Daily News Updates for January, 2022

A bit more of a change up for the new year.  Several of my followers have noted that having one blog for news updates per month would be easier rather than breaking it up by week.  To further refine my new blogs I will do one for each month, in this case January, and update daily as my news letters go out.  I hope you find this helpful.

January 25, 2022: IRS: The IRS has issued guidance for employers regarding the retroactive termination of the Employee Retention Credit. Notice 2021-65 applies to employers that paid wages after September 30, 2021 and received an advance payment of the Employee Retention Credit for those wages or reduced employment tax deposits in anticipation of the credit for the fourth quarter of 2021 but are now ineligible for the credit due to the change in the law.

January 14, 2022: Virginia:  The Department of Taxation has revised the Income Tax Withholding Guide for Employers with a January 2022 revision date. The Guide was last revised November 2021. There are no substantive changes. The tax tables are not changed.

January 6, 2022: On the payroll industry phone call this morning the IRS stated to my question that it has still not issued guidance on the electronic filing threshold for Forms W-2 for 2021 W-s filed by 1-31-22. It could be 100 or more or still 250 or more.

January 4, 2022:   Form W-4 has been finalized for 2022. It is available on the IRS website.

 

 

 

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IRS Issues Guidance on ERC for 4th Quarter

Editor’s Note: The Internal Revenue Service today issued guidance for employers regarding the retroactive termination of the Employee Retention Credit. I have included the entire email breakdown provided by the IRS with the Notice for you in this blog. Use the link to access the actual notice for more info.

The Infrastructure Investment and Jobs Act, which was enacted on Nov. 15, 2021, amended the law so that the Employee Retention Credit applies only to wages paid before October 1, 2021, unless the employer is a recovery startup business. Notice 2021-65 applies to employers that paid wages after September 30, 2021, and received an advance payment of the Employee Retention Credit for those wages or reduced employment tax deposits in anticipation of the credit for the fourth quarter of 2021, but are now ineligible for the credit due to the change in the law. The notice also provides guidance regarding how the rules apply to recovery startup businesses during the fourth quarter of 2021.

Employers who Received Advance Payments

Generally, employers that are not recovery startup businesses and received advance payments for fourth quarter wages of 2021 will avoid failure to pay penalties if they repay those amounts by the due date of their applicable employment tax returns.

Employers who Reduced Employment Tax Deposits

Employers that reduced deposits on or before Dec. 20, 2021, for wages paid during the fourth calendar quarter of 2021 in anticipation of the Employee Retention Credit and that are not recovery startup businesses will not be subject to a failure to deposit penalty with respect to the retained deposits if—

 

  • The employer reduced deposits in anticipation of the Employee Retention Credit, consistent with the rules in Notice 2021-24,
  • The employer deposits the amounts initially retained in anticipation of the Employee Retention Credit on or before the relevant due date for wages paid on December 31, 2021 (regardless of whether the employer actually pays wages on that date). Deposit due dates will vary based on the deposit schedule of the employer, and
  • The employer reports the tax liability resulting from the termination of the employer’s Employee Retention Credit on the applicable employment tax return or schedule that includes the period from October 1, 2021, through December 31, 2021. Employers should refer to the instructions to the applicable employment tax return or schedule for additional information on how to report the tax liability.

Due to the termination of the Employee Retention Credit for wages paid in the fourth quarter of 2021 for employers that are not recovery startup businesses, failure to deposit penalties are not waived for these employers if they reduce deposits after Dec. 20, 2021. If an employer does not qualify for relief under this Notice, it may reply to a notice about a penalty with an explanation and the IRS will consider reasonable cause relief.

IRS Releases 2022 Retirement Plan Limits

Section 415 of the Internal Revenue Code (“Code”) provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost-of-living increases. The IRS released Notice 2021-61 (PDF) to provide for cost-of-living adjustments to dollar limitations for retirement plan benefits and contributions. This includes the following:

  • Annual benefit under a defined benefit plan under section 415(b)(1)(A) of the Code is increased from $230,000 to $245,000
  • The limitation for defined contribution plans under section 415(c)(1)(A) is increased in 2022 from $58,000 to $61,000.
  • The limitation under section 402(g)(1) on the exclusion for elective deferrals described in section 402(g)(3) is increased from $19,500 to $20,500.
  • The annual compensation limit under sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $290,000 to $305,000.
  • The dollar limitation under section 416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan is increased from $185,000 to $200,000.
  • The limitation used in the definition of “highly compensated employee” under section 414(q)(1)(B) is increased from $130,000 to $135,000.

