Teri Pough, Author at CironeFriedberg, LLP

The New Form 1099-NEC: What You Need to Know

January 5, 2021 by Teri Pough Leave a Comment

Changes are in store this tax season for companies that report information in Box 7 of Form 1099-MISC. For 2020, these amounts will be entered on the new Form 1099-NEC.

Starting tax year 2020, any business, regardless of size, that pays at least $600 for services performed in the course of their trade or business by a person who is not their employee is required to file Form 1099-NEC.

Why the Change?

Prior to tax year 2020, nonemployee compensation was reported in Box 7 on Form 1099-MISC. However, since 2015, the due date for reporting amounts in Box 7 was accelerated to January 31, while the deadline for reporting most other information on Form 1099-MISC remained at February 28, if filing on paper, and March 31, if filing electronically.

To alleviate the problems caused by conflicting due dates, the IRS reinstated Form 1099-NEC (last used tax year 1982) to report nonemployee compensation separately from other types of income reported on Form 1099-MISC, and imposed an earlier due date of January 31 whether filing paper or electronically.

Who Must File?

Any business should file the new form for each person whom they have paid at least $600 for:

Services performed by someone who is not their employee (including parts and materials) (Box 1);
Cash payments for fish (or other aquatic life) purchased from anyone engaged in the trade or business of catching fish (Box 1); or
Payments to an attorney (Box 1).

Businesses must also file Form 1099-NEC for each person from whom they have withheld any federal income tax (report in Box 4) under the backup withholding rules regardless of the amount of the payment.

It is important to file on time, with the correct information, to avoid penalties. The amount of the penalty, which can be as high as $280 per information return, is based on when the filer submits a correct information return. If the failure to file a correct information return is due to intentional disregard, the penalty is at least $560 per information return with no maximum penalty.

Elimination of 30-day Extension

In addition to accelerating the due date for filing Form 1099 that includes nonemployee compensation (NEC) from February 28 to January 31, the IRS also eliminated the automatic 30-day extension.

The IRS does allow for an extension to file if the filer meets one of the five criteria outlined on Form 8809, Application for Extension of Time to File Information Returns. Some of the criteria listed are:

The filer suffered a catastrophic event in a federally declared disaster area that made the filer unable to resume operations or made necessary records unavailable;
Fire, casualty, or natural disaster affected the operation of the filer; and
Death, serious illness, or unavoidable absence of the individual responsible for filing the information returns affected the operation of the filer.

What is still reported on Form 1099-MISC?

All of the other income typically reported by a filer on Form 1099-MISC will stay on that form. Many of the boxes, however, have been rearranged.

According to the IRS, changes in the reporting of income and the form’s box numbers are as follows:

Payer made direct sales of $5,000 or more (checkbox) in Box 7.
Crop insurance proceeds are reported in Box 9.
Gross proceeds to an attorney are reported in Box 10.
Section 409A deferrals are reported in Box 12.
Non-qualified deferred compensation income is reported in Box 14.

Boxes 15, 16, and 17 report state taxes withheld, state identification number, and amount of income earned in the state, respectively.

Form 1099-MISC must be filed by March 1, 2021, if filing on paper, or March 31, 2021, if filing electronically.

State Filing

It is important to note that e-filed Form 1099-NEC will not be forwarded to states. For those who made use of the IRS 1099 Combined Federal/State electronic filing program, the 1099-NEC information will not be shared with the states.

Under the CF/SF Program, the IRS forwards data from a number of key forms to the appropriate states, but it will not do so for Form 1099-NEC. Businesses need to be sure to file separately to the states based on their respective due dates and requirements.

Should you have any questions about the new 1099-NEC or require our assistance, please contact your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford), or email us at info@cironefriedberg.com.

President Trump Signs Stimulus Package

December 28, 2020 by Teri Pough Leave a Comment

After a week-long delay, President Trump signed the latest $2.3 trillion coronavirus relief stimulus package. As reported, early highlights of the legislation include:

PPP Updates

The ability for businesses to deduct the expenses that were funded from proceeds of PPP loans.
The ability for some businesses who did not originally apply for a PPP loan to apply.
The ability for some businesses who have already received a PPP loan to apply for a second loan, if they meet certain economic parameters.
Confirms that the forgiveness parameters are similar to the current rules.
Caps the new loans at $2 million but lets certain hotels and restaurants to base their loan amounts on 3.5 times payroll instead of 2.5 times.
Provides some simplified forgiveness procedures.
Rescinds the reduction of forgiveness by the Economic Injury Disaster Loans (EIDL) grant amount.

Other Business Provisions

A temporary 100% business meal deduction to be allowed if the expense is provided by a restaurant and incurred after December 31, 2020 and before January 1, 2023.
Support for independent movie theaters and cultural institutions and additional targeted grants through the EIDL program.
Expands the Employee Retention Tax Credit (ERTC), extends it through June 30, 2021, and provides that employers who receive PPP loans may qualify for the ERTC for wages not reimbursed by the PPP loan.
Extends the refundable payroll tax credits for paid sick and family leave through the end of March 2021.
Provides additional funding and extends the EIDL grant period to December 31, 2021.

