Understanding The Research & Development Tax Credit – What Small Businesses Need To Know

Three women and two men in a business meeting.

It’s tax season, let the sales pitches begin! Tax return preparation companies and do-it-yourself software providers are hard at work convincing individual taxpayers that their services and products are the way to maximize a tax refund or pay the lowest amount of tax. And, judging by what I’m seeing on social media, companies that specialize in the Credit for Increasing Research Activities (also known as the R&D tax credit) are also selling hard, looking for businesses who may qualify for this credit—especially startups.

They are casting an extremely wide net. While it’s true that the R&D credit is often overlooked by small businesses and their return preparers, it’s not as easy to qualify for the credit as some of these companies want small business owners to believe. Buyer beware.

For sole proprietorships, partnerships, and S-corporations the R&D credit is claimed by filing Form 6765 with the business return (Schedule C of a Form 1040, Form 1065, or Form 1120-S, respectively). Qualifying small businesses can elect an up to $250,000 payroll tax credit instead of an income tax credit.

I’m not going to get into the mechanics of taking the credits here but it is easy to see how this election could benefit a startup in the early stages with payroll expenses and the associated taxes but not much income to be taxed. Nevertheless, the mere fact that a business is new or has a new product does not automatically make expenses qualified research expenses for the purposes of this credit.

Section 174 of the Internal Revenue Code allows a taxpayer to treat “research or experimental expenditures” as expenses instead of having to amortize them over 60 months. The R&D credit uses the same definition of research or experimental expenditures as IRC Section 174. Qualified research expenses are defined in Treasury Regulation 1.174-2. The expenditures must be “incurred in connection with the taxpayer’s trade or business” and must “represent research and development costs in the experimental or the laboratory sense.”

The regulation goes on to state that “expenditures represent research and development costs in the experimental or laboratory sense if they are for activities intended to discover information that would eliminate uncertainty concerning the development or improvement of a product.” Additionally, qualification depends on the “nature of the activity to which the expenditures relate, not the nature of the product or improvement being developed.” It is on these semantic rocks that many tax credit ships have foundered.

In Connection With The Taxpayer’s Trade or Business

For an expenditure to be incurred in connection with a trade or business, the business must be a functioning business. Deductions exist for startup expenses for businesses but those should not be confused with the R&D credit.

Research activities conducted before a business is a business may be legitimate (and deductible) startup expenses but they do not qualify for the R&D credit. In other words, you must start your startup and then do the research, not develop the product and build the business around it in order for research expenditures to be considered qualifying expenses for the R&D credit.

The Experimental Or The Laboratory Sense

To qualify, research and development expenditures must be paid to eliminate uncertainty concerning the development or improvement of a product. This concept is perhaps best described as traditional trial and error using the scientific method. The idea of evaluating alternatives is important as is systematic testing of various alternatives. Testing and debugging an existing product is not enough to qualify for the credit. Neither is evaluating a set of alternatives or features for a given product.

For example, research to determine which set of code objects are necessary to implement a given software solution would not qualify. Quality control and assurance testing is also specifically excluded. A taxpayer must be evaluating alternatives to create a new product or improve an existing product. Additionally, the improvement must be related to the product’s performance and not simply a matter of cosmetics, taste, or fashion. Perhaps the best example of qualifying expenses would be those incurred to develop and test prototypes of a new product.

What about software and app development? What indeed. Determining whether software development costs are qualified research expenditures requires special analysis. Expenses incurred to develop software for internal use are specifically excluded from qualification. In Accounting Standard Codification (ASC) 730, the IRS Large Business & International unit indicated that internal use software includes software “used to provide a service or produce a product that the customer neither acquires nor gains any right to future use of.”

That is, the expenses incurred to develop a customized user experience for your website’s shopping cart will not qualify where expenses incurred to develop and test a new game for a gaming company to sell, most likely would—at least up to the point that “technological feasibility is established” (again, according to ASC 730).

The Nature Of The Activities Not The Nature Of The Product

For expenditures to qualify substantially all (substantially all has been defined as 80%) of the research activities must relate to a process of experimentation for a new or improved product. Corn Island Shipyard, Inc. recently found this out the hard way when the U.S. Tax Court ruled that the 80% requirement was not satisfied “simply because at least 80% of the product’s elements differ from those of the products the taxpayer previously developed.”

The ruling in Little Sandy Coal Company, Inc., v. Commissioner of Internal Revenue (T.C. Memo 2021-15) held that the “substantially all” test applied to activities, not to physical components of the product being developed or improved. In other words, even though the company’s two products (a ship and a dry dock) were 80% different from the company’s other products, because the research activities involved in developing the two new products did not comprise 80% of the research and development activities the expenses did not qualify for the credit.

Developing the two new products only required a small amount of actual experimentation to create a substantially different product. And, for the purposes of this credit, it’s the activities that count, not the product.

The R&D credit can be an excellent benefit for small companies, especially those who are developing new products or product lines. Nevertheless, the rules for claiming the credit are complex and nuanced. Correctly claiming the credit may be beyond the skills of many tax professionals who serve small companies. If you think your company may qualify for the credit it can be a good idea to work with a company that specializes in qualifying companies and determining qualifying expenses.

Those companies should be willing to work with your tax professional (and vice versa). Startup owners should, however, proceed with caution when it comes to firms with big marketing budgets and great sales pitches that promise to qualify them for this credit without knowing anything about the company or its products. There be (tax) dragons.

