Recently released IRS Notice 2021-20 (the “Notice”) provides guidance on the interaction between the Paycheck Protection Program (“PPP”) and the employee retention credit. Unfortunately, the Notice may limit the ability of many PPP borrowers to claim an employee retention credit that employers may have believed they would be entitled to claim. Continue Reading Notice 2021-20 Limits Employee Retention Credit For Many PPP Borrowers
Almost a year after the employee retention credit was adopted as part of the Coronavirus, Aid, Relief, and Economic Security Act (“CARES Act”), and nearly a month after the final Form 941, Employer’s Quarterly Federal Tax Return, claiming the credit for 2020 was due, the IRS issued Notice 2021-20 (the “Notice”). This is the first of three articles looking at the evolution of IRS guidance on the employee retention credit. This article focuses on Congress’s intention in enacting the employee retention credit and the guidance the IRS provided in the frequently asked questions (“FAQs”) it issued in April 2020. The second article focuses on the first signs of trouble for employers that appeared when the IRS updated the FAQs in June 2020. The final article focuses on how Notice 2021-20 builds on those FAQs to narrow the scope of the credit and limit its availability. Continue Reading A Look at IRS Guidance on the Employee Retention Credit: Part I—Broad and Pragmatic Interpretations in the Pandemic’s Early Days
Recently released IRS Notice 2021-11, implements the extension of the period for collecting from employees and depositing employee Social Security tax that was deferred in the last four months of 2020. IRS Notice 2020-65 (see earlier coverage) had specified that the employer “must withhold and pay the total [deferred 2020 taxes] . . . ratably from wages . . . paid between January 1, 2021, and April 30, 2021.” Many employers did not permit the deferral of such taxes. For those that did, the Consolidated Appropriations Act, which was signed into law December 27, 2020, modified Notice 2020-65 by extending the time period during which the employer must withhold and pay the 2020 deferred employee Social Security taxes. The period is now for the entire year − from Jan. 1, 2021, through Dec. 31, 2021.
The extension of time in which to collect the 2020 deferred employee Social Security taxes certainly spreads out the financial impact on affected employees’ paychecks across more pay periods in 2021, which is likely welcome relief to employees. However, it also increases the risk that the employer may not be able to collect all of the deferred taxes in 2021, since an employee could leave employment at any time during the year.
As explained in our earlier coverage, employers are not relieved of the obligation to deposit the deferred employee Social Security taxes. The employer remains liable for the payment of the deferred taxes, if the employer is unable to collect them from the employee. In other words, if the employer is unable to collect all of the deferred 2020 taxes in 2021 from wages paid to the employee—because the employee leaves employment before or during that period—the employer must still deposit the deferred taxes or be exposed to late deposit and other penalties. Moreover, if the employer does not deduct the 2020 deferred Social Security taxes from other remuneration paid to the employee in 2021 or otherwise collect the amount from the employee before the end of 2021, the employer’s payment of the employee’s 2020 deferred Social Security taxes constitutes compensation to the employee in 2021, and that compensation must be reported on a 2021 Form W-2 and subjected to payroll taxes.
Notice 2021-11 does not clarify whether an employer that elected to defer the employee share of Social Security taxes can, in fact, impose a shorter period of time to collect the deferred taxes from the affected employees in 2021, in order to minimize the risk of uncollectibility because of employee terminations during the year. Notice 2021-11 simply states that the collection must occur during 2021 and that penalties, interest and additions to tax will now start to apply on Jan. 1, 2022, for any unpaid balances of 2020 deferred employee Social Security taxes. (Because December 31, 2021, is a legal holiday, deposits made by January 3, 2022, will be considered timely.)