Individual Provisions

A second set of $600 stimulus checks for individuals making up to $75,000 per year and $1,200 for married couples making up to $150,000 per year, as well as $600 for each child dependent with a reduction in benefit as income exceeds these amounts. (President Trump is asking Congress to increase to $2,000 and $2,400, respectively, with a vote hopefully before year end).
Extended unemployment benefits up to $300 per week to run through March 14, 2021.
Extends the Pandemic Unemployment Assistance (PUA) program and the Pandemic Emergency Unemployment Compensation (PEUC) programs.
Extends the moratorium on evictions to January 31, 2021.

Other Provisions

Colleges and schools benefit with funds earmarked for HVAC repair and replacement to reduce the risks of infections and reopen classrooms and the legislation includes additional support for child-care assistance.
Transportation related assistance including additional support for airliner employee and contractor support as well as funds for transit, highways, intercity buses, airports and Amtrak.

While the legislation is over 5,500 pages and contains additional items, this is great news as we end 2020. If you need assistance or have any questions to the new legislation, please call your CironeFriedberg professional. You can reach us by phone at 203-798-2721 (Bethel), 203-366-5876 (Shelton), or 203-359-1100 (Stamford), or email us at info@cironefriedberg.com.

$900 Billion COVID Emergency Relief Package Comes as 2020 Closes

December 22, 2020 by Teri Pough Leave a Comment

To provide much needed assistance and remove PPP expense ambiguity, the House and Senate voted on December 21, 2020 in favor of the Consolidated Appropriations Act, 2021, sending the measure to the President who is expected to sign. Highlights follow:

PPP Updates and Changes

Businesses that received PPP loans will be allowed to deduct the expenses paid by those loans as the legislation overturns the IRS position that the expenses were not deductible.
Additional PPP loans will be available for first-time qualified borrowers from the following groups; businesses that have less than 500 employees that are eligible for SBA 7(a) loans; sole-proprietors, independent contractors and eligible self-employed individuals; Non-profits, including churches, and certain accommodation and food services operations with fewer than 300 employees per physical location
Previous PPP recipients may apply for another loan provided that they have 300 or fewer employees, have or will have used the full amount of their original PPP loan and can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.
The calculation of the loan amount will be the same as the first round using 2.5x the average monthly payroll costs prior to the loan or calendar year. However, certain hotel and restaurants can get up to 3.5x their average monthly payroll costs.
Loans will be capped at $2M as opposed to $10M in the first round.
The forgiveness parameters are the same as those from August and require that 60% of the funds to be spent on payroll
The legislation requires a new simplified loan forgiveness process for loans of $150,000 and less; repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their forgiveness amount and includes support for first and second time PPP borrowers with 10 or fewer employees, borrowers that have become recently eligible and community lenders.

Other Business Provisions

100% business meal deduction will be allowed as long as the expense is provided by a restaurant and incurred after December 31, 2020 and expires December 31, 2022.
The legislation also provides $15 billion for independent movie theaters and cultural institutions and $20 billon for targeted grants through the Economic Injury Disaster Loans (EIDL) program.

Individual Provisions

A second set of $600 stimulus checks for individuals making up to $75,000 per year and $1,200 for married couples making up to $150,000 per year, as well as an additional $600 for each child dependent. There will be a reduction in the benefit as income exceeds these amounts.
The legislation extended unemployment benefits up to $300 per week and will start December 26, 2020 and run through March 14, 2021.
The bill extends the Pandemic Unemployment Assistance (PUA) program with expanded coverage for contract and gig workers, and the Pandemic Emergency Unemployment Compensation (PEUC) program that provides additional weeks of federally funded unemployment benefits to individuals whose need surpasses their states benefits have been extended.
The moratorium on evictions that was slated to expire on December 31, 2020 has been extended to January 31, 2021 and the legislation has set aside $25 billion in emergency assistance for renters.

Other Provisions

Colleges and schools benefit with $82 billion ear marked for HVAC repair and replacement to reduce the risks of infections and reopen classrooms and the legislation also includes $10 billion for child-care assistance.
The bill provides $45 billion for transportation related assistance including additional support for airliner employee and contractor support as well as funds for transit, highways, intercity buses, airports and Amtrak.
The bill extends or makes permanent certain tax credits or deductions set to expire at December 31, 2020.

This is great news as we end 2020. If you need assistance or have any questions on the new COVID-19 Emergency relief Package, please call your CironeFriedberg professional. You can reach us by phone at 203-798-2721 (Bethel), 203-366-5876 (Shelton), or 203-359-1100 (Stamford), or email us at info@cironefriedberg.com.

