Approximately 70 million Americans will see a 5.9% increase in their Social Security benefits and Supplemental Security Income (SSI) payments in 2022. Federal benefit rates increase when the cost-of-living rises, as measured by the Department of Labor’s Consumer Price Index (CPI-W).

The CPI-W rises when inflation increases, leading to a higher cost-of-living. This change means prices for goods and services, on average, are a little more expensive, so the cost-of-living adjustment (COLA) helps to offset these costs.

The Social Security Administration will mail COLA notices throughout the month of December to retirement, survivors, and disability beneficiaries, SSI recipients, and representative payees. But, if you want to know your new benefit amount sooner, you can securely obtain your Social Security COLA notice online using the Message Center in your my Social Security account. You can access this information in early December prior to the mailed notice. If you don’t have an account yet, you must create one by November 17, 2021, to receive the 2022 COLA notice online.

The U.S. Small Business Administration (SBA) announced major modifications to the COVID-19 Economic Injury Disaster Loans (EIDL) program, including raising the loan cap from $500,000 to $2 million and adding business debt payments to the list of ways businesses can use the loan proceeds.

In a news release issued on September 9, 2021, the SBA said it was implementing the changes to make it easier for the small business communities still feeling the effects of the pandemic, especially hard-hit sectors such as restaurants, gyms, and hotels, to access the more than $150 billion in funding available for loans.

The following key changes were announced. All are effective immediately:

• Increasing the COVID-19 EIDL cap from $500,000 to $2 million. Loan proceeds can be used for any normal operating expenses and working capital, including meeting payroll, purchasing equipment, and paying debt. COVID-19 EIDL funds are now also eligible to prepay commercial debt and make payments on federal business debt.
• Implementation of a deferred payment period. The SBA said small business owners will not have to begin COVID-19 EIDL repayments until two years after loan origination. Payments are deferred for the first two years (during which interest will accrue), and payments of principal and interest are made over the remaining 28 years. The agency previously had implemented an 18-month deferment period for loans made during 2021.
• Establishment of a 30-day exclusivity window. To ensure “main street” businesses have additional time to access these funds, the SBA said it is implementing a 30-day exclusivity window of approving and disbursing funds for loans of $500,000 or less. Approval and disbursement of loans over $500,000 will begin after the 30-day period.
• Simplification of affiliation requirements. To ease the COVID-19 EIDL application process for small businesses, the SBA established more simplified affiliation requirements to mimic those of the Restaurant Revitalization Fund.

The COVID-19 EIDL program, which runs through December 31, offers 30-year loans with fixed interest rates of 3.75% for small businesses, including sole proprietors and independent contractors, and 2.75% for not-for-profits. If you would like more information about this program, including determining if it might benefit your business, please contact our office.

The IRS recently issued its annual update of special per-diem rates for substantiating ordinary and necessary business expenses incurred while traveling away from home. The new rates are in effect from October 1, 2021, to September 30, 2022. Specifically, the per-diem rates issued include the transportation industry meal and incidental expenses rates; the rate for the incidental-expenses-only deduction; and the rates and list of high-cost localities for purposes of the high-low substantiation method.

High-low substantiation method

For purposes of the high-low substantiation method, the per-diem rates are $296 for travel to any high-cost locality and $202 for travel to any other locality within the continental United States, both slightly higher than last year.

The amount of these rates that is treated as paid for meals is $74 for travel to a high-cost locality and $64 for travel to any other locality within continental United States, both also slightly higher than last year.

The notice contains a list of the localities that are high-cost localities (localities that have a federal per-diem rate of $249 or more, $4 higher than last year) for all or part of the calendar year.

Incidental expenses

Since 2012, incidental expenses have included only fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. The per-diem rate for the incidental-expenses-only deduction remains unchanged at $5 per day for any locality of travel.

Transportation industry

The special meals and incidental expenses rates for taxpayers in the transportation industry are $69 for any locality of travel within continental United States and $74 for any locality of travel outside continental United States, both $3 more than last year.

Recent legislation includes several provisions to help individuals and businesses who give to charity. The new law generally extends four temporary tax changes through the end of 2021. Here’s an overview of these changes.

Deduction for individuals who don’t itemize

Taxpayers who take the standard deduction usually can’t deduct their charitable contributions. The law now permits taxpayers to claim a limited deduction on their 2021 federal income tax returns for cash contributions they made to certain qualifying charitable organizations.

These taxpayers, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions to qualifying charities during 2021. The maximum deduction is $600 for married individuals filing joint returns.

100% limit on eligible cash contributions made by taxpayers who itemize deductions in 2021

Taxpayers who itemize can generally claim a deduction for charitable contributions to qualifying organizations. The deduction is typically limited to 20% to 60% of their adjusted gross income and varies depending on the type of contribution and the type of charity.

