Employment Taxes Amid COVID – Part 3

 Parts 1 and 2 of previous blogs on this topic discussed the deferral of employment tax deposits and payments for the year 2020 and the effects that this deferral may have on the employer (Deferral of employment tax deposits and payments through December 31, 2020 | Internal Revenue Service (irs.gov)). Part 3 will continue this discussion. Determining the amounts for credits and deferral can be tricky. It is best to consult a tax professional for help with employment taxes as they relate to COVID and The Coronavirus, Aid, Relief and Economic Security Act (CARES Act). 

Employers may defer the payment and deposit of their share of Social Security tax prior to determining whether they are entitled to employment retention credits, the Families First Coronavirus Response Act (FFCRA) paid leave credits, the Research Payroll Tax Credit, the advance payments of these credits, the amount of any refunds with respect to these credits and the amount already deposited that may be retained because of those credits (Employer Tax Credits | Internal Revenue Service (irs.gov)). These credits may actually trigger an overpayment on the employer’s part for which a refund must be requested. However, if a payment is due and the amounts are not paid, the employer’s deferred deposits will lose their deferred status and may be subject to failure to deposit penalties or Trust Fund Recovery Penalty (TFRP). The employer may also be subject to pay penalties accruing from the deferred due date for payment.

For deferred deposits to be treated as timely and therefore avoid a failure to deposit penalty, the employer’s share of Social Security tax must be deposited by the following dates which are referred to as the “applicable dates”:

• On December 31, 2021: 50 percent of the eligible deferred amount
• On December 31, 2022: the remaining amount

Any amounts paid prior to the first date will be first applied to that date to reduce the employer’s liability. Any remaining amounts then will be applied to the amounts due by the second date.

The Internal Revenue Service (IRS) intends to send reminder notices to employers before each applicable due date. That means for employers who pay four quarterly payment per year they will receive four reminder notices even though the due dates for all four quarters is the same date (see dates above). 

Self-employed individuals may defer the payment of 50 percent of the Social Security tax imposed. The amount due is determined after income and deductions are calculated. There will be no penalty for failure to pay estimated tax payments by deferring the 50 percent of the Social Security tax. The applicable dates listed above also apply for self-employed individuals. A household employer that files a Schedule H with his or her individual income tax return may defer the employer’s part of the Social Security tax on the wages paid during the payroll tax deferral period. Not subject to the deposit requirements, these taxes are paid annually and are treated as a tax to which the estimated tax payment penalty provisions apply. 

As you can see, deferring Social Security taxes can be very complicated. It is recommended that employers seek help with payroll taxes from a knowledgeable and experienced tax professional, such as those found at Bullseye Tax Relief. Business tax help is just a phone call away! or click here to contact us.

Bullseye Tax Relief

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Employment Taxes Amid COVID – Part 2

 Part 1 discussed the deferral of employment tax deposits and payments for the year 2020 (Deferral of employment tax deposits and payments through December 31, 2020 | Internal Revenue Service (irs.gov)). The Coronavirus, Aid, Relief and Economic Security Act (CARES Act) allows the employer to defer the employer’s share of the social security tax for the first quarter of 2020. What would have been the full amount of the employment tax liability due for that quarter, including the liability for which deposits would have been due on or after March 27, 2020, did not have to be paid. However, this presents a bookkeeping problem. There is now a discrepancy for the first quarter between the amount of the liability reported and the amount of deposits and payments for that liability. The Internal Revenue Service (IRS) will send a notice to these employers identifying the difference as an unresolved amount. This notice will also include additional information instructing the employer how to inform the IRS that it had deferred payment or deposit of the employer’s portion of the social security tax due after March 27, 2020, for the first quarter of that year under section 2302 of the CARES Act.

