Michigan Extends 2020 Tax Filing and Payment Deadline from April 15 to May 17

Last week, the Internal Revenue Service announced that the due date for filing 2020 individual federal income tax returns and paying any tax due with the 2020 return is now Monday, May 17.

To align with this decision for federal taxes, the Michigan Department of Treasury extended the state tax filing deadline to May 17, 2021. First-quarter estimates for tax year 2021 remain due on April 15. The extension does not apply to fiduciary returns or corporate returns, or city income taxes.

The extended filing and payment due date to May 17 is automatic. Taxpayers do not need to file any additional forms or contact the Michigan Department of Treasury to qualify.

Visit Yeo & Yeo’s Tax Resource Center for useful links, tax guides, tax articles on our blog, webinars, podcasts and more. Please contact your Yeo & Yeo tax professional with questions or concerns.

Also read: IRS Extends 2020 Individual Tax Filing and Payment Deadline from April 15 to May 17

During the COVID-19 pandemic, many employees and their families have lost group health plan coverage because of layoffs or reduced hours. If your business has had to take such steps, and it’s required to offer continuing health care coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA), the recently passed American Rescue Plan Act (ARPA) includes some critical provisions that you should be aware of.

100% subsidy

Under the ARPA, assistance-eligible individuals (AEIs) may receive a 100% subsidy for COBRA premiums during the period beginning April 1, 2021, and ending on September 30, 2021.

An AEI is a COBRA qualified beneficiary — in other words, an employee, former employee, covered spouse or covered dependent — who’s eligible for and elects COBRA coverage because of a qualifying event of involuntary termination of employment or reduction of hours. For purposes of the law, the subsidy is available for AEIs for the period beginning April 1, 2021, and ending September 30, 2021.

Extended election period

Individuals without a COBRA election in effect on April 1, 2021, but who would be an AEI if they did, are eligible for the subsidy. Those who elected but discontinued COBRA coverage before April 1, 2021, are also eligible if they’d otherwise be an AEI and are still within their maximum period of coverage.

Individuals meeting these criteria may make a COBRA election during the period beginning on April 1, 2021, and ending 60 days after they’re provided required notification of the extended election period. Coverage elected during the extended period will commence with the first period of coverage beginning on or after April 1, 2021, and may not extend beyond the AEI’s original maximum period of coverage.

Duration of coverage

As explained, the subsidy is available for any period of coverage in effect between April 1, 2021, and September 30, 2021. However, eligibility may end earlier if the qualified beneficiary’s maximum period of coverage ends before September 30, 2021. Eligibility may also end if the qualified beneficiary becomes eligible for coverage under Medicare or another group health plan other than coverage consisting of only excepted benefits or coverage under a Health Flexible Spending Arrangement or Qualified Small Employer Health Reimbursement Arrangement.

Other provisions

The ARPA’s COBRA provisions go beyond the subsidy. For example, they stipulate that group health plan sponsors may voluntarily allow AEIs to elect to enroll in different coverage under certain circumstances. In addition, group health plans must issue notices to AEIs regarding the:

Availability of the subsidy and option to enroll in different coverage (if offered),
Extended election period, and
Expiration of the subsidy.

The U.S. Department of Labor is expected to issue model notices addressing all three points.

Further explanation

The COVID-19 crisis has emphasized the importance of health care coverage. Our firm can further explain the ARPA’s COBRA provisions and help you manage the financial risks of offering health care benefits to your employees.

The new American Rescue Plan Act (ARPA) provides eligible families with an enhanced child and dependent care credit for 2021. This is the credit available for expenses a taxpayer pays for the care of qualifying children under the age of 13 so that the taxpayer can be gainfully employed.

Note that a credit reduces your tax bill dollar for dollar.

Who qualifies?

For care to qualify for the credit, the expenses must be “employment-related.” In other words, they must enable you and your spouse to work. In addition, they must be for the care of your child, stepchild, foster child, brother, sister or step-sibling (or a descendant of any of these), who’s under 13, lives in your home for over half the year, and doesn’t provide over half of his or her own support for the year. The expenses can also be for the care of your spouse or dependent who’s handicapped and lives with you for over half the year.

The typical expenses that qualify for the credit are payments to a day care center, nanny or nursery school. Sleep-away camp doesn’t qualify. The cost of kindergarten or higher grades doesn’t qualify because it’s an education expense. However, the cost of before and after school programs may qualify.

To claim the credit, married couples must file a joint return. You must also provide the caregiver’s name, address and Social Security number (or tax ID number for a day care center or nursery school). You also must include on the return the Social Security number(s) of the children receiving the care.

The 2021 credit is refundable as long as either you or your spouse has a principal residence in the U.S. for more than half of the tax year.

What are the limits?

When calculating the credit, several limits apply. First, qualifying expenses are limited to the income you or your spouse earn from work, self-employment, or certain disability and retirement benefits — using the figure for whichever of you earns less. Under this limitation, if one of you has no earned income, you aren’t entitled to any credit. However, in some cases, if one spouse has no actual earned income and that spouse is a full-time student or disabled, the spouse is considered to have monthly income of $250 (for one qualifying individual) or $500 (for two or more qualifying individuals).

For 2021, the first $8,000 of care expenses generally qualifies for the credit if you have one qualifying individual, or $16,000 if you have two or more. (These amounts have increased significantly from $3,000 and $6,000, respectively.) However, if your employer has a dependent care assistance program under which you receive benefits excluded from gross income, the qualifying expense limits ($8,000 or $16,000) are reduced by the excludable amounts you receive.

How much is the credit worth?

If your AGI is $125,000 or less, the maximum credit amount is $4,000 for taxpayers with one qualifying individual and $8,000 for taxpayers with two or more qualifying individuals. The credit phases out under a complicated formula. For taxpayers with an AGI greater than $440,000, it’s phased out completely.