Follow me on Twitter.
https://i0.wp.com/onlinemarketingscoops.com/wp-content/uploads/2021/02/3jM-I6UL_400x400.jpg?resize=102%2C102&ssl=1

I own Tax Therapy, LLC, in Albuquerque, New Mexico. I am an Enrolled Agent and non-attorney practitioner admitted to the bar of the U.S. Tax Court. I work as a tax general practitioner preparing returns for individuals and (really) small businesses as well as representing individuals before the IRS and, occasionally, the U.S. Tax Court. My passion is translating “taxspeak” into English for taxpayers and tax practitioners. I write to dispel myths with facts and to explain “the fine print” behind seemingly simple tax concepts. I cover individual tax issues and IRS developments with a focus on items of interest to taxpayers and retail tax practitioners. Follow me on Twitter @taxtherapist505

Source: Understanding The Research & Development Tax Credit – What Small Businesses Need To Know

.

.

More Contents:

How benefits like CERB affect your taxes | Sun Life
[…] Here are a few that you get to keep tax-free: Disability Tax Credit (DTC), Goods and Services Tax Credit (GSTC), Canada Child Benefit (CCB), and Guaranteed Income Supplement (GIS) payments […]
1
Covid-19 Live Updates: U.S. Awaits F.D.A.’s Green Light for Johnson & Johnson’s Single-Shot Vaccine – The New York Times
[…] payments to $400 a week from $300 and extending them through the end of August Increase the child tax credit Provide more than $50 billion for vaccine distribution, testing and tracing Allocate nearly $20 […]
N/A
Bennet Applauds House Passage of Biden American Rescue Plan | Press Releases | U.S. Senator
[…] That’s why I fought for the American Rescue Plan to include my proposals to expand the Child Tax Credit and Earned Income Tax Credit, which will cut child poverty in half and provide economic security to millions of families […] ”   Along with expanding the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC), Bennet fought tirelessly to secure other Colorado priorities in Biden’s plan […]
4
Live: Coronavirus daily news updates, February 27: What to know today about COVID-19 in the Seattle area, Washington state and the world
[…] It would increase the child tax credit; provide more than $50 billion for vaccine distribution, testing and tracing; and allocate nearl […]
N/A
Important reminders before filing 2020 tax returns | Internal Revenue Service
[…] Earned Income Tax Credit The Earned Income Tax Credit (EITC) can give qualifying workers with low-to-moderate income a substantial financial boost […] Taxpayers also have the option of using their 2019 income to figure the Additional Child Tax Credit for 2020 […]
36
House works late, OKs stimulus bill
[…] said as part of the plan, very small businesses “with middle-class owners” would receive an income tax credit to cover 25% of their employees’ wages, up to $10,000 per year per employer, in an effort t […]
N/A
Republicans said $2.3 trillion for wealthy’s OK but $1.9 trillion for you It’s too much. READ THIS!
[…] An expansion of the child tax credit to give families up to $3,600 per child over a year $20 billion for Covid-19 vaccine distributio […]
N/A
Opinion | My 6 Months as a Solo Parent – The New York Times
[…] President Biden has offered a proposal to expand the child tax credit […]
2
Republicans said $2.3 T for wealthy & corps OK but $1.9 T not OK for you
egbertowillies.com – Today
[…] An expansion of the child tax credit to give families up to $3,600 per child over a year $20 billion for Covid-19 vaccine distributio […]
2
Services
[…] We have participated in Section 501(c)(3) bond offerings, housing tax credit projects, and public-private partnership transactions […] Go To Top Housing Tax Credit Services MUCR provides a comprehensive range of services to the affordable housing industry […] Our success in tax credit projects is based on our ability to work with your development team which includes attorneys […]
N/A
House Approves Biden’s $1.9T Pandemic Relief Package – Law360
[…] The bill would also increase the child tax credit to $3,000 in certain cases, or $3,600 for children under age 6; expand eligibility for the earne […] in certain cases, or $3,600 for children under age 6; expand eligibility for the earned income tax credit; and extend credits to reimburse employers for workers’ paid sick leave, among other tax changes […] over time on big corporations’ payrolls if they fail to meet a certain wage standard, paired with a tax credit equal to 25% of wages to small businesses that pay workers higher wages, capped at $10,000 per year […]
0
Stimulus Package Could Mean $14,000 Windfall for Family of Four
[…] Added to this would be extra money under the revamped Child Tax Credit […]
2
Rep. Veasey (TX-33) Votes to Pass the Biden American Rescue Plan to Deliver Urgent Relief to the American People
veasey.house.gov – Today
[…] American workers can pay their bills and supporting 27 million children with an expanded Child Tax Credit and 15 million low-wage workers through the Earned Income Tax Credit […]
2
House Passes $1.9 Trillion Pork-Filled COVID ‘Relief’ Package. Here’s What It Includes. by Beth Baumann
townhall.com – Today
[…] Keep Democrats from Packing the Supreme Court Bronson Stocking In addition, the bill ups the child tax credit to $3,600 for children six and under […]
169
House Passes Blue Pork ‘COVID-19 Relief’ Bill – PJ Media
pjmedia.com – Today
[…] The bill increases the child tax credit from $2,000 to $3,000 (a cost of $99 billion) and expands the Earned Income Tax Credit to some childless adults ($25 billion) […]
3
Larson Votes for Critical COVID Relief
larson.house.gov – Today
[…]   Cuts child poverty in half by Increasing the Child Tax Credit to $3,000 per child age 6 and over/$3,600 for children under age 6 […]   Expands the Earned Income Tax Credit for workers, including working seniors for the first time […]   Expands the Child and Dependent Care Tax Credit and makes it fully refundable to help families afford child care […]
1
Electric bikes could get much cheaper under a new proposal from two House Democrats
[…] – introduced the Electric Bicycle Incentive Kickstart for the Environment (E-BIKE) Act, a tax-credit program that aims to spur e-bike sales […] It resembles a federal tax credit program that gives buyers of certain low- and zero-emission cars a rebate worth up to $7,500 […]
N/A
Meng Helps Pass Nearly $2 Trillion American Rescue Plan Act
meng.house.gov – Today
[…] from the last relief bill – bringing the total relief payment to $2,000 per person; Make the child tax credit fully refundable for 2021 and increases the annual amount from the current $2,000 per child t […]
1
Financial Impact of a Caregiving Experience Survey
[…] $3,000 tax credit to working family caregivers for qualified expenses Annual stipend of $1,200 Career coaching t […]
0
2021 Economic Aid Act Impact on Small Businesses
[…] for your business to accommodate these new legislative opportunities About the Employee Retention Tax Credit for businesses, now available to PPP borrowers Documentation best practices to mitigate issues fo […]
0
Finance Law for 2021 – discover the highlights
[…] starting January 1, 2022 Expenses outsourced to State bodies will not be doubled anymore in the tax credit computation They will be limited to 3 times the amount of other expenses included in the tax credit computation The total annual limit for external expenses has been reduced to 10 M€ Tax credit related to energy renovation of professional buildings New tax credit for expenses improving th […]
N/A
Slotkin Votes to Advance COVID Relief Bill
slotkin.house.gov – Today
