News – Harvard Grace

Welcome to this week's installment on business taxation! Head over to our Youtube channel and take a look at this article from The Tax Adviser to learn more. https://youtu.be/JH2k3LDa_bk Last week, President Biden signed into law the American Rescue Act, which is the COVID-19 relief bill. There are a lot of provisions going into it, many of them personal in nature, and we don't usually talk about personal tax issues as we focus on businesses. However, there's so much money coming out into the economy from this bill, it will impact businesses because people will spend money, and so it's good to know about. The most noteworthy of these provisions is the $1400 per taxpayer credit. It's going to be $1400 for those making under $70,000 per year, or $160,000 for a married couple. There are additional credits for children as well, and those will phase out between $160-$170,000 of income. There are extensions to unemployment benefits for those who are still unemployed. There are COBRA continuation coverages going on. Another big one which hasn't been talked about a lot is a the child tax credit, which up until now was not a refundable credit, but it will now be a refundable credit. It's $3000 per child from 6 to 17 years old and $3600 per child for children under 6. This will also phase out at upper income levels, but the key point here is a refundable credit, which is like the earned income tax credit. Whether you have any income or not, you got the children, you file, you get the money. They'll send you a refund whether or not you've paid money into the system. It's another way of getting money out into the economy for people with children. There are also modifications to the child independent care credit and the family and sick leave credit. The employee retention credit, which we just talked about last week, has been modified and enhanced. A few miscellaneous provisions that do affect businesses: there's been an extension to the cap on deductibility of highly compensated employees, which is a bit too complex to discuss in a quick blog, but it's something for businesses to be aware about if you have employees who are compensated more than a $1 million per year. There are also changes to section 108. There was a lot of stuff in the first CARES Act about deferring payments or charging off payments for student loans, federally guaranteed student loans. This act makes it clear that if that was done, your loan was charged off or forgiven, that's not taxable income, very much like the PPP loans were corrected in the last week of the year. So PPP loans that were forgiven are not income, as is typical under section 162, as far as the forgiveness of indebtedness as income. A lot to see here. We think it's going to be a good boost to the economy, at least in the short run, and then the child credit doesn't really take place until you file your 2021 taxes. A lot of us are aware that the tax refund season generates a lot of economic activity at the first part of the year, and this is just going to enhance that. So be aware, read about it, and know how it will impact your business. If you have any questions or concerns about your business's finances, please give us a holler!