The revamped credit “is a better program — there’s more money, and it’s available to more employers,” said Shelly Abril, the head of tax compliance at Gusto, a payroll services provider. “But with that comes all this extra complexity.”
Devon Lind plans to seek retroactive 2020 credits for his workers at Blender, a collection of businesses in Spokane, Wash. Blender’s two core businesses — Photoboxx, which sells photo printing and display technology, and Smash, a mobile “rage room” where people can destroy plates — both depend on events, and sales plunged last year. The company had nine employees before the pandemic. It laid off five.
Frequently Asked Questions About the New Stimulus Package
Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read more
This credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax Accounting. Read more.
There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.
Because Blender took a Paycheck Protection Program loan, it was initially ineligible for the retention credit, but Mr. Lind now plans to seek it for two quarters last year. The credit “is really going to help us continue to retain employees as we’re gaining back business,” he said.
But extracting the most money allowed from the credit is complicated because of the way it interacts with P.P.P. proceeds — and the Internal Revenue Service hasn’t yet provided detailed guidance.
“There’s just tons of nuance in the credit,” said Andre Shevchuck, a partner at the accounting firm BPM. “We have instructed a lot of clients to first check in with their payroll provider to see how the rubber meets the road, and it may also make sense for businesses to talk to a C.P.A or a lawyer.”
Unemployment benefits
Self-employed workers are normally not eligible for unemployment compensation, but the CARES Act extended benefits to them. Ms. Holcomb filed for unemployment when her contract job temporarily eliminated her hours.
Some who collected the money are in for a tax-time shock, though: The payments are taxed as income. States are supposed to offer recipients the option of having federal taxes withheld, but in their scramble to deal with a deluge of claims, some states didn’t do it — and many people, faced with urgent bills and a reduced income, declined the option. Researchers at the Century Foundation estimate that fewer than 40 percent of unemployment payments last year had taxes withheld.
Article source: https://www.nytimes.com/2021/03/12/business/smallbusiness/freelancers-taxes-2020.html
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