These are the essential elements of the enhanced child and dependent care credit in 2021 under the new law. Contact us if you have questions.

Are you thinking about launching a business with some partners and wondering what type of entity to form? An S corporation may be the most suitable form of business for your new venture. Here’s an explanation of the reasons why.

The biggest advantage of an S corporation over a partnership is that as S corporation shareholders, you won’t be personally liable for corporate debts. In order to receive this protection, it’s important that the corporation be adequately financed, that the existence of the corporation as a separate entity be maintained and that various formalities required by your state be observed (for example, filing articles of incorporation, adopting by-laws, electing a board of directors and holding organizational meetings).

Anticipating losses

If you expect that the business will incur losses in its early years, an S corporation is preferable to a C corporation from a tax standpoint. Shareholders in a C corporation generally get no tax benefit from such losses. In contrast, as S corporation shareholders, each of you can deduct your percentage share of these losses on your personal tax returns to the extent of your basis in the stock and in any loans you make to the entity. Losses that can’t be deducted because they exceed your basis are carried forward and can be deducted by you when there’s sufficient basis.

Once the S corporation begins to earn profits, the income will be taxed directly to you whether or not it’s distributed. It will be reported on your individual tax return and be aggregated with income from other sources. To the extent the income is passed through to you as qualified business income, you’ll be eligible to take the 20% pass-through deduction, subject to various limitations. Your share of the S corporation’s income won’t be subject to self-employment tax, but your wages will be subject to Social Security and Medicare taxes.

Are you planning to provide fringe benefits such as health and life insurance? If so, you should be aware that the costs of providing such benefits to a more than 2% shareholder are deductible by the entity but are taxable to the recipient.

Be careful with S status

Also be aware that the S corporation could inadvertently lose its S status if you or your partners transfers stock to an ineligible shareholder such as another corporation, a partnership or a nonresident alien. If the S election were terminated, the corporation would become a taxable entity. You would not be able to deduct any losses and earnings could be subject to double taxation — once at the corporate level and again when distributed to you. In order to protect you against this risk, it’s a good idea for each of you to sign an agreement promising not to make any transfers that would jeopardize the S election.

Consult with us before finalizing your choice of entity. We can answer any questions you have and assist in launching your new venture.

The Employee Retention Credit (ERC), which was created to encourage employers to keep their workforces intact during the COVID-19 pandemic, has been with us for a year. But questions about it remain for many employers. With the new American Rescue Plan Act (ARPA) extending the credit and expanding eligibility — and the credit worth as much as $28,000 per employee for 2021 — employers should brush up on the details.

Credit history

The CARES Act, which was enacted in March of 2020, generally made the ERC available to employers whose:

Operations were fully or partially suspended due to a COVID-19-related government shutdown order, or
Gross receipts dropped more than 50% compared to the same quarter in the previous year (until gross receipts exceed 80% of gross receipts in the earlier quarter).

The credit originally equaled 50% of “qualified wages” — including health care benefits — up to $10,000 per eligible employee from March 13, 2020, through December 31, 2020. As a result, the maximum benefit for 2020 is $5,000 per employee.

The Consolidated Appropriations Act (CAA), which was enacted in December of 2020, extended the credit for eligible employers that continue to pay wages during COVID-19 closures or recorded reduced revenue through June 30, 2021. That wasn’t the only change the law made to the ERC, though.

The CAA increased the amount of the credit to 70% of qualified wages, beginning January 1, 2021, and raised the limit on per-employee qualified wages from $10,000 per year to $10,000 per quarter. In other words, you can obtain a credit as high as $7,000 per quarter per employee.

The CAA also expanded eligibility by reducing the requisite year-over-year gross receipt reduction from 50% to only 20%. And it raised the threshold for determining whether a business is a “large employer” — and therefore subject to a stricter standard when computing the qualified wage base — from 100 to 500 employees.

Under the CARES Act, Paycheck Protection Program (PPP) loan borrowers weren’t allowed to claim ERCs. The CAA also provided that employers that receive PPP loans still qualify for the ERC for qualified wages not paid with forgiven PPP funds. (This provides an incentive for PPP borrowers to maximize the nonpayroll costs for which they claim loan forgiveness.)

ARPA changes

The ARPA extends the ERC through the end of 2021. It also makes some changes that apply solely to the third and fourth quarters of the year. For example, the credit will be applied against an employer’s share of Medicare taxes, rather than Social Security taxes; excess credits continue to be refundable.

The new law expands the pool of employers who can take advantage of the credit by establishing a third path — beyond the suspension of operations or decline in gross receipts — to eligibility. Now, so-called “recovery startup businesses” may also qualify for the ERC.

A recovery startup business generally is an employer that:

Began operating after February 15, 2020, and
Has average annual gross receipts of less than or equal to $1 million.

While these employers can claim the credit without suspended operations or reduced receipts, it’s limited to $50,000 total per quarter.

The ARPA also targets extra relief at “severely financially distressed employers,” meaning those with less than 10% of gross receipts for 2021 when compared to the same period in 2019. Such employers can count as qualified wages any wages paid to an employee during any calendar quarter — regardless of employer size. Otherwise, the ARPA continues to distinguish between large employers and small employers for purposes of determining qualified wages.

For large employers that averaged more than 500 full-time employees during 2019 (or 2020 if the employer didn’t exist in 2019), qualified wages are those paid to an employee who isn’t providing services because of the circumstances that made the employer eligible for the ERC. For smaller employers, qualified wages include wages paid — regardless of whether the employee was working — during the period of suspended operations or the calendar quarter in which the gross receipts test was satisfied.

Qualified wages can’t include wages used to compute other credits, loan forgiveness or certain grants received from the Small Business Administration. This applies to all eligible employers.

Note that the ARPA extends the statute of limitations for the IRS to evaluate ERC claims. The IRS will have five years, as opposed to the typical three years, from the date the original return for the calendar quarter for which the credit is computed is deemed filed.

