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Child Tax Credit

The American Rescue Plan Act (ARPA) expands the child tax credit amounts and eligibility requirements for tax year 2021. The credit is increased from $2,000 to $3,000 per qualifying child ($3,600 for children under age 6). The definition of a qualifying child is expanded to include a child who has not turned 18 by the end of 2021. The credit is fully refundable for a taxpayer with a principal place of abode in the U.S. for more than one-half the tax year, or for a taxpayer who is a bona fide resident of Puerto Rico for the tax year.

The additional $1,000 credit amount per qualifying child ($1,600 per qualifying child under age 6) begins to phase out at a rate of $50 for each $1,000 when a single filer’s modified adjusted gross income (MAGI) exceeds $75,000 ($150,000 for joint filers and $112,500 for head of household filers). A single filer with one qualifying child over age 6 will phase out of the increased credit amount if the taxpayer’s MAGI exceeds $95,000. Similarly, situated joint filers will phase out of the increased credit amount if their MAGI exceeds $170,000.

After application of the phase-out rules for the temporarily increased credit amount, the remaining $2,000 of credit is subject to the phaseout rules under existing law ($400,000 for joint filers and $200,000 for all other filers). A single filer with one qualifying child will phase out of the remaining credit if his or her MAGI exceeds $240,000, while joint filers with one qualifying child will phase out of the remaining credit if their MAGI exceeds $440,000.

The ARPA directs the IRS to establish a program in which monthly advance payments equal to 1/12th of the estimated 2021 Child Tax Credit amount will be paid to the taxpayer during the period July 2021 through December 2021. The remaining 50% of the annual estimated amount will be claimed on the 2021 tax return. Initially, the advanced amount will be determined based on a taxpayer’s 2019 or 2020 tax filing. However, upon receipt of a more recent tax filing or other taxpayer-provided eligibility information, the IRS may modify the advance amount.

The IRS announced on March 12, 2021 that it is reviewing implementation plans for the ARPA and that it will be issuing guidance on relevant provisions. We will share more news with clients as further guidance is released about 2021 child tax credits. Contact your ATA representative for any questions.

 

 

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IRS Issues Guidance for Claiming Employee Retention Credit in 2021

The IRS on April 2, 2021, issued additional guidance for employers claiming the employee retention credit (ERC) under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), as modified in December 2020 by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act). The ERC is designed to help eligible businesses retain employees by offering a credit against employment taxes when qualified wages and healthcare expenses are paid during the COVID-19 pandemic.

Notice 2021-23 provides additional guidance for taxpayers to use when preparing credit claims and explains the changes to the employee retention credit for the first two calendar quarters of 2021, including:

Increased Credit Amount

  • Eligible employers may now claim a refundable tax credit against the employer share of social security tax equal to 70% of the qualified wages paid to employees after December 31, 2020 and before January 1, 2022.
  • The maximum employee retention credit available is $7,000 per employee per calendar quarter, for a total of $14,000 for the first two calendar quarters of 2021.

Broadened Eligibility Requirements

  • Employers who suffered a 20% decline in quarterly gross receipts compared to the same calendar quarter in 2019 are now eligible.
  • A safe harbor is provided allowing employers to use prior quarter gross receipts compared to the same quarter in 2019 to determine eligibility.
  • Employers not in existence in 2019 may compare 2021 quarterly gross receipts to 2020 quarters to determine eligibility.
  • The credit is available to some government instrumentalities, including colleges, universities, organizations providing medical or hospital care and certain organizations chartered by Congress.

Determination of Qualified Wages

  • Employers with 500 or fewer full-time employees in 2019 may include all wages and health plan expenses as “qualified wages.”
  • The Relief Act strikes the limitation that qualified wages paid or incurred by an eligible employer with respect to an employee may not exceed the amount that employee would have been paid for working during the 30 days immediately preceding that period (which, for example, allows employers to take the ERC for bonuses paid to essential workers).

Advance Payments

  • Employers with fewer than 500 full-time employees will be allowed advance payments of the ERC during a calendar quarter in which qualifying wages are paid. Special rules for advance payments are included for seasonal-employers and employers that were not in existence in 2019.

ERCs have become a regular discussion with ATA clients as they can be a relief to businesses who have been impacted by COVID-19. Please contact your ATA representative with further questions and guidance on this opportunity.

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The Post-Covid Urban Revival: What’s Next For Big Cities?

Today, more than four out of five people in the United States live in cities and urban areas. Over the country’s long history of urbanization, cities like New York, San Francisco and Chicago swelled not only in population, but also in their prominence as American cultural icons. That cachet helped these metropolises thrive even when economic conditions were challenging elsewhere, providing landlords and other commercial real estate stakeholders with a level of stability and security smaller cities couldn’t match.