[…]   Expands the Child Tax Credit and the Earned Income Tax Credit and increases the amount families are eligible to receive for both, putting money in the pockets of […]
2
Golden Statement on Vote Against $1.9 Trillion Legislative Package | by Congressman Jared Golden | Feb, 2021
repgolden.medium.com – Today
[…] $250 billion in these kinds of provisions, including a one-year expansion of the Child Tax Credit, a two-year enhancement of premium subsidies under the Affordable Care Act, and multiemploye […]
1
Colorado hangs hopes on electric vehicle mass shift to combat climate warming
[…] Two parents dropped in with their twin 17-year-old daughters, learned that a state tax credit was about to shrink from $4,000 to $2,500, and snapped up a pair of Leafs, saying the colors didn’t […]
5
Biden Administration Passes $1.9 Trillion Stimulus Package
coingape.com – Today
[…] of programs making millions of more people eligible for jobless benefits An expansion of the child tax credit to give families up to $3,600 per child over a year $20 billion for Covid-19 vaccine distributio […]
4
Support A Capital Gains Tax and Working Family Tax Credit!
fusewashington.actionkit.com – Today
Tell your legislators they must start to balance Washington’s tax code by passing a capital gains tax and funding the Working Families Tax Credit!
8
PI’s Media Digest: 10 US cities that will spend more on police than public health in 2021; how community health providers can support equitable vaccine rollout | Prevention Institute
preventioninstitute.org – Today
[…] hike, $1400 stimulus checks, supplemental unemployment benefits, and increase in the Child Tax Credit, and aid to states for testing and vaccination campaigns […]
0
Reducing Unintended Consequences: Integrated EPC for Solar and Storage
blog.burnsmcd.com – Today
[…]   Driven by tax credit programs, renewable mandates and other market-specific incentives, interest in solar is high […]
N/A
House passes Biden’s US$1.9 trillion COVID relief package | CTV News
[…] $1,400 direct checks to Americans making less than $75,000 annually, an increase in the child tax credit, direct funding to state and local governments, funding for schools and more money for vaccin […]
N/A
Biden’s Covid-19 relief bill including stimulus checks passes the House
[…] Affordable Care Act subsidies for low- and middle-income Americans and expands both the child tax credit and the earned income tax credit […] Some provisions, such as higher ACA subsidies, the expanded child tax credit, and the expanded earned income tax credit, are only temporary, and it’s unclear whether they’ll last beyond the next year or two […]
2
Tax credit proposal is really a plan for private school vouchers in Kentucky
[…] (House Bill 205 in 2019), which, had it been successful, would have allowed a significant income tax credit to donors in exchange for students’ private school tuition assistance […] Opportunity Account Program (EOA Program), which will be funded by an individual or corporate tax credit […] The tax credit rate of 95%, combined with a maximum tax credit amount of $1 million, may also alter the dynamic of who controls education funding […]
1
Text – H.R.1319 – 117th Congress (2021-2022): American Rescue Plan Act of 2021 | Congress.gov | Library of Congress
[…] PART 2—CHILD TAX CREDIT Sec. 9611. Child tax credit improvements for 2021. Sec. 9612. Application of child tax credit in possessions. Sec. 9621. Strengthening the earned income tax credit for individuals with no qualifying children […] Temporary special rule for determining earned income for purposes of earned income tax credit. Sec. 9631. Refundability and enhancement of child and dependent care tax credit […]
21
New webpages and webinar posted to help small employers choose and maintain a retirement plan
content.govdelivery.com – Today
[…] Small employers may receive a tax credit for new plans of up to $5,000/year for three years for the cost of setting up a new plan […]
3
Biden’s $1.9 trillion COVID relief bill passes House, but faces Senate hurdle – CBS News
[…] My plan would provide an income tax credit equal to 25 percent of wages, up to $10,000 per year per employer, to small businesses that pa […]
5
House Passes $1.9 Trillion COVID-19 Relief Bill
[…] funding for schools, additional money for vaccine distribution, and an increase to the child tax credit The measure now heads to the Senate, where members are currently debating how to proceed followin […] funding for schools, additional money for vaccine distribution, and an increase to the child tax credit […]
5
Budget 2021: What we know, what to look out for and how it affects you
[…] Peston, the Treasury is reluctant to make the top up permanent because, with the knock-on impact on tax credit, it costs around £6 billion a year […]
43
Stimulus Package Passed by House a ‘Missed Opportunity’ Says Mitch McConnell
[…] for state and local governments, $130 billion to help K-12 schools reopen and expanding the child tax credit to $3,000 per child or $3,600 for children under six […]
7
Research and development Edinburgh : Geoghegans
[…] range of tax incentives including an increased deduction for R&D revenue spending and a payable R&D tax credit for companies not in profit […] than €86m The incentives include: increased deduction for R&D revenue spending and a payable R&D tax credit for companies not in profit […]
1
Americans can’t file their income taxes fast enough — but they should brace for some unwelcome news in their 2020 refunds
[…] The refunds as of now don’t factor in refunds that include payments for the Earned Income Tax Credit, a powerful anti-poverty tax credit geared toward low- and moderate-income families […] Refunds incorporating the EITC and the Additional Child Tax Credit will start hitting bank accounts during the first week of March, according to the IRS […]
0
About Us – UPI Loan Fund
upiloanfund.us – Today
[…] He has created profit/non-profit partnerships for Low Income Housing Tax Credit projects along with asset and property management activities including the refinancing an […]
0
Last Few Days to Apply for Small Business Hiring Tax Credit
Sacramento – There’s still time for small business owners to receive financial help by applying for the Main Street Small Business Hiring Tax Credit (https://www.cdtfa.ca.gov/taxes-and-fees/SB1447-tax-credit.htm).
N/A
Global Medical Tubing Market – Foster Market Research
[…] has kept its R&D tax credit low […]
N/A
There are new rules this tax season, courtesy of COVID-19. Here’s what you need to know
maroc.us – Today
[…] Multiply that by $2 a day and he’s set to get a tax credit of $376 […] ” Digital tax credit Golombek also points out one of the new wrinkles this tax season, which is that the government i […]
1
Senate Democrats move immediately to “Plan B” on minimum wage – CBS News
[…] who earn less than $15 per hour would qualify for a “Blue Collar Bonus” in the form of an automatic tax credit […]
N/A
MyAnimeList.net
myanimelist.net – Today
[…] It would also increase the value of the so-called child tax credit and provide more than $50 billion for vaccine distribution, testing and tracing, nearly $20 […]
0
HOT JOBS & COOL JOBS: EXERCISE SPECIALIST REDMOND WA USA
[…] Apply Now>> 27 Compliance Auditor – Tax Credit Specialist! Seattle, WA, USA Motivation – you are internally driven and can exercise sound judgment […]
0
Accelerating Digital Transformation | by Ali Jan | Feb, 2021
medium.com – Today
[…] do to accelerate digital transformation: Invest In The Digital Future The government must give tax credit and investment funds to startups to continue innovating in an increasingly competitive digita […]

