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2021 Adjusted Penalties for Health Benefits and Other Employer Plans

The U.S. Department of Labor (DOL) recently announced the 2021 annual adjustments to civil monetary penalties for a wide range of benefits-related violations. Legislation enacted in 2015 requires annual adjustments to certain penalty amounts by January 15 of each year. The 2021 adjustments are effective for penalties assessed after January 15, 2021, with respect to violations occurring after November 2, 2015. Here are some highlights: Form 5500 . Employers must file this form annually for most ERISA plans to provide the IRS and DOL with information about the plan’s operation and compliance with government regulations. The maximum penalty for failing to file Form 5500 has increased from $2,233 per day to $2,259 per day that the filing is late. Summary of Benefits and Coverage (SBC). The maximum penalty for failing to provide an SBC has increased from $1,176 to $1,190 per failure. Other group health plan penalties. Violations of the Genetic Information Nondiscrimination Act (GINA) may
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2021 Individual Taxes: Q&A for Tax Amounts That May Have Changed

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 c

Many Tax Amounts Affecting Businesses Have Increased for 2021

A number of tax-related limits that affect businesses are annually indexed for inflation, and many have increased for 2021. Some stayed the same due to low inflation. And the deduction for business meals has doubled for this year after a new law was enacted at the end of 2020. Here’s a rundown of those that may be important to you and your business. Social Security tax The amount of employees’ earnings that are subject to Social Security tax is capped for 2021 at $142,800 (up from $137,700 for 2020). Deductions Section 179 expensing: Limit: $1.05 million (up from $1.04 million for 2020) Phaseout: $2.62 million (up from $2.59 million) Income-based phase-out for certain limits on the Sec. 199A qualified business income deduction begins at: Married filing jointly: $329,800 (up from $326,600) Married filing separately: $164,925 (up from $163,300) Other filers: $164,900 (up from $163,300) Business meals Deduction for eligible business-related food and beverage expenses provided by a

Did You Make Donations in 2020? There’s Still Time to Get Substantiation

If you’re like many Americans, letters from your favorite charities may be appearing in your mailbox acknowledging your 2020 donations. But what happens if you haven’t received such a letter — can you still claim a deduction for the gift on your 2020 income tax return? It depends. What is required To support a charitable deduction, you need to comply with IRS substantiation requirements. This generally includes obtaining a contemporaneous  written acknowledgment from the charity stating the amount of the donation, whether you received any goods or services in consideration for the donation, and the value of any such goods or services. “Contemporaneous” means the earlier of: The date you file your tax return, or The extended due date of your return. So if you made a donation in 2020 but haven’t yet received substantiation from the charity, it’s not too late — as long as you haven’t filed your 2020 return. Contact the charity and request a written acknowledgment. Keep in mind th

Don’t Forget to Take Required Minimum Distributions this Year

If you have a traditional IRA or tax-deferred retirement plan account, you probably know that you must take required minimum distributions (RMDs) when you reach a certain age — or you’ll be penalized. The CARES Act, which passed last March, allowed people to skip taking these withdrawals in 2020 but now that we’re in 2021, RMDs must be taken again. The basics Once you attain age 72 (or age 70½ before 2020), you must begin taking RMDs from your traditional IRAs and certain retirement accounts, including 401(k) plans. In general, RMDs are calculated using life expectancy tables published by the IRS. If you don’t withdraw the minimum amount each year, you may have to pay a 50% penalty tax on what you  should  have taken out — but didn’t. (Roth IRAs don’t require withdrawals until after the death of the owner.) You can always take out more than the required amount. In planning for distributions, your income needs must be weighed against the desirable goal of keeping the tax shelter of the

IRS Issues Final Regs on ICHRAs

In mid-January, the IRS issued final regulations that clarify the application of the employer shared responsibility provisions under the Affordable Care Act (ACA), as well as nondiscrimination rules, to Health Reimbursement Arrangements (HRAs). The regs also address Individual Coverage Health Reimbursement Arrangements (ICHRAs). These accounts allow employers to make tax-deductible contributions to reimburse employees for part or all of the expenses those employees incur in securing individual health care coverage (including Medicare). More specifically, the regs allow ICHRAs certain safe harbors from the pertinent ACA provisions and Internal Revenue Code rules. Safe harbors The final regs provide that, to determine whether an offer of an ICHRA to a full-time employee is “affordable” under the ACA, an employer may use the lowest-cost silver plan for self-only coverage offered through a Health Insurance Marketplace (or “exchange”) where the employee’s primary site of employment is loca

How the New COVID-19 Relief Law Affects Retirement Benefits

The Consolidated Appropriations Act (CAA) includes a wide variety of provisions that address the ongoing economic hardships caused by the COVID-19 pandemic. There are so many provisions, in fact, that you may find it challenging to keep track of everything pertinent to your organization. One example is retirement benefits. Although the CAA doesn’t make sweeping changes to defined benefit plans, such as pensions, or defined contribution plans, such as 401(k)s, the law does affect both. Here’s a brief overview of the provisions in question. Future transfers The tax code allows “qualified future transfers” of up to 10 years of retiree health and life costs from a company’s pension plan to a retiree’s health benefits or life insurance account within the plan. These transfers must meet certain requirements, such as the plan being 120% funded, which have become too difficult to meet in some cases due to pandemic-related market volatility. In response, the CAA allows an employer to make a

One Reason to File Your 2020 Tax Return Early

The IRS announced it is opening the 2020 individual income tax return filing season on February 12. (This is later than in past years because of a new law that was enacted late in December.) Even if you typically don’t file until much closer to the April 15 deadline (or you file for an extension), consider filing earlier this year. Why? You can potentially protect yourself from tax identity theft — and there may be other benefits, too. How is a person’s tax identity stolen? In a tax identity theft scheme, a thief uses another individual’s personal information to file a fraudulent tax return early in the filing season and claim a bogus refund. The real taxpayer discovers the fraud when he or she files a return and is told by the IRS that the return is being rejected because one with the same Social Security number has already been filed for the tax year. While the taxpayer should ultimately be able to prove that his or her return is the legitimate one, tax identity theft can be a ha

Educate Yourself About the Revised Tax Benefits for Higher Education

Attending college is one of the biggest investments that parents and students ever make. If you or your child (or grandchild) attends (or plans to attend) an institution of higher learning, you may be eligible for tax breaks to help foot the bill. The Consolidated Appropriations Act, which was enacted recently, made some changes to the tax breaks. Here’s a rundown of what has changed. Deductions vs. credits Before the new law, there were tax breaks available for qualified education expenses including the Tuition and Fees Deduction, the Lifetime Learning Credit and the American Opportunity Tax Credit. Tax  credits  are generally better than tax  deductions. The difference? A tax deduction reduces your taxable income while a tax credit reduces the amount of taxes you owe on a dollar-for-dollar basis. First, let’s look at the deduction For 2020, the Tuition and Fees Deduction could be up to $4,000 at lower income levels or up to $2,000 at middle income levels. If your 2020 modified a

2021 Dollar Limits and Thresholds for 401(k)s and Similar Plans

The IRS recently announced the 2021 dollar limits and thresholds for retirement plans, reflecting the latest cost-of-living adjustments. Here are some relevant amounts for 401(k)s and similar plans: Annual contributions. The limit on annual contributions to 401(k) and other defined contribution plans will increase to $58,000 (up from $57,000 for 2020). Compensation. The annual limit on compensation that can be taken into account for contributions and deductions will increase to $290,000 (up from $285,000). Elective deferrals. The annual limit on elective deferrals will remain at $19,500 for 401(k), 403(b) and 457 plans, as well as for Salary Reduction Simplified Employee Pension plans (SARSEPs). The annual limits will remain the same at $13,500 for Savings Incentive Match Plans for Employees (SIMPLEs) and SIMPLE IRAs. Catch-up contributions. The annual limit on catch-up contributions for individuals age 50 and over will remain at $6,500 for 401(k) plans, 403(b) contracts, 457

2021 COLAs for Popular Fringe Benefits

The IRS recently released 2021 cost-of-living adjustments (COLAs) for a wide variety of tax-related limits, including those related to many popular fringe benefits. Here are some highlights to be aware of: Health Flexible Spending Accounts (FSAs). For 2021, the dollar limit on employee salary reduction contributions to health FSAs will remain at $2,750. Qualified transportation fringe benefits. The monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits will remain at $270. The combined monthly limit for transit passes and vanpooling expenses will also remain at $270. Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). The maximum amount of payments and reimbursements under a QSEHRA will be $5,300 for self-only coverage and $10,700 for family coverage (up from $5,250 and $10,600, respectively, for 2020). Adoption assistance exclusion and adoption credit. The maximum amount that may be excluded from an employee’s gr

2021 Q1 Tax Calendar: Key Deadlines for Businesses and Other Employers

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2021. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements. January 15 Pay the final installment of 2020 estimated tax. Farmers and fishermen: Pay estimated tax for 2020. February 1 (The usual deadline of January 31 is a Sunday) File 2020 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees. Provide copies of 2020 Forms 1099-MISC, “Miscellaneous Income,” to recipients of income from your business where required. File 2020 Forms 1099-MISC reporting nonemployee compensation payments in Box 7 with the IRS. File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2020. If your undeposited tax is $500 or less, you can either pay it with

Next Estimated Tax Deadline Is January 15 If You Have to Make a Payment

If you’re self-employed and don’t have withholding from paychecks, you probably have to make estimated tax payments. These payments must be sent to the IRS on a quarterly basis. The fourth 2020 estimated tax payment deadline for individuals is Friday, January 15, 2021. Even if you do have some withholding from paychecks or payments you receive, you may still have to make estimated payments if you receive other types of income such as Social Security, prizes, rent, interest, and dividends. Pay-as-you-go system You must make sufficient federal income tax payments long before the April filing deadline through withholding, estimated tax payments, or a combination of the two. If you fail to make the required payments, you may be subject to an underpayment penalty, as well as interest. In general, you must make estimated tax payments for 2020 if both of these statements apply: You expect to owe at least $1,000 in tax after subtracting tax withholding and credits, and You expect withholding

5 Key Points About Bonus Depreciation

1. Under current law, 100% bonus depreciation will be phased out in steps for property placed in service in calendar years 2023 through 2027. Under current law, 100% bonus depreciation will be phased out in steps for property placed in service in calendar years 2023 through 2027. Thus, an 80% rate will apply to property placed in service in 2023, 60% in 2024, 40% in 2025, and 20% in 2026, and a 0% rate will apply in 2027 and later years. For certain aircraft (generally, company planes) and for the pre-January 1, 2027 costs of certain property with a long production period, the phaseout is scheduled to take place a year later, from 2024 to 2028. Of course, Congress could pass legislation to extend or revise the above rules. 2. Bonus depreciation is available for new and most used property In the past, used property didn’t qualify. It currently qualifies unless:  The taxpayer previously used the property and The property was acquired in certain forbidden transactions (generally acquisit

IRS Past Due Notices

The IRS has temporarily halted certain outgoing mail. Due to a backlog of unopened mail created by the COVID-19 lockdown, payments from taxpayers that have a balance due may not have been posted to their accounts. As a result, the IRS will suspend automatic mailing of follow-up notices that remind taxpayers to make payments. “This temporary adjustment to processing is intended to lessen any possible confusion that might be associated with delays in processing correspondence received from taxpayers,” the agency said. For taxpayers who mailed payments that haven’t yet been opened, the payments will be credited on the day the payment was received. Click for more info.