This deferral applies to all businesses including those that deposit employment taxes annually. As long as the deposit amount relates to the tax imposed on wages paid on or after December 31, 2020, during the payroll tax deferral period, then the employer may defer this amount. If an employer had already deposited the amount with the IRS for employment taxes, he or she may receive a refund of Social Security tax already deposited. This is a result of paying the amount due but then receiving tax credits, such as the Research Payroll Tax Credit, the Families First Coronavirus Response Act (FFCRA) paid leave credits, and the employee retention credit (Employer Tax Credits | Internal Revenue Service (irs.gov)). Since this can be complicated in reporting, it is best to consult a tax professional for help with payroll taxes. 

Another situation that may require help with employment taxes is the forgiving of a loan that an employer received from the Small Business Administration for payroll. The Paycheck Protection Program (PPP) provide monies for wages for employees so that the employer could afford to keep employees rather than laying them off. At first, these payroll taxes could not be deferred; however, the CARES Act was amended so that employers could defer the payment and deposit of the employer’s share of Social Security tax after the employer received notice that the PPP loan was forgiven by the lender. 

In anticipation of the FFCRA paid leave credits and employee retention credits, an employer was permitted to defer payment of employee taxes, including taxes withheld from employees. However, employers who reduced the amount of their deposits in excess of the deferral, the allowable FFCRA paid leave credits and the employee retention credits may be liable for a failure to deposit penalty for the excess reduction. This may trigger a Trust Fund Recovery Penalty (TFRP). Since this is a serious matter, it is best to have a tax professional handle it. Call Bullseye Tax Relief now before the matter gets worse!

Employment Taxes Amid COVID – Part 1

 It is not necessary to say that this past year has been a particularly trying one. COVID has upended the entire world, especially the business one. Businesses long established as the foundation of the American economy have found themselves to being greatly diminished or have disappeared forever, such as Sears, Fry’s Electronics, and Soup!antation eatery. Likewise, many other small businesses have been forced to permanently close. The Federal and State governments tried to help with tax credits, but sometimes even that did not help. So now the focus is trying to get back to “normal” or to a new version of “normal”. 

COVID changed the way we do business, but like the saying goes: there is no escaping death and taxes. Both Federal and State Taxes (and local taxes) are still due, but perhaps in a diminished form. Congress passed the Coronavirus, Aid, Relief and Economic Security Act (CARES Act) to help with the economic havoc wrought by COVID (Deferral of employment tax deposits and payments through December 31, 2020 | Internal Revenue Service (irs.gov)). With the help of this Act, businesses were able to continue to pay their employees and stay in business. However, this Act also brought a different set of accounting for payroll taxes with it. A tax professional, such as the ones at Bullseye Tax Relief, can help you navigate these uncharted waters.

Normally, businesses deposit employment taxes with the Internal Revenue Service (IRS) quarterly. These employment taxes include federal income tax, social security and Medicare tax, unemployment tax (FUTA) and self-employment tax (SE), if applicable. The CARES Act allowed businesses to defer the deposit and payment of the employer’s portion of the Social Security Taxes. There will be no penalties for not depositing these taxes with the IRS on time. However, this grace period does not last forever. The “payroll tax deferral period” began on March 27, 2020, and ends December 31, 2020. After that time frame, employers must collect and deposit those taxes with the IRS as they had prior to COVID.

Since the payments and the deposits are deferred until the end of December 2020, this applies to the monies collected that relate to the last quarter of 2020. These monies do not have to be deposited with the IRS at this time. Furthermore, employers may also be entitled to tax credits (Employer Tax Credits | Internal Revenue Service (irs.gov)) that can offset these deposit amounts. Refundable tax credits include credits for paid leave under the Families First Coronavirus Response Act (FFCRA) or for qualified wages under the employee retention credit. In addition to the deferral, these credits can reduce the employer’s deposits required for the IRS. Employers DO NOT make a special election to defer payments and deposits of these employment taxes. They should report the deferred taxes on the appropriate line on their employment tax return. Employers needing help with employment taxes should consult a tax professional so that they receive the maximum amount of credit possible.

