Are you aware of phone scammers out there who claim they are from fake charity organizations, asking for donations from honest taxpayers? Watch this video to know what you should watch out for and how to protect yourself from scammers.
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Monthly Archives: August 2021
Should You Opt Out of the Advance Child Tax Credit?
Article Highlights:
Advance Child Tax Credit Payments Began July 15
Should You Take Advance Payments or Wait for the Credit on Your 2021 tax return?
How to Opt Out
Basis for the 2021 Child Tax Credit
Credit Phase Out
Low Income Safe Harbor Repayments
2021 Credit Amounts
Determining the Advance Payment
Credit for High Income Taxpayers
If you have children under the age of 18, by now you likely have gotten your first advance child tax credit payment, either by check or by direct deposit. Be aware, this is money you would have gotten credit for on your 2021 tax return when you file it next year anyway. You are just receiving it in advance, meaning you may not get as much as expected when you file your tax return. The Government is touting the advance child tax credit as a major step toward reducing child poverty and sustaining families during the pandemic. However, paying it in advance and in small monthly amounts may spell trouble for those who traditionally rely on large tax refunds to fund their IRAs, property taxes, vacation, etc., since their 2021 refunds may not be what they’d planned on. Others, who deliberately cut back on tax withholding during the year and use the tax credit to make up for the under-withholding when they file their return, may be surprised next spring to find they owe tax and may even have an underpayment penalty. The list goes on of taxpayers for whom the advance credit payments aren’t going to be very helpful. Small monthly payments can easily be used up on frivolous items and result in unpleasant surprises at tax time. The American Rescue Plan Act of 2021 authorized the advance payments for one year only (2021), and the monthly payments are being made automatically to all qualifying individuals unless they go to the IRS website and opt-out. The Biden Administration estimates that 39 million families are qualified for the advance payment and about 2.6% had opted out of the first payment (July 15, 2021). The payments are estimated based on a taxpayer’s family makeup (children and filing status) and taxpayer income, since the credit phases out for higher income taxpayers. The IRS is basing the advance credits on the income taxpayers reported on their 2020 returns (or 2019 if the 2020 return hasn’t yet been filed). Some taxpayers may be in for an unpleasant surprise when they discover they were not qualified for the advance payments they received either because the number of their qualified children changed, or the children’s ages disqualify them for the credit. On top of that, many may not have been working in 2019 or 2020 and the income the advance credit was based on was lower than their actual 2021 income, which may be above the 2021 credit phaseout threshold, thereby reducing or eliminating the credit. The credit is reduced by $50 for each $1,000 (or fraction thereof) by which the taxpayer’s modified adjusted gross income exceeds the thresholds illustrated below.
$75,000 for single filers and married persons filing separate returns.
$112,500 for heads of household.
$150,000 for married couples filing a joint return and qualifying widows and widowers.
A taxpayer whose advance credit payments exceed what their actual credit turns out to be will need to repay the excess with their 2021 tax return. But, there is a safe harbor repayment for lower-income taxpayers where the excess advance repayment is eliminated or reduced. Thus, families with a 2021 MAGI (modified adjusted gross income) below the applicable income threshold (see table below) will not have to repay any advance credit even if they receive too much. Those with a MAGI above the ‘complete phase-in’ amount will have to repay the entire amount of any overpaid advance credit when they file their 2021 tax return. Those whose AGI is between the threshold and the complete phase-in amount will have to repay a proportional amount of the overpayment.
Advance CTC Safe Harbor Applicable Income
Filing Status
Threshold
Complete Phase-in
Married Filing Joint
60,000
120,000
Heads of Household
50,000
100,000
Others
40,000
80,000
Here are the credit amounts for 2021 based upon the child’s age on the last day of the year.
$3,000 for a child between ages of 6 and 17 (monthly advance payment $250).
$3,600 for a child under the age of 6 (monthly advance payment $300)
The advance credit is 50% of the annual credit divided into 6 payments between July and December 2021. But remember the advance credit is estimated based upon the 2020 tax return or the 2019 return if the 2020 has not been filed yet.
Example: On their 2020 tax return Harry and Mary claimed two children, one age 2 and the other age 7, and their income was under the $150,000 threshold. Thus, for 2021 they would have a child age 3 and another age 8, and the IRS would estimate their credit for 2021 to be $6,600 ($3,600 + $3,000). Their advance monthly payments would be $550 ($6,600 x 50%) divided by 6 months.
If you’ve received advance child credit payments, in January 2022 the IRS will send you a letter recapping the amount of advance credit they sent you, this information will be needed when reconciling the advance credit payments with the actual credit on your 2021 return. Just in case the letter goes astray, you should carefully keep track of the advance credit payments you received.The focus of this article is the advance child credit payments. But you may be interested to know that the American Rescue Plan Act that created the 2021 child tax credit rules did not repeal the prior law version of the child tax credit that capped the credit at $2,000 and allowed only part of it to be refundable. The phaseout described in this article applies to the increase in the credit. Families that aren’t eligible for the higher child credit can claim the regular credit of $2,000 per child, less the amount of any monthly payments they received in advance, provided their AGI is below $400,000 on joint returns and $200,000 on other returns. If you have questions related to how the advance payments may impact the outcome of your 2021 tax return and whether you should opt out of any additional advance payments, or perhaps adjust your withholding or estimated tax payments to account for the advance credits, please contact this office.