IRS Delivers Covid-19 Surprise To Workers:  A Chance To Redo Their 2021 Health Plan And FSA Choices

If your employer lets you make changes to your workplace healthcare elections for 2021 under new Treasury guidance, it could cut your tax bill.

 

Wish you could change your health plan for 2021? In newly released guidance on new flexible rules for healthcare and dependent care FSAs, the Internal Revenue Service has included a new Covid-19-relief surprise: Employers can allow employees to make changes prospectively to health care coverage for 2021.

“The guidance is very employer and employee friendly; it really gives a lot of flexibility,” says Jake Mattinson, an employee benefits lawyer with McDermott Will & Emery in Chicago.

Notice 2021-15 allows for mid-year changes to employer-sponsored health care coverage, healthcare flexible spending accounts and dependent care accounts. It will help employees whose medical and caregiving situations have changed because of the coronavirus pandemic. That is, if your employer is on board.

Usually healthcare elections are set in stone on a calendar year basis. Last May, the Treasury Department came up with a partial mid-year fix for 2020, allowing prospective changes and extending grace periods and carryovers through year-end (IRS Notice 2020-29). But employees still cried foul: they had socked away more money than they could spend in these workplace tax-favored accounts, and would be subject to forfeiture rules.

In December, in the tax provisions tied onto the year-end spending package, Congress passed new special rules allowing rollovers and more for leftover 2020 and 2021 FSA money for employees and ex-employees. Notice 2021-15 answers a lot of the open questions about how to implement the new rules.

For 2021, you can revoke an existing healthcare plan election and make a new election, or revoke an existing election and attest that you’re getting coverage elsewhere. Say you picked an HMO plan, but really want to be in a PPO plan. Or say you decide you’d be better off under a spouse’s plan. This gives you the chance to make a mid-year change. That allowance is not in the December law, so it was a surprise, Mattinson says.

For healthcare and dependent care FSAs, the guidance says employers can allow employees to carryover unused amounts they’ve stashed in these accounts from the 2020 and 2021 plan years. It wasn’t clear before, but the IRS says that any plan can implement a 100% carryover or extended grace period, no matter what feature the plan had before, Mattinson says. That means employees might be able to carry over their whole balance (instead of just $550 under current law) from one year to the next.

The extended grace period could go out 12 months, instead of just 2.5 months. as of January 1, 2022, everything would shift back to the regular rules. Under the regular rules, you can stash up to $5,000 pretax per year in a dependent care FSA, but if you don’t use the money for the specified year, you lose it. You can put up to $2,750 in a healthcare FSA, and if you don’t use it, you may be able to either use it up during a grace period or carry over $550.