 

IRS Releases Deposit Schedules and Rules for 2022

The IRS has issued the annual deposit schedules in Notice 931. To review, there are two deposit schedules—monthly or semiweekly—for determining when you deposit social security and Medicare taxes and withheld federal income tax. These schedules tell you when a deposit is due after a tax liability arises (for example, when you have a payday). Before the beginning of each calendar year, you must determine which of the two deposit schedules you must use. The deposit schedule you must use is based on the total tax liability you reported during a lookback period. Your deposit schedule isn’t determined by how often you pay your employees or make deposits. These rules don’t apply to federal unemployment (FUTA) tax. See the Instructions for Form 940 for information on depositing FUTA tax.

Your deposit schedule for a calendar year is determined from the total taxes reported on your Forms 941 in a 4-quarter lookback period. The lookback period begins July 1 and ends June 30, as shown in the chart below. If you  reported $50,000 or less of Form 941 taxes for the lookback period, you’re a monthly schedule depositor; if you reported more than $50,000, you’re a semiweekly
schedule depositor. The lookback period for a 2022 Form 941 filer who filed Form 944 in either 2020 or 2021 is calendar year 2020.

You’re a monthly schedule depositor for a calendar year if the total tax reported for your lookback period was $50,000 or less. Under the monthly deposit schedule, deposit accumulated taxes on payments made during a calendar month by the 15th day of the following month. New employers. Your tax liability for any quarter in the lookback period before the date you started or acquired
your business is considered to be zero. Therefore, you’re a monthly schedule depositor for the first calendar year of your business. You’re a semiweekly schedule depositor for a calendar
year if the total taxes during your lookback period were more than $50,000. Your deposit schedule is in the chart below:

However, it is possible to have to deposit taxes the next day. If you accumulate a tax liability of $100,000 or more on any day during a deposit period, you must deposit the tax by the close of the next business day, whether you’re a monthly or semiweekly schedule depositor. And If you’re a monthly schedule depositor and accumulate a $100,000 tax liability on any day, you become a semiweekly schedule depositor on the next day and remain so for at least the rest of the calendar year and for the following calendar year.

IRS Advises Taxpayers to Take a Fresh Look as 2021 Year-End Nears

The Internal Revenue Service reminds taxpayers that the last quarter of 2021 is a good time to check withholding. Life brings constant changes to individual financial situations. Events like marriage, divorce, a new child or home purchase can all be reasons to adjust withholding. The convenient Tax Withholding Estimator, also available in Spanish, will help taxpayers determine if they have too much withheld and how to make an adjustment to put more cash into their own pocket now. In other cases, it will help taxpayers see that they should withhold more or make an estimated tax payment to avoid a tax bill when they file their tax return next year.

Items that may affect 2021 taxes

Things to consider when adjusting withholding for 2021 are:

  • Coronavirus tax relief – Tax help for taxpayers, businesses, tax-exempt organizations and others – including health plans – affected by coronavirus (COVID-19).
  • Disasters such as wildfires and hurricanes – Special tax law provisions may help taxpayers and businesses recover financially from the impact of a disaster, especially
    when the federal government declares their location to be a major disaster area.
  • Job loss – IRS Publication 4128, Tax Impact of Job Loss (.pdf), explains how this unfortunate circumstance can create new tax issues.
  • Workers moving into the gig economy due to the pandemic – IRS advises people earning income in the gig economy to consider estimated tax payments to avoid a
    balance or penalties when they file.
  • Life changes such as marriage or childbirth – Getting married or having a child are just a couple of life events that can affect your refund or how much you owe.

Pay as you go
Taxes are generally paid throughout the year whether from salary withholding, quarterly estimated tax payments or a combination of both. About 70% of taxpayers, however, over
withhold their taxes every year, which typically results in a refund. The average refund in 2021 was more than $2,700. Taxpayers can pay online, by phone or from the IRS2Go app. They can schedule payments for future dates, which can be useful during filing season, for payment plan payments or for estimated tax payments.

Taxpayers can also log into their IRS.gov/account to view the amount they owe, their payment plan details and options, their payment history (up to 5 years), any scheduled or pending
payments, and key tax return information from their most recent tax return.

Tax Withholding Estimator
The IRS Tax Withholding Estimator makes it easier for everyone to have the right amount of tax withheld. This is especially important for anyone who faced an unexpected tax bill or a penalty
when they filed this year, or whose jobs or tax circumstances have changed during the year. The tool offers workers, as well as retirees, self-employed individuals and other taxpayers, a
user-friendly, step-by-step tool for effectively tailoring the amount of income tax they have withheld from wages and pension payments. For more information about taxes, estimated taxes and tax withholding, see Tax Withholding at IRS.gov.

Reporting COVID Sick and Family Leave in 2021–Same as 2020

The Treasury Department and the Internal Revenue Service in September issued Notice 2021-53, which provides guidance to employers about reporting on Form W-2 the amount of qualified sick and family leave wages paid to employees for leave taken in 2021. The notice provides guidance under recent legislation, including: the Families First Coronavirus Response Act (FFCRA), as amended by the COVID-Related Tax Relief Act of 2020, and the American Rescue Plan Act of 2021.

