The Internal Revenue Service (IRS) reports that it has made over 100 million Economic Impact Payments (EIPs), as required by the Consolidated Appropriations Act of 2021. On December 30, 2020, the IRS started mailing checks for $600 to individuals, $1,200 to married couples and an additional $600 per qualified minor child.
The payments have proceeded smoothly, with the exception of taxpayers who may have incorrect direct deposit information on file with the IRS. The IRS acknowledged that there is a problem because direct deposits were not able to be sent to some accounts. It is attempting to remedy the problem. The IRS issued a press release and stated, "The IRS and tax industry partners are taking immediate steps to redirect stimulus payments to the correct account for those affected."
The IRS asks individuals to use the Get My Payment tool on IRS.gov
to monitor their payments. However, individuals with incorrect direct deposit information may not be able to track their payment until the IRS and industry partners have corrected the problem.
When the first stimulus payments were made in April of 2020, the IRS used direct deposit for most taxpayers, but sent paper checks to taxpayers who had authorized payments from accounts rather than directed refunds to their accounts. The new stimulus payments are being made through direct deposits to all bank accounts where the IRS has appropriate records.
Under the stimulus bill, the payments are to be distributed by January 15, 2021. The IRS will send Notice 1444 or Notice 1444-B to all stimulus check recipients. Taxpayers should retain the IRS Notice with their tax records. If the stimulus payment is not made, the taxpayer may claim a Refund Recovery Credit on his or her 2020 tax return.
If only one spouse has a Social Security Number, that person may receive an EIP and also receive $600 payments for each qualified child. The EIPs may be retained for deceased taxpayers who passed away after January 1, 2020. Incarcerated individuals are also eligible for stimulus payments.
Summary of the January EIPs
- Direct Deposits – Individuals should monitor their bank accounts for a direct deposit. The Get My Payment tool should reflect the direct deposit. The individual does not need to take any action to receive the stimulus payment through this method.
- Payments by U.S. Mail – If the IRS does not have bank account information, it will send either a paper check or a debit card by U.S. Mail. Individuals should monitor their mail for the stimulus payment.
- Tax Return for 2020 – Individuals who have not received a payment through direct deposit or mail may be qualified to claim a Recovery Rebate Credit on their 2020 tax returns.
Second Round of PPP Loans Will Save Millions of Small Businesses
The second round of Paycheck Protection Program (PPP) Loans is now available. Many banks and financial institutions have updated their software to enable small businesses to apply for a PPP Loan. The new loans are essential for many businesses and nonprofits due to the continuing COVID-19 pandemic. Small businesses in the food service, travel, retail and other similar industries are especially hard-hit by the pandemic.
The U.S. Small Business Administration (SBA) announced that a second Paycheck Protection Program (PPP) opened on January 11, 2021. The December stimulus bill authorized $284 billion for the new loans. These loans are intended to cover obligations up until March 31, 2021.
Treasury Secretary Stephen Mnuchin stated, "The Paycheck Protection Program has successfully provided 5.2 million loans worth $525 billion to America's small businesses, supporting more than 51 million jobs. This updated guidance enhances the PPP's targeted relief to small businesses most impacted by COVID-19. We are committed to implementing this round of PPP quickly to continue supporting American small businesses and their workers."
SBA Administrator Jovita Carranza was pleased with the new PPP Loans. She stated, "The historically successful Paycheck Protection Program served as an economic lifeline to millions of small businesses and their employees when they needed it most. Today's guidance builds on the success of the program and adapts to the changing needs of small business owners by providing targeted relief and a simpler forgiveness process to ensure their path to recovery."
Under the new PPP guidance issued by the SBA, small businesses or nonprofits may use a covered period from 8 to 24 weeks. In addition to payroll and most facilities costs, the loan may cover operations expenditures, property damage costs, supplier costs and worker protection expenditures. The loan categories are expanded to include Section 501(c)(6), housing and destination marketing organizations.
Many small businesses and nonprofits received a PPP Loan in April or May of 2020. If they have 300 or fewer employees and can demonstrate a 25% reduction in gross receipts between comparable quarters of 2019 and 2020, they may receive a new forgivable PPP Loan.
The SBA has additional guidance available at SBA.gov/PPP
. This SBA guidance explains how to obtain a loan for minority, underserved, veteran or women-owned businesses.
Exempt Organization 21% Excise Tax Final Regulations
On January 11, 2021, the IRS published T.D. 9938 and clarified the regulations that apply to the 21% excise tax under Section 4960. This provision was enacted in the Tax Cuts and Jobs Act and creates a 21% excise tax on compensation over $1 million paid to a covered employee of an applicable tax-exempt organization (ATEO). It also includes any excess parachute payments in the formula.
Covered employees are generally the five highest-compensated employees for the ATEO for the current tax year or any year beginning after December 31, 2016. The determination of whether an employee is covered is based upon the remuneration paid by all related organizations, not of each separate organization. A covered employee could be involved in more than one ATEO.
The American Bar Association Section of Taxation had proposed that the payments by related organizations would be treated separately, rather than aggregated as specified in the proposed regulations. However, the IRS preamble to the final regulations stated that due to "the highly factual nature of this analysis and the potential for differing conclusions on one or more of these issues," the separate compensation rule would not be sufficiently predictable and could be an inducement to abusive mischaracterization of the nature of the services and compensation provided. Therefore, the aggregation rule is continued in the final regulations. All remuneration paid by related organizations will be applicable.
There is a volunteer exception for individuals who do not receive remuneration from the ATEO. Some corporate executives provide volunteer services to their company foundations and sought an exception. The volunteer exception applies if the executive is not remunerated by the ATEO and his or her hours are either a maximum of 10% of total working hours or 100 hours per year.
The final regulations continue to provide an exception for a licensed medical professional who provides medical services. The ATEO must use a "reasonable, good-faith method" to allocate remuneration between medical and other services.
The proposed rules on excess parachute payments continue to apply. The final regulations apply to tax years beginning after December 31, 2021 (the 2022 calendar year).
The compensation packages of the top employees of large organizations are complex. These final regulations under Section 4960 reflect that complexity. There will be significant challenges for CPAs determining the exact amount of compensation that applies for purposes of determining the 21% excise tax.
Applicable Federal Rate of 0.6% for January -- Rev. Rul. 2021-1; 2021-2 IRB 1 (16 December 2020)
The IRS has announced the Applicable Federal Rate (AFR) for January of 2021. The AFR under Section 7520 for the month of January is 0.6%. The rates for December of 0.6% or November of 0.4% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2021, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.