Axley & Rode, LLP

If you’re a parent with a college-bound child, you may be concerned about being able to fund future tuition and other higher education costs. You want to take maximum advantage of tax benefits to minimize your expenses. Here are some possible options. Savings bonds Series EE U.S. savings bonds offer two tax-saving opportunities for eligible families when used to finance college: You don’t have to report the interest on the bonds for federal tax purposes until the bonds are cashed in, and Interest on “qualified” Series EE (and Series I) bonds may be exempt from federal tax if the bond proceeds are used for qualified education expenses. To qualify for the tax exemption for college use, you must purchase the bonds in your name (not the child’s) or jointly with your spouse. The proceeds must be used for tuition, fees and certain other expenses — not room and board. If only part of the proceeds is used for qualified expenses, only that part of the interest is exempt. The exemption is p

Many employers have asked employees to submit proof of a COVID-19 vaccination before returning to work in an office or other facility. According to the U.S. Equal Employment Opportunity Commission (EEOC), it’s permissible to do so if exceptions are allowed for people with disabilities and those with sincerely held religious beliefs. The requirement also must comply with other applicable laws. As an additional layer of protection, some employers may consider asking their HR departments to confirm employees’ eligibility to return to work by checking COVID-19 vaccination claims submitted to their group health plans. Is such a step allowable? Protecting PHI An employer’s group health plan is considered a “covered entity” under the Health Insurance Portability and Accountability Act (HIPAA). This means it’s a separate legal entity from the employer. HIPAA applies to protected health information (PHI) that’s created, maintained, received or transmitted by a group health plan. Because m

In a recent press release, the Social Security Administration (SSA) advised employers to use its Business Services Online (BSO) Portal to correct employee name and Social Security number (SSN) errors. Doing so will ensure accurate wage reporting for employees. In addition, the SSA announced that it will no longer mail Employer Correction Request Notices (EDCORs) to employers. As you may be aware, EDCORs have been in use to notify employers of name and SSN mismatches. Correction tools The SSA reports that nearly 10% of Forms W-2 (“Wage and Tax Statement”) that it receives have mismatched name/SSN combinations. Many of these errors are because of typos, unreported name changes or inaccurate employer records. Erroneous wage information makes it difficult to credit earnings to a worker’s record, potentially resulting in ineligibility for Social Security benefits or incorrect benefit amounts. Employers may use the BSO portal to correct errors before, during and after the development an

The American Rescue Plan Act (ARPA), signed into law earlier this year, amended and extended the tax credits available to eligible employers that provide paid sick and family leave. This relief is consistent with the COVID-related leave originally provided under the Families First Coronavirus Response Act enacted in March of 2020. Just last month, the IRS issued News Release 2021-128 containing information aimed at helping small to midsized employers claim the credits. Among the most pressing challenges faced by eligible employers is determining what information they should gather and retain to substantiate eligibility. Pertinent points The IRS clarifies that, to substantiate eligibility for the paid sick leave or paid family leave credits, a qualifying employer must receive a written request for the leave from an employee that includes: The employee’s name, The date or dates for which leave is requested, A statement of the COVID-related reason the employee is requesting leave as

Many employers have established Health Reimbursement Arrangements (HRAs) as a tax-advantaged way to allow employees to receive reimbursements for out-of-pocket medical expenses. What’s often overlooked is that, under certain circumstances, HRAs can function as an investment and savings vehicle. Let’s say an employer establishes an HRA for employees who elect the high-deductible health coverage option under its medical plan. The HRA is considered unfunded, and each participant receives a credit of $1,000 per year — with unrestricted carryovers. Over time, some employees amass sizable HRA account balances and pose a simple question to the employer: Can we earn interest on these balances? Bookkeeping entries The short answer is yes, but not by making actual investments — unless a trust is established to fund the HRA. (We’ll address this further below.) When an HRA is maintained on an unfunded basis, credits under the HRA represent bookkeeping entries rather than actual, separate assets.

If you’re claiming deductions for business meals or auto expenses, expect the IRS to closely review them. In some cases, taxpayers have incomplete documentation or try to create records months (or years) later. In doing so, they fail to meet the strict substantiation requirements set forth under tax law. Tax auditors are adept at rooting out inconsistencies, omissions and errors in taxpayers’ records, as illustrated by one recent U.S. Tax Court case. Facts of the case In the case, the taxpayer ran a notary and paralegal business. She deducted business meals and vehicle expenses that she allegedly incurred in connection with her business. The deductions were denied by the IRS and the court. Tax law “establishes higher substantiation requirements” for these and certain other expenses, the court noted. No deduction is generally allowed “unless the taxpayer substantiates the amount, time and place, business purpose, and business relationship to the taxpayer of the person receiving th

