AMERICAN RESCUE PLAN ACT OF 2021: CHILD TAX CREDIT

AMERICAN RESCUE PLAN ACT OF 2021: CHILD TAX CREDIT

Under the American Rescue Plan Act (ARPA), the IRS will be releasing advance monthly child tax credit payments to eligible taxpayers in equal amounts starting July 15th. Following the first payment in July, the payments will go out on the 15th of each month through December of 2021.

Many taxpayers may want to unenroll using the link below if the amount of 2021 taxes owed are expected to be greater than the expected refund.

For taxpayers who are married filing jointly, each person must unenroll separately.

The payments will be as follows:

  • Up to $300 per month per child under age 6, and
  • Up to $250 per month per child ages 6-17.

For 2021, ARPA raised the child tax credit amount to up to $3,000 for each qualifying child between the ages of 6 and 17 at the end of the 2021 tax year, and $3,600 for each qualifying child under the age of 6 at the end of the 2021 tax year. ARPA also made the child tax credit for 2021 fully refundable if the taxpayer (or spouse, on a joint return) has a primary residence in the United States for more than half of the 2021 tax year.

For more detailed information and frequently asked questions about child tax credit payments, or to unenroll, visit the IRS Child Tax Credit Update Portal. Please call our office at 251-343-1012 if we can be of further assistance.

Changes To 2020 Form 1099

Changes to 2020 Form 1099

The IRS has a new Form 1099-NEC to report nonemployee compensation for tax year 2020. The IRS has also revised the Form 1099-MISC and rearranged box numbers for reporting certain income.

If your business has paid $600.00 or more in nonemployee compensation to an unincorporated entity in 2020, you will need to report the payment on Form 1099-NEC. If the payments are for legal services or for medical or health care, they must also be reported to incorporated entities.

If your business has paid $600.00 or more in rent (real property, machinery, or equipment) to an unincorporated entity in 2020, it will need to be reported on Form 1099-MISC. However, you do not have to report these payments on Form 1099-MISC if you paid them to a real estate agent or property manager.

A Form W-9 signed by the vendor should be obtained for each entity that you paid $600.00 or more and will need to report on a Form 1099-NEC or 1099-MISC. If possible, you should obtain a Form W-9 from each vendor that provides a service to your business, at the time of service. A Form W-9 can be downloaded from the IRS website at www.irs.gov.

The due date for filing 2020 Forms 1099-NEC is February 1, 2021. The due date for filing 2020 Forms 1099-MISC is March 1, 2021 for paper-filed returns and March 31, 2021 for electronically filed returns.

We will be glad to assist you with preparation and filing of your 1099s. We can also provide a spreadsheet to help input your information. If you would like for us to prepare your 1099s for you, we will need to receive your information no later than January 18, 2021. Please call us at 251-343-1012 if we can be of assistance.

Crow Shields Bailey PC – The Families First Coronavirus Response Act

In response to the COVID-19 pandemic, Congress passed, and the President signed into law on March 18, 2020, the Families First Coronavirus Response Act.  The Act contains two sections that significantly alter the FMLA: the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act (“FMLA Expansion”).

For full-time employees with more than 30 days of work history, the two sections work in conjunction to mandate 12 weeks of partially paid leave due to a school or child care facility closure.  As a stand-alone section, the Paid Sick Leave Provisions mandate 10 days of paid sick leave for all employees, regardless of work history.

To offset the cost of the Act, covered employers will receive dollar for dollar tax credits against quarterly payroll taxes, subject to the requirements of forthcoming Treasury Department regulations.

For small businesses, the Act is expected to provide some flexibility with respect to workers who return to work following a COVID-19 related illness or event, including whether or not they are allowed to return to work at all.  In some cases, small businesses may be exempted from the paid leave provisions of the Act entirely.

Covered employers must be prepared to implement the provisions of the Act on or before April 2, 2020. Covered employers are businesses with up to 500 employees.  The provisions of the Act are temporary and will automatically sunset on December 31, 2020.

Emergency Paid Sick Leave Act

Under the Emergency Paid Sick Leave Act, employers with fewer than 500 employees and government employers are required to provide all employees with paid sick leave for the following Covid-19 related reasons:

  1. The employee is subject to a federal, state, or local quarantine or isolation order;
  2. A health care provider has advised the employee to self-quarantine;
  3. The employee has symptoms of COVID-19 and is seeking diagnosis;
  4. The employee is caring for an individual subject to a federal, state, or local quarantine or isolation order related to COVID-19 or who has been advised to self-quarantine by a health care provider;
  5. The employee is caring for a child whose school or place of care has been closed, or whose child care provider is unavailable due to COVID-19 precautions; or
  6. The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services.

For qualifying circumstances, employers are required to provide 10 days or 80 hours of paid sick leave at the employee’s regular rate, but not more than $511 per day or $5,110 in aggregate.  Those qualifying circumstances are:

  1. The employee is subject to federal, state, or local quarantine or isolation order.
  2. A health care provider has advised the employee to self-quarantine.
  3. The employee has symptoms of COVID-19 and is seeking diagnosis.