Oatly: A Shining Example of What an Entrepreneur Can Accomplish
According to one recent study, plant-based foods are now available in about 53% of households in the United States. Roughly 35% of Americans say that they’ve consumed some type of plant-based food in the last year, and of that number, 90% say that would happily do so in the future. All told, searches on engines like Google for plant-based recipes are up an incredible 85% year-over-year – pointing to a trend that shows absolutely no signs of slowing down anytime soon. Statistics like these help highlight why Oatly – a company that bills itself as “the original oat milk company” – is so popular right now. But as an organization specializing in non-dairy beverages, it’s safe to say that they were hardly an overnight success. Over 25 years ago, Oatly was little more than a niche startup specialized in alternatives to milk, ice cream, yogurt, cooking creams, and similar types of products. A few decades and one deal with Starbucks later and Oatly has transformed into a company with a $10 billion IPO. Oatly: The Story So Far Oat milk in general began life in the early 1990s after being developed by Rickard Oste, a food scientist and Lund University. He developed it after extensive research on the topics of lactose intolerance and sustainable food systems. Oatly bills itself as “the world’s original and largest oat drink company,” and when you consider the amount of success that it’s had over the years, it’s certainly hard to argue with that sentiment. Since 1994, they’ve exclusively focused on developing first-class expertise around all things oats. Oats are a global power crop with inherent properties suited for both sustainability and human health and, sensing the way things were shifting towards organizations with a more environmentally-friendly slant, it’s clear that this decision was a good one. But when the product originally launched, it “languished” according to Oste. “Nobody wanted it,” he was quoted as saying in an interview with The New Yorker. Still, he persisted. And it’s a good thing that he did. Oatly is headquartered in Sweden. As a brand, its products are available in more than 20 different countries around the world. But it was a focus towards the United States that began to take hold nearly a decade ago that truly cemented the position it enjoys today. In an effort to get its products in front of as many people as possible, Oatly started with those who could advocate for them: baristas. In 2021, Oatly CEO Toni Petersson sent cases of a special “barista-edition” product to the trendiest coffee shops he could find in many major American cities. To say that this effort gave way to a success story is, at this point, a little bit of an understatement. Almost immediately, Oatly found what would become its first major launch partner in the region: Intelligentsia Coffee. But even expanding beyond that, Oatly became an almost constant presence in barista-made foamed espresso drinks around the country. As soon as those drinks became popular enough with consumers, suddenly everyone wanted oat milk in their own homes – which is exactly when their grasp on the market began to take hold. Flash forward just a few years to 2018 and Oatly products were found in more than 1,000 different coffee shops. But at the same time, the company debuted its products in grocery store chains like Wegmans and ShopRite. It was regularly achieving $110 million in sales and by just a year later, Oatly’s products were available to purchase in 2,500 grocery stores, too. Of course, none of this is to say that Oatly hasn’t faced challenges over the years – because it certainly has. After becoming the “number two milk alternative in all of Europe”, Oatly first debuted in New York City in 2016. Within six months, the entire city was out of stock – that’s right, you literally couldn’t get oat milk in all of Manhattan. At the time, customers were beside themselves. They didn’t like the fact that something that caught on so quickly could fade away just as fast. The company couldn’t keep up with demand and had to adjust its supply chain efforts to empower its rapid expansion around the world. Still, Oatly’s general manager Mike Messersmith had a theory that periodic shortages were actually what made up a big part of the company’s charm. He indicated in an interview with The New Yorker that every time the product became scarce, demand would only get higher. People weren’t giving up on the product – they were becoming more loyal to it. Likewise, the oat milk process is nothing if not specific. You really do have to strike that perfect balance between “speed” and “quality” and trust the process. But that’s exactly what consumers expect – and that’s precisely what Oatly is trying to give them. In the end, Oatly is nothing if not a shining example of an entrepreneur success story for a few reasons. For starters, it began life as a company that may very well be the example of “the right product at the wrong time.” In 1994, the priority for sustainable living was nothing like it is now. But still, Oatly persevered and waited for the marketplace to catch up to its concept. Once it did, their success was overwhelming – and it seems poised to continue to be that way for years to come.
4 of the Most Common IRS Tax Problems
For years, politicians have been talking about simplifying the process of filing federal taxes, but despite the promises, the process continues to be complicated and stressful. But as bad as preparing taxes can be, it pales in comparison to the sinking sensation of receiving an IRS notification telling you that you’ve done something wrong. The IRS reviews each tax return for accuracy and to ensure that taxpayers have paid the amount that they owe, and when they find something wrong, they immediately send a letter alerting the taxpayer of the problem. Though there are several issues that can arise, the four situations listed below are common reasons for the IRS to contact — and demand action — from you.