IRS guidance on “partial suspension of operations”

In early March 2021, prior to passage of the ARPA, the IRS issued additional guidance on the ERC. Among other things, it provides some help for determining whether operations were partially suspended because of a COVID-19-related government order.

The IRS has previously stated that “more than a nominal portion” of operations had to be suspended. In Notice 2021-20, it explained that this criterion is met when:

Gross receipts from the suspended operations are 10% or more of total gross receipts,
Hours of service performed by employees in the suspended operations are 10% or more of total hours of service, or
Modifications to operations result in a reduction of 10% or more of the employer’s ability to provide goods or services.

The notice provides additional guidance, but it’s applicable only for the ERC in 2020.

A complicated calculation

The precise amount of your ERC will vary depending on the period, your number of employees and other factors. We can help ensure that you properly calculate your credit and don’t leave money on the table.

The IRS has announced that the federal income tax filing deadline for individuals for the 2020 tax year is extended from April 15, 2021, until Monday, May 17, 2021. The IRS extended the deadline to provide relief to taxpayers facing challenges as a result of the pandemic and because it’s grappling with a rising backlog of 24 million unprocessed returns. As part of its announcement, the IRS stated it would soon be issuing additional guidance about the deadline extension.

Extended deadline details

Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including those who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17.

Individual taxpayers don’t need to file any forms to qualify for this automatic federal tax filing and payment relief. If you need additional time to file beyond the May 17 deadline, you can request a filing extension until October 15 by filing Form 4868. Filing Form 4868 gives you until October 15 to file your 2020 tax return but doesn’t grant you an extension of time to pay taxes due. You should pay the federal income tax due by May 17, 2021, to avoid interest and penalties.

Estimated payment deadline not extended

This relief doesn’t apply to estimated tax payments that are due on April 15, 2021. These payments are still due on that date. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS if your income isn’t subject to income tax withholding. This includes self-employment income, interest, dividends, prize winnings, alimony and rental income. Many taxpayers automatically have taxes withheld from their paychecks and sent to the IRS by their employers.

State tax returns not included

Be aware that the federal tax filing deadline postponement to May 17, 2021, applies to only individual federal income returns and tax (including tax on self-employment income) payments otherwise due April 15, 2021. It doesn’t apply to state tax payments or deposits or payments of any other type of federal tax. Taxpayers also will need to file income tax returns in 42 states plus the District of Columbia. State filing and payment deadlines vary and aren’t always the same as the federal filing deadline. Check with your tax advisor or your state tax authority for more information.

In addition, earlier this year, the IRS announced relief for victims of the February winter storms in Texas, Oklahoma and Louisiana. These states have until June 15, 2021, to file various individual and business tax returns and make tax payments. The extension to May 17 doesn’t affect the June deadline.

File as soon as possible

Be aware that this extended deadline is optional. If you’re ready to file, contact us for an appointment to prepare your return. You’ll want to file as soon as possible — especially if you’re due a refund.

Yesterday, the Internal Revenue Service announced that the due date for filing 2020 individual income tax returns, and paying any tax due with the 2020 return, is now Monday, May 17.

At the time of this release, the extended due date applies only to the filing of federal individual income tax returns and payment of any associated 2020 federal tax due. First quarter estimates for 2021 are still due on April 15. No guidance has yet been issued on whether things such as IRA and HSA contributions will have a due date of April 15 or May 17. We recommend that absent specific IRS guidance, clients plan that these contributions are due on April 15.

Additionally, certain other entities and filings that generally have a due date of April 15, such as calendar year-end C Corporations, trusts, gift tax returns, FBAR reporting, etc., have not been granted an extension of time to file. If the IRS issues further guidance that changes the due date for filings other than individual income tax returns, Yeo & Yeo will make you aware of the changes as quickly as possible. Absent further guidance, clients should plan to file or extend all other types of tax returns by April 15.

To allow your Yeo & Yeo tax professional adequate time to complete your return before the deadline, we ask that you provide your information as quickly as possible and no later than April 1.
If Yeo & Yeo does not receive your tax documents by April 15, your tax return will be extended.

We will share any changes in tax filing deadlines for State or other returns as they become available.

Visit Yeo & Yeo’s Tax Resource Center for useful links, tax guides, tax articles on our blog, webinars, podcasts and more. Please contact your Yeo & Yeo tax professional with questions or concerns.

Also read:

2020 IRA, HSA, MSA and ESA Contributions Extended

Michigan Extends 2020 Tax Filing and Payment Deadline from April 15 to May 17

Many businesses have retained employees during the COVID-19 pandemic and enjoyed tax relief with the help of the employee retention credit (ERC). The recent signing of the American Rescue Plan Act (ARPA) brings good news: the ERC has been extended yet again.

The original credit

As originally introduced under last year’s CARES Act, the ERC was a refundable tax credit against certain employment taxes equal to 50% of qualified wages, up to $10,000, that an eligible employer paid to employees after March 12, 2020, and before January 1, 2021. An employer could qualify for the ERC if, in 2020, there was a:

Full or partial suspension of operations during any calendar quarter because of governmental orders limiting commerce, travel or group meetings because of COVID-19, or
Significant decline in gross receipts (less than 50% for the same calendar quarter in 2019).

The definition of “qualified wages” depends on staff size. If an employer averaged more than 100 full-time employees during 2019, qualified wages are generally those paid to employees who aren’t providing services because operations were suspended or due to the decline in gross receipts. Qualified wages may include certain health care costs and are capped at $10,000 per employee. These employers could count wages only up to the amount that the employee would’ve been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship.

If an employer averaged 100 or fewer full-time employees during 2019, qualified wages are those wages, also including health care costs and capped at $10,000 per employee, paid to any employee during the period operations were suspended or the period of the decline in gross receipts — regardless of whether employees are providing services.