For other qualifying circumstances, the employer is required to pay 2/3rds of the employee’s regular pay, subject to a maximum of $200 per day and $2,000 in aggregate for the first 10 days of leave. Those qualifying circumstances are:

  1. The employee is caring for an individual subject to a federal, state, or local quarantine or isolation order related to COVID-19 or who has been advised to by a health care provider to self-quarantine.
  2. The employee is caring for a child if the child’s school or place of care has been closed, or the child care provider is unavailable due to COVID-19 precautions.
  3. The employee is experiencing any other substantially similar condition specified by the Secretary.

FMLA Expansion

The FMLA Expansion requires employers having less than 500 employees to provide 12 weeks of job protected FMLA leave to eligible employees who are unable to work because their child’s school or place of care has been closed, or the child care provider is unavailable due to the COVID-19 health emergency

The first 10 days of this leave is typically unpaid; however, some employees may qualify for pay during the first 10 days of leave under the Emergency Paid Sick Leave Act.  During these first ten days, employees may use their accrued sick leave or PTO, but employers may not require that they do so.  After the first 10 days, employers are required to pay qualifying employees 2/3 of their regular compensation, but no more than $200 per day or $10,000 total, for ten weeks if there is a public health emergency related school or child care closure.

Under the FMLA Expansion, the usual FMLA requirement that an employee must have been employed for at least 12 months and have worked 1,250 hours to be eligible for leave do not applyAny employee is covered if the employees has been employed for at least 30 calendar days.

Job Protected Leave

Prior to the amendment, the FMLA required that an employee returning from leave be restored to the employee’s original job or to an equivalent job with equivalent pay, benefits, and other terms and conditions of employment. The Act leaves in place most of the key job protection provisions of the FMLA without any change.  However, there is one significant change affecting small businesses.  Under the FMLA Expansion, the job restoration requirements will not apply to employees who take COVID-19 related leave if they are employed by an employer with fewer than 25 employees and these conditions are met:

  1. The employee’s job no longer exists on account of economic conditions related to the outbreak of the coronavirus;
  2. The employer makes reasonable efforts to restore the employee to an equivalent position; and
  3. The employer makes reasonable efforts to contact the former employee for up to one year if a position becomes available.

Exemptions for Certain Businesses

The Secretary of Labor may choose to exempt small businesses with fewer than 50 employees if the sick leave mandate “would jeopardize the viability of the business as a going concern.”  The Secretary is expected to issue guidance and regulation with respect to this provision.  The Secretary is also expected to issue regulations that exclude certain health care providers and emergency providers from coverage if their employer chooses to opt out of the paid sick leave mandate.

Noticing Issues

By Employer: Employers falling under the provisions of the Act must post conspicuous notices of the Act in the workplace once the Secretary of Labor provides the form of the notice.

By Employee:  Under the Act, if the leave is COVID-19 related, an employee does not have to give the employer notice prior to beginning leave.  After the first workday of COVID-19 related paid sick leave, the employer can require the employee to follow reasonable notice procedures for the use of additional paid sick leave.  The employer cannot require the employee to look for a replacement worker.

Tax Credits

The Act includes a dollar-for-dollar tax credit in an amount equal to the sick and FMLA leave required to be paid under the Act, subject to the following caps:

  1. $200 per day per employee up to $10,000 for all calendar quarters for paid family leave; and
  2. $511 per day per employee up to $5,110 for all calendar quarters for paid sick leave.

The credit is applied against the employer share of FICA taxes.

In addition to the tax credit, amounts paid for sick and FMLA leave under the Act are not included in wages for purposes of the employer share of Social Security tax. Although the benefits are not excluded from wages for purposes of the employer share of Medicare taxes, the credit calculation will offset the employer share of Medicare tax due on the leave payments.

Leave payments are subject to the withholding of both federal income tax wages (and state income tax in most states) and all employee FICA taxes.

Alexandra K. Garrett is an attorney at Silver Voit & Thompson, Attorneys at Law, P.C. She was raised in Fairhope, Alabama where she currently lives with her husband and sons. She obtained her B.A. in Communications from Spring Hill College in 2004 and her JD from University of Alabama School of Law in 2007.  Alex’s practice focuses on business advising, employment law, business bankruptcy, and wealth and estate planning.  She may be reached at (251) 338-1081 or [email protected].

Matthew Butler is an attorney at Silver Voit & Thompson, Attorneys at Law, P.C.  He was born and raised in Mobile, AL.  He received a B.S. in Economics from the Wharton School of the University of Pennsylvania in 2003 and subsequently worked for Deutsche Bank Securities as an associate.  Matt obtained his JD from the University of Alabama School of Law in 2011.  His practice focuses on business advising, business bankruptcy, and wealth and estate planning.  Matt is married to Dr. Kristen M. Butler, an area surgeon, and they are the proud parents of four children. He may be reached at (251) 338-1084 or [email protected]