In recent years, though, these storied cities started falling victim to their own success. Unebbing demand for limited residential and commercial space led to skyrocketing costs, and near-constant expansions and enhancements to government services necessitated new fees and higher taxes. At the same time, the emergence of remote working meant that people didn’t have to move to these uber-expensive cities to work for the companies that called them home. New technology, combined with cost of living and quality of life concerns, chipped away at that old preeminence, and businesses and individuals started choosing Atlanta over New York, Denver over Chicago and Austin over San Francisco. A Brookings Institution study found that population growth in the country’s largest urban areas dropped by almost half through the 2010s.

Download the below article to find out how the COVID-19 pandemic amplified some of the disadvantages of living and working in densely populated cities and accelerated migration to smaller cities and more rural areas.

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Is a COVID-19 Baby Boom in the Cards for Real Estate?

The impact of blackouts, national emergencies, recessions and other singular or cyclical events on the U.S. birth rate has been a subject of study and interest since the Baby Boomer phenomenon displayed the far-reaching effects a population surge can have on everything from consumer spending to federal budget allocations. As such, there has been conjecture on what effect the pandemic may have on population growth and what the resulting impact on the real estate and construction industries may be.

The Baby Boomer generation, typically defined as those born between 1946 to 1964, was a boon to mid-century suburban development. Construction of homes soared as enticements to live in suburban communities, including tax breaks, home loans and mortgage subsidies, successfully generated demand. As families moved to the suburbs, there was a commensurate need to supply affordable housing and to build schools and amenities and the infrastructure to serve them.

Between the 1950s and 2010s, the suburban population grew from one-quarter to more than half of all Americans. The generation essentially created and defined many of the lifestyle values and habits that have arisen out of suburban life, which the majority of Americans now enjoy today.

As Boomers have aged, their changing preferences have continued to be felt on real estate and construction. Until recently, Boomers comprised a significant cohort of the urban and multifamily rental markets as they threw off the burdens of home ownership in favor of lighter living and to be closer to their children and grandchildren. A side effect of this is a boost to the self-storage facility market as downsizing into smaller living spaces requires external space to house decades of accumulated belongings.

Post-War Population Surge as Analogue

One of the reasons the baby boom happened, experts say, is because, after the conclusion of two world wars, Americans were optimistic that the economy would improve. The United States was positioned somewhat uniquely in that, apart from the bombing of Pearl Harbor, it escaped the kind of damage that had ravaged war-torn Europe. Infrastructure was intact and in place, for example. Amid the promise of post-war economic security, Boomers expanded their spending habits: U.S. gross national product doubled between 1940 and 1960.

Not just the reality of the economy’s performance, but people’s perception of economic performance and their future prospects likely will play a significant role in the decision to have children this time around. In the current economic climate, sentiments are far less rosy than they were post-WWII. U.S. population growth has been on the decline for the last ten years, notably beginning around the Great Recession. Polls have shown that among Millennials, the decision to delay having children or to have fewer children than desired arises from feelings of economic insecurity: the high expense of child care, student debt and concerns about the economy and financial stability. While the proclivities of Generation Zers remain to be seen, given the uncertainty of the current economic recovery, this may not change anytime soon.

COVID-19 Implications

Early indications point toward population growth in underdeveloped nations but population contraction in the United States and other developed nations. These early U.S. indicators make sense given the number of job losses and uncertainty about job growth and the ongoing uncertainty about an economic recovery. How will the U.S. real estate market adapt to a population contraction?

Today, Boomers own two out of five U.S. homes, and every day, 10,000 people turn 65 years old. Because some Boomers have migrated toward urban living and others are aging in place, the conditions may be ripe for significant residential vacancies when the pandemic-related population contraction meets the end of the Boomers’ actuarial life. Such oversupply would mean the dawn of a buyer’s market not only in the suburbs but also in urban environments. This will make residential buying decisions based on “location, location, location” even more important and will, in turn, ripple into other sectors of real estate, including commercial and industrial.

Leaders in the real estate and construction industries should pay close attention to the U.S. population and migration trends. This analysis will become more important as Boomers age and the population contraction impacts the market cycle. Real estate leaders should also consider further diversification of their holdings and activity if their portfolios show concentration in a market that may see vulnerabilities given potential trends.

 

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May 17 Reminder

Individual taxpayers get extra time to file their 2020 tax returns and pay their taxes because of the pandemic. The IRS announced that the federal income tax filing and payment due date has been extended from April 15 to May 17, 2021.

The automatic extension applies to individuals, including those who pay self-employment tax. No penalties or interest will be added if all taxes due are paid by May 17. Even so, the IRS urges taxpayers to consider filing as soon as possible, especially those who expect refunds.

This relief doesn’t apply to corporate returns or estimated tax payments due on April 15, 2021. It also doesn’t apply to state tax payments or deposits or payments of any other types of federal tax.

For any additional guidance, speak to your ATA representative.

 

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COBRA Premiums

A 100% subsidy of COBRA premiums for involuntarily terminated employees is part of the recently enacted American Rescue Plan Act. The law establishes the subsidy for certain “assistance eligible individuals” (AEIs) from April 1, 2021, through Sept. 30, 2021.

An AEI is a qualified beneficiary who elects COBRA for a period of coverage within the subsidy period due to the involuntary termination or reduction of hours.

The employer (or, in some cases, the plan or insurer) will pay 100% of an AEI’s COBRA premium during that period and will be reimbursed by the U.S. government through a credit against payroll taxes, or for credit amounts exceeding payroll taxes, as a refund of an overpayment.

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Unemployment Benefits

For tax purposes, unemployment compensation (UC) generally is included in gross income. Under the American Rescue Plan Act (ARPA), for tax years beginning in 2020, taxpayers with adjusted gross income (AGI) under $150,000 may exclude UC of up to $10,200.

The $150,000 AGI limit applies for single filers, heads of household and joint filers. But for joint filers below the AGI limit, the $10,200 exclusion applies separately to each spouse. Under the ARPA, eligible individuals will also receive an additional $300 per week in unemployment benefits through Sept. 6, 2021. The ARPA was passed by Congress on March 10 and is expected to be signed into law on March 12. Contact us with questions.

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Didn’t contribute to an IRA last year? There may still be time.

If you’re getting ready to file your 2020 tax return, and your tax bill is higher than you’d like, there might still be an opportunity to lower it. If you qualify, you can make a deductible contribution to a traditional IRA right up until the April 15, 2021 filing date and benefit from the tax savings on your 2020 return.

Who is eligible? You can make a deductible contribution to a traditional IRA if:

You (and your spouse) aren’t an active participant in an employer-sponsored retirement plan, or you (or your spouse) are an active participant in an employer plan, but your modified adjusted gross income (AGI) doesn’t exceed certain levels that vary from year-to-year by filing status.

For 2020, if you’re a joint tax return filer and you are covered by an employer plan, your deductible IRA contribution phases out over $104,000 to $124,000 of modified AGI. If you’re single or a head of household, the phaseout range is $65,000 to $75,000 for 2020. For married filing separately, the phaseout range is $0 to $10,000. For 2020, if you’re not an active participant in an employer-sponsored retirement plan, but your spouse is, your deductible IRA contribution phases out with modified AGI of between $196,000 and $206,000.

Deductible IRA contributions reduce your current tax bill, and earnings within the IRA are tax deferred. However, every dollar you take out is taxed in full (and subject to a 10% penalty before age 59 1/2, unless one of several exceptions apply).

IRAs often are referred to as “traditional IRAs” to differentiate them from Roth IRAs. You also have until April 15 to make a Roth IRA contribution. But while contributions to a traditional IRA are deductible, contributions to a Roth IRA aren’t. However, withdrawals from a Roth IRA are tax-free as long as the account has been open at least five years and you’re age 59 1/2 or older. (There are also income limits to contribute to a Roth IRA.)

Here are two other IRA strategies that may help you save tax.

1. Turn a nondeductible Roth IRA contribution into a deductible IRA contribution. Did you make a Roth IRA contribution in 2020? That may help you in the future when you take tax-free payouts from the account. However, the contribution isn’t deductible. If you realize you need the deduction that a traditional IRA contribution provides, you can change your mind and turn a Roth IRA contribution into a traditional IRA contribution via the “recharacterization” mechanism. The traditional IRA deduction is then yours if you meet the requirements described above.

2. Make a deductible IRA contribution, even if you don’t work. In general, you can’t make a deductible traditional IRA contribution unless you have wages or other earned income. However, an exception applies if your spouse is the breadwinner and you are a homemaker. In this case, you may be able to take advantage of a spousal IRA. What’s the contribution limit? For 2020 if you’re eligible, you can make a deductible traditional IRA contribution of up to $6,000 ($7,000 if you’re 50 or over).

In addition, small business owners can set up and contribute to a Simplified Employee Pension (SEP) plan up until the due date for their returns, including extensions. For 2020, the maximum contribution you can make to a SEP is $57,000.

If you want more information about IRAs or SEPs, contact one of our partners or ask about it when we’re preparing your tax return. We want to help you save the maximum tax-advantaged amount for retirement. © 2021

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How To Get Stuff Done

Businesses face disruption on multiple fronts, and they are struggling to get things done. Company leaders must contend with the pandemic’s health threat and the challenges of managing a remote workforce, as well as supply chain disruptions, demand shifts, resource constraints and more, all while devising critical plans for the road ahead. Combined with uncertainty about how long the pandemic will continue to disrupt daily life and the economy, companies are having trouble prioritizing their needs and adapting to the constantly shifting environment.

Here are actionable steps organizations should consider for getting things done in the current business climate. Using these best practices will increase the likelihood of completing your strategic initiatives in 2021.

Determine Priorities

Figure out what you need to focus on and develop a plan for getting it done.

  • Identify priority projects for the next quarter.
  • Ensure projects align with the broader organization’s strategic plans.
  • Sort those projects into individual workstreams with dedicated teams.
  • Make actionable checklists for each project.
  • Create project benchmarks and define KPIs.
  • Establish a monthly/quarterly review cadence for the initiatives with the executive team. Review all major initiatives, progress to date and the current business environment. Reprioritize where appropriate.

Assign the Right People

Identify your dedicated team—with the appropriate combination of skillsets and personalities—to ensure the project gets the attention it needs to be accomplished successfully, on time and on budget.

  • Designate a specific person or team to be responsible for a project.
  • Identify a senior-level champion for the project/initiative to help ensure firm-wide buy-in.
  • Ensure the project team has productive group chemistry and the right combination of skillsets. At minimum, you’ll need a big-picture visionary, a strategist to turn that vision into an action plan and a tactical executor.
  • When building the team, look for high performers outside of your regular circles to spread the opportunity to more professionals and provide them the opportunity to expand their skillsets.
  • Be judicious about who is on the team. Keep only those who believe in the project and want it to succeed.
  • Be realistic about team members’ workloads. Try to offload less important work that project members may be doing so they can dedicate more time to their assignments on the project.

Build a Bird’s-Eye View

You’ll need a method of communicating all the projects happening throughout the business to company leadership and other parts of the organization. Getting a big-picture view also allows you to assess how your people’s time is being used, whether you are relying too heavily on a few professionals and if the organization is taking on more than it can handle.

  • Track all the various projects in your organization in a centralized location, using common metrics for monitoring success, with the help of dashboards to provide the big picture. Ensure all dashboards are easy to use and are fed by accurate, real-time data. Don’t rely solely on dashboards, however. Remain in regular communication with the project team who can provide more context to the data and share qualitative updates that aren’t as easily tracked.

Foster a “Fail Fast” Mindset

In the current environment, it is more important to act swiftly than to wait and strive for perfection. If you try to plan for every eventuality, you may be too slow to respond adequately to a crisis or seize a new opportunity.

  • Don’t wait for perfection—start executing. Encourage a “fail fast” organizational culture, and not just for times of crisis.
  • Assess the progress and value of all projects on ongoing basis—at least monthly and, if feasible, bi-weekly.
  • Are they moving the needle for your business?
  • Evaluate the progress of each project against predetermined KPIs and milestones. Is the project meeting those KPIs, and do they bring the expected ROI? ROI comes in many forms (e.g., revenue protection, revenue generation, increased profitability, cost avoidance, etc.), so define the ROI you’re aiming for to measure the project’s success and try to identify quick wins in the early stages.
  • Based on this evaluation of impact and ROI, determine whether projects need to be discontinued, reprioritized or require more investment and support.

Develop the Next Generation

Even in a crisis period, make sure you are still taking steps to train your people and provide them with new opportunities.

  • As you address immediate needs, don’t neglect your organization’s future. Provide avenues for junior staff to get exposure to opportunities that further their growth.
  • Include at least one junior person on every project team. Even if they are just involved in project management, expose them to strategic conversations that are beneficial for their development.
  • Teach them to be students—and, ultimately, champions—of the “fail fast” mindset you’re encouraging in the organization. The next generation of leaders will take up that mantle.

Whether you are trying to overcome financial challenges, capitalize on a new opportunity or adapt to shifting market conditions, how swiftly and effectively you act in the next few months could have significant implications for your business’ long-term success. Don’t wait, get started today.

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Take Advantage of FSA Grace Period

FSA written on a wooden cubes.

Flexible Spending Account (FSA) rules just got more flexible.

FSAs allow employees to use tax-free dollars to pay qualified expenses, subject to limits. Due to the pandemic, the Consolidated Appropriations Act (CAA) temporarily loosens some limits for health FSAs and dependent care FSAs.

One such change is a longer grace period after the end of a plan year, when employees can apply unused funds for expenses incurred in the grace period. Under prior law, the grace period was 2 ½ months, before unused funds may be forfeited. The CAA gives employers the option to amend their FSA plans, extending the grace period to 12 months after the end of 2020 and 2021.

Visit this link for more details: https://bit.ly/3avwrSj

If you would like more information or guidance with your FSA, contact one of ATA’s locations today!