to withhold and remit the employee’s portion of Social Security tax as required by law.

In addition to the U.S. Chamber of Commerce, the letter was signed by several businesses and associations.

At this point, the Treasury has not issued any guidance on the payroll tax deferral memorandum.

SOURCE: Thomson Reuters

Tag: tax filing

News & Tech Tips

Ohio Income Tax Update: Unemployment Benefits

IRS Extends Filing and Payment Deadline

2021 Individual Taxes: Answers to your Questions About Limits

Employee Retention Tax Credit Update

U.S. Chamber of Commerce Says Many Members Won’t Defer Payroll Taxes