Making Sense of All the Employer Tax Credits for 2020

The IRS is attempting to provide as much information on the various tax credits available to employers during the COVID-19 pandemic.  In its latest bid to streamline the information, the IRS has issued Publication 5419, New Employer Tax Credits.  The flowchart style publication can be found on the IRS website.  The chart breaks the tax credits into two sections.  The first section is on the Employee Retention Credit portion.  It explains the purpose of the credit…to encourage employers to keep employees on their payroll…the amount of the credit…50%…and who is eligible for the credit…all employers regardless of size, but not governments or businesses who received a PPP loan.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 2 of the chart outlines the leave credits for paid sick leave and paid family leave.  This applies to employers with 500 or less employees.

For more info or details on these credits see the IRS website.

Last Chance to Register for Form 941:COVID-19 Edition Webinar

Today is the last day to register for our upcoming webinar, Form 941: CCOVID-19 Edition being held tomorrow. The passage of the Families First and Cares Acts have caused massive changes to IRS Form 941 that affect the final three quarters in 2020! 16 new lines now appear on this form along with changes to two others! Are you ready to meet these changes and handle them correctly? Join me tomorrow,  Thurs., May 28th at 10 am Pacific as I examine the Form 941–COVID-19 edition in depth. Use coupon code cjyfrqa6 at checkout for a 10% discount.

The webinar will cover:

  • What’s New for Q2-Q4 2020
  • Families First Act: Credits for Paid Sick Leave and Paid Family Leave
  • CARES Act: including deferring Employer’s Social Security
  • IRS Form 7200: Purpose for the form and how it applies to you
  • Line by line review of the massive changes of the New Revised Form 941

Submitted to the APA for approval for 1.5 RCHs

Form 941: COVID-19 Edition Webinar

The passage of the Families First and Cares Acts have caused massive changes to IRS Form 941 that affect the final three quarters in 2020! 16 new lines now appear on this form along with changes to two others! Are you ready to meet these changes and handle them correctly? Join me on Thurs., May 28th at 10 am Pacific as I examine the Form 941–COVID-19 edition in depth. Use coupon code cjyfrqa6 at checkout for a 10% discount.

The webinar will cover:

  • What’s New for Q2-Q4 2020
  • Families First Act: Credits for Paid Sick Leave and Paid Family Leave
  • CARES Act: including deferring Employer’s Social Security
  • IRS Form 7200: Purpose for the form and how it applies to you
  • Line by line review of the massive changes of the New Revised Form 941

Submitted to the APA for approval for 1.5 RCHs

Avoiding Common Errors When Filing Form 7200

In news for tax professionals and small businesses, the IRS has advised those who are beginning to deal with Form 7200, Advance Payment of Employer Credits Due to COVID-19 to do so carefully to avoid making error when completing the new form.  Mistakes in completing the form can lead to processing delays, which in turn delays the IRS approving the credits.

Background: The Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief and Economic Security or CARES Act both provide refundable tax credits for the employer.  FFCRA requires employers (of a certain size) to provide paid sick leave or paid family leave.  To offset the cost of this leave, the employer is permitted to take refundable tax credits against employment taxes.  The CARES Act permits the employer to take a “employee retention credit” equal to 50% of “qualified wages”.  This is also offset against employment taxes. However, it is possible for these credits to exceed the employer’s actual tax deposits.  In this case, the employer is permitted to receive the excess paid leave credits or the employee retention credit in advance by using Form 7200.

 

However, the IRS has noted some common errors or mistakes in filling out the form, slowing the process.  The errors to avoid include:

  • Missing or inaccurate Employer Identification Number (EIN). Each EIN on a tax return should be exact.
  • Checking more than one box for applicable calendar quarter. Only one box should be checked for the correct quarter.
  • Check more than one box for Part 1, Line A. Likewise, only one box should be checked in Part 1, Line A.
  • Skipping Part 1, Line B. Complete Part 1, Line B. In Part 1, Line B check either “Yes” or “No”.
  • Not fully completing Part II. Complete all the lines in Part II. This identifies which credits are being claimed.
  • Not completing Part II, Lines 1-8. Part II should be completed using dollar amounts, not the number of eligible employees. All lines in Part II should be completed with an actual dollar amount.
  • Inputting the number of eligible employees on lines in Part 2, instead of dollar amounts.
  • Not checking the math on lines 4, 7 and 8 (i.e., subtracting instead of adding or vice versa)
  • Not signing the form (automatic rejection)
  • Wrong individual signing the form
    • Sole proprietorship—The individual who owns the business.
    • Corporation (including a limited liability company (LLC) treated as a corporation)—The president, vice president, or other principal officer duly authorized to sign.
    • Partnership (including an LLC treated as a partnership) or unincorporated organization—A responsible and duly authorized partner, member, or officer having knowledge of its affairs.
    • Single-member LLC treated as a disregarded entity for federal income tax purposes—The owner of the LLC or a principal officer duly authorized to sign.
    • Trust or estate—The fiduciary.