7 Steps in the Path to Post-Covid Economic Recovery: A Business Survival Checklist

December 1, 2020 by Teri Pough Leave a Comment

We created this Recovery Checklist to help business owners and managers assess what they need to emerge strong and prosperous in the post-Covid business climate. As you consider your ‘new’ future, we invite you to speak with us about how your relationship with your CPA could be better.

At CironeFriedberg, we are prepared to handle this crisis. We are out front with the opportunities as soon as legislation passes. We are working hard for every one of our clients, not just to get them through this COVID battle safely but to assist them in emerging whole and ready to power through
recovery.

Our team has the financial acumen, accounting and tax expertise, and broad business experience to bring you and your business through recovery. We know it’s a big decision choosing who you put your trust in. So, we have to ask you – Who’s got your back? As you consider your “new” future, we invite you to speak with us about how your relationship with your CPA could be better. We’d love to have your back, too.

Download your copy of our Business Survival Checklist.

S Corporations Required to Report Health Insurance Premiums

November 30, 2020 by Teri Pough Leave a Comment

In many cases, employees are able to exclude the value of fringe benefits provided by employers, and the employer is able to deduct the cost of providing these benefits. However, when the employer is an S Corporation some special rules apply.

Health and accident insurance premiums paid on behalf of a greater than 2% S Corporation shareholder employee are deductible by the S corporation and reportable as wages on the shareholder-employee’s Form W-2, subject to income tax withholding. (A 2% shareholder is someone who owns more than 2% of the outstanding stock of the corporation or 2% or more of the voting power of all stock of the corporation.)

However, these additional wages are not subject to Social Security or Medicare (FICA), or Unemployment (FUTA) taxes if the payments of the premiums are made to or on behalf of an employee under a plan or system that makes provision for all or a class of employees (or employees and their dependents.) Therefore, the additional compensation is included in the shareholder-employee’s Box 1 (Wages) of Form W-2, Wage and Tax Statement, but is not included in Boxes 3 and 5 of Form W-2.

A 2% shareholder-employee is eligible for an above-the-line deduction in arriving at Adjusted Gross Income (AGI) for amounts paid during the year for medical care premiums if the medical care coverage was established by the S Corporation and the shareholder met the other self-employed medical insurance deduction requirements. If, however, the shareholder could be covered under a subsidized health care plan of the shareholder or shareholder’s spouse, then the shareholder is not entitled to the above-the-line deduction.

If you need assistance or have any questions on reporting health insurance premiums, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford), or email us at info@cironefriedberg.com.

PPP Deductions and Safe Harbor

November 20, 2020 by Teri Pough Leave a Comment

The question everyone is asking is… Are the expenses reported for PPP forgiveness deductible if the taxpayer’s PPP loan is not forgiven by the end of the tax year? On November 18, 2020, the IRS released rulings related to deductibility of such expenses.

Rev. Rul. 2020-27 confirms and expands on the IRS guidance from Notice 2020-32 issued on May 1, 2020, that a taxpayer may not deduct any eligible PPP expenses in the taxable year in which the expenses were paid or incurred, if at the end of such taxable year, the taxpayer reasonably expects forgiveness of the covered loan, even if the taxpayer has not submitted an application for forgiveness by the end of the tax year. However, the IRS guidance does not define what is considered reasonable expectation of forgiveness. CironeFriedberg suggests working with your tax professional to help guide you.

A taxpayer who applies for and receives forgiveness on a covered loan will be able to exclude the cancelled debt from gross income. However, the IRS has stipulated that taxpayers cannot deduct the expenses that are allocable to this tax free income, in this case the covered loan, that is either wholly excluded from gross income or wholly exempt from the taxes. This prevents a double tax benefit.

Rev. Proc. 2020-51 provides a safe harbor allowing taxpayers to claim a deduction for eligible PPP expenses for taxpayer’s whose request for forgiveness of the covered loan is denied or if the taxpayer decides to not request forgiveness of the covered loan. A taxpayer will be able to deduct any eligible expenses on (1) a timely filed (including extensions) original income tax return or information return, as applicable for the 2020 tax year, (2) amended return or Administrative Adjustment Request (AAR) for the 2020 tax year, or (3) a timely filed (including extensions) original income tax return or information return, as applicable for the subsequent tax year.

There is a potential bipartisan legislative fix pending from Congress to completely overrule the IRS position on this PPP expense non-deductibility issue. This is expected to be included in the next COVID-19 relief bill. However, at this point the IRS has clarified its position on the issue.

If you need assistance or have any questions related to PPP loan forgiveness and deductibility of expenses, please contact your CironeFriedberg professional. You can reach us by phone at 203-798-2721 (Bethel), 203-366-5876 (Shelton), or 203-359-1100 (Stamford), or email us at info@cironefriedberg.com

The New Form 1099-NEC: What You Need to Know

President Trump Signs Stimulus Package

$900 Billion COVID Emergency Relief Package Comes as 2020 Closes

7 Steps in the Path to Post-Covid Economic Recovery: A Business Survival Checklist

S Corporations Required to Report Health Insurance Premiums

PPP Deductions and Safe Harbor

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