Hurricane Laura Tax Relief

Victims of Hurricane Laura in Louisiana qualify for tax relief. The IRS has announced that taxpayers impacted by the hurricane that began on Aug. 22, 2020, and who reside or have a business in a designated federal disaster area qualifying for individual assistance, have more time to make tax payments and file returns. The relief generally applies to deadlines occurring on or after Aug. 22, 2020, postponing those deadlines to Dec. 31, 2020. Currently, the disaster areas include Allen, Beauregard, Calcasieu, Cameron, Jefferson Davis and Vernon parishes. (More localities will be added later.)  For more information click here.  

Payroll Tax Deferral

The IRS has released guidance on deferring employee Social Security tax withholding under President Trump’s executive action. The guidance in Notice 2020-65 is brief and many employers still have questions and challenges about how, and whether, to implement deferral by the start date. The optional deferral applies to wages paid from Sept. 1 through Dec. 31, 2020 for employees paid less than $4,000 during a bi-weekly pay period. It postpones (but doesn’t forgive) withholding and remittance of the employee share of Social Security tax until the period beginning on Jan. 1, 2021 and ending on April 30, 2021. Penalties, interest, and additions to tax will begin on May 1, 2021 for unpaid taxes.

What Happens If an Individual Can’t Pay Taxes

While you probably don’t have any problems paying your tax bills, you may wonder: What happens in the event you (or someone you know) can’t pay taxes on time? Here’s a look at the options. Most importantly, don’t let the inability to pay your tax liability in full keep you from filing a tax return properly and on time. In addition, taking certain steps can keep the IRS from instituting punitive collection processes. Common penalties The “failure to file” penalty accrues at 5% per month or part of a month (to a maximum of 25%) on the amount of tax your return shows you owe. The “failure to pay” penalty accrues at only 0.5% per month or part of a month (to 25% maximum) on the amount due on the return. (If both apply, the failure to file penalty drops to 4.5% per month (or part) so the combined penalty remains at 5%.) The maximum combined penalty for the first five months is 25%. Thereafter, the failure to pay penalty can continue at 0.5% per month for 45 more months. The combined penalti

More Parents May Owe “Nanny Tax” This Year, Due too COVID-19

In the COVID-19 era, many parents are hiring nannies and babysitters because their daycare centers and summer camps have closed. This may result in federal “nanny tax” obligations. Keep in mind that the nanny tax may apply to all household workers, including housekeepers, babysitters, gardeners or others who aren’t independent contractors. If you employ someone who’s subject to the nanny tax, you aren’t required to withhold federal income taxes from the individual’s pay. You only must withhold if the worker asks you to and you agree. (In that case, ask the nanny to fill out a Form W-4.) However, you may have other withholding and payment obligations. Withholding FICA and FUTA You must withhold and pay Social Security and Medicare taxes (FICA) if your nanny earns cash wages of $2,200 or more (excluding food and lodging) during 2020. If you reach the threshold, all of the wages (not just the excess) are subject to FICA. However, if your nanny is under 18 and childcare isn’t his or her pr

CARES Act Made Changes to Excess Business Losses

The Coronavirus Aid, Relief and Economic Security (CARES) Act made changes to excess business losses. This includes some changes that are retroactive and there may be opportunities for some businesses to file amended tax returns. If you hold an interest in a business, or may do so in the future, here is more information about the changes. Deferral of the excess business loss limits The Tax Cuts and Jobs Act (TCJA) provided that net tax losses from active businesses in excess of an inflation-adjusted $500,000 for joint filers, or an inflation-adjusted $250,000 for other covered taxpayers, are to be treated as net operating loss (NOL) carryforwards in the following tax year. The covered taxpayers are individuals, estates and trusts that own businesses directly or as partners in a partnership or shareholders in an S corporation. The $500,000 and $250,000 limits, which are adjusted for inflation for tax years beginning after calendar year 2018, were scheduled under the TCJA to apply to tax