Don’t get your hopes up just yet: Employers have to adopt these changes, and while some have already been working on amendments to their plans based on the December law even before today’s guidance, others have decided to do nothing. “The reaction among employers is mixed; everyone has their own ideas of what to implement. It’s all optional,” says Mattinson. One client said they would implement it all, while another client said they wouldn’t make any of the changes, for example.

Some of the nitty-gritty guidance surrounds COBRA and health savings accounts. For COBRA, the guidance makes clear that if an employer lets terminated workers seek reimbursement from an FSA, that won’t hurt their qualification for COBRA. For health savings accounts, the guidance clarifies that for employees who want to make a midyear change into a high deductible health plan with an HSA, they could convert a general purpose FSA to a limited purpose FSA so as not to be disqualified from contributing to the HSA.

Notice 2021-15 is 34 pages long and includes detailed examples, suggesting this is an area of the tax code that could be simplified! Here’s a bullet point summary of the law changes addressed in the IRS guidance; employers can:

 

  • allow employees to carry over unused money up to the full annual amount from the plan year 2020 to 2021, and also from the plan year 2021 to 2022 for healthcare and dependent care FSAs
  • allow up to a 12-month grace period for employees to incur new expenses and submit claims against unused accumulated funds for plan years ending in 2020 or 2021 for healthcare and dependent care FSAs
  • allow midyear election changes on a prospective basis without a change in status event for plan years ending in 2021 for healthcare and dependent care FSAs
  • allow dependent care reimbursement up to age 14 in cases where an employee’s dependent turned 13 in 2020 and the employee had leftover funds from 2020 (this special carry forward rule helps employees whose dependents “aged out” during the pandemic) for dependent care FSAs
  • allow health FSA participants who stop participating in the plan (ex-employees) during calendar year 2020 or 2021 to continue to receive reimbursements through the end of the year, including grace periods (this post-termination benefit applies to healthcare FSAs, not dependent care FSAs)

 

Further reading: Healthcare And Childcare FSA Fix For 2021, Finally: Special Carry Over Rules And More

Follow me on Twitter or LinkedIn.

I cover personal finance, with a focus on retirement planning, trusts and estates strategies, and taxwise charitable giving. I’ve written for Forbes since 1997. Follow me on Twitter: @ashleaebeling and contact me by email: ashleaebeling — at — gmail — dot — com

Source: IRS Delivers Covid-19 Surprise To Workers:  A Chance To Redo Their 2021 Health Plan And FSA Choices

.

.

More Contents:

