Early heads up on 2021 W-2s, W-3s, etc.

In 2021, you find not only the percentage method and wage bracket method withholding tables in 2021 Publication 15-T, Federal Income Tax Withholding Method, but also the amount to add to a nonresident alien employee’s wages to determine FITW.

 The 2021 Form W-2, 2021 Form W-3, and 2021 W-2/W-3 instructions include how to handle COVID-19- related employment tax credits. n

·         You may see discrepancies in your 2021 Forms W-2/W-3 v. Forms 941/944 reconciliation if your firm took COVID-19 tax relief in 2020. Qualified sick leave and family leave wages are not subject to the employer share of social security tax. Also, deferred employee social security tax is reported on Forms 941 and 944—but not on the W-2 or W-3. n 

·         With respect to reporting deferred 2020 employee SS tax, under Notice 2020-65, SS tax withheld in 2020 and not reported on the 2020 W-2 will be reported on a 2020 W-2c in Box 4, using Box c to indicate the tax year—in this case, 2020.

 2021 Forms W-2c should be filed with the Social Security Administration, along with a W-3c, as soon as possible after withholding the deferred amounts. For details, see the IRS’s reporting deferred 2020 SS tax under Notice 2020-65

 New form issued to help self-employed obtain COVID tax credits.

 Although coronavirus[1]related tax credits are for wages paid to employees, self-employed can take comparable credits on their income tax returns when they had to take time off work because they or a family member were affected by COVID-19.

 Self-employed can claim the credits on new Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals. These credits, scheduled to expire at the end of 2020, were extended through Mar. 1, 2021. Qualified individuals will claim the credits on their 2020 Form 1040 (your client may want to file an amended 1040-X) for leave taken between Apr. 1, 2020, and Dec. 31, 2020, and on their 2021 Form 1040 for leave taken between Jan. 1, 2021, and Mar. 31, 2021.

 To be eligible, a self-employed had to have carried on a trade or business during the year and been eligible for qualified sick leave wages under the Emergency Paid Sick Leave Act or, if the individual was also an employee, would have received qualified family wages under the Emergency Family and Medical Leave Expansion Act.

 For details on how to calculate credits, visit eligible self-employed and self-employed who are also employees. [IR-2021-31]

 

Tax Calendar                                   

May 05     Wed.     Apr. 28 – 30    Fri.

May 07     Fri.        May 1 – 4       Tues.

May 10     Mon.     File 1st q. 941 if all deposits were paid timely and in full.

May 10     Mon.     Form 4070 due from tipped employees

May 12     Wed.     May 5 – 7      Fri.

May 14     Fri.        May 8 –11     Tues

 

• ·         The only acceptable reason for delaying deposit of payroll taxes due is a legal federal holiday.
• ·         Deposits of $100,000 or more must be made within one business day of the day that the tax liability is incurred.

---

 

New IRS audits aim at business owners.

One IRS campaign will focus on high-income self-employed and small-business owners who do not file income tax returns. The IRS will use information returns such as K-1s, W-2s, 1099s, and 1120S and 1065 partnership returns, review foreign-reported data, currency transactions and suspicious activity reports, and whistleblower claims.

 A second campaign will target high-income taxpayers who file complex returns—usually a 1040 that has flow-through income from S corps, partnerships, trusts and other financial interests. Unlike past audits, these will be conducted by teams of auditors simultaneously reviewing all or most sources of income on the return. Each auditor will focus on one part of the return, so that each entity associated with the return will be audited along with the individual taxpayer.

 Both campaigns may refer taxpayers for criminal investigation, but the first one emphasizes criminal referrals more because failure to file returns or report all income was done knowingly. Some audits in the first campaign will be initiated by letter, many will begin with an unannounced visit so the taxpayers’ statements will be on the record before they can consult with a tax advisor or review their records.

 What you should be doing right now… Anyone who might be included in either IRS campaign should be bringing themselves into compliance with tax law before the IRS audits begin.  

 [Tax Notes Today]

T3 Bizz Bookkeeping & Accounting Services can help you get prepared and in compliance – Contact us NOW mailto:t3bizz@gmail.com

 

Is your employees’ withholding still wrong? 

Even employees who used the new W-4 may still have the wrong amount of FIT withheld from paychecks. 

And who will they blame when they file their 1040s and get a notice from the IRS? You or your employer —or both. 

Three major causes: 

1. The employee did not submit the new W-4. FITW based on the old W-4 is likely to be wrong if an employee has two jobs or files married filing jointly and the spouse also works. 

2. The employee submitted the new W-4 but did not complete it properly. Here, too, the problem is likely to be that the worker has two jobs or is married filing jointly and the spouse also works. 

3. The employee’s income or circumstances change during the year due to a birth, adoption, marriage, or home purchase or a significant change in income. 

Solution for causes 1 and 2: 

These employees need to complete and submit a new W-4 and make sure to check “Step 2: Multiple Jobs or Spouse Works—and use the IRS Withholding Estimator or the Multiple Jobs Worksheet. The new W-4 also urges such employees to check the box indicating there are two jobs total. Reminder: This box must be checked on each W-4 filed—i.e., your employee’s W-4 and that employee’s spouse’s W-4. 

If either your employee or your employee’s spouse fails to check the box in Step 2, it can result in substantial under withholding. The same applies if your employee holds a second job—the employee must check the box in Step 2 on the W-4 for both jobs. 

Catch 22 …, Checking the box on both W-4s works only if the second job or spouse’s job has similar pay. Otherwise, there can be significant over withholding. 

[Tax Notes Today]

 

Do Nonprofits Ever Pay Taxes?
 
When you think about a nonprofit, the first thing that often comes to mind is that it is tax-exempt. Most nonprofits are not subject to federal, state, and local income tax.
 
Does that mean nonprofits are completely free of ANY tax liability? The answer to this is likely no – there are still some taxes that a nonprofit might be liable for. If you are considering starting a nonprofit organization, you won’t want to be surprised, so we’ll break it down for you. 
 
Taxes That Do NOT Apply to Nonprofits
 Generally a nonprofit is not subject to income tax at the federal, state, or local level on funds raised in direct association with the organization’s mission.  The reasoning behind this exemption is that it allows more resources to be put toward its cause(s).
 
A nonprofit that qualifies for federal tax-exempt status is also exempt from paying property tax in all 50 states, by law. Sales tax is also often waived for certain transactions related to the organization’s mission, but not always. It depends on the nature and amount of sales activities of the nonprofit.
 
Taxes That Do Apply to Nonprofits
 Sales and use tax may also need to be paid. With sales tax, there is a distinction between paying sales tax on purchases, and collecting and remitting sales tax on sales. A nonprofit may need to pay sales tax on purchases from a vendor depending on the rules of its state and other considerations.
 
On the flip side, if a nonprofit is engaged in a business activity unrelated to its charitable mission and/or involved in sales of taxable items or services to customers, it may be obligated to collect and remit sales tax.
 
It is important to distinguish between these two areas and keep in mind that even if a nonprofit is exempted from paying sales tax on purchases, that exemption does not necessarily extend to collecting and remitting sales tax on outside sales.
 
Another area where a nonprofit might be liable to pay tax would be on what is called Unrelated Business Taxable Income (UBTI). This is income that is unrelated to the nonprofit’s core mission. As an example, a fundraising event to sell merchandise to raise money for equipment that will directly help carry out the entity’s cause would NOT be considered an unrelated activity, despite the sale of items to customers, because the money is going directly towards helping to advance the charitable mission.
 
On the other hand, if that merchandise is sold as part of a trade or business that is regularly carried on by the nonprofit and the proceeds are used to fund general operating costs like payroll or office expenses and not specific program expenses, that income could be considered UBTI because it is not substantially related to the organization’s charitable purpose.
 
If a nonprofit has over $1,000 of UBTI it must file Form 990-T and pay tax on that income. If the nonprofit is structured as a corporation, it will pay the flat 21 percent rate on that income, like the 21 percent tax paid by for-profit corporations.  If it’s set up as a trust it will be taxed at trust rates, the highest of which is 37 percent. Because this is a gray area of the law and subject to some interpretation, it is highly recommended that a nonprofit seeks the advice of a tax professional in navigating the rules and determining if it is subject to UBTI reporting and taxation.
 
So, as you can see, taxes are not completely off the table just because an organization is exempt from federal income tax. Several different types of tax could come into play for a nonprofit, depending on whether it has employees, the nature of its activities, and other considerations.

 If a nonprofit organization hires employees, it will be subject to payroll taxes. Just like employees of for-profit entities, these individuals are required to pay tax on their earnings, and the organization is liable for the employer’s share of the payroll taxes.

 

Recent California Uber IC referendum does not affect small biz.

Uber and Lyft funded a ballot referendum in November’s election that exempts them from a recent state law classifying most workers as employees instead of independent contractors (ICs). The referendum passed by a wide margin.

Changes in IC v. employee classification in one state are often a bellwether for firms in other states. But in this instance, most other employers do not benefit.

The referendum narrowly applied to companies that employ drivers through apps. When certain conditions are met, those companies can treat the drivers as independent contractors.

Other employers in California still must classify most workers using the ABC test, the test used in various versions by most states, which requires employers to prevail on tests A, B and C for a worker to be treated as an IC, as follows:

A.  The worker must clearly be free from the hiring entity’s direction for the work, both in the terms of the contract and in the conduct of the relationship.

B.   The worker does work that is outside the hiring entity’s usual business—e.g., truck drivers who work for a trucking company do not do work outside the scope of the hiring entity’s business, so they are employees. A plumber doing work at a retail store is performing work outside the hiring entity’s usual business.

C.  The worker must be customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

 

Works Cited

Bookkeepers, A. I. (2021). Recent California Uber IC referendum does not affect small biz. The General Ledger, Vol. 38, No. 1.