Everything You Need to Consider About the Advance Child Tax Credit Payments
Jul 16, 2021
As we are heading into the second half of 2021, individuals are now starting to receive their advance Child Tax Credits payments as a result of President Biden’s American Rescue Plan. The law, signed in March, increases the overall child tax credit, expands it to include children turning 17 this year, and adds another annual $600 benefit per child under six years old. While the advance payment on the credit may be a welcomed windfall, there are some important aspects of this tax credit individuals should be aware of when receiving these payments.
Receiving Payments
Individuals with dependent children started receiving monthly payments on July 15th which are estimated to total half of the amount of their estimated 2021 Child Tax Credit. The other half of the Child Tax Credit will be received when the 2021 Tax Return is filed in 2022. Individuals are required to reconcile the payments received on their 2021 Tax Return so they should keep track of the payments received throughout the year and include that information with their tax documents.
Overpayment
If an individual receives more than what is due to them, they will be required to pay back the difference. This differs from the stimulus payments, where individuals were allowed to keep the additional funds. This primarily applies to those with a dramatic increase in income during 2021. An example of this scenario:
- If your income level qualified you to receive additional Child Tax Credits in 2020, and your new income level in 2021 does not, you will have to pay back the money received in regards to the additional Child Tax Credit you no longer qualify for.
Increase in Tax Due
The advance child tax credit received will be in lieu of claiming the tax credit on the 2021 income tax return. Since half of this credit will be received by the time the 2021 income tax return will be due, the amount of the child tax credit will be halved on the 2021 Return. This means that there will be fewer credits to offset against the tax due, which may cause a higher-than-normal tax due, or decrease the potential refund some are used to receiving. This holds especially true for those with a dramatic increase in income for 2021.
Opting Out of Advanced Payments
If taxpayers do not wish to receive the advanced payments of the Child Tax Credit, they can elect out of them. Typical reasons for opting out of the advanced payment are as follows:
- An individual normally has a balance due to the IRS after filing their taxes
- An individual doesn’t claim a dependent every year due to shared custody arrangements
- An individual’s dependent(s) is(are) aging out of the range of the credit
- An individual prefers having a large tax refund
Anyone wishing to elect out of the advanced payments, you may do so by clicking this link and following the instructions provided.
Changing Bank Account Information
If taxpayers would like to learn how to change/update their banking or direct deposit information, click here.
New IRS Portal
The IRS is currently developing a portal in which a user can enter updated information impacting the amount of payment an individual will receive. A user can do all of the following in this portal:
- Update marital status
- Enter in children born in 2021
- Re-enrollment into the Child Tax Credit if you were previously unenrolled
- Adjust your income for the calculation of the Child Tax Credit
As previously stated, this portal is still in development but the IRS is looking to release this portal in the coming months. Reach out to your WVC professional for questions on your specific situation.
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Categories: Tax Planning
PPP Deadline Extended Through May 2021
Mar 31, 2021
The PPP Extension Act of 2021 passed by Congress last Thursday has now been signed into law by President Biden. The PPP Extension Act of 2021 expands the Paycheck Protection Program (PPP) loan application due date two months from March 31, 2021, to May 31, 2021. With nearly 190,000 pending applications, the law provides small businesses and nonprofits 60 additional days to apply for the roughly $79 billion of funds remaining. This extension comes just two weeks after the American Rescue Plan (ARP) made several changes to the PPP, which we previously outlined here.
An additional provision of the Act allows the Small Business Administration (SBA) until June 30, 2021, to process lender applications.
Categories: COVID-19
How to Prepare For the Restaurant Revitalization Fund Opening
Mar 24, 2021
This story was updated on 4/1/21 to reflect a potential change in SBA requirements for the Restaurant Revitalization Fund (RRF). Restaurants will not be required to acquire a System of Award Management (SAM) number nor a D-U-N-S number as previously thought.
In a previous post, we examined the Restaurant Revitalization Fund (RRF) under the American Rescue Plan and outlined the program details, eligibility, and the qualifying uses for the funds. With more than $20 billion available for restaurant businesses of different sizes, we anticipate a high demand for RRF grants.
As the restaurant industry patiently awaits further guidance from the Small Business Administration (SBA), there are steps restaurant owners can take now to best prepare for the opening of the fund. We encourage you to take action now by:
Gathering your paperwork – Finally, you should begin compiling your receipts and financial statements to show your 2019 and 2020 revenues.