Employers will be required to report these amounts to employees either on Form W-2, Box 14, or in a separate statement provided with the Form W-2. The guidance provides employers with model language to use as part of the Instructions for Employee for the Form W-2 or on the separate statement provided with the Form W-2.

The wage amount that the notice requires employers to report on Form W-2 will provide employees who are also self-employed with the information necessary to determine the amount of any sick and family leave equivalent credits they may claim in their self-employed capacities.

In July 2020, the IRS issued Notice 2020-54, which provided guidance regarding W-2 reporting of qualified sick leave and family leave under FFCRA for wages paid to employees for leave taken in 2020.

Additional information about tax relief for employers affected by the COVID-19 pandemic can be found on IRS.gov.

What’s The IRS Been Up to During the Pandemic? Let The Commissioner Fill You In

Chuck Rettig is the 49th Commissioner of the IRS. As Commissioner, Rettig presides over the nation’s tax system, which collects more than $3.5 trillion in tax revenue each year. This revenue funds most government operations and public services. He manages an agency of about 80,000 employees and a budget of approximately $11 billion. In a recent post to the ” A Closer Look” page on the IRS website,  Mr. Rettig gave an upfront and closer look to the work the IRS has been doing during the pandemic.  He discusses in his post how pandemic-related issues are still causing the IRS to experience record levels of activity and despite all that, the agency is making progress and is serving taxpayers.  Here is the text of his September 14, 2021 column:

The IRS plays an important role in serving our country. We interact with more Americans than any other U.S. government agency – virtually every individual and business in the country. We process 96 percent of the funding for our nation’s vital programs, but our agency and our people have had to really step up in the past year and a half to provide even more support to Americans in need. And just like businesses and other agencies around the country, we had to pause or modify some operations during the pandemic until we had safe and secure remote options in place to enable our employees to perform their work and serve taxpayers. I am extremely proud of the dedication of our workforce toward helping American taxpayers fulfill their tax responsibilities and resolve tax issues while they dealt with the COVID-19 situation.

While we had to temporarily scale back operations, important economic relief measures passed by Congress during the pandemic gave us many new responsibilities, and we have proudly worked to deliver Economic Impact Payments, advance payments of the Child Tax Credit (CTC) and many other critical initiatives in 2020 and 2021. We appreciate and understand the frustration caused by the high volume of manually processed returns, the limited information available to taxpayers about the status of the return processing, the refund delays, and the difficulty reaching IRS employees. We also understand that complex tax issues, recent legislation and the pandemic have  record numbers of taxpayers looking for help.

At every turn, our employees have gone above and beyond during the pandemic to keep our operations going, and through it all, we have appreciated the patience and understanding of taxpayers and the tax community. Even so, and despite our best efforts, pandemic-related issues are still causing us to experience record levels of activity that continue to affect operations across the agency, including the processing of tax returns and refunds. To put this in perspective, the IRS has received 199 million phone calls the first six months of this year – five times the normal annual volume – and we have manually reviewed 11 times more tax returns this year (11 million) to correct errors and gather missing information from taxpayers.

I am committed to ensuring the IRS will continue to do all we can to serve taxpayers. During the pandemic, we have had to find new ways to pursue our mission. As we faced enormous challenges, we didn’t always get it right, but we worked hard, often with limited resources. Where possible, we have redeployed resources to accommodate the increased demand. Our goal is to provide the quality of assistance taxpayers deserve, but we have been unable to satisfy this goal despite recent efforts to overcome significant challenges. On behalf of the entire IRS workforce, I want to assure you we will continue making progress, working together with Congress, the Administration and our partners inside and outside the tax community.

We know this has been and continues to be a frustrating time for many taxpayers and tax professionals – and it’s been a challenging time for all of us at the IRS as well. We have done the best we could under the circumstances, and we will continue to do our best as we face the current challenges. Our response to the unprecedented COVID challenges – including issuing almost $1.5 trillion in combined historic economic relief and individual refunds – illustrates the importance of every American to the IRS and the importance of the IRS to every American. I want to give you a glimpse of what we’re facing inside the IRS, and what we’re doing – to help struggling taxpayers and to get caught up during this unprecedented time.

 

APA Recommends Simplified Version of Form W-4

The American Payroll Association has sent a letter to the Internal Revenue Service (IRS) recommending that the IRS create a new and separate W-4 form for employees who have a single job and no dependents.  The form, Form W-4SN, Employee’s Withholding Certificate — Single Job, No Dependents, would be used by employees whose situation would allow them simply to complete Form W-4, Employee’s Withholding Certificate, Steps 1, 4(c), and 5.

