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Weekly Digests

Weekly Digest – March 31st 2021

The state of Florida pursued an open, non-restrictive approach to the pandemic, which appears to have been vindicated by recent stories in the media. However, as Derek Thompson of The Atlantic found when he began investigating the veracity of claims, results are neither as cataclysmic nor as positive as either side claims. While it is true that COVID-19 cases are falling in the state, they are likewise falling across the country. In terms of mortality, Florida ranks 27th in deaths per capita, worse than California and Washington D.C. Economic measures, such as the unemployment rate, consumer spending, and revenues for small businesses are also right around the median, not much better than the states that imposed restrictive measures. However, the pandemic was not as deadly in Florida as expected, given the older population and the lack of restrictions. Why that is the case is not yet clear but should be the subject for further investigation.

In today’s NY Times The Morning article “Caution vs Optimism” examines the current situation of cases in the US rising again, even as more people are being vaccinated.

Meanwhile here in New York State this week the age limit for vaccination is now at 30 years old; I am scheduled for my second round of the shot today and am planning on a few days to recuperate and then get back into the heat of tax season.  I have been so fortunate that I have been able to take a break most days by getting outside for some time on the beach.

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It’s cool to see the progress of the beach preservation.

THE AMERICAN RECOVERY PLAN ACT (ARPA)

Economic Impact Payments (aka Stimulus Checks)

According to the IRS, if you didn’t  receive your EIP payment as a direct deposit by March 24, you’ll be receiving it in the mail as either a prepaid debit card or a check. By March 24, the U.S. Treasury had made over 127 million payments, totaling $325 billion. Checks and debit cards began going out March 19 and will continue over the next weeks. The best way to track your payment is using the IRS Get My Payment tool which has been updated for third round payments.

We have also been informed that those of you who, based upon your 2020  tax return, are eligible for the third stimulus funds will receive them if you file your tax return by August 15th.

As we work with our clients on their tax returns we see that most have received the correct amounts.   For those who have not, we prepare the reconciliation and request the additional funds as a refund or Rebate Recovery Credit on their 2020 tax return along with their regular refund.

Social Security recipients who are not required to file a tax return should be receiving their stimulus payments soon now that the Social Security Administration has sent the payment files to the U.S. Treasury.

For those who don’t need the stimulus payment to cover necessities, this article in Kiplinger has six recommendations that will pay off down the road. Saving for retirement or paying off high-interest credit cards are obvious choices. Other choices include adding the cash to a rainy day fund or donating it to charity.

Unemployment Benefits and Taxes

As part of ARPA, the first $10,200 of unemployment benefits are not subject to federal income tax for people with less than $150,000 in MODIFIED ADJUSTED GROSS INCOME. If you filed your 2020 tax return before the law was passed, the IRS plans to fix things on their end so that taxpayers don’t need to take any additional steps. The IRS has provided detailed instructions and a worksheet on how to calculate the exact amount that will be taxable.  Of course, as I like to say “The IRS is NOT your friend” and will not test scenarios to make sure you are filing the most beneficial way.  If you want to take action on your own, you can do so by filing a corrected tax return before the due date of May 17th 2021.

Not all states follow the same rules for taxing unemployment compensation as the federal government, so Kiplinger put together a state-by-state guide on unemployment.

Paycheck Protection Program (PPP)

Last week, Congress voted to extend the PPP to May 31, giving small businesses an additional two months to submit applications. The SBA will have until June 30 to finish processing loans.  We were so happy to be instrumental in supporting the testimony for the AICPA as they presented the case for this extension.  We have been using the AICPA funding portal this time around and have seen the approvals and funding go a bit smoother as we track the applications through the system.  We did see that several applications got caught up in the SBA error code system which was enhanced in order to prevent more fraud.  That has been very frustrating for us, but at this point all but six recent submissions we have assisted our clients with have processed through the system at a good pace.

Economic Injury Disaster Loans (EIDL)

Starting April 6, the SBA is increasing the maximum loan amount from $150,000 to $500,000 for COVID-related loans under the EIDL program. The SBA will also be reaching out to certain businesses whose loans were approved prior to April 6 to offer them additional funds. These loans have a 30-year payback period at 3.75% for small businesses, 2.75% for not-for-profits. Payments are deferred until 2022.