Unfortunately, as of the date of this advisory, the SBA’s application process is not yet open. Nonetheless, we expect the application to be available on the SBA’s website, and, once available, applications will be submitted directly through the SBA. It is important to keep in mind not everyone who applies for an RRF grant will receive funds. Much like the first round of PPP, funds will go fast. We highly recommend you take the steps above to best position your restaurant. If you have questions or need help, we are here!
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Kristin Metzger, CPA
Restaurant Practice Leader
kristin.metzger@wvco.com | 419.891.1040
Categories: COVID-19, Restaurant & Hospitality
Tax-Free Employer Contribution to Student Loan Debt Incentive
Mar 23, 2021
Statistics show that a mere 8% of employers offer some kind of student loan repayment option. While this is not a new phenomenon, bigger corporations like Google and Hulu recognize the value-add of such offering to attract and retain top talent. Recent changes to a CARES Act provision providing employers tax incentives if they offer student loan repayments has been making news. Similar to employer-sponsored retirement and health care plans, employers can contribute up to $5,250 toward an employee’s student loan balance (principal or interest) and the payment will be free from payroll and income tax under Section 2206 of the CARES Act. This temporary tax-free provision has now been extended for at least five years, and employers are starting to take notice.
Due to the pandemic, many employers are focusing efforts on employee wellbeing and financial stability. This opportunity benefits both sides: the employee doesn’t have to pay income tax on the $5,250 and the employer gets a tax deduction. Some employers have evaluated the benefit of providing annual raises or offering a contribution to student loan debt. Given the economic impact of the pandemic, some may prefer the latter. Especially with student loan interest suspended until September of this year.
If you are interested in taking advantage of this tax-free provision, employers who already maintain an educational assistance program will need to amend their program, and employers who do not already maintain such a program will need to adopt one. Developing a written plan that outlines: 1) how to notify employees of the program, 2) eligibility and, 3) benefits is a good place to start. If you have questions, please contact your William Vaughan Company advisor today.
Categories: COVID-19, Tax Planning
COVID-Related Fraud Risk on the Rise
Feb 19, 2021
Many small business owners do not believe their businesses can or will fall victim to occupational fraud. Due to this belief and budget restrictions, many small businesses do not make this a priority, which leaves them vulnerable.
According to the Association of Certified Fraud Examiners’ 2020 Report, financial statement fraud is the costliest type of occupational fraud affecting organizations. Financial statement fraud is not only costly from a fiscal standpoint, but it also impacts trust within the organization, the community, and with investors.
The rapid advance of COVID-19 has placed a significant strain on organizations and individuals alike. Donald R. Cressey’s fraud triangle theory includes the three major factors that are commonly present when financial statement fraud occurs: Pressure, Opportunity, and Rationalization.
Here is how COVID-19 has impacted these factors:
Pressure – Organizations are facing challenges never experienced before. COVID-19 has left many facing revenue loss, supply chain disruptions, and employee wellness concerns. All these factors, and more, are causing undue pressure to meet financial expectations.
Opportunity – While organizations are receiving state and federal funding to cope with the financial impact of COVID-19 disruption, there are dramatic shifts in operations with remote working and a reduction of in-office staff. This means internal controls are reduced and accessibility increased. These become prime opportunities for fraud.
Rationalization – Mounting stress impacts individual decision-making skills, leading people to rationalize actions they would otherwise regard unacceptable or illegal. Employees may rationalize they are “owed” financial support because of the work they do.
Some potential areas to consider when thinking about your organization include:
- Revenue recognition – The timing and amount of revenues recognized.
- Allowances and reserves – Changes in methodology and unusual adjustments.
- Valuations – Significant estimates used in projections, declining cash flows, and idle assets.
- Treatment of expenses – Expenses are recorded in the proper period.
- Disclosures – The adequacy and sufficiency of disclosures.
- Margins – Reasonableness of margins given the current year operations.
- Internal control – Opportunity for control override.
These are just a few of the common ways for financial statement fraud to occur. While we all work diligently to recover from the COVID-19 disruption, we need to be aware of the heightened risks and adjust our processes and tasks to monitor for this risk.
If your company needs assistance, William Vaughan is here to assist you.
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Juli Seiwert, CPA
419.891.1040 | juli.seiwert@wvco.com
Categories: Audit & Accounting, COVID-19