Failure to file a return at all Every American is supposed to send in a tax return, whether you owe the government money or whether the government owes you. Failure to file can lead to you not getting the refund money you’re owed – you only have three years to get your paperwork in to get money back, and if you’ve shortchanged the government then your failure to file can lead to fines adding an additional 25% of what you owe, charged over five months.
Failure to pay taxes If you receive a form CP14 from the IRS it means that you have shortchanged the government on your taxes and you owe them the difference. If you both fell short on your payment and didn’t file a return, you’re likely to have to pay penalties and interest too. If your debt is substantial the agency will allow you to negotiate a Partial Payment Installment Agreement (PPIA) to break your payments into monthly installments.
Notification of tax levy Failure to pay taxes can lead to a seizure of your property known as a tax levy. The IRS does not descend upon your property unannounced: They will notify you using either the LT11, the CP504, the CP90, or the CP91 form.
Notification of tax lien The IRS also can use a tax lien to collect unpaid tax debts. If you receive a Letter 3172, it means that the government is asserting its rights to your property or assets. This letter also gets sent to your creditors, as a tax lien allows the government to get in line for your assets ahead of all others.
If you receive one of these notifications from the IRS or any other form of correspondence regarding a mistake or monies owed, there’s no reason to panic. The best way to handle it is to speak to a qualified, experienced tax professional for guidance on your next steps. To learn more, contact us today.
Basic Guide to Taxes for Freelance Writers and Self-Published Authors
An increasing number of Americans have either left the corporate world entirely or are supplementing their income by freelancing. There are many types of freelance work, but it’s important for those who are providing content, offering editing or proofreading assistance, or even publishing their own works to know their tax obligations. We’ve assembled the most important information you need to know as you move forward. Be sure to refer back to this page frequently, and if you have any questions contact our office.
Any income that you earn is taxable and needs to be reported on your tax form. When the work that you perform for a client totals $600 or more, the client is required to prepare a 1099-NEC form and submit a copy both to you and to the IRS. When you are paid less than $600 by an individual client you are still required to report that income, but the client is not required to send the form. However, some employers under pressure from state Employment Development Departments may classify you as an employee, withhold taxes and issue you a W-2. In that case, the income is not treated as freelance work and any expenses associated with W-2 income are not tax deductible.
You can minimize your tax obligation with the expenses that you report on Schedule C of your tax return. Freelancers and self-employed individuals are expected to list both their income and their business-related expenses on Schedule C of their income tax return. Typical freelance writer expenses include the cost of office supplies such as printer paper and ink; the internet charges that they pay; the cost of technology such as a laptop, fax machine, printer, or copier; any expenses for mileage or business meals; software; subscriptions. Anything that is considered a cost of doing business can be deducted from the income that your business earns, and that reduces your tax liability. To ensure that you are maximizing your business deductions, keep careful track of every expense and keep all receipts.
If you work from home, you may be entitled to a home office deduction. If your workspace is located in your home, you can take a deduction for the percentage of your home that is dedicated to your business. There are two different ways of doing this: you can either calculate the percentage of your home that is used for work based on its total square footage, and then deduct that percentage of home costs such as mortgage principal or rent, utilities, and insurance, or you can choose to take the simplified (safe harbor) deduction of $5 per square foot (maximum $1,500). It is important that if you choose to calculate the percentage of your home used, you only use the area for work purposes. Sitting at your kitchen counter will not allow you to calculate the kitchen space for business purposes, as it is also used for other things.
You can deduct the cost of your health insurance. If your sole source of income is freelancing, then you are probably paying for your own health insurance. That represents a significant amount of money, and that’s why the government allows you to claim the full cost of your premiums as a deduction. That is not only true for your coverage —you can also deduct the costs for covering your dependents and your spouse as long as the policy is in either your business name or your name. This gets reported on the first page of your tax return as an adjustment to your income rather than being listed as a business expense on Schedule C or an itemized deduction on Schedule A.
You are required to pay self-employment tax on your freelance income. While W-2 employees do not need to worry about their Social Security and Medicare taxes because they are withheld by their employers, self-employed individuals are required to calculate the percentage of their income that they owe and submit it to the government themselves when they pay their taxes. Self-employment tax is calculated for the 2021 tax year as 15.3 percent of net income, which means the figure that reflects any deductions you listed based on your Schedule C and any other adjustments. This amount feels like a lot, but half of it gets deducted when you go through the calculations on the first page of your tax return.
If you earn royalties on anything you self-published you will need to report it on your Schedule C. Writing often results in royalty payments being sent by the publisher, and at the end of the year they are required to send you 1099-NEC forms reflecting that income. That form will also be sent to the government. If what you self-published ends up costing you more than you earned, then you will be able to report your losses and use them to reduce your overall income, thus cutting the amount of taxes that you will owe.
If you work as a freelancer while also employed, only your freelance income gets reported on Schedule C. Your tax liability for self-employment only applies to the money you earn as a freelancer. Income earned from an employer will be withheld by them and reