News

Year End Reminders Relating to COVID Enactments

Year End Reminders Relating to COVID Enactments

Deferred Self-Employment and Payroll Taxes (employer portion) Due Date As previously discussed in earlier emails, relief was granted under the CARES Act (P.L. 116-136) for self-employment taxes and the employer share of payroll taxes for the period of March 27 – December 31, 2020, including payroll taxes on self-employment income. These taxes are deferred and […]

Deferred Self-Employment and Payroll Taxes (employer portion) Due Date

As previously discussed in earlier emails, relief was granted under the CARES Act (P.L. 116-136) for self-employment taxes and the employer share of payroll taxes for the period of March 27 – December 31, 2020, including payroll taxes on self-employment income. These taxes are deferred and payable in two installments:

  • 50% is due by December 31, 2021
  • 50% is due by December 31, 2022

It is critical that these payments be made timely because the IRS has unequivocally stated that if any of these payments are late, then the entire deferral is invalid. This means that there will be a retroactive assessment of interest and penalties on the deferred amounts in the event that the payment is late.

These balances should either be paid via the EFTPS or the IRS Taxpayment site.

Reduction of Expenses Relating to the Employee Retention Credit (ERC)

The IRS in Notice 2021-49 Section C address the timing of the reduction of expenses relating to ERC funds received. This reduction is in accordance with Section 280C of the Internal Revenue Code that directs taxpayers to reduce certain expenses for which tax credits are granted.

The IRS and Treasury Departments position is that the Employee Retention Credit must reduce payroll expenses for the period that the credit is applied i.e. Q2 2021 ERC must reduce your 2021 payroll expense irrespective of when the cash is received.

This is applicable even if the credit was not originally claimed during the period and the payroll tax return is later amended. Therefore, even with respect to cash basis taxpayers who will receive the IRS refund in 2022, the 2021 expenses must be reduced by the total Employee Retention Credit claimed for 2021.

We urge our clients to keep this in mind when preparing for year-end projections and budgeting for upcoming income tax filings.

Payroll Tax Deposits for Taxpayers Claiming ERC

With the repeal of the Employee Retention Credit for Q4 2021, taxpayers claiming this credit and applying it to offset future payroll liabilities may have an underpayment penalty if they do not make payroll tax deposits by December 20, 2021 of any outstanding balances.

Final Year of Enhanced Charitable Contribution Limits

Tax year 2021 is the final year for individual taxpayers to take advantage of the enhanced 100% AGI limitation for charitable contributions. The contributions must be made to actual public charities by December 31, 2021. Donations to Donor Advised Funds (DAFs) will not qualify for the enhanced deduction limits.

The table below summarizes the charity limits:

Taxpayers should also be aware that, as a general rule, current year donations are deducted up until the AGI limit before taking into account prior year charitable contribution carryovers. The enhanced contributions, which are from current year donations, and are deducted via a special election on the tax return, are an exception to this rule. This provides for a unique opportunity this year for taxpayers with charitable contribution carryforwards. A taxpayer can use prior year carryovers in tandem with the right mix of current year enhanced 100% limit contributions to maximize their deduction and utilize their prior year carryover at the same time.