New Exclusion of up to $10,200 of Unemployment Compensation

https://www.irs.gov/faqs/irs-procedures/forms-publications/new-exclusion-of-up-to-10200-of-unemployment-compensation

If your modified adjusted gross income (AGI) is less than $150,000, the American Rescue Plan enacted on March 11, 2021, excludes from income up to $10,200 of unemployment compensation paid in 2020, which means you don’t have to pay tax on unemployment compensation of up to $10,200. If you are married, each spouse receiving unemployment compensation doesn’t have to pay tax on unemployment compensation of up to $10,200. Amounts over $10,200 for each individual are still taxable. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation.

The exclusion should be reported separately from your unemployment compensation.

STUDENT LOANS

Section 9675 of the act effectively makes all student loan debt eligible for tax-free loan forgiveness through the end of 2025.

What does this change mean for borrowers, and how should they plan for their student loans?

Understanding Section 9675

The legislation will treat any student loan forgiveness from 2021 through 2025 as tax-free.  The definition includes virtually all types of student loan debt used expressly for post-secondary education purposes.

Loans Included:

  • All federally backed loans: Direct Loans, FFEL, Consolidation Loans, Federal Perkins Loans, and Parent PLUS Loans
  • All state-sponsored education loan programs
  • All institutional loans made by colleges and universities
  • All private loans made to students and parents

The inclusion of state, institutional, and private student loans in the legislation is a massive expansion for student loan borrowers as all federal stimulus aid before the new legislation was limited to federal loan borrowers only.

H.R.1319 – American Rescue Plan Act of 2021

American Rescue Plan Act of 2021

This bill provides additional relief to address the continued impact of COVID-19 (i.e., coronavirus disease 2019) on the economy, public health, state and local governments, individuals, and businesses.

Specifically, the bill provides funding for

  • agriculture and nutrition programs, including the Supplemental Nutrition Assistance Program (SNAP, formerly known as the food stamp program);
  • schools and institutions of higher education;
  • child care and programs for older Americans and their families;
  • COVID-19 vaccinations, testing, treatment, and prevention;
  • mental health and substance-use disorder services;
  • emergency rental assistance, homeowner assistance, and other housing programs;
  • payments to state, local, tribal, and territorial governments for economic relief;
  • multiemployer pension plans;
  • small business assistance, including specific programs for restaurants and live venues;
  • programs for health care workers, transportation workers, federal employees, veterans, and other targeted populations;
  • international and humanitarian responses;
  • tribal government services;
  • scientific research and development;
  • state, territorial, and tribal capital projects that enable work, education, and health monitoring in response to COVID-19; and
  • health care providers in rural areas.

The bill also includes provisions that

  • extend unemployment benefits and related services;
  • make up to $10,200 of 2020 unemployment compensation tax-free;
  • make student loan forgiveness tax-free through 2025;
  • provide a maximum recovery rebate of $1,400 per eligible individual;
  • expand and otherwise modify certain tax credits, including the child tax credit and the earned income tax credit;
  • provide premium assistance for certain health insurance coverage; and
  • require coverage, without cost-sharing, of COVID-19 vaccines and treatment under Medicaid and the Children’s Health Insurance Program (CHIP).

IRS Federal Tax Day for individuals extended to May 17… not State

https://www.irs.gov/newsroom/tax-day-for-individuals-extended-to-may-17-treasury-irs-extend-filing-and-payment-deadline

Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17

State tax returns

The federal tax filing deadline postponement to May 17, 2021, only applies to individual federal income returns and tax (including tax on self-employment income) payments otherwise due April 15, 2021, not state tax payments or deposits or payments of any other type of federal tax. Taxpayers also will need to file income tax returns in 42 states plus the District of Columbia. State filing and payment deadlines vary and are not always the same as the federal filing deadline.

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Second PPP Loan

https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program/second-draw-ppp-loans

Who may qualify

A borrower is generally eligible for a Second Draw PPP Loan if the borrower: 

  • Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses
  • Has no more than 300 employees; and
  • Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020

Update on TAXES

MARYLAND: PASS-THROUGH BUSINESSES CAN ELECT TO BE TAXED AT THE ENTITY LEVEL STARTING IN 2020

DECEMBER 2020Legislation enacted in Maryland on May 8, 2020 creates an election for pass-through entities (PTEs, e.g., partnerships, S corporations, limited liability companies (LLCs) that are not taxed as corporations in Maryland, etc.) to pay tax at the entity level rather than at the level of the members of the entity, which creates a corresponding tax credit for members. The law was enacted in response to the annual $10,000 cap on state tax deductions introduced under the federal Tax Cuts and Jobs Act enacted in December 2017. Maryland was one of several states searching for ways to help residents mitigate the impact of the SALT cap. The law applies as from July 1, 2020, and the election for PTEs applies to tax years beginning on or after January 1, 2020.

Significantly, on November 9, 2020, the IRS released Notice 2020-75 to announce that the IRS and Treasury intend to issue proposed regulations to clarify that state and local income taxes imposed on and paid by (which the IRS has coined “Specified Income Tax Payments”) a PTE on its income may be deducted by the PTE in computing its non-separately stated taxable income or loss for the taxable year of payment.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.