The law now allows taxpayers to apply up to 100% of their AGI, for calendar-year 2021 qualified contributions. Qualified contributions are cash contributions to qualifying charitable organizations.

The 100% limit is not automatic, however. The taxpayer must choose to take the new limit for any qualified cash contribution. Otherwise, the usual limit applies. The taxpayer’s other allowed charitable contribution deductions reduce the maximum amount allowed under this election.

Corporate limit increased to 25% of taxable income

The law now permits C corporations to apply an increased corporate limit of 25% of taxable income for charitable cash contributions made to eligible charities during calendar year 2021. The increased limit is not automatic. C corporations must the choose the increased corporate limit on a contribution-by-contribution basis.

Increased limits on amounts deductible by businesses for certain donated food inventory

Businesses donating food inventory that are eligible for the existing enhanced deduction may qualify for increased deduction limits. For contributions made in 2021, the limit is increased to 25%. For C corporations, the 25% limit is based on their taxable income. For other businesses, including sole proprietorships, partnerships, and S corporations, the limit is based on their total net income for the year. A special method for computing the enhanced deduction continues to apply, as do food quality standards and other requirements.

The Paycheck Protection Program (PPP) provided more than 11.7 million forgivable loans totaling nearly $800 billion to small businesses and other eligible entities hurt by the economic impacts of the COVID-19 pandemic. Almost $400 billion has been forgiven. According to the Small Business Administration (SBA), loans of $150,000 or less account for 93% of outstanding PPP loans.

Despite earlier moves to streamline the forgiveness process for those loans, many smaller PPP lenders have informed the SBA that they lack the technology and manpower to develop efficient electronic loan forgiveness platforms to process forgiveness applications.

In addition, the SBA said it has heard concerns from PPP lenders of all sizes that the requirement for borrowers to submit and lenders to review revenue reduction documentation at the time of forgiveness is delaying the forgiveness process for second-draw PPP loans of $150,000 or less.

To address these problems and ease the forgiveness bottleneck, the SBA is making two significant changes.

1. Introduction of a COVID Revenue Reduction Score

To streamline forgiveness of second-draw PPP Loans of $150,000 or less where the borrower did not submit documentation of revenue reduction at the time of the loan application, the SBA will offer an alternative form of revenue reduction confirmation.

Each second-draw PPP loan of $150,000 or less will be assigned a COVID Revenue Reduction Score created by an independent, third-party SBA contractor, based on a variety of inputs, including industry, geography, and business size, and current economic data on the economic recovery and return of businesses to operational status.

The score will be maintained in the SBA’s loan forgiveness platform and will be visible to lenders to use as an alternative to document revenue reduction. Additionally, the score will be visible to those borrowers that submit their loan forgiveness applications through the platform using the direct borrower forgiveness process described in the next section.

When the score meets or exceeds the value required for validation of the borrower’s revenue reduction, use of the score will satisfy the requirement for the borrower to document revenue reduction. When the score does not meet the value required for validation of the borrower’s revenue reduction, and if the borrower has not already provided documentation to the lender that validates the borrower’s revenue reduction, the borrower will have to provide documentation either directly to the lender (for those lenders that do not opt in to the direct borrower forgiveness process) or provide documentation to the lender by uploading it to the platform.

2. Launch of a direct borrower forgiveness process

On August 4, 2021, the SBA launched a new direct forgiveness process that provides PPP lenders with an optional technology solution that essentially will allow their borrowers to apply for loan forgiveness directly to the SBA through a new portal.

When a PPP lender opts in to the direct borrower forgiveness process, the new portal will provide a single secure location that integrates with the SBA’s PPP platform and allows borrowers with loans of $150,000 or less to apply for loan forgiveness using an electronic equivalent of SBA Form 3508S. Upon receipt of notice that a borrower has applied for forgiveness through the platform, lenders will review the loan forgiveness application and issue a forgiveness decision to the SBA inside the platform.

Despite the launch of this new portal, borrowers should continue to submit loan forgiveness applications to their lenders, rather than through the platform, under the following circumstances:

• The PPP lender does not opt in to use the direct borrower forgiveness process;
• The borrower’s PPP loan amount is greater than $150,000;
• The borrower does not agree with the data as provided by the SBA system of record, or cannot validate their identity in the platform (for example, if there is an unreported change of ownership); or
• For any other reason where the platform rejects the borrower’s submission.

Whether their business has one company car or a fleet of vehicles, many business owners find company-owned passenger vehicles to be an indispensible tool for running their businesses. Purchasing or leasing a vehicle can be a large expense, but this expense can be somewhat mitigated by depreciating the vehicle over the first several years that it is in service. The limits for how much of this expense can be depreciated each year is dictated by the government and revised annually for inflation.

As expected, the IRS recently issued its annual inflation-adjusted update of depreciation limitations for passenger automobiles (including passenger vans and trucks) placed in service in 2021. They also updated income inclusion amounts by lessees of passenger automobiles for vehicles with lease terms beginning in 2021.

For passenger automobiles to which the bonus first-year depreciation deduction applies and that are acquired after September 27, 2017, and placed in service during calendar year 2021, the depreciation limit is $18,200 for the first tax year (an increase of $100 from 2020); $16,400 for the second tax year (an increase of $300); $9,800 for the third tax year (an increase of $100); and $5,860 for each succeeding year (an increase of $100).

If bonus first-year depreciation does not apply, the depreciation limit for passenger automobiles is $10,200 for the first tax year; $16,400 for the second tax year; $9,800 for the third tax year; and $5,860 for each succeeding year.

The IRS limits deductions for the cost of leasing automobiles, expressed as an income inclusion amount. This limitation is intended to be substantially equivalent to the depreciation limitation. If your business is affected by this income inclusion amount, please refer to table 3 of Rev. Proc. 2021-31 which provides income inclusion dollar amounts for lessees of passenger automobiles with a lease term beginning 2021.

In an effort to capture income from household employees, the tax code requires you to obtain employee information, pay the related state and federal taxes, and withhold taxes for anyone you employ around the house. The requirement for this “nanny tax” comes into play if you pay any one individual $2,300 or more (in 2021). You must then submit a W-2 for each of these household employees.

Who is covered?

The household workers typically covered by this law include:

• babysitters
• caretakers
• house cleaners
• domestic workers
• drivers
• health aides
• housekeepers
• maids
• nannies
• private nurses
• yard workers

Employee or Not an Employee

Before you get too worried that the nanny tax might affect you, first determine whether your help is an employee or not. If in the eyes of the tax code, your help is not an employee the nanny tax rules do not apply. What does the IRS look for?

• Who controls how the work is done? If the worker clearly does, then the person is self-employed and not your employee.
• Whose tools are used? If the worker’s tools are used then they are more likely self-employed and not your household employee.
• Work exclusively for you? If the worker has a number of customers then they are less likely to be your household employee.
• Does an agency supply the worker? If an agency supplies the worker and controls what work is done and how it is done, the worker is not your employee.
• Daycare services at an offsite location. If your childcare is conducted in the worker’s home, that worker is generally not your employee.

Some Suggestions

Have your help become incorporated. The reporting rule only applies to hired individuals. If your household help is in a LLC or S-Corporation, it is up to that company to employ the worker and pay their employment taxes.

Be aware of the annual limit. Make sure your total payments do not exceed the reporting threshold each year.

Determine if the hired help are truly employees or self-employed.

Rotate services. If you have help with yard work consider employing a number of helpers to make sure no one person is paid above the reporting threshold.

The first advance payment from the newly expanded child tax credit was recently sent out by the IRS. Payments are scheduled to be made on the 15th of each month through December.
The idea of advance payments made for a refundable credit confuses a lot of people, so here’s what you need to know.

Background

For the 2021 tax year, an expanded child tax credit reduces your tax bill by $3,600 if you have a qualifying child that’s age 5 or under, or by $3,000 if you have a qualifying child from age 6 to 17.

If the total amount of the child tax credit for your family exceeds the total taxes you owe, you’ll receive the amount of the credit as a refund.

Child tax credit advance payments

Instead of waiting to file your tax return to receive the entire amount of your child tax credit, the IRS has been directed by Congress to send 50% of the credit to you in six monthly payments beginning in July 2021.

For example, consider the hypothetical example of a family that has three kids, ages 10, 12 and 16. Assume that this family’s income is not too high and that their children meet the IRS definition of a qualifying child. Instead of waiting until 2022 when they file their 2021 tax return to receive the entire $9,000 child tax credit, they can get paid half of the child tax credit amount, or $4,500, in 2021.

The advance payments began July 15 and continue for six months until December 15. The family in this example would receive six payments of $750 starting July 15, for a total of $4,500.

What you need to know

The monthly payments are automatic. You’ll automatically receive advance payments if:

• You filed a 2019 or 2020 tax return and claimed the credit, OR
• You gave information in 2020 to receive the Economic Impact Payment using the IRS non-filer tool, AND
• The IRS thinks you are eligible, AND
• You did not opt-out of the early payments.

Register with the IRS. If you didn’t file a 2019 or 2020 tax return but are otherwise eligible for the child tax credit, you’ll need to register with the IRS to receive the child tax credit. You can use the IRS Child Tax Credit Non-filer Sign-up Tool to find out if you need to register.

Consider if you should opt out of the advance payments. Getting half of your child tax credit ahead of time may not be the right move for everyone. For example, if your 2021 income ends up higher than expected, you may need to pay back the advance payments when you file your tax return. To opt out, use the IRS Child Tax Credit Update Portal.

Now is the time to begin tax planning for your 2021 return. Here are some ideas:

Contribute to retirement accounts. Tally up all your 2021 contributions to retirement accounts so far, and estimate how much more you can save between now and December 31. If you are able, consider investing in an IRA or increasing your contributions to your employer-provided retirement plans. Remember, you can reduce your 2021 taxable income by as much as $19,500 by contributing to a retirement account such as a 401(k). If you’re age 50 or older, you can reduce your taxable income by up to $26,000!

Contribute directly to a charity. Even if you don’t have enough qualified expenses in order to itemize your deductions, you can still donate to your favorite charity and cut your tax bill. For 2021, you can reduce your taxable income by up to $300 if you’re single and $600 if you’re married by donating to your favorite charity.

Consider a donor-advised fund. With a 2021 standard deduction of $12,550 if you’re single and $25,100 if you’re married, you may not be able to claim your charitable donations as a tax deduction if the total of your annual donations is below these dollar amounts. As an alternative, consider donating multiple years-worth of contributions to a donor-advised fund if you have the available cash so you can exceed the standard deduction this year. Then make your cash contributions from the donor-advised fund to your favorite charities over the next three years.

Increase daycare expenses. If you or your spouse work and have children in daycare, or have an adult that you care for, consider using a daycare so you and a spouse can both work. This might allow you to take advantage of a larger tax break available in 2021. If you have one qualifying dependent, you can spend up to $8,000 in daycare expenses while cutting your tax bill by $4,000. If you have more than one qualifying dependent, you can spend up to $16,000 in daycare expenses while cutting your tax bill by $8,000. To receive the full tax credit, your adjusted gross income must not exceed $125,000.

Contribute to an FSA or an HSA. Flexible spending accounts (FSA) and health savings accounts (HSA) allow you to pay medical and dental expenses with pre-tax dollars and reduce your tax liability. If you have an FSA, you can contribute up to $2,750 in 2021, and unspent funds in an FSA can now be rolled from 2021 to 2022. If you have an HSA, you can contribute up to $3,600 if you’re single and $7,200 if you’re married.

If you have questions about any of these tips, or if you need help with tax planning for 2021, please contact our office so we can help.

The American Rescue plan signed in March, 2021 requires the IRS to pay out one half of enhanced Child Tax Credits (CTC) to eligible taxpayers beginning this month. If you or someone you know have children, here’s what you need to know:

Current status

IRS web-sites. The IRS has created two web sites to help administer this program – one to help ensure you will get your Child Tax Credit if you are a non-filer, and another to opt out of the monthly payments. Both can be accessed on the IRS website at https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021.

The monthly payments are automatic. Beginning mid-July you will begin receiving payments for one half of your projected 2021 Child Tax Credit if all of the following is true:

• You filed a 2019 or 2020 tax return and claimed the credit or you gave information in 2020 to receive the Economic Impact Payment using the IRS non-filer tool.
• The IRS thinks you are eligible.
• You did not opt-out of the early payments.

Opting-out

Although most people who receive the CTC advance payments should accept and make use of them, there are some good reasons why some might want to opt of of the advance payments.

If you do not qualify for the credit. The IRS is using past tax returns to estimate who should get advance payments of this credit. Since they are using past data, they might sometimes be wrong. If your 2021 income is too high, you may need to pay back the advance payments when you file your tax return.

If you need the large credit. If you use this credit to balance out your year-end tax bill, you may find yourself owing money at the end of the year.

If your circumstances change. If your tax life changes, advance payments of the credit will complicate things. For example, if you are in the middle of a separation or divorce, the advanced payments could become a source of conflict.

Action to take

Look for notices. The IRS is sending out notices in the mail to those they think should receive the Advance Child Tax Credit payments. If you have not received one, the IRS may not think you should receive payments. But don’t worry, if you are owed the credit you will receive it when you file your tax 2021 tax return, even if you don’t receive advance payments.

Opt-out, if needed. If you do not want to receive the early Child Tax Credit payments, use the opt-out portal immediately to opt-out of the payments.

Keep track of payments. You will need to know how much you receive in advanced payments when you file your tax return next year. Do not assume the IRS is going to accurately keep track of this for you.

Tell your friends. Finally, remember that the Child Tax Credit is now a fully refundable credit. So if you know of anyone that does not pay income tax and has children, tell them. The new Child Tax Credit might help them make ends meet.