Expansion and extensions

Under the Consolidated Appropriations Act (CAA), signed into law at the end of 2020, the ERC was extended through June 30, 2021. The CAA also expanded the ERC rate of credit from 50% to 70% of qualified wages. The law further expanded eligibility by:

Reducing the required year-over-year gross receipts decline from 50% to 20%,
Providing a safe harbor that allows employers to use previous quarter gross receipts to determine eligibility,
Increasing the limit on creditable wages from $10,000 in total to $10,000 per calendar quarter (that is, $10,000 for first quarter 2021 and $10,000 for second quarter 2021), and
Raising the 100-employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees (meaning wages qualify for the credit even if the employee is working).

Most recently, the ARPA further extended the ERC from June 30, 2021, until December 31, 2021. The 70% of qualified wages is also extended for this period, as is the allowance for up to $10,000 in qualified wages for any calendar quarter. This means an employer could potentially have up to $40,000 in qualified wages per employee through 2021.

Valuable break

We can help you determine whether your business qualifies for the ERC and, if so, how much the credit may reduce your tax bill.

The American Rescue Plan Act, signed into law on March 11, provides a variety of tax and financial relief to help mitigate the effects of the COVID-19 pandemic. Among the many initiatives are direct payments that will be made to eligible individuals. And parents under certain income thresholds will also receive additional payments in the coming months through a greatly revised Child Tax Credit.

Here are some answers to questions about these payments.

What are the two types of payments?

Under the new law, eligible individuals will receive advance direct payments of a tax credit. The law calls these payments “recovery rebates.” The law also includes advance Child Tax Credit payments to eligible parents later this year.

How much are the recovery rebates?

An eligible individual is allowed a 2021 income tax credit, which will generally be paid in advance through direct bank deposit or a paper check. The full amount is $1,400 ($2,800 for eligible married joint filers) plus $1,400 for each dependent.

Who is eligible?

There are several requirements but the most important is income on your most recently filed tax return. Full payments are available to those with adjusted gross incomes (AGIs) of less than $75,000 ($150,000 for married joint filers and $112,500 for heads of households). Your AGI can be found on page 1 of Form 1040.

The credit phases out and is no longer available to taxpayers with AGIs of more than $80,000 ($160,000 for married joint filers and $120,000 for heads of households).

Who isn’t eligible?

Among those who aren’t eligible are nonresident aliens, individuals who are the dependents of other taxpayers, estates and trusts.

How has the Child Tax Credit changed?

Before the new law, the Child Tax Credit was $2,000 per “qualifying child.” Under the new law, the credit is increased to $3,000 per child ($3,600 for children under age 6 as of the end of the year). But the increased 2021 credit amounts are phased out at modified AGIs of over $75,000 for singles ($150,000 for joint filers and $112,500 for heads of households).

A qualifying child before the new law was defined as an under-age-17 child, whom the taxpayer could claim as a dependent. The $2,000 Child Tax Credit was phased out for taxpayers with modified AGIs of over $400,000 for joint filers, and $200,000 for other filers.

Under the new law, for 2021, the definition of a qualifying child for purposes of the Child Tax Credit includes one who hasn’t turned 18 by the end of this year. So 17-year-olds qualify for the credit for 2021 only.

How are parents going to receive direct payments of the Child Tax Credit this year?

Unlike in the past, you don’t have to wait to file your tax return to fully benefit from the credit. The new law directs the IRS to establish a program to make monthly advance payments equal to 50% of eligible taxpayers’ 2021 Child Tax Credits. These payments will be made from July through December 2021.

What if my income is above the amounts listed above?

Taxpayers who aren’t eligible to claim an increased Child Tax Credit, because their incomes are too high, may be able to claim a regular credit of up to $2,000 on their 2021 tax returns, subject to the existing phaseout rules.

Much more

There are other rules and requirements involving these payments. This article only describes the basics. Stay tuned for additional details about other tax breaks in the new law.

The Taxpayer First Act required certain exempt organizations to file information and tax returns electronically for tax years beginning after July 1, 2019. The IRS continued to accept Form 990-T, Exempt Organization Business Income Tax Return, for 2019 tax years on paper until they could convert the form to an electronic format.

As of the beginning of March 2021, software has been made available to file Form 990-T electronically. Effective in 2021, any 2020 Form 990-T with a due date on or after April 15, 2021, must be filed electronically and not on paper. A limited exception applies for 2020 Form 990-T returns submitted on paper postmarked on or before March 15, 2021.

If your nonprofit organization files its own 990-T, information about software providers supporting the electronic filing of Form 990-T can be found on the IRS’s Exempt Organizations Modernized e-File (MeF) Providers page.

If Yeo & Yeo prepares your organization’s Form 990-T, we will e-file the form according to this recent IRS mandate unless we submitted a paper return before March 15.

For assistance with preparing and filing any Form 990, contact a member of Yeo & Yeo’s Nonprofit Services Group or your local Yeo & Yeo office.

President Biden signed the $1.9 trillion American Rescue Plan Act (ARPA) on March 11. While the new law is best known for the provisions providing relief to individuals, there are also several tax breaks and financial benefits for businesses.

Here are some of the tax highlights of the ARPA.

The Employee Retention Credit (ERC). This valuable tax credit is extended from June 30 until December 31, 2021. The ARPA continues the ERC rate of credit at 70% for this extended period of time. It also continues to allow for up to $10,000 in qualified wages for any calendar quarter. Taking into account the Consolidated Appropriations Act extension and the ARPA extension, this means an employer can potentially have up to $40,000 in qualified wages per employee through 2021.

Employer-Provided Dependent Care Assistance. In general, an eligible employee’s gross income doesn’t include amounts paid or incurred by an employer for dependent care assistance provided to the employee under a qualified dependent care assistance program (DCAP).

Previously, the amount that could be excluded from an employee’s gross income under a DCAP during a tax year wasn’t more than $5,000 ($2,500 for married individuals filing separately), subject to certain limitations. However, any contribution made by an employer to a DCAP can’t exceed the employee’s earned income or, if married, the lesser of employee’s or spouse’s earned income.