Should employers be concerned if their retirement plan participants withdraw money from their accounts for non-retirement purposes? A recent report from the Joint Committee on Taxation (JCT) says yes and explains why. The JCT report, titled “Estimating Leakage from Retirement Savings Accounts,” notes that designated retirement savings accounts generally receive favorable tax treatment under the Internal Revenue Code. “These tax subsidies are intended to encourage taxpayers to save more for retirement,” says the JCT. However, pre-retirement withdrawals are permitted under certain circumstances — often subject to certain penalties or additional taxes. “Pre-retirement withdrawals from retirement accounts are often referred to as ‘leakage,’” the JCT notes. The agency’s report puts a spotlight on this persistent problem. Further details In writing “Estimating Leakage from Retirement Savings Accounts,” the JCT set out to better understand contributions to and distributions from retirement

The IRS recently released guidance providing the 2022 inflation-adjusted amounts for Health Savings Accounts (HSAs). Fundamentals of HSAs An HSA is a trust created or organized exclusively for the purpose of paying the “qualified medical expenses” of an “account beneficiary.” An HSA can only be established for the benefit of an “eligible individual” who is covered under a “high deductible health plan.” In addition, a participant can’t be enrolled in Medicare or have other health coverage (exceptions include dental, vision, long-term care, accident and specific disease insurance). A high deductible health plan (HDHP) is generally a plan with an annual deductible that isn’t less than $1,000 for self-only coverage and $2,000 for family coverage. In addition, the sum of the annual deductible and other annual out-of-pocket expenses required to be paid under the plan for covered benefits (but not for premiums) can’t exceed $5,000 for self-only coverage, and $10,000 for family coverage.

The IRS has published new guidance on the Employee Retention Credit (ERC). The credit was created in March 2020 to encourage employers to keep their workforces intact during the COVID-19 pandemic. Notice 2021-49 addresses various issues, particularly those related to the extension of the credit through 2021 by the American Rescue Plan Act (ARPA). The guidance comes as Congress weighs ending the ERC early to help offset the costs of the pending infrastructure bill. As of now, the credit is worth as much as $28,000 per employee for 2021, or $7,000 per quarter. ERC essentials The CARES Act generally made the ERC available to employers whose: Operations were fully or partially suspended due to a COVID-19-related government shutdown order, or Gross receipts dropped more than 50% compared to the same quarter in the previous year (until gross receipts exceed 80% of gross receipts in the earlier quarter). The credit originally equaled 50% of “qualified wages” — including health care ben

Are you wondering whether alternative energy technologies can help you manage energy costs in your business? If so, there’s a valuable federal income tax benefit (the business energy credit) that applies to the acquisition of many types of alternative energy property. The credit is intended primarily for business users of alternative energy (other energy tax breaks apply if you use alternative energy in your home or produce energy for sale). Eligible property The business energy credit equals 30% of the basis of the following: Equipment, the construction of which begins before 2024, that uses solar energy to generate electricity for heating and cooling structures, for hot water, or heat used in industrial or commercial processes (except for swimming pools). If construction began in 2020, the credit rate is 26%, reduced to 22% for construction beginning in calendar year 2023; and, unless the property is placed in service before 2026, the credit rate is 10%. Equipment, the construct

The Small Business Administration (SBA) has released new guidance intended to expedite the forgiveness process for certain borrowers under the Paycheck Protection Program (PPP). The simplified process generally is available for loans of $150,000 or less, which the SBA reports account for 93% of outstanding PPP loans. The guidance comes at a time when many borrowers are nearing a critical deadline regarding their applications for forgiveness. Forgiveness basics PPP loans generally are 100% forgivable if the borrower allocates at least 60% of the funds to payroll and eligible nonpayroll costs. Borrowers may apply for forgiveness at any time before their loans’ maturity date. Loans made before June 5, 2020, generally have a two-year maturity; loans made on or after that date have a five-year maturity. However, if a borrower fails to apply for forgiveness within 10 months after the last day of the “covered period,” its PPP loan payments will no longer be deferred. (The covered period

If you’re getting ready to retire, you’ll soon experience changes in your lifestyle and income sources that may have numerous tax implications. Here’s a brief rundown of four tax and financial issues you may deal with when you retire: Taking required minimum distributions. This is the minimum amount you must withdraw from your retirement accounts. You generally must start taking withdrawals from your IRA, SEP, SIMPLE and other retirement plan accounts when you reach age 72 (70½ before January 1, 2020). Roth IRAs don’t require withdrawals until after the death of the owner. You can withdraw more than the minimum required amount. Your withdrawals will be included in your taxable income except for any part that was taxed before or that can be received tax-free (such as qualified distributions from Roth accounts). Selling your principal residence. Many retirees want to downsize to smaller homes. If you’re one of them and you have a gain from the sale of your principal residence,