Learn what documents you will need to get a Social Security Card | SSA
[…] you can apply for an Individual Taxpayer Identification Number from the Internal Revenue Service (IRS). Visit IRS in person or call the IRS toll-free number, 1-800-TAXFORM (1-800-829-3676), and request Form W-7 (Application for IRS Individual Taxpayer Identification Number) […] you can apply for an Individual Taxpayer Identification Number from the Internal Revenue Service (IRS). Visit IRS in person or call the IRS toll-free number, 1-800-TAXFORM (1-800-829-3676), and request Form W-7 (Application for IRS Individual Taxpayer Identification Number) […]
513
6 Things I Wish I Knew Sooner About Payroll
[…] of the work The nature and degree of control you have over the worker The Internal Revenue Service (IRS) also provides guidelines to help you figure out if your worker is an employee or independen […] The IRS breaks down the degree of control and level of independence into three categories, includin […] Plus, the IRS requires businesses to maintain employment tax records for at least four years […]
1
Anyone funding their poker account with cashapp and Bitcoin and also cashing out with them? Causing tax problems : poker
[…] your transaction data to calculate your cost basis for the purpose of reporting gains/losses to the IRS […] $300 (and really, over like $60 since it’s just the marginal income tax that you’re shorting the IRS by not reporting it) […] I think the fact that you got a 1099-B from CashApp (that they presumably also sent to the IRS) means that if you don’t report anything for crypto, you’re just bringing marginally more attention […]
0
THE WhistleBlowers   | CALIFORNIA (USA): VENTURE CAPITALIST (Imaad Zuberi) PLEADED GUILTY to tax evasion for filing false foreign agent registration records + providing illegal campaign contributions to various presidential election campaigns, SENTENCED to 12 years in FED prison
thewhistleblowers.is – Today
[…] partners and pocketed most of the funds for himself,” said Special Agent in Charge Ryan Korner of IRS-Criminal Investigation Los Angeles Field Office […] At the end of the day, IRS Criminal Investigation worked closely with our partner federal agencies to ensure Zuberi’s criminal […] This matter was investigated by the FBI and IRS-Criminal Investigation […]
0
Export.gov
emenuapps.ita.doc.gov – Today
[…] Our IRS Tax ID number for the U […]
0
Dr. Paulvalery Roulette, MD – Orthopedic Hand Surgery Specialist In Matthews NC – AMe Pro
proame.net – Today
[…] that handle your information securely as well such because the DMV, VA, SSA, and most lately the IRS in sending out stimulus checks […]
0
DRL Support to Workers’ Freedom of Association in Vietnam
[…] gov you will need an Employer Identification Number (EIN) from the Internal Revenue Service (IRS) and a Commercial and Government Entity (CAGE) code […] United States and do not pay employees within the United States, you do not need an EIN from the IRS […]
7
PSA: For those of you in the US who develop paid apps on the side, be careful how you file your taxes : androiddev
I just had my return rejected by the IRS after filing with turbotax […] it and just needed me to resubmit, but they refills with the schedule H again (which strangely, the irs accepted this time so now I have to file an amendment) […]
N/A
Enforcing Current Tax Law Makes Financial Sense –
itep.org – Today
[…] tax audits of big corporations and high-income individuals and by providing more resources to the IRS. The Tax Gap The IRS estimated that the tax gap – the difference between federal taxes owed and federal taxes paid […] When measured as a share of GDP or tax collections, the IRS has been cut 35 percent over the past decade. To undo those funding cuts, they suggest the IRS budget would need to be increased by more than $100 billion over the next decade (which Rep […]
6
HOT JOBS & COOL JOBS: PROJECT MANAGER ARLINGTON VA USA
[…] Apply Now>> 40 Project Manager with IRS experiance Lanham, MD, USA Project Manager Lanham Maryland Responsibilities The Project Manager i […]
0
As GOP splits, Collins’ courage should earn her more credit
bangordailynews.com – Today
[…] ” Nixon tried, but failed, to get the IRS to audit my taxes and find something wrong […]
N/A
HOT JOBS & COOL JOBS: EXPERIENCED TAX PREPARER FORT WAYNE IN USA
[…]  Collaborate with staff on income tax preparation and planning * Represent clients with IRS, State  […]
N/A
Comparative analysis of drug response and gene profiling of HER2-targeted tyrosine kinase inhibitors
[…] CDK 12 drives breast tumor initiation and trastuzumab resistance via WNT and IRS 1‐ErbB‐ PI 3K signaling […]
N/A
Grant Process 2021
[…] Also a copy of the most recent 990 filed with the IRS […]
N/A
Only those who don’t consider themselves Sri Lankan refuse to take jab – Army Commander – The Island
island.lk – Today
[…] partners and pocketed most of the funds for himself,” said Special Agent in Charge Ryan Korner of IRS-Criminal Investigation Los Angeles Field Office […]
0
Webinar Fiduciary File: The Importance of Maintaining Proper Documentation
[…] The Internal Revenue Service (IRS), as well as the Employee Retirement Income Security Act (ERISA), require plan sponsor […]
N/A
Money-in-Politics Timeline •
[…] independent expenditures by the FEC and political activity of tax-exempt organizations by the IRS meant that transparency would not be guaranteed […]
363
Books for All and All for Books – Indian Masterminds – Bureaucracy, Bureaucrats, Policy, IAS, IPS, IRS, IFS, Civil Services, UPSC, Government, PSUs complete information, NEWS, Transfers, Features, and Opinion.
indianmasterminds.com – Today
IAS officer Rahul Kumar, who cracked UPSC even without having formal college education, is on another mission now. He is aiming to start libraries in all the `panchayats’ of Bihar’s Purnea district.
2
Electronic Code of Federal Regulations (eCFR)
[…] plus “cost of goods sold” as these terms are defined and reported on Internal Revenue Service (IRS) tax return forms (such as Form 1120 for corporations; Form 1120S for S corporations; Form 1120 […] (1) The Federal income tax return and any amendments filed with the IRS on or before the date of self-certification must be used to determine the size status of a concern […] SBA will not use tax returns or amendments filed with the IRS after the initiation of a size determination […]
N/A
Third stimulus check: Will you get a $1,400 check? – CBS News
[…]   For instance, the IRS said it sent 30 million payments to households earning more than $75,000 during the first round o […] After that, the IRS would direct stimulus checks to eligible households […]   However, people who don’t have banking accounts or payment information on file with the IRS would likely have to wait longer for paper checks or prepaid debit cards to arrive in the mail […]
N/A
This Just In: IRS Extends Relief for Opportunity Zone Investors | Aprio