Under the ARPA, for 2021 only, the exclusion for employer-provided dependent care assistance is increased from $5,000 to $10,500 (from $2,500 to $5,250 for married individuals filing separately).

This provision is effective for tax years beginning after December 31, 2020.

Paid Sick and Family Leave Credits. Changes under the ARPA apply to amounts paid with respect to calendar quarters beginning after March 31, 2021. Among other changes, the law extends the paid sick time and paid family leave credits under the Families First Coronavirus Response Act from March 31, 2021, through September 30, 2021. It also provides that paid sick and paid family leave credits may each be increased by the employer’s share of Social Security tax (6.2%) and employer’s share of Medicare tax (1.45%) on qualified leave wages.

Grants to restaurants. Under the ARPA, eligible restaurants, food trucks, and similar businesses that provide food and drinks may receive restaurant revitalization grants from the Small Business Administration. For tax purposes, amounts received as restaurant revitalization grants aren’t included in the gross income of the person who receives the money.

Much more

These are only some of the provisions in the ARPA. There are many others that may be beneficial to your business. Contact us for more information about your situation.

The U.S. Department of Labor (DOL) recently issued EBSA Disaster Relief Notice 2021-01, which is of interest to employers. It clarifies the duration of certain COVID-19-related deadline extensions that apply to health care benefits plans.

Extensions to continue

The DOL and IRS issued guidance last year specifying that the COVID-19 outbreak period — defined as beginning March 1, 2020, and ending 60 days after the announced end of the COVID-19 national emergency — should be disregarded when calculating various deadlines under COBRA, ERISA and HIPAA’s special enrollment provisions.

The original emergency declaration would have expired on March 1, 2021, but it was recently extended. Although the agencies defined the outbreak period solely by reference to the COVID-19 national emergency, they relied on statutes allowing them to specify disregarded periods for a maximum of one year. Therefore, questions arose as to whether the outbreak period was required to end on February 28, 2021, one year after it began.

Notice 2021-01answers those questions by providing that the extensions have continued past February 28 and will be measured on a case-by-case basis. Specifically, applicable deadlines for individuals and plans that fall within the outbreak period will be extended (that is, the disregarded period will last) until the earlier of:

One year from the date the plan or individual was first eligible for outbreak period relief, or
The end of the outbreak period.

Once the disregarded period has ended, the timeframes that were previously disregarded will resume. Thus, the outbreak period will continue until 60 days after the end of the COVID-19 national emergency, but the maximum disregarded period for calculating relevant deadlines for any individual or plan cannot exceed one year.

Communication is necessary

The DOL advises plan sponsors to consider sending notices to participants regarding the end of the relief period, which may include reissuing or amending previous disclosures that are no longer accurate. Sponsors are also advised to notify participants who are losing coverage of other coverage options, such as through the recently announced COVID-19 special enrollment period in Health Insurance Marketplaces (commonly known as “Exchanges”).

Notice 2021-01 acknowledges that the COVID-19 pandemic and other circumstances may disrupt normal plan operations. The DOL reassures fiduciaries acting in good faith and with reasonable diligence that enforcement will emphasize compliance assistance and other relief. The notice further states that the IRS and U.S. Department of Health and Human Services concur with the guidance and its application to laws under their jurisdiction.

Challenges ahead

Plan sponsors and administrators will likely welcome this clarification but may be disappointed in its timing and in how it interprets the one-year limitation. Determinations of the disregarded period that depend on individual circumstances could create significant administrative challenges.

In addition to making case-by-case determinations, plan sponsors and administrators must quickly develop a strategy for communicating these complex rules to participants. Contact us for further information and updates.

The statement of cash flows essentially tells you about cash entering and leaving a business. It’s arguably the most misunderstood and underappreciated part of a company’s annual report. After all, a business that reports positive net income on its income statements sometimes doesn’t have enough cash in the bank to pay its bills. Reviewing the statement of cash flows can provide significant insight into a company’s financial health and long-term viability.

Under Generally Accepted Accounting Principles (GAAP), the statement of cash flows is typically organized into three sections:

1. Cash flows from operations. This section focuses on cash flows from selling products and services. It customarily starts with accrual-basis net income. Then it’s adjusted for items related to normal business operations, such as:

Gains or losses on asset sales,
Depreciation and amortization,
Income taxes, and
Net changes in working capital accounts (such as accounts receivable, inventory, prepaid assets, accrued expenses and payables).

The end result is cash-basis net income. Companies that report several successive years of negative operating cash flows may be better off closing than continuing to incur losses.

2. Cash flows from investing activities. If a company buys or sells property, equipment or marketable securities, the transaction generally shows up here. This section reveals whether a company is reinvesting in its future operations — or divesting assets for emergency funds.

3. Cash flows from financing activities. This section shows cash flows from raising, borrowing and repaying capital. It highlights the company’s ability to obtain cash from lenders and investors, including:

New loan proceeds,
Principal repayments,
Dividends paid,
Issuances of securities or bonds, and
Additional capital contributions by owners.

Capital leases and noncash transactions are reported in a separate schedule at the bottom of the statement of cash flows or in a narrative footnote disclosure. For example, if a borrower purchases equipment directly using loan proceeds, the transaction would typically appear at the bottom of the statement, rather than as a cash outflow from investing activities and an inflow from financing activities.

In addition, U.S. companies that enter into foreign currency transactions customarily report the effect of exchange rate changes as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents.

For more information

The statement of cash flows provides valuable insight about your company’s financial health. But it may not always be clear how to classify transactions. We can help you get it right.

Nonprofit organizations often receive and solicit donations to supplement their programs and needs. It is important for the organization to have written policies and controls in place for fundraising, resembling policies in effect for the organization’s other transaction cycles.