As most payroll professionals know, employees continue to struggle with completing the Form W-4 in its current form.  They find it difficult to understand the instructions and many times complete the form in error or in a manner that makes it invalid and cannot be processed by payroll. The APA believes that a simplified version using Steps 1, 4(c), and 5 can be implemented effectively for improved accuracy and without creating confusion for employees.

The APA worked with the IRS during the initial stakeholder engagement for the 2020 Form W-4 and a simplified version of the form was discussed back then. However, it was rejected because of the complications of programming and tracking. The new recommended form maintains the same lines and boxes as found on the current Form W-4. This eliminates the original issues with programming and tracking.

The APA attached a sample of the form W-4SN to help explain its recommendations.

The APA is recommending a six-month effective date to allow for payroll software adjustments, payroll training, and employee awareness.

What do you think?  Let us know your opinion of the recommended form in the comments section.

About the APA: Established in 1982, APA is a not-for-profit association serving the interests of more than 20,000 payroll professionals nationwide. APA’s primary mission is to educate its members and the payroll industry about best practices associated with paying America’s workers while complying with applicable federal, state, and local laws and regulations. APA members are directly responsible for calculating wages and employment taxes for their employers.

Retention Credit Guidance Update–Direct from IRS

During this time, many payroll departments need guidance on the final using of retention credits. The IRS furnished excellent guidance on this subject in early August. Hope you find it helpful in your department.

 The Treasury Department and the Internal Revenue Service has issued further guidance on the employee retention credit, including guidance for employers who pay qualified wages after June 30, 2021, and before January 1, 2022, and additional guidance on miscellaneous issues that apply to the employee retention credit in both 2020 and 2021. Notice 2021-49 amplifies prior guidance regarding the employee retention credit provided in Notice 2021-20 and Notice 2021-23.

Notice 2021-49 addresses changes made by the American Rescue Plan Act of 2021 (ARP) to the employee retention credit that are applicable to the third and fourth quarters of 2021.

Those changes include, among other things, (1) making the credit available to eligible employers that pay qualified wages after June 30, 2021, and before January 1, 2022, (2) expanding the definition of eligible employer to include “recovery startup businesses”, (3) modifying the definition of qualified wages for “severely financially distressed employers”, and (4) providing that the employee retention credit does not apply to qualified wages taken into account as payroll costs in connection with a shuttered venue grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, or a restaurant revitalization grant under section 5003 of the ARP.

Notice 2021-49 also provides guidance on several miscellaneous issues with respect to the employee retention credit for both 2020 and 2021. This guidance responds to various questions that the Treasury Department and the IRS have been asked about the employee retention credit, including:

  • The definition of full-time employee and whether that definition includes full-time equivalents,
  • The treatment of tips as qualified wages and the interaction with the section 45B credit,
  • The timing of the qualified wages deduction disallowance and whether taxpayers that already filed an income tax return must amend that return after claiming the credit on an adjusted employment tax return, and
  • Whether wages paid to majority owners and their spouses may be treated as qualified wages.

Reporting

Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their employment tax returns (generally, Form 941) for the applicable period. If a reduction in the employer’s employment tax deposits is not sufficient to cover the credit, certain employers may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Where can I find more information on the employee retention credit and other COVID-19 economic relief efforts?

Treasury and the IRS continue to closely monitor pending legislation related to the employee retention credit and will provide additional information as needed.

Updates on the implementation of this employee retention creditFrequently Asked Questions on Tax Credits for Required Paid Leave  and other information can be found on the Coronavirus page of IRS.gov.

What Employers Need to Know About Repayment of Deferred Payroll Taxes–Per the IRS

The IRS has released following information concerning the repayment of the deferred payroll taxes for the calendar year 2020. The information was contained in their e-news for payroll professionals issue number 2021 – 08.

The Coronavirus, Aid, Relief and Economic Security Act – CARES Act – allowed employers to defer withholding and payment of the employee’s Social Security taxes on certain wages paid in calendar year 2020.

Repayment of the employee’s portion of the deferral started January 1, 2021, and will continue through December 31, 2021. The employer should send repayments to the IRS as they collect them. If the employer does not repay the deferred portion on time, penalties and interest will apply to any unpaid balance.

Employers can make the deferral payments through the Electronic Federal Tax Payment System (EFTPS) or by credit/debit card, money order or with a check. These payments must be separate from other tax payments to ensure they are applied to the deferred payroll tax balance. IRS systems won’t recognize the payment if it is with other tax payments or sent as a deposit.

Also, there are special considerations in repaying the deferred taxes when an employer uses a third party payer that files aggregate Forms 941 and 943 under its own EIN.

Check out this IRS Tax Tip for more information on third party payers and deferred taxes, and learn about:

  • Important dates associated with the deferred taxes
  • How to make payments for deferred tax reported by third party payer aggregate filers