Employers should also ask for help with payroll taxes since they have been complicated with COVID this past year. Unfortunately, IRS Form 941 (Employer’s Quarterly Federal Tax Return) was not revised until the second quarter of the year. It does not reflect the deferred deposits otherwise due on or after March 27, 2020, for that quarter or the deferred wages paid between March 27, 2020, to March 31, 2020. However, the form has been revised to reflect the employer’s deferral of the employer’s share of the Social Security tax for the second, third and fourth quarters. 

As you can see, COVID has complicated the tax process. Your best option is to seek business tax help to avoid any mistakes that may negatively affect your payment of employment taxes. Call us today!

Business Taxes are Dependent upon Business Structure – Part 3

 We will discuss the last two of the five business structures recognized by the Internal Revenue Service (IRS) (Business Structures | Internal Revenue Service (irs.gov)) in this blog. Corporations (Forming a Corporation | Internal Revenue Service (irs.gov)) and S-Corporations (S Corporations | Internal Revenue Service (irs.gov)) involve shareholders rather than owners that the first three business structures have. 

Corporations

Prospective shareholders exchange money, property, or both for the corporation’s capital stock. Usually, a corporation takes the same deductions that a sole proprietorship takes in calculating its taxable income. A corporation can also take special deductions. A C corporation is recognized by the Internal Revenue Service (IRS) as a separate taxpaying entity for federal income tax purposes. Corporations can conduct business, pay taxes, realize net income or loss, and distribute profits to its shareholders. These calculations can be very complicated so it is best to consult a tax professional for help with employment tax.

Profits of corporations are taxed once to the corporation when earned and once to the shareholders when distributed as dividends. This creates a double tax on the profits. Corporations cannot deduct any taxes when it distributes dividends to its shareholders and shareholders cannot deduct any losses incurred by the corporation. 

Corporations are liable for income tax, estimated tax, employment taxes (federal income tax withholding, social security and Medicare tax, and federal unemployment tax) and excise taxes. There are many different forms to use to report and file these taxes, making the process complicated. It is best to have help with payroll tax from a tax professional than attempting to calculate and report these taxes on your own. 

S Corporations

For federal tax purposes, S corporations elect to pass income, deductions, losses, and credits through to their shareholders. Similar to partnerships, shareholders of S corporations report the “flow-through” of income and losses on their own personal income tax returns. They are then assessed tax at their individual income tax rates. This means that shareholders can pay different amount of taxes on their income depending upon their tax bracket. By allowing for the “flow-through” of income and losses, S corporations avoid the double taxation on the corporate income. However, S corporations are responsible for taxes on certain built-in gains and passive income at the entry level. 

A corporation must meet the following requirements to qualify for S corporation status:

• Be a domestic corporation
• Have no more than 100 shareholders
• Have only one class of stock
• Have only allowable shareholders: a) individuals, certain trusts, and estates and b) not be partnerships, other corporations, or non-resident alien shareholders
• Not be an ineligible corporation, such as certain insurance companies, financial institutions, and domestic international sales corporations

Additionally, the corporation must submit IRS Form 2553 (Election by a Small Business Corporation) signed by all shareholders. 

The American Rescue Plan 

The American Rescue Plan (ARP) Act of 2021 allows small and mid-sized employers as well as certain governmental employers to claim refundable tax credits, reimbursing them for the cost of providing paid sick and family leave to employees due to COVID-19. This includes time given to employees to receive and recover from COVID-19 vaccinations. 

The IRS recognizes that COVID has placed a burden on all businesses and individuals. Before closing a business, it is best to consult a tax professional. The IRS has tax credits and COVID relief resources for those affected by the virus. Contact Bullseye Tax Relief today!

Business Taxes are Dependent upon Business Structure – Part 2

 As discussed in an earlier blog, there are five business structures recognized by the Internal Revenue Service (IRS) (Business Structures | Internal Revenue Service (irs.gov)). Partnerships and Limited Liability Companies have been previously discussed. Sole Proprietorships (Sole Proprietorships | Internal Revenue Service (irs.gov)) will be discussed in this blog.