What should be included in the fundraising policy?

The fundraising policy should specify who in the organization can solicit funds and how. It should also address how donors will be acknowledged with letters, receipts and other recognition.
Unwanted or noncash donations should also be addressed in the policy. The organization should have the right to refuse any donation that isn’t in line with its policy or doesn’t look favorable with its mission or values.
The nonprofit may want to distinguish how it will treat or sell specific noncash donations it receives. Items to consider are publicly traded securities, tangible personal property, life insurance policies, real property, etc.
Finally, the policy should address special events specifically – how they are organized, how volunteers will be utilized and monitored, and how to handle funds received for cancelled events.

Contact your Yeo & Yeo professional if you need assistance.

All can agree it has been an interesting year. The COVID-19 pandemic has had an incredible impact on our personal lives and the way we work and conduct business. Nonprofits have not been immune to these challenges. A year later, we are still talking about the pandemic and it is continuing to affect nonprofit events and fundraisers.

Organizations are getting creative with virtual events or new campaigns. Still, for events that have had to be altered or cancelled, it’s essential to understand how to account for funds received before the event.

Contribution revenue vs. exchange revenue

Two different types of revenue are related to fundraising events – contribution revenue and exchange revenue. The contribution piece is when people are giving but receiving nothing in exchange. The exchange piece is the value of the good or service people receive in exchange. For example, the price of admission that is above and beyond the fair value of the goods and services received is considered a contribution. See Yeo & Yeo’s article, Special Event Accounting and Reporting, for more information about distinguishing fundraising revenue between contribution and exchange.

Establish a policy for cancelled event funds

Now that we understand the types of fundraising revenue, how do we treat each of them when funds have been collected in advance for an event that is cancelled? First, a nonprofit should establish a written policy regarding event funds and what it will do with them if an event is cancelled. If no policy is in place, the default is that the contribution portion is unconditional.

Consider a few different options for the policy:

Policy states the funds should be given back to the donor.
Policy states the organization must contact the donor and ask if they would like a refund or want to contribute the funds.
Policy states the organization retains the funds as a contribution if the event is cancelled.
Policy states the funds will be used for a later event.

Which option the organization chooses dictates how to account for these funds.

Policy states the funds should be given back to the donor. When the nonprofit initially receives the funds, exchange revenue related to the event is recorded as deferred revenue, and contributions related to the event are recorded as a refundable advance. The money is held in these liability accounts until the event takes place. The exchange revenue isn’t considered earned until the event takes place. Also, the contribution revenue is deemed to be conditional on the event taking place. When the organization cancels the event, all the money collected would be paid back to the donors and removed from the deferred revenue and refundable advance liability accounts. No revenue ever hits the organization’s books.

Policy states the organization must contact the donor and ask if they would like a refund or want to contribute the funds. When originally received, exchange revenue related to the event would be recorded as deferred revenue, and contributions related to the event would be recorded as a refundable advance. The money is held in the liability accounts until the event takes place. When the organization cancels the event, the money collected is either paid back to the donor and the liability is reduced, or the funds are considered an unconditional contribution as soon as the donor agrees to forfeit the funds to the organization, making it contribution revenue on that date, including the foregone exchange revenues.

Policy states the organization retains the funds as a contribution, or there is no policy. If this is the organization’s policy, the nonprofit should be making this clear to donors and ticket buyers for their events, such as listing “nonrefundable” on the tickets. When the funds are received initially, the exchange revenue related to the event would be recorded as deferred revenue. However, the event’s contributions would be recorded as revenue at the time of the payment. This is because the revenue is not conditional on the event taking place since funds would not be returned to the donor if the event is cancelled. This can also result in revenue being recognized for a fundraiser in a fiscal year different from when the fundraiser takes place. For example, if funds are collected in December 2020 for a February 2021 event, the contribution portion of those payments is recognized as revenue in December 2020. If the event is cancelled, the exchange piece of the revenue is recognized as unconditional contribution revenue on the date of cancellation. The contribution portion of the revenue is already recorded, so nothing needs to be done with that upon cancellation.

Policy states the funds will be used for a later event. Like many of the other options above, the exchange revenue and contributions are held in liability accounts until the event takes place. Suppose the funds are designated to be used for a later event upon cancellation. In that case, they will remain in the liability accounts until this later event occurs, at which time they would be recognized as revenue.

Tracking is still required

One last item that needs to be addressed regarding cancelled events is when the nonprofit recognizes funds collected for the event as contributions. The nonprofit must track those donors like it would any other regular contribution to the organization. Therefore, donor receipt letters, year-end donor summary reports, and donor tracking must all occur when exchange revenue is converted into contribution revenue.

While cancelling events is not ideal for the nonprofit, it is crucial to understand how to account for it when this does occur due to unforeseen circumstances. Proper accounting all comes down to the nonprofit establishing a policy regarding cancelled events and the related funding collected to ensure revenue is appropriately handled.

The Governmental Accounting Standards Board (GASB) issued a new lease accounting standard back in June 2017, following suit with ASU No. 2016-02 issued by the Financial Accounting Standards Board (FASB) in February 2016.

The initial implementation date of GASB 87 was for reporting periods beginning after December 15, 2019. However, due to COVID-19, GASB issued Statement No. 95 delaying implementation for many standards, including Statement No. 87, which was delayed for 18 months. Now, the new lease accounting standards must be implemented for governments with June 30, 2022 year-ends and later.

This standard will put all governments’ financial reporting on a level playing field, as all governments will use a single model of reporting leases and will be required to report lease liabilities that are not currently being reported. A lessee is required to recognize a lease liability and an intangible right-to-use lease asset for leases that were previously classified as operating leases and had only footnoted the future lease payment obligations.

