On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law with the goal of providing economic relief to promote family, state, and local recovery from the COVID-19 pandemic. Let’s talk about how that changes your taxes for 2021.
Economic Impact Payments
The third round of economic impact (or stimulus) payments went out in the spring of 2021. The first two rounds went onto your 2020 taxes and brought lots of confusion with it.
Your last economic impact statement isn’t taxable because it isn’t income. It is classified as an advance payment of a tax credit, so it won’t change your taxes this year at all. If you didn’t receive your third stimulus check, or you received less than you’re entitled to, you can talk to your tax professionals to see if you can claim credit for the amount on your 2021 tax returns (which will be filed next year).
Employee Retention Credit
Originally set to expire at the end of June 2021, the Employee Retention Credit has been extended through December 31, 2021. If your business was hit hard and has gross receipts down by 90% or more compared to the corresponding quarter in 2019, you can claim this credit on all wages paid to employees who have continued to work during the quarter.
You can use this credit to offset the employer’s share of Medicare taxes.
The American Rescue Plan Act also allows any employees and individuals who were involuntarily terminated or who experienced reduced work hours the option to receive Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage without paying any premiums or fees from April 1, 2021, to September 30, 2021. Employers are responsible for these fees during this time.
Excess Business Losses
Under previous laws, owners of pass-through entities were able to deduct losses in excess of a specified amount as specified by IRC section 461(I). The cap on business loss deductions was supposed to expire at year-end in 2025, but that has been extended another year.
1099-K Third-party Reporting
If your business has more than 200 transactions for goods and services totaling $20,000 or more on third-party payment networks like credit, debit, and electronic payment transfer systems, you are required to report those amounts annually on Form 1099-K.
According to CPA Journal, “starting with transactions in 2022…the same $600 threshold used for Form 1099-NEC issued to independent contractors will apply to third-party payment networks.”
Change is Constant
Please keep in mind that these changes are the latest and most up-to-date for the moment, but as the coronavirus pandemic continues to affect many countries all over the world and the situation in the United States continues to evolve, there could be more new updates as the year draws to an end. Eliminate the need to stay up to date on all these changes by utilizing our electronic filing service!
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