A sole proprietor is an individual who owns a business. A sole proprietor reports his or her income on individual income tax returns, such as IRS Form 1040. The individual reports profits and losses from this business on IRS Form Schedule C. Schedule SE for reporting self-employment may also be used. 

The federal income tax is a “pay-as-you-go” tax. As you receive or earn income, you pay the appropriate income tax throughout the year. Employees have taxes withheld from each paycheck. Individuals may have to pay estimated taxes if they do not have income tax withheld or if they do not have enough income taxes withheld. Self-employment tax (SE tax) is paid by individuals who work for themselves. These payments contribute to their coverage under the social security system, which pays their social security and Medicare. Social security coverage provides the individual with retirement benefits, survivor benefits, disability benefits, and hospital insurance benefits or Medicare. Since this process can be complex and complicated, it is best to seek help with payroll tax from a tax professional. 

There are two criteria for paying SE tax and filing the required Schedule SE (IRS Form 1040 or 1040-R):

• If net earnings for self-employment was $400 or more
• If wages of $108.28 or more are received while working for a church or a qualified church-controlled organization (other than as a minister or member of a religious order) that elected an exemption from social security and Medicare taxes

Please note that there are special rules or exemptions for fishing crew members, aliens, notary public, state or local government employees, foreign government or international organization employees, among others. If you qualify for any of these exemptions, seek consultation with a tax professional for help with employment tax.

If you have employees, no matter what business structure, you are required to pay certain taxes and file certain forms. Employment taxes include:

• Federal income tax withholding
• Social security and Medicare taxes
• Federal unemployment tax (FUTA)

As a business, you must deposit federal income tax withheld from your employees to the Internal Revenue Service (IRS) before the deadline. You must also deposit with the IRS both portions of the employer and employee social security and Medicare taxes collected for that timeframe. This must also be deposited on time. Finally, all taxes deposited, wages, tips, and any other compensations paid to an employee(s), must also be reported to the IRS. Businesses as well as self-employed taxpayers can use electronic filing options for many of the forms and taxes small businesses are required to file, including employment taxes and information returns. A federal tax identification number or Employer Identification Number (EIN) is used to identify tax reports to the IRS.

Collecting, filing and depositing employment taxes can be very complicated. An error can be very costly to fix. Why not hire a tax professional to process these tasks so that you can focus on growing your business? We at Bullseye Tax Relief are here to help. Our next blog will focus on corporations.

Business Taxes are Dependent upon Business Structure – Part I

 All businesses must pay taxes. However, not all business taxes are the same for every business. The type, amount and form used in paying taxes is dependent upon the type of business entity. When someone starts a business, he or she must decide what business structure the business is to have. There are five business structures (Business Structures | Internal Revenue Service (irs.gov)), each with advantages and disadvantages. They are:

• Partnerships (Partnerships | Internal Revenue Service (irs.gov))
• Limited Liability Company (LLC) (Limited Liability Company (LLC) | Internal Revenue Service (irs.gov))
• Sole Proprietorships (Sole Proprietorships | Internal Revenue Service (irs.gov))
• Corporations (Forming a Corporation | Internal Revenue Service (irs.gov))
• S Corporations (S Corporations | Internal Revenue Service (irs.gov))

Partnerships

A Partnership is formed when two or more people join together to do a trade or business. Each partner contributes money, skill, labor or property to the partnership. Each partner shares in the profit or loss of that partnership. The unusual feature of a partnership is that the partnership itself does not pay income taxes. All other business structures do. Instead, a partnership must file an information return to report any income, deductions, gains, losses, etc. from the operation of that partnership. Profits and losses are “passed through” to the partners themselves. Each partner reports their share of profits or losses of the partnership on their own personal income tax return, hence the term “pass through”. Since partners are not employees, they do not receive a W-2 form indicating their income. Instead, the partnership furnishes a copy of Schedule K-1 (IRS Form 1065).

A partnership is a complex business structure. Mistakes in reporting income can be costly. Partnerships do not afford protections of personal assets and properties that other business structures provide. Therefore, it is important to hire a knowledgeable tax professional that can help navigate through the legal and tax features of the business. Remember, if you need help with payroll tax, it is best to consult a tax professional at Bullseye Tax Relief. 

Limited Liability Company (LLC)

Since a Limited Liability Company (LLC) is allowed by each state, it is best to check with your state for its regulations for this business structure since regulations differ for each state. Owners of LLC are called members. Since most states do not restrict ownership, owners can be individuals, other LLCs, corporations or even foreign entities. Most states permit “single-member” LLCs whereby there is only one owner; however, there is no maximum number for membership. Depending upon the number of members and the elections of that LLC, the Internal Revenue Service (IRS) will treat the LLC as a corporation, filing IRS Form 8832 or as a “disregarded entity”. 

Remember that any tax mistakes may be assigned to the business owner. For instance, if the business does not pay the correct tax amount, the IRS can place a lien, levy or seizure action against the owner of the business for these unpaid taxes. The IRS may assess a Trust Fund Recovery Penalty (TFRP) against the owner of a business that has not paid its tax obligation. To avoid this hassle, individuals should consult a tax professional, such as those at Bullseye Tax Relief for assistance. Our next blog will discuss sole proprietorships and employment taxes, including self-employment taxes.

An Administrative Appeal Allows for a Second Chance

 As stated in earlier blogs, the Internal Revenue Service (IRS) is not perfect. They can, and do, make mistakes. They can miscalculate tax amounts owed or even overlook deductions. Fortunately, for taxpayers there is a process that can reverse or stop an IRS’ decision or action that is unfair or incorrect. An Administrative appeal gives you a second chance that may lead to a more favorable outcome with your tax problem. Help is available without going to court.

An Administrative Appeal process can apply to any appeal filed regarding a decision and/or action taken by the IRS. This can include decisions made during audits or for collecting a tax debt. The IRS allows any taxpayer who feels that the IRS was unfair or incorrect regarding a tax situation, to appeal without legal action through their Office of Appeals. This entity is separate from the IRS themselves so that decisions are objective.

Since all Administrative Appeals are filed through the IRS Office of Appeals, the process is often more cost effective than going to court. You have a right to appeal disputes with the IRS or even tax audits. Sometimes the IRS will request either written arbitration or a hearing usually over the phone with an official within the IRS Office of Appeals once a taxpayer has filed an appeal. This arbitration or hearing will determine a final decision, although arbitration is optional. Most appeals should be made through a tax professional for the best outcome. However, if your appeal is rejected, you may appeal the rejection of that appeal as well.

The IRS will halt any collection actions against you until the appeal is resolved and a decision is made whenever an Administrative Appeal is filed. The timing for filing an Administrative Appeal depends upon the type being filed; however, the following criteria is best when filing any appeal:

• File an appeal as soon as possible.
• Immediately file an appeal after the IRS makes a decision you disagree with.
• When being audited by the IRS, file an appeal as soon as possible so that no actions are taken by the IRS before you can appeal.

Although there are many situations in which you can file an Administrative Appeal, the following is a list of the more common reasons:

• Decisions made during a tax audit
• Undesirable response or rejection when applying for an Offer in Compromise
• Notice and/or placement of any liens, levies, or seizures of property
• Modification, rejection, termination, or any change to an Installment Agreement
• Any collection decision and/or action made by the IRS
• Rejection of an appeal

The most common type of appeals are the Collection Due Process (CDP) and the Collection Appeal Program (CAP). However, there are other types of appeals that can better suit your situation. The most important takeaway from this blog is to consult a tax professional to guide you through your best options and processes whenever the IRS takes any action against you for which you wish to appeal. Administrative Appeals are difficult, complex, and may not always produce the best-case scenario outcome. A tax professional can provide you with the best- and worst-case scenarios to help you find the best option for relieving you of any outstanding tax debt. Call us today for tax resolutions!