At the commencement of the lease, the lease liability and assets would be recognized. The liability would be based on the present value of the future lease payments, and the lease asset would be equal to the lease liability, plus any upfront payments or direct lease costs.
The lease liability would be reduced as payments are made throughout the lease term and recognize an outflow of resources for interest expense.
The lease asset will be amortized over the asset’s lease term or useful life, whichever is shorter.

The lease asset and liability will be the same at the start of the lease; however, depending on payment terms and the leased asset’s useful life, they will most likely be different throughout the lease term.

The financial statements’ notes will disclose a description of the leasing arrangement, the amount of leased assets recognized, and the future lease payment schedule.

The standard also includes information on short-term leases, lessor accounting, lease modification, lease terminations, subleases, and sale-leaseback transactions.

See the full text of GASB 87.

Please contact your local Yeo & Yeo Government Services Group member if you have questions or need help implementing lease accounting.

Our clients routinely ask us questions about how to account for the proceeds from various programs that have received new or additional funding due to COVID-19. As you can likely relate, finding the answers has been a bit of a moving target, as new guidance seems to come out just as we thought we had it all figured out.

As you think ahead for your audit preparation, we want to share some information sources that may help you determine which grants will need to be included in your schedule of expenditures of federal awards.

The Governmental Audit Quality Center (GAQC) of the AICPA has a nonauthoritative summary of information about the federal programs established as a result of the COVID-19 pandemic. The GAQC updates this summary as information becomes available. If you have received any of these grants, that federal program will need to be included on your schedule of expenditures of federal awards if the column indicates that uniform guidance applies. Be aware that when determining which major program(s) your auditor will test, all funding included in 84.425 in the Education Stabilization Fund will be considered under one program. For FID reporting and to assist in testing purposes, the information will still need to be tracked separately for each grant and provided to your auditor to determine what level of testing may be required for each program.

Now that you have determined which grants are required to be reported on your schedule of expenditures of federal awards, the question remains as to the amount to report and when the amounts should be reported. The GAQC has issued nonauthoritative guidance on reporting certain COVID-19 awards on an accrual based SEFA. This document provides some background on how amounts should be reported and helpful scenarios to consider.

Be prepared to share with your auditor any new or additional funding source information that was received during the year to ensure the numbers reported on the schedule of expenditures of federal awards are accurate and that the footnote disclosures are informative to the users of your financial statements.

If you have questions as you prepare this year’s schedule of expenditures of federal awards, please reach out to your Yeo & Yeo professional for assistance.

President Biden signed legislation aimed at providing economic and other relief from the COVID-19 pandemic. The 628-page American Rescue Plan Act (ARPA) includes $1.9 trillion in funding for individuals, businesses, and state and local governments.

The ARPA extends and expands some of the CARES Act’s critical provisions and the Consolidated Appropriations Act (CAA). It also includes some new provisions that should come as welcome news to many families and businesses.

Here’s a broad overview of some of the provisions that may affect you:

Recovery rebates

Additional direct payments (or recovery rebates) of $1,400 — plus $1,400 per dependent (including adult dependents) will be made to eligible individuals. To qualify, individuals must have an adjusted gross income (AGI) of up to $75,000 per year ($150,000 for married couples filing jointly and $112,500 for heads of households). The payments phase out and are no longer made when AGI exceeds $80,000 for individuals, $160,000 for married joint filers and $120,000 for heads of household.

Child and dependent care tax credits

The Child Tax Credit (CTC) increases to $3,000 for each child age six to 17 and $3,600 per year for children under age six. To be eligible for the full payment, you must have a modified AGI of under $75,000 for singles, $112,500 for heads-of-households and $150,000 for joint filers and surviving spouses. The credit phases out at a rate of $50 for each $1,000 (or fraction thereof) of modified AGI over the applicable threshold.
Parents will begin receiving advance payments of part of the CTC later this year. Under the ARPA, the IRS must establish a program to make monthly payments equal to 50% of eligible taxpayers’ 2021 CTCs, from July 2021 through December 2021.
Some taxpayers who aren’t eligible to claim an increased CTC in 2021 because their income is too high may be able to claim the regular CTC of up to $2,000, subject to the existing phaseout rules.
The Act makes various changes to the child and dependent care credit, effective for 2021 only, including making it refundable. The credit will be worth 50% of eligible expenses, up to a limit based on income, making the credit worth up to $4,000 for one qualifying individual and up to $8,000 for two or more. Credit reduction will start at household income levels over $125,000. For households with income over $400,000, the credit can be reduced below 20%.
The Act also increases the exclusion for employer-provided dependent care assistance to $10,500 for 2021.

Student loan forgiveness

Any student loan debt forgiven between December 31, 2020, and January 1, 2026, will receive tax-free treatment.

Extension of unemployment compensation

An additional $300 per week in unemployment benefits will be paid through September 6, 2021. Also, the first $10,200 in unemployment benefits received beginning in 2020 isn’t included in gross income for taxpayers with AGIs under $150,000. (However, for joint filers below the AGI limit, the $10,200 exclusion applies separately to each spouse.)

Other provisions for individuals

There’s expanded availability of and increased Affordable Care Act (ACA) subsidies for those who obtain insurance in the ACA marketplaces, for 2021 and 2022.
Federal rental assistance is included for families affected by COVID-19, applicable to past due rent, future rent payments, and utility and energy bills.
There’s expanded eligibility for low-income individuals with no qualifying children to claim the Earned Income Tax Credit.
The Act creates a COBRA continuation coverage premium assistance credit.

Businesses and other employers

Family and sick leave credits

The Act codifies the credits for sick and family leave originally enacted by the Families First Coronavirus Response. The credits are extended to September 30, 2021. These fully refundable credits against payroll taxes compensate employers and self-employed people for coronavirus-related paid sick leave and family and medical leave.

The Act increases the limit on the credit for paid family leave to $12,000.
The number of days a self-employed individual can take into account in calculating the qualified family leave equivalent amount for self-employed individuals increases from 50 to 60.
The paid leave credits will be allowed for leave that is due to a COVID-19 vaccination.
The limitation on the overall number of days taken into account for paid sick leave will reset after March 31, 2021.
The credits are expanded to allow 501(c)(1) governmental organizations to take them.