sot.ag – Today
If you’re invested in the Qualified Opportunity Zone program, then we have some good news for you: the IRS is giving you more relief this year. Find out how you can take advantage of it.
0
This Just In: IRS Extends Relief for Opportunity Zone Investors | Aprio
sot.ag – Today
If you’re invested in the Qualified Opportunity Zone program, then we have some good news for you: the IRS is giving you more relief this year. Find out how you can take advantage of it.
0
This Just In: IRS Extends Relief for Opportunity Zone Investors | Aprio
sot.ag – Today
If you’re invested in the Qualified Opportunity Zone program, then we have some good news for you: the IRS is giving you more relief this year. Find out how you can take advantage of it.
0
This Just In: IRS Extends Relief for Opportunity Zone Investors | Aprio
sot.ag – Today
If you’re invested in the Qualified Opportunity Zone program, then we have some good news for you: the IRS is giving you more relief this year. Find out how you can take advantage of it.
0
This Just In: IRS Extends Relief for Opportunity Zone Investors | Aprio
sot.ag – Today
If you’re invested in the Qualified Opportunity Zone program, then we have some good news for you: the IRS is giving you more relief this year. Find out how you can take advantage of it.
0
This Just In: IRS Extends Relief for Opportunity Zone Investors | Aprio
sot.ag – Today
If you’re invested in the Qualified Opportunity Zone program, then we have some good news for you: the IRS is giving you more relief this year. Find out how you can take advantage of it.
0
I’ll Tell You How To Start Your Own Medical Billing Business! : TheJadedBiller
[…] Fiscal year-end: December 31 ☐ Apply for IRS Employer Identification Number (EIN), if applicable […] To obtain Form SS-4 to apply for an EIN, go to IRS ( […]
0
What If You Get Audited? | Financial Planning Consultants
[…] In 2017, the IRS audited 0.5% of all individual tax returns.¹ And being audited does not necessarily imply that the IRS suspects wrongdoing. The IRS says an audit is just a formal review of a tax return to ensure information is being reporte […] The IRS selects returns for audit using three main methods […]
N/A
HOT JOBS & COOL JOBS: VP TAX WORK IN LINCOLN NE LAS VEGAS NV USA
[…]  Provide support to clients in the case of an IRS audit * Perform other clerical duties as necessary  […]
N/A
TurboTax® #1 Best-Selling Tax Software, Taxes Done Right
turbotax.intuit.com – Today
[…] Unemployment Income reported on a 1099-G 100% Accurate Calculations Guarantee: If you pay an IRS or state penalty or interest because of a TurboTax calculation error, we’ll pay you the penalty and […] 100% Accurate Expert Approved Guarantee: If you pay an IRS or state penalty (or interest) because of an error that a tax expert or CPA made while providin […] The IRS issues more than 9 out of 10 refunds in less than 21 days […]
2
Tax Tips for Bitcoin and Virtual Currency – TurboTax Tax Tips & Videos
turbotax.intuit.com – Today
OVERVIEW Virtual currency like Bitcoin has shifted into the public eye in recent years. Some employees are paid with Bitcoin, more than a few retailers accept Bitcoin as payment, and others hold the e-currency as a capital asset. Recently, the Internal Revenue Service (IRS) clarified the tax treatment of virtual currency transactions.
155
TurboTax® Basic CD/Download 2020-2021 Tax Software, Easy Tax Preparation
turbotax.intuit.com – Today
[…] calculations are 100% accurate so your taxes will be done right, guaranteed, or we’ll pay you any IRS penalties […]
82
Can Feudalism Save the Western World? –
[…] land, worked about 30 days a year for his lord (as opposed to the average American’s 167 for the IRS), and could NOT work on Sundays and the 30-odd Holy Days of obligation and certain other state […]
N/A
FAQ – Coronavirus: Impact on Benefits and Employment
[…] or The individual experiencing any other substantially similar condition as specified by HHS/Labor/IRS […] The individual experiencing any other substantially similar condition as specified by HHS/Labor/IRS 2/3 of the greater of the amount of pay (defined above), subject to maximum of $200 per day o […] As discussed in our At Issue and CBIZ article, the IRS recently issued guidance (IRS Notice 2020-29) that temporarily permits, but does not require, Section 125 cafeteria plans t […]
2
Third stimulus check updates today: IRS tax return, $600 California, dates, who gets and how much | Live
en.as.com – Today
Third stimulus check updates today: IRS tax return, $600 California, dates, who gets and how much | Live AS ENGLISH Update 20 February 2021 […] 9 trillion COVID-19 aid bill – Dollar nurses losses after jobs data mars recovery – Your IRS tax return may affect your third stimulus check amount (full story) – Governor Newsom has announced […] los cheques de estímulo en español) – US covid-19 cases/deaths: 28 million / 495,804 (live updates) IRS warns against latest scam doing the rounds ​​​​​​The Internal Revenue Service, state tax agencie […] such as vaccine production and the next stimulus checks How to track your tax refund 2021 status in IRS web The IRS are ready for your 2020 tax returns and you can check the progress of any refunds you are owed […]
0
Important reminders before filing 2020 tax returns | Internal Revenue Service
[…] The IRS reminds taxpayers that they may elect to use their 2019 earned income to figure the EITC if thei […] taxpayers who received a refund on their 2019 tax returns also received interest from the IRS […] The IRS will send a Form 1099-INT to anyone who receives interest totaling at least $10 […]
36
Insects | Special Issue : Insecticides for Mosquito Control: Strengthening the Evidence Base
[…] control, which relies heavily on insecticide-treated nets (ITNs) and indoor residual sprays (IRS) […]
0
Understanding The Pros And Cons Of Life Settlement Investments
[…] The IRS considers any earnings that are larger than the investment as taxable […]
2
Budget Check Up: Tax Time Is the Right Time | Karl Weidel Insurance
[…] IRS, 2019 The content is developed from sources believed to be providing accurate information […]
N/A
Budget Check Up: Tax Time Is the Right Time | Deep South Investment Service LLC
[…] IRS, 2019 The content is developed from sources believed to be providing accurate information […]
0
Ex-WilmerHale Temp Says White House Atty Lied For Toyota – Law360
[…] authorities — meaning the Justice Department, the IRS, the SEC — and also from its shareholders,” Delaney’s attorney Christopher Beres told Law360 […]
1
How to Start a Small Business – State Farm®
[…] Is your business a sole proprietorship or a partnership? The Internal Revenue Service (IRS) can provide more information on types of business structures […] help run your small business, you’ll need to apply for employee identification numbers through the IRS […]