Restaurant Revitalization Fund

Another big program of ARPA, the Restaurant Revitalization Fund, is set to roll out in early April. This fund has $28.6 billion available for grants to hard-hit restaurants, bars, and other food-service related businesses, including food trucks and caterers. The maximum grant is $5 million or $10 million for multiple locations. Grant amounts are based on the decrease in gross receipts for 2020 compared to 2019. Funds may be used for payroll, mortgage or lease payments, utilities, inventory, maintenance, PPE and cleaning supplies, and other specified expenses. As a reminder via the U.S. Chamber of Commerce, this program will be administered through the federal government’s System of Award Management (SAM). The registration process may take one to two weeks, so business owners are encouraged to get set up as soon as possible.

Tax Deadline Extended

The deadline for filing federal tax returns has been extended to May 17th, and most states have announced that they will be extending the filing deadline as well.  Follow this link for a state-by-state summary from Intuit.

We now have new guidance from the IRS via  IR-2021-67  that the time to make contributions to IRAs and health savings accounts has been extended to May 17th.  “In extending the deadline to file Form 1040 series returns to May 17, the IRS is automatically postponing to the same date the time for individuals to make 2020 contributions to their individual retirement arrangements (IRAs and Roth IRAs), health savings accounts (HSAs), Archer Medical Savings Accounts (Archer MSAs), and Coverdell education savings accounts (Coverdell ESAs).”

This extension is limited; individuals who make estimated tax payments will need to complete their calculations by April 15th because the due date for first quarter estimates for 2021 taxes is still April 15th.  Additionally many people who are required to pay in estimated tax payments tend to apply the overpayment from their prior year tax to these, and usually to estimate #1.  For 2020/2021 the IRS has advised that the overpayment from the 2020 tax return will post as received on May 17th, even if the tax return is filed prior to that date.  This extra hitch means that we are calculating and paying a full estimated payment by April 15th and applying any overpayment to the second estimate due June 15th.  In addition the usual safe harbors accomplished by combining the extension amount with the first estimate will not be available for the federal or state 2021 first estimates this year.

FRAUD

According to the FTC, COVID-related fraud has cost Americans more than $382 million. Schemes include stealing stimulus payments, fraudulent unemployment applications, fake remedies for COVID-19, and non-existent charities. Median losses are around $330 per person, but seniors have been especially vulnerable, with losses around $900 for people in their 80s. Identity theft related to unemployment benefits has also been rampant. The total amount lost is likely higher as the figures from the FTC only include fraud that has been reported to the FTC. To find out more about COVID fraud, including how to report it, visit the U.S. Justice Department fraud page.

Fraud is also impacting businesses. A report from the Association of Certified Fraud Examiners (ACFE) found that 79% of anti-fraud professionals were seeing an increase in fraud for November 2020 compared to the previous November. Remote work and layoffs make it both harder to prevent fraud and harder to detect fraud. The average fraud takes 14 months to uncover, so there may be yet more losses due to fraud. The presence of all elements of the fraud triangle – financial pressure, opportunity, and rationalization – increases the likelihood of fraud.

REMOTE WORK

The casual encounters we have at work are key to developing social capital and a feeling of coherence in teams. Employees with strong workplace relationships report higher productivity, while those with weaker relationships tend to have more difficulties with thinking strategically. While the use of communications apps like Teams and Slack have increased during the pandemic, remote work has also led to an increase in the siloing of teams across a workplace, according to a report by researchers at Microsoft, who examined data from Teams. However, as workplaces around the world have returned to a hybrid or in-person model, communications between employees in different parts of the workplace increased. The researchers suggest several actions, including proactive outreach to team members, as a way to increase social capital and engagement at the workplace.

With so many of our team members spread across the east coast: Myriam in Florida, Elizabeth in Georgia, Monica in New Jersey, leaving me Raquel and Ramona in New York, we stay connected via video-chat meetings.  Most recently we have been sharing photos of breakfasts we prepare, like this beautiful omelet complete with a sprig of rosemary from the garden…

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LIFE IN THE POST-PANDEMIC ERA

With the economy largely shut down for most of 2020, many made significant changes to how they spend money. Some changes are temporary, while others may be permanent, as this New York Times profile of several families and individuals demonstrates. A Chicago family is more intentional about their spending, focusing on reducing debt and building financial security. Several others are drawing on social security benefits sooner than expected due to the loss of their incomes.

For older workers, contracting COVID-19 is significantly more dangerous than for younger workers, which may partially explain why many older people have not rejoined the workforce, even as the economy begins to recover. Fewer people working means that economic growth may slow down, and losing older people means a loss of their knowledge base from decades on the job.

GENERAL RESOURCES

We sincerely hope that you and your family are well and remain well. If you have any questions or concerns, don’t hesitate to reach out to us. We are all in this together!

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