Other provisions for employers

Pandemic assistance grants will be made to eligible businesses serving food or drinks, including restaurants and food trucks.
There will be additional funding for forgivable loans to eligible businesses under the Paycheck Protection Program (PPP), which is scheduled to expire on March 31, 2021.
Nonprofit organizations and online news services will receive expanded PPP eligibility.
New targeted Economic Injury Disaster Loan grants will be available for eligible small businesses in low-income communities.
The Employee Retention Tax Credit is extended for eligible employers that continue to pay employee wages during COVID-19-related closures or experience reduced revenue through December 31, 2021. This includes “recovery startup businesses” (those launched after February 15, 2020, with average annual gross receipts of $1 million or less).
Tax credits for paid sick and family leave are modified and extended to September 30, 2021.
The excess business loss limitation is extended through December 31, 2026.

The American Rescue Plan is a large piece of legislation that will be the subject of future guidance from the IRS and Treasury regarding implementing these new provisions. Your tax professionals at Yeo & Yeo will continue to keep you up to date on any further changes to the summary above.

The U.S. economy is still a far cry from where it was before the COVID-19 pandemic hit about a year ago. Nonetheless, as vaccination efforts continue to ramp up, many professionals expect stronger jobs growth and more robust economic activity in the months ahead.

No matter what your business does, you don’t want your sales staff hamstrung by overly complicated procedures as they strive to seize opportunities in the presumably brighter near-future. Here are five ways to streamline and energize your sales process:

1. Reassess territories. Business travel isn’t what it used to be, so you may not need to revise the geographic routes that your sale staff used to physically traverse. Nonetheless, you may see real efficiency gains by creating a strategic sales territory plan that aligns salespeople with regions or markets containing the prospects they’re most likely to win.

2. Focus on top-tier customers. If purchases from your most valued customers have slowed recently, find out why and reverse the trend. For your sales staff, this may mean shifting focus from winning new business to tending to these important accounts. See whether you can craft a customized plan aimed at meeting a legacy customer’s long-term needs. It might include discounts, premiums and extended warranties.

3. Cut down on “paperwork.” More than likely, “paperwork” is a figurative term these days, as most businesses have implemented electronic means to track leads, document sales efforts and record closings. Nevertheless, outdated or overly complicated software can slow a salesperson’s momentum.

You might conduct a survey to gather feedback on whether your current customer relationship management or sales management software is helping or hindering their efforts. Based on the data, you can then make sensible choices about whether to upgrade or change your system.

4. Issue a carefully chosen challenge. What allows a business to grow is not only retaining top customers, but also creating organic sales growth from new products or services. Consider creating a sales challenge that will motivate staff to push your company’s latest offerings. One facet of such a challenge may be to replace across-the-board commission rates with higher commissions on new products or “tough sells.”

5. Align commissions with financial objectives. Along with considering commissions tied to new products or difficult-to-sell products, investigate other ways you might revise commissions to incentivize your team. Examples include commissions based on:

Actual customer payments rather than billable orders,
More sales to current customers,
Increased order sizes,
Delivery of items when customers prepay, or
Number of new customers.

Again, these are just ideas to consider. Ultimately, you want to set up a sales compensation plan based on measurable financial goals that allow your sales staff to clearly understand how their efforts contribute to the profitability of your business. Contact us for help evaluating your sales process and targeting helpful changes.

Yeo & Yeo is pleased to announce that Dave Youngstrom is appointed CEO-elect. Effective January 1, 2022, Youngstrom will serve as Yeo & Yeo’s President and CEO, assuming leadership of the firm’s nine offices and all Yeo & Yeo companies – Yeo & Yeo CPAs & Business Consultants, Yeo & Yeo Medical Billing & Consulting, Yeo & Yeo Technology and Yeo & Yeo Wealth Management.

“I am deeply honored that the principal group selected me as the next CEO,” Youngstrom said. “While I’ve enjoyed the daily contact with our clients I have known for the past 25 years, I believe that I can make a difference in this new role, and I am excited to lead the firm into the future.”

Youngstrom is a principal and shareholder, and he serves on Yeo & Yeo’s board of directors. In his recent role as assurance service line leader, Youngstrom was responsible for directing and strategizing the firm-wide audit practice throughout Yeo & Yeo’s nine offices. During his 25 years at Yeo & Yeo, Youngstrom championed many initiatives for the assurance service line and the firm.

“He has unified the firm-wide audit team, ensuring that our professionals work together to best serve our clients,” said President & CEO Thomas Hollerback. “Under his leadership, our assurance service line revenue increased 45 percent during the past five years. These accomplishments took energy, knowledge, and patience to effectively lead and motivate others.”

Hollerback will retire at the end of 2021 after nine years as CEO and 38 years with the firm. He looks forward to the new ideas Youngstrom will bring to the role during the next year of transition.

“Dave and I have worked together for more than 25 years supporting, mentoring and challenging one another along the way,” Hollerback said. “I know from my long history of working with Dave that he will bring new energy and innovation to Yeo.”

Yeo & Yeo board member Tammy Moncrief added, “Following a comprehensive leadership succession process, the board and our shareholder group are confident that Dave is the right person to strengthen our firm and drive future growth. Dave has made significant contributions towards Yeo & Yeo’s success. He is an inspirational leader with great vision and a strong advocate for our employees and clients.”

Youngstrom plans to continue to put Yeo & Yeo’s core values first by supporting employees, giving back to our communities, and focusing on the firm’s long-term success.

“I am passionate about our culture and making Yeo & Yeo the best place to work for everyone,” he said. “I am committed to ensuring our clients receive the best service in the most efficient ways possible, and I pledge to continue down the path of innovation and growth for our firm.”