Also, Form 7200 may be signed by a duly authorized agent of the Eligible Employer if a valid Form 2848 (Power of Attorney and Declaration of Representative) has been filed.

For more information about Form 7200 and its use can be found on IRS.gov: About Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Payroll Lecture 105: Form 941: COVID-19 Edition

If you thought the 2020 Form W-4 was “fun” now we have Form 941-COVID-19 edition coming for the second quarter of 2020. With 16 new lines this edition is going to be “challenging” to say the least. My new webinar covers all the COVID-19 changes to the Form 941. Join me on Thurs., May 28th starting at 10 am Pacific. Use code cjyfrqa6 at checkout for a 10% discount for my blog followers.

Register today! Only $149.00 (use coupon code bbtk7fcj at checkout for 10% discount)

Date: Thursday, May 28, 2020

Time: 10 am to 11:30 am Pacific (90-minutes)

This Presentation will cover:

  • What’s New for Q2-Q4 2020
  • Families First Act: Credits for Paid Sick Leave and Paid Family Leave
  • CARES Act: including deferring Employer’s Social Security
  • IRS Form 7200: Purpose for the form and how it applies to you
  • Line by line review of the massive changes of the New Revised Form 941

Payroll Lecture 105: 2020 Form 941–COVID-19 Edition

Our next webinar/lecture will cover the 2020 Form 941–COVID-19 Edition.  The passage of the Families First and Cares Acts have caused massive changes to IRS Form 941 that affect the final three quarters in 2020! 16 new lines now appear on this form along with changes to two others! Are you ready to meet these changes and handle them correctly? Here are just some of the new items you must now know and understand:

  • What has changed in Line 11?
  • Where do you enter your total non-refundable credits?
  • Where do you enter the deferred amount of the employer share of social security tax?
  • Where do you enter total deposits, deferrals, and refundable credits?
  • What is entered on Line 22?

This Presentation will cover:

  • What’s New for Q2-Q4 2020
  • Families First Act: Credits for Paid Sick Leave and Paid Family Leave
  • CARES Act: including deferring Employer’s Social Security
  • IRS Form 7200: Purpose for the form and how it applies to you
  • Line by line review of the massive changes of the New Revised Form 941

And more!

Date: Thursday, May 28, 2020

Time:  10:00 am to 11:30 am Pacific (90-minutes)

Cost: $149 per attendee (multiple attendees may attend at one site but only the paid attendee will receive RCHs)

Payroll 24/7 blog followers receive a 10% discount if they register by May 26th using the coupon code cjyfrqa6 at checkout.

Submitted to the APA for 1.5 RCHs

Locking In Lock-In Letters in 2020

The Internal Revenue Service (IRS) has announced (in Notice 2020-03) that it is redesigning Withholding Compliance Lock-In Letters 2800C and 2808C to include new instructions as it relates to the redesigned Form W-4 for 2020.

The Tax Cuts and Job Act of 2017 (TCJA) changed withholding calculations by eliminating allowances, and in response, the IRS redesigned Form W-4, Employee’s Withholding Certificate for 2020. The Service is also redesigning the Withholding Compliance Lock-in Letters to reflect these changes. Effective January 1, 2020, TCJA mandated withholding calculations to consider credits, adjustments and deductions to factor a dollar value. The allowance withholding method and the TCJA withholding method use the same tax tables. For now, employers and payroll providers will use the allowance method as directed in the letters they receive to calculate employees’ withholding per pay period. After the lock-in letters redesign is complete, they should follow the new TCJA directions.

Withholding Compliance Lock-In Letters 2800C and 2808C are being redesigned to include the new lock-in rate instructions. Instead of providing the employer with the number of allowances by which withholding would be reduced, the letters will provide employers with the withholding status and withholding rate and any annual reductions to withholding or additional amount to withhold per pay period as a dollar value.

The format shown below is what the withholding instructions will look like on the redesigned 2800C lock-in letter:

  • Withholding Status (Filing Status): Single
  • Withholding rate: Form W-4, Step 2(C), Checkbox (higher withholding rate)
  • Annual reductions from withholding (Form W-4 line 3): $0.00
  • Other income (Form W-4 line 4(a)): $0.00
  • Deductions (Form W-4 line 4 (b)): $0.00

Additional amount to withhold per paycheck (Form W-4 line 4(c)): $0.00

The format shown below is what the withholding instructions will look like on the redesigned 2808C modification letter:

  • Withholding Status (Filing Status): Single (or Married or Head of Household)
  • Withholding rate: Standard withholding rate
  • Annual reductions from withholding (Form W-4 line 3): $0.00
  • Other income (Form W-4 line 4(a)): $0.00
  • Deductions (Form W-4 line 4 (b)): $0.00
  • Additional amount to withhold per paycheck (Form W-4 line 4(c)): $0.00

Until the redesigned Letters 2800C and 2808C are cleared for publishing, the IRS Withholding Compliance Unit will continue to issue the Withholding Compliance Lock-in Letters using the old allowance withholding method and employers should follow the letters as directed.

Employers who have already converted their payroll systems to the new 2020 withholding methods can input values to Step 4(a) and 4(b) as follows:

  • 4(a) – 12,900 for MFJ or 8,600 for all others; and
  • 4(b) – Number of allowances, as specified in the letter, multiplied by 4,300.

For additional guidance see the IRS webpage Updated Withholding Compliance Questions and Answers

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COVID-19 Update

The IRS (including the Social Security Administration) holds a monthly payroll profession phone meeting.  Usually on the first Thursday of the month, it was delayed this month due to the COVID-19 pandemic.  It was held yesterday.  As expected, the call centered around the latest updates for the pandemic on the new legislation. Here’s the recap for you:

1. There was a brief discussion on the updates the IRS has released, which include:

  • Notice 2020-21: discusses tax credits
  • Notice 2020-62: retention credits and FAQs
  • Notice 2020-54: HSA adjustments for the pandemic

2. It also discussed the latest forms to be released.  This includes the Form 7200 and its instructions.  This form is used to request tax credits in advance for the Families First Act and the CARES Act.

3. The Form 941 was discussed.  It is in the drafting stage and this draft version should be released by the end of next week.  This will be the form to use for the second quarter and beyond. It is being redesigned to allow for lines to report the various COVID-19 tax credits.  The form will go from two pages to three.  It is still unclear whether or not the Schedule B will be revamped as well.

4. Social Security Administration reminded the attendees that they are also on limited staffing so the employer 800# is not being staffed as it is not able to be accessed remotely by employees.  Employers are urged, instead, to use the email employers@ssa.gov  for any questions they may have.  This can be staffed from home by SSA staff members.  If you have questions on using the Business Services Online (BSO) you should email bso.support@ssa.gov.

The meeting for May will be on schedule and I will have any news from it posted by Friday of the same week.

Lock In Letter Guidance Updated by IRS

The new Form W-4 just keeps on providing more and more info for us payroll professionals.  We now turn to handling lock-in letters.  The IRS has updated its FAQs to explain how to handle the lock-in letters using the new 2020 Form W-4.  As a quick review on the background of lock-in letters.

If the IRS determines that an employee does not have enough withholding, they will notify the employer to increase the amount of withholding tax by issuing a “lock-in” letter that specifies the withholding arrangement permitted for the employee. The employer will also receive a copy for the employee that identifies the withholding arrangement permitted and the process by which the employee can provide additional information to the IRS for purposes of determining the appropriate withholding arrangement. If the employee still works for for the employer, the employer must furnish the employee copy to the employee. If the employee NO LONGER WORKS for the employer, NO ACTION IS REQUIRED. However, if the employee should return to work within twelve (12) months, the employer should begin withholding income tax from the employee’s wages based on the withholding arrangement stated in this letter. The employee will be given a period of time before the lock-in rate is effective to submit for approval to the IRS a new Form W-4 and a statement supporting the claims made on the Form W-4 that would decrease federal income tax withholding. The employee must send the Form W-4 and statement directly to the IRS office designated on the lock-in letter. The employer must withhold tax in accordance with the lock-in letter as of the date specified in the lock-in letter, unless otherwise notified by the IRS. The employer will be required to take this action no sooner than 60 calendar days after the date of the lock-in letter. Once a lock-in rate is effective, an employer cannot decrease withholding unless approved by the IRS.

The new FAQs include:

  • how to handle revised W-4s after the lock-in letter is received
  • How to handle a modification letter
  • Handling employee self service portals and lock-in letter

The site still includes info on how to handle lock-in letters using the 2019 and prior forms.

 

Last Day for Discount Registration to Upcoming Webinar

Only one day left to register for our upcoming webinar Payroll Lecture Series #101: Handling IRS Forms in 2020 and receive your 10% discount as a subscriber to my blog.  You don’t want to miss this information-packed webinar on the IRS forms for 2020 including the new and improved (?) Form W-4.  Register today and use coupon code VVJECAXH at checkout to receive your discount.