In Announcement 2021-2, released on February 1, the IRS instructed lenders not to report loan relief payments made by the Small Business Administration under Section 1112(c) of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The Announcement reflects a provision in the Consolidated Appropriations Act, 2021 (the “CAA”), excluding such payments from gross income for purposes of U.S. federal income tax. The Announcement also instructs lenders who have already furnished and/or filed Forms 1099-MISC reporting the relief payments to issue corrected Forms 1099-MISC. Given that February 1, 2020, was the deadline for furnishing Forms 1099-MISC to payees, many lenders may have to issue corrected returns. Continue Reading IRS Requires Lenders to Correct Forms 1099-MISC Reporting SBA Payments on Certain Loans
As described in our previous post, on December 21, 2020, another round of COVID relief legislation was passed, providing an enhanced employee retention credit (“ERC”) with various new features and greater benefit amounts. The legislation was subsequently enacted when President Trump signed the law on December 27. On January 26, the IRS issued a news release, containing some informal guidance on how it will operationalize this enhanced program. Continue Reading IRS Issues Guidance on Implementation of Expanded Employee Retention Credit
With retroactive effect, EU Council Directive DAC 6 is now largely inapplicable in the United Kingdom. DAC 6, which came into force on June 25, 2018, requires certain intermediaries (including those who provide legal, tax, or consultancy services) or taxpayers to disclose information related to cross-border tax planning. Our prior coverage of DAC 6 may be found here. Continue Reading Citing Brexit, UK Retroactively Curtails DAC 6 Reporting Requirements
On January 4, 2021, the Internal Revenue Service issued Notice 2021-7 pertaining to the valuation of the personal use of employer-provided vehicles. The Notice permits employers who rely on the special valuation rule of Treasury Regulation § 1.61-21(d), known as the Automobile Lease Valuation (ALV) method, to retroactively apply the vehicle cents-per-mile method of Treasury Regulation § 1.61-21(e) for purposes of valuing an employee’s personal use of a company vehicle in 2020. Due to decreased business use of employer-provided vehicles during the COVID-19 pandemic, the IRS agreed with employers that the application of the ALV method may have resulted in higher income imputation than usual for many employees and that the use of the vehicle cents-per-mile method may provide a “more accurate reflection of the employee’s income . . [,]” particularly in 2020. The ability to switch from the ALV method to the vehicle cents-per-mile method for 2020 applies only to a vehicle with a fair market value not exceeding $50,400 in 2020 and with respect to which the employer would reasonably have expected its regular use in the employer’s trade or business, were it not for the pandemic.
In addition, Notice 2021-7 provides employers, who switch from the ALV method to the vehicle cents-per-mile method for purposes of calculating personal use of the vehicle in 2020, with the option of continuing to apply the vehicle cents-per-mile method in 2021. If the employer decides to continue using the vehicle cents-per-mile method in 2021, that method must be used by the employer and employee for all subsequent years, except to the extent the commuting valuation rule applies. This decision will require employers to carefully evaluate whether the vehicle will continue to meet all of the requirements of Treasury Regulation § 1.61-21(e), other than the consistency requirement, and whether the value of the employee’s personal use of the vehicle will actually be calculated more favorably under the vehicle cents-per-mile method as compared to the ALV method, once the pandemic recedes in 2021 and vehicle use increases. Continue Reading Notice 2021-7 Provides Employers Relief and Potential Opportunities on Valuation of Employer-Provided Vehicles in Light of COVID-19 Pandemic
On Friday, January 1, 2021, the Senate voted to override President Trump’s veto of the 2021 National Defense Authorization Act (“2021 NDAA”) by a vote of 81 -13. The Senate’s override follows the House of Representatives’ override on December 28, 2020, and the 2021 NDAA is now law. As we reported on December 23, 2020, the 2021 NDAA includes new FinCEN reporting requirements for U.S. and foreign entities to disclose information regarding the beneficial owners of reporting companies.
We will provide further coverage of the new FinCEN reporting requirements when the Treasury publishes regulations at some point over the next year.
On Monday, December 28, 2020, the House voted to override the President’s veto of the 2021 National Defense Authorization Act (“2021 NDAA”) by a vote of 322 – 87. As we reported last week, the 2021 NDAA includes new FinCEN reporting requirements for U.S. and foreign entities to disclose information regarding the beneficial owners of reporting companies. The Senate plans to vote tomorrow (Tuesday, December 29, 2020) on whether to override the President’s veto.
As the end of the year approaches, many accounts payable departments are gearing up to complete their annual Form 1099 filings. For 2020, a new form, Form 1099-NEC, will be used to report payments of non-employee compensation to vendors. (See earlier coverage.) The IRS resurrected the Form 1099-NEC, which had not been used in decades, to replace Box 7 reporting on Form 1099-MISC because the Protecting Americans from Tax Hikes (PATH) Act accelerated the filing deadline for non-employee compensation to January 31. The rules for reporting on Form 1099-NEC are generally the same as for reporting in Box 7 of Form 1099-MISC in the past. However, the reporting requirements for the two may differ at the state level.