 

$800 Billion Of Tax Payments Are Automatically Postponed

Taken together, recent separate emergency actions by Treasury and Congress will defer an estimated $800 billion of payroll and income tax payments. These postponements are automatic, and the amounts postponed are unlimited.

These deferrals of tax, approximately equal to 3.5 percent of GDP, are in effect interest-free loans to taxpayers. They will provide much-needed cash flow to businesses with plummeting sales revenue and to individuals with lost wages.

Unlike other federal emergency measures designed to inject liquidity into the economy, there are no borrower qualifications, such as being in a distressed industry, and there are no limitations on uses, such as prohibitions of layoffs, executive pay hikes, or stock buybacks.

Notice 2020-18, 2020-15 IRB 1 (released on March 20), provides “relief for taxpayers affected by the ongoing coronavirus disease 2019 pandemic.”

Specifically, the April 15, 2020, due date for federal income tax payments has been automatically postponed until July 15, 2020. This relief applies without limitation to income taxes paid by individuals and corporations. It applies to estimated payments by individuals and any tax due when filing an annual return.

The relief also applies to installment payments due on April 15, 2020, for section 965 transition tax on untaxed foreign earnings (not included in our estimate). It does not apply to taxes other than income taxes, such as payroll or excise taxes.

According to Treasury data for calendar year 2019, individual tax payments (excluding withholding) for the months of April, May, June, and July were $364 billion.

Also, in 2019 corporate tax payments for the months of April, May, June, and July were $111 billion. (See figures 1 and 2.)

If these payments are assumed to remain unchanged in 2020, Notice 2020-18 will inject a total of $476 million of short-term liquidity into the economy from now until the midsummer, with that entire amount scheduled to be repaid on July 15.

Medium-Term, Payroll Tax Deferral

Under section 2302 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (H.R. 748), payments by employers and self-employed individuals of the 6.2% tax on wages for Social Security are postponed until after 2020.

Half of these deferred taxes will be due in 2021 and the other half in 2022. (As of this writing, the CARES Act is expected to be signed by the president on March 27.)

As noted, postponed taxes provide critical liquidity for hard-hit employers — such as those in restaurant, entertainment, retail, and passenger transportation businesses.

However, many risk-averse individuals and businesses with strong balance sheets are seeking a safe harbor.

Paying taxes in advance to the government of the United States — yes, you read that right — can be an attractive alternative to investing in Treasury bills. Rates on Treasury bills are close to zero and even negative. (As of this writing, the yield on 10-year Treasury notes was 0.813 percent; the yield on three-month Treasury bills was -0.028 percent.) Some European taxpayers were already prepaying tax before the coronavirus outbreak. And tax administrators were trying to prevent it.

Data from Treasury’s Financial Management Service indicate that in calendar year 2019, the total employer portion of Social Security tax and one-half of the corresponding tax paid by self-employed individuals totaled $465 billion.

Calibrating that figure to correspond to the 9 months of what the statutory text calls the “payroll tax payment period” yields $349 billion of potentially postponed employer payroll taxes under the proposed legislation. Of course, we normally expect payrolls and payroll taxes to grow. These are not normal times.

On March 26 the Department of Labor reported that nationwide unemployment insurance claims for the week ending March 21 were 3.38 million.

These claims alone would increase the national unemployment rate from 3.5 percent to 5.5 percent. Based on Labor Department national occupational employment data for 2018, we tentatively surmise that about 13.6 million Americans work in restaurants, 10.2 million in retail, and another 3 million in travel, entertainment, and other nonessential businesses that require close contact with customers (for example, barbers).

Unfortunately, these figures — which do not include factory or air transport workers — suggest the new and startling unemployment claim figures may be only the beginning of a larger increase in unemployment for at least the next few months.

If, for purposes of conservatively estimating the size of payroll tax deferral, we assume taxable payroll levels for the remainder of 2020 will on average equal 90% of their 2019 levels, total deferred payroll taxes would be $314 billion.

Under the new legislation, $157 billion of that postponed payroll tax would be due without interest or penalty in 2021, and another $157 billion would be due in 2022.

The exact timing of those postponed payments is left up to Treasury. None of this will affect the Social Security Trust Fund because the Treasury general fund will make up the shortfalls.

Looking Ahead

Combining our estimate of $476 billion of short-term income tax relief with our estimated $314 billion of medium-term payroll tax relief yields a total of $790 billion of postponed tax payments.

As of this writing, the Joint Committee on Taxation has not provided an estimate of the payroll tax postponement legislated by Congress. Because it is not prompted by legislation, an official estimate of the effect of Notice 2020-18 is unlikely to surface.

As a delivery mechanism for injecting liquidity into the economy, postponement of tax payments is a mixed bag. The big plus is that instead of sending payments back and forth between the private sector and the federal government, the private sector just keeps cash due to the federal government.

Besides administrative ease, the positive impact on cash flow is rapid.

However, the immediate positive impact is limited. In the case of payroll tax relief, it is spread out over the following 9 months, beyond what we all hope will be the end of the crisis period.

Also, the relief is in many respects haphazardly targeted. Individuals who are self-employed benefit greatly from postponement of an April 15 estimated payment. Employed individuals who withhold gain little. For individuals who overwithheld, there is no benefit at all.

Income tax postponement does not target businesses most in need. Businesses with curtailed sales revenue (like restaurants) will get the least benefit while high-flyers (like businesses providing online services) get the most.

In 1992 President George H.W. Bush reduced income tax withholding to provide a $25 billion temporary stimulus to the economy.

In the current situation, Treasury has sort of done the opposite by leaving withholding unchanged and postponing other income tax payments. Except for that episode, and much smaller-scale relief provided during national disasters, the federal government — to the best of our knowledge — has not modified the timing of tax payments to provide humanitarian relief and fiscal stimulus.

Nobody was thinking about tax postponement a month ago. But it is likely to be a big issue for years to come.

Full coverage and live updates on the Coronavirus

I stood up when they said sit down. Jersey. Harvard. Northwestern. Rutgers. U.S. Treasury. Joint Committee on Tax. Now the best job ever: Chief Economist at Tax Analysts.

Source: $800 Billion Of Tax Payments Are Automatically Postponed

Please follow my instagram: http://instagram.com/arminhamidian67

%d bloggers like this: