COVID-19 tax relief to the small business owners

by Mounica Kota | Oct 12, 2020 | COVID - 19, income tax, tax filing, tax form, Tax Payers

COVID-19 tax relief to the small business owners

The pandemic COVID-19 has affected the economic condition across the entire United States. Business owners all over the country are struggling to survive and lower the impact of the pandemic on their business. Meanwhile, the US Government has introduced various forms by which tax relief can be obtained by the small business owners in the year 2020. Most of these changes belong to the FFCRA (Families First Coronavirus Response Act) and the CARES (Coronavirus Aid, Relief and Economic Security Act). These changes in tax regulations would be helpful for the business owners and the employees to survive the crisis caused by the pandemic.

Employee Retention Credit

The Employee Retention Credit is a part of the CARES Act which is mainly designed to keep the employees on the payroll during the times of pandemic.

The refundable tax credit which is available is 50% of up to $10,000 in the wages that have been paid to the employees by a business owner whose business has been impacted by the COVID-19.
This credit is available to all the employers irrespective of the size of the business and it also includes tax-exempt organic
There are only two exceptions i.e. State and Local Government and their instrumentalities and those small businesses which take small business loans such as the PPP loans.

The qualifying employers for obtaining the Employee Retention Credit must fall into either of the two below-mentioned categories: –

The employer whose business has been suspended completely or partially by the Government because of the coronavirus pandemic during this quarter.
The gross receipts by the employer are below 50% of a similar timeframe in the year 2019. If the employer’s gross receipts are more than 80% of a similar timeframe in 2019, then they are not eligible for the credit after the quarter-end.

Paid Sick Leave Credit and Family Leave Credit

Paid Sick Leave Credit is designed in such a way by which the business would be eligible to obtain credit for an employee who has not been able to work because of having symptoms of coronavirus and is being quarantined or self-quarantined.

Employees are entitled to the paid sick leave for up to 10 days at the regular rate of pay up to $511 in a day and $5110 in total.
Employers are also eligible to receive credit for payment of those employees who are not able to come for work due to caring for a family member who has been affected by COVID-19 or for taking care of a child whose school/daycare is closed due to COVID-19.
These employees would receive paid sick leave for up to two weeks at the two-third rate of the employee’s regular payment or up to $200 in a day and $2000 in total.
Moreover, employees can also avail paid family and medical leaves which would be equal to two-thirds of their normal pay ranging up to $200 in a day and $10,000 in total.
Also, qualifying leave of 10 weeks would be counted towards the family leave credit.
Eligible employers or business owners can immediately receive this credit for sick leave and family leave along with the expenses for a health plan and the employer’s portion of Medicare tax on the employee’s leave.
The employers eligible for receiving these credits will report their qualified wages and the associated cost of health insurance for each quarter on their employment tax returns for each quarter or by filing Form 941 which begins with the second quarter.
In case, the employment tax details of the employers are not enough for covering the credit then the business owner can submit Form 7200 and receive the advance payment from the IRS.

Deferred Payment of Payroll Taxes

By the CARES Act, employers are allowed to defer the payment they do for their employee’s portion of the Social Security Taxes. These taxes would have been due in between 27^th March 2020 and 31^st December 2020. The employers can make these payments in the form of instalmentse. half by the end of 2021 and the other half by the end of 2022.

There is no necessity of special election for the businesses for the deferment of their deposits and payments. The IRS is working on the process of revision of Form 941 for reflection of these changes.
This option can be availed by most of the employers; however, those employers who have received the PPP loan would be able to defer the payments until receiving notice that their PPP loan has been forgiven.

Conclusion

So, these credits and tax rules will help the small business owners to save their business and also lower the impact of COVID-19.

Income Tax Refund V/S Owning tax

by Mounica Kota | Aug 12, 2020 | additional debts, COVID - 19, Income Tax Refund, IRS

Income Tax Refund V/S Owning tax

In these challenging times of financial distress caused due to the pandemic COVID-19, receipt of your tax refund is like a gift. If you are receiving a substantial amount as your tax return you can use it for various useful purposes during these difficult times. However, if you have still not received your tax refund and are wondering what could be the reason; it’s time to analyze the possibility i.e. the IRS seized your tax refund.

You might also wonder that “would you obtain your tax refund if you owe tax to the IRS?” So, let us understand the various aspects related to the scenario in which you apprehend the receipt of your tax

When will the IRS seize your tax refund?

If you owe taxes to the IRS, then you would not be able to get back your tax refund. The IRS has the power to garnish your refund to offset the tax debts you owe. Some of the major tax debts which can lead to the IRS’s seizure of your tax refunds are listed below.

a.Back Taxes

You are said to have back taxes when you have any taxes unpaid or partially paid at federal, state, or local level. If you have tax debts at any of these levels, then your tax refunds might be garnished by the IRS. In such cases, the IRS would send you warning notice about a part of the entire of your tax refund being used to offset your back taxes. Even if you have selected for options like the IRS installment agreement plan, the IRS can still take your tax refund back and pay your tax debts by using them.

If you are willing to relieve yourself from the tax debts, you can do so by filing for bankruptcy. If you are filing for bankruptcy, the IRS would provide you with three payment priorities.

Priority and non-dischargeable unsecured tax debt – These are those debts that cannot be discharged and must be cleared first before any other debt such as trust fund taxes, taxes that are assessable but have not been assessed, etc.
Non-priority and non-dischargeable unsecured tax debt – These taxes are not placed on the top priority and they cannot be discharged. These taxes include taxes on fraudulent returns, taxes filed late within two years of the date of filing, etc.
Non-priority and dischargeable unsecured tax debt–These taxes are unsecured, are not prioritized, and can be forgiven too.

b.Child and Spousal Support

In case you are a parent who is providing child support, the Child Support Agency of your state will inform the Treasury Department about your child support debt. The Treasury Department will send you a pre-offset notice which informs you about how much debt you owe the working of the offset program and the ways by which you can pay off your child support debts. This same procedure is applicable for spousal support as well for tax debt offset by the IRS.

c.Other additional debts

In addition to the Child and spousal support, back taxes there are some other debts also which can be garnished by the IRs through the seizure of your tax refunds. These can be your Student loan payments or your State Unemployment compensation.

If you have not paid your federally-insured student loans, the IRS can seize your tax refund for the payment of your outstanding debts related to a Student loan. Moreover, the US Education Department has the authority to let your employer garnish up to 15% of your income until all your loan debts are cleared.

The IRS can also seize your tax refunds in case of any unemployment compensation collected by you for which you were not eligible. The Unemployment program of your State can ask the IRS or the Treasury Department to offset your tax refunds.

How can you obtain your complete tax refund?

If you wish to obtain your entire tax refund without your refund being garnished for tax debt settlement, then you must pay your taxes on time and in full amount. In case, you have other debts like student loans or spousal support debt, etc. you can try to pay your debts as much as you can. This will help you in obtaining some more tax refunds.

If you are facing tax issues, you must sincerely work towards the resolution of these issues by opting for professional assistance. In the year 2018, over 13 million Americans owed more than any amount of $128 billion to the IRS for taxes and penalties. You should try to find out about the various tax issue resolution services such as the Installment Agreement, Stair Step Agreement, Partial Pay Agreement, etc. for resolving your tax problems.

Conclusion

Hence, a tax refund is important for everyone, especially during these financially difficult times. You must file your tax returns on time and pay your taxes on time. You must accurately file your taxes to make the maximum utilization of your return obtained.

Reference

https://www.communitytax.com/getting-tax-refund-if-you-owe-irs/

Tax Implications on the decrease of interest rates by the IRS in the 3rd quarter

by Mounica Kota | Jun 28, 2020 | COVID - 19, Interest Rates, Internal Revenue Code, Tax implications

Tax Implications on the decrease of interest rates by the IRS in the 3rd quarter

The pandemic COVID-19 has brought huge havoc in the lives of the Americans. Millions of Americans have been affected by this dreadful disease and are struggling between life and death. Businesses across the country have been shut down some temporarily and many permanently. The rate of unemployment in the country is soaring high and it is a state of economic fallout for the Americans.Tax Implications on the decrease of interest rates by the IRS in the 3rd quarter

In such adverse circumstances, the US Government has taken up various initiatives by which the economic lives of the Americans can be improved up to a certain extent. The deadline for Federal Income tax return filing and payment due for 15th April 2020 had been postponed till 15th July 2020. The Federal Government had also made Stimulus Checks available for the Americans under the CARES Act. Many other unemployment benefits, paid leave benefits and much more have been made available for the Americans to alleviate the burden they are facing due to the impact of COVID-19.

One such initiative by the IRS to bring some relief to the taxpayers during these stressful times is the lowering of the tax interest rates for the third quarter of the year 2020.

Decrease in the tax interest rates for the 3rd quarter

On 4th June 2020, the IRS announced that the interest rates for the 3rd quarter 2020 will be decreased effective since 1st July 2020.

The new rates after the reduction would be as follows.

3 percent for overpayments
2 percent in case of any corporation
One-half or 0.5 percent for the portion of a corporate overpayment which exceeds 10,000
3 percent for any underpayments
5 percent for large corporate underpayments

According to the Internal Revenue Code, the rate of interest can be determined quarterly. For taxpayers who are other than the corporations, the rate of overpayment and underpayment is equivalent to the federal short term rate plus 3 percentage points.

Interest rates on the Overpayment and Underpayment of taxes

Section 6621 of the Internal Revenue Code helps in the establishment of the interest rates on the overpayment and the underpayment of tax. According to the Section 6621(a) (b), the overpayment rate can be calculated as the sum of the federal short-term rate plus 3 percentage point (with an exception of 2 percentage points in case of a corporation), except for the rate for that portion of a corporate overpayment of tax that exceeds $10,000 for a taxable period is the sum of the federal short-term rate added to 0.5 of a percentage point.

According to Section 6621(a) (2), the underpayment rate can be said to be the sum of the federal short-term rate plus 3 percentage points.

Section 6621(c) states that for the purposes of interest payable under Section 6601 on a large corporate underpayment, the underpayment rate under Section 6621(a)(2) can be determined by the substitution of 5 percentage points for 3 percentage points.

Furthermore, Section 6621(b) (1) states that the Secretary would be determining the federal short-term rate for the first month in each quarter. Section 6621(b) (2) (A) states that the federal short-term rate determined for any month under Section 6621(b) (1) is applicable for the first quarter starting after that month. As per Section 6621(b)(3), the federal short-term rate for any month is the federal short-term rate determined during that month by the Secretary with accordance to Section 1274(d) which is rounded to the nearest full percent.

The Federal short-term rate which is rounded to the nearest full percent based upon the daily compounding determined in April 2020 is 0 percent. Thus, accordingly, an overpayment rate of 3 percent and an underpayment rate of 2 percent are established for the quarter beginning 1st July 2020. The rate of overpayment for the portion of a corporate overpayment which exceeds $10,000 for the quarter beginning 1st July 2020 is 0.5 percent. The rate of underpayment for large corporate underpayments for the quarter beginning 1st July 2020 is 5 percent. These rates would be applicable to the amounts bearing interest during that particular quarter.

Sections 6654(a)(1) and 6655(a)(1) state that the underpayment rate which has been established under section 6621 is applicable in the determination of the addition to tax under sections 6654 and 6655 for failure by a taxpayer in payment of the estimated tax for any taxable year. So, the 3 percent rate is also applicable to estimated tax underpayments for the third quarter which begins on 1st July 2020. Moreover, according to section 6603(d) (4), the rate of interest on the Section 6603 deposits is considered to be 0 percent for the third calendar quarter in 2020.

References

What to expect in the Second Stimulus Check?

by Mounica Kota | Jun 25, 2020 | COVID - 19, HEROS act, Second Stimulus Check, Stimulus check

What to expect in the Second Stimulus Check?

The US Legislation has passed a relief package of $3 trillion known as the HEROES Act n 16th May 2020. By now, most of the Americans have received their stimulus check associated with the CARES Act and there has been a declaration of an official recession. The rate of unemployment across the country has increased exponentially making it quite necessary for another round of Stimulus payment.

The Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act would help the American households in obtaining another round of Stimulus payments. The Heroes Act would be offering larger stimulus payment to the Americans than that offered by the CARES Act. This bill is currently with the Senate House and has been passed successfully by the Democrat-controlled House.

The need for the Second Stimulus Check

The need for the second Stimulus check by the Americans is quite justified as the pandemic COVID-19 has caused huge losses to the health and the economy of the Americans. Millions of Americans have lost their jobs and there are speculations for further loss of millions of jobs in the US. However, some reports have stated the information about the steady lowering in the unemployment rate in the US. The unemployment rate in the US has dropped by 1.4% from April and there have been around 2.5 million jobs added back since March. This can be considered as a major reason for the Senate to reject this bill of the Second Stimulus Check.

Eligibility to obtain the Second Stimulus Check

If a taxpayer was eligible for obtaining the first Stimulus check then he would be eligible for obtaining the Second Stimulus check. According to the most recent tax returns filed by a taxpayer, people who earn less than $75,000 would be obtaining $1200 whereas married couples can earn $2400 as Stimulus payment.

The age restriction for qualifying as a dependent was set as below 17 years by the CARES Act whereas the HEROES Act has removed this qualifying criterion. Moreover, those taxpayers who have an earning up to $100,000 in a year would receive a prorated amount as Stimulus payment.

Money to be obtained with the second stimulus check

Every member of a household would be receiving $1200 inclusive of the children as well. Those taxpayers who are filing their tax returns with the single status and have an earning less than $75,000 would receive the entire payment. This income threshold is $150,000 for those taxpayers who are married and are filing their tax returns jointly.
Under the Heroes Act, the total payment for one family would be capped at $6,000.

Provisions for Older students under the HEROES Act

Under the CARES Act, dependents whose age was below 17 years would be eligible for the receipt of the $500 payment. This excluded many high school students, seniors, and many other college students who were already claimed as dependents on their parent’s tax returns from obtaining the Stimulus Check.
However, the HEROES Act ensures that all dependents who might be college going students or teenagers would receive the Stimulus Check of $1200.

Provisions for Immigrants to obtain the second Stimulus Check

The CARES Act needed an American to have a Social Security Number as a mandate for obtaining the Stimulus payment. However, the HEROES Act needs a taxpayer to only have the Taxpayer Identification Number (TIN) to obtain the Stimulus check.

The Taxpayer Identification Number is used by the immigrants to pay their taxes and thus, it is feasible for the immigrant taxpayers to obtain the Second Stimulus check.

By when would the Second Stimulus Check be received?

It is quite uncertain as to by when the Senate would be considering the Second Stimulus Check payments. However, it has been estimated that the Stimulus Checks would reach the Americans early this time as compared to that of the CARES Act. Millions of Americans have verified their information on the “Get My Payment” site of the IRS and this would make the payments faster this time. According to experts, if the bill takes another two weeks for approval then the Americans would be seeing their payment for the Second Stimulus Package by the end of July or early of August.

Hence, with the impact of the pandemic intensifying daily this initiative by the US Government would be of real help to the Americans in overcoming the economic crisis caused by the pandemic COVID-19.

References

https://www.cnet.com/personal-finance/second-stimulus-check-how-much-you-could-get-when-could-payments-come-latest-news/ https://www.cnet.com/personal-finance/second-stimulus-check-how-much-you-could-get-when-could-payments-come-latest-news/

https://www.cbsnews.com/news/second-stimulus-check-how-much-when-heroes-act/

https://www.tomsguide.com/news/stimulus-check-2-update-senate-vote-date-eligibility-and-latest-status

https://www.forbes.com/sites/terinaallen/2020/05/11/the-2000-second-stimulus-check-what-americans-say-about-it/#4e78ee53514f

How to track the status of your tax refunds amidst pandemic?

by Mounica Kota | Jun 22, 2020 | Amended Tax Return, COVID - 19, Tax Payers, Where's My Refund

How to track the status of your tax refunds amidst pandemic?

The pandemic COVID-19 has adversely affected the lives and livelihoods of millions of Americans. With huge unemployment and economic crisis throughout the country, many Americans are looking forward to their Federal Tax refunds as a source of obtaining some money. The inquisitiveness among the taxpayers about “Where is my tax refund” is quite natural in such distressful times.

In general, the tax refund processing time is different for the different methods by which the tax refund has been filed.

For those taxpayers who have filed their tax returns electronically with direct deposit, the tax returns are processed within 21 days of acceptance of the e-filing by the IRS.
For those taxpayers who have filed their tax returns through paper, can expect their tax returns to be processed within 6weeks to 8 weeks of receipt of the return by the IRS.

How can the status of tax return be checked?

The IRS tool “Where’s My Refund?” can be used by taxpayers to access the status of their tax returns. To login into this IRS tool, there would be the need for three major pieces of information

Social Security Number or Taxpayer Identification Number
Filing Status of the taxpayer
The exact refund amount which the taxpayer would obtain

Moreover, taxpayers can access their tax return status from their mobile phones by using the app IRS2Go. This app can be downloaded for free on Google Play, Amazon, etc. and can be used to check tax refund status, make a tax payment, or obtain any free tax assistance if needed.

When can taxpayers start checking their refund status?

Taxpayers can start checking the status of their tax returns within 24 hours after their tax return which has been filed electronically is received by the IRS.

In case the taxpayer had filed tax returns by paper medium, then his status would take around 4 weeks to reflect in the IRS system. So, the taxpayer should wait for 4 weeks before checking the status of his tax refund.

Information available on “Where’s My Refund” tool

On the IRS tool “Where’s My Refund”, once the details are entered by the taxpayer, the screen would show up any of these three statuses.

a. Return Received

This would mean that the tax return has been received by the IRS and is being processed. The taxpayer needs to wait for at least 21 days within which he would be receiving his tax returns.

b.Return Approved

When the tax return status says “Return Approved” it means that the return request has been processed by the IRS and has been approved as well. This status is usually seen after three weeks of the “Return Received” status.

The taxpayers can even see an estimated date by which their refund money would be deposited into their specified bank account. There can be instances in which the taxpayers do not receive their money on the estimated date; the IRS suggests the taxpayers facing such issues to first contact their bank to ensure that there are no problems associated with the account.

c.Refund Sent

When the status says “Refund sent” it means that the IRS has sent your tax refund to your bank account by direct deposit or has sent your check via mail. The date on which the return payment was sent must be mentioned in this tool.

The taxpayers should keep in mind that even if the refund has been sent by the IRS, your bank would take at least 1-5 business days to deposit the money into your account. Also, if the return has been filed by paper means then the check would reach the taxpayer within several weeks via mail.

In case, the taxpayer owed some money to the IRS because of tax due, Federal Student Loan, or any other cause; then that amount would be reduced from the refund by the IRS. The IRS would inform you about any such deductions made from your refund on this webpage.

Status of Amended Tax Return

In case, amended returns have been filed by a taxpayer they would take up to around three weeks to reflect in the IRS system. Moreover, it would take 16 weeks or more for the processing of Amended tax returns.

Taxpayers can easily track the status of their Amended Tax return by the tool “Where’s My Amended Return” tool. There are three statuses which can be seen for Amended Tax Return in this tool i.e.

Received – This means the taxpayer’s amended tax return has been received and is being processed.
Adjusted – The status Adjusted means the IRS made adjustments into the account of the taxpayer.
Completed – This means the tax refund has been processed by the IRS and all necessary information related to this has been mailed to the taxpayer.

References

How to leverage your income tax refunds amidst the COVID-19 pandemic?

by Mounica Kota | Jun 15, 2020 | 401(k), COVID - 19, Income Tax refunds, Roth IRA

How to leverage your income tax refunds amidst the

COVID-19 pandemic?

Currently, the entire world is facing the dreadful consequences of coronavirus. Millions and millions of people have been impacted and the global economy has come to a standstill. In the US, the impact of the pandemic COVID-19 is intensifying each day. Millions of Americans have become unemployed and the economy of the country is regressing.

In such difficult times when the livelihood of the common people has been impacted in such a worse manner, Americans see a dint of hope in the Income-tax refunds which they would obtain. Even though the Federal Government has provided Stimulus Checks, additional money is always helpful in such bad times.

If you have filed your Income Tax Returns and are waiting to receive a hefty amount from the IRS, then you should also think about avenues by which you can leverage your refunds during these critical times.

Let us have a look at some of the best options to leverage your income tax refunds during this pandemic COVID-19.

a.Emergency Savings Account

You should open a savings account and try to put a major part of your Income tax refund into that account as an Emergency Savings Account. This would be helpful in case emergencies are arising due to the pandemic such as a medical emergency or you lose your job, unfortunately. This Emergency Savings Account will be your savior in difficult times.

b.Increase your contribution into your 401(k)plan

You can utilize this opportunity to increase your contribution to your 401(k) plan. In case, you have been contributing only 3% of your paycheck but your employer matches up to 6% then you can double the pre-tax income which you are investing in your retirement funds. It can lead to your monthly paycheck being a little low but you will be investing for good and your taxable income would also be low.

c.Investment into Stocks

When you have already made your contributions to your retirement account, then you must invest your income tax refunds into purchasing stocks or mutual funds. Generally, the stock market would deliver better returns than that of a Savings Account and Treasury bonds. But, sometimes there are risks involved in the stock market and the returns are not guaranteed. Investment in stocks by tax refunds is a good idea if you are saving to attain long-term goals.

d.Paying down the existing debts

When you obtain your Income Tax returns, it is wiser to pay off your debts quickly. The high-interest debts must be paid off on priority as this would help you in saving a lot of money in the future. Usually,debts are associated with credit card dues and if you are fortunate enough to not have credit card dues then you should pay off your car loan or student loan.

e.Contribute to Regular or Roth IRA

If you are thinking about your long term savings, you must contribute your income tax refund into Regular or Roth IRA. If you and your spouse have a modified AGI of less than $203,000 then you can be able to contribute up to $6000 to Roth IRA in 2019 or $6500 if you are 50 years or above.

f.Contribute to HSA

You can open HSA if you do not have one as HSAs are a very good option to keep aside some money for medical expenses i.e. may be routine or emergency medical expenses. Your unused funds in the HSA keep on rolling to the consecutive years and the remaining money can be utilized during retirement once you are above 65 years of age.

g.Investment into an ETF

You can invest your income tax refunds in broadly diversified ETFs which are a safe investment option. ETFs would include thousands of stocks, low volatility, and any risk compared to individual stocks. Investing in ETFs would be good as they are passive and have a low expense ratio.

h.Make donations

This is a philanthropic option and perhaps one of the best ways to utilize your money obtained by a tax refund. You can make your donations into mainly those charitable organizations which support a good cause and are working towards a cause that you support.

In addition to all these available tax refund investment options, you must some a considerable amount of cash in your hand during these emergency times. Moreover, you can invest some of your money in self-care avenues like taking up any online courses/training or workshop. This would be helpful in your career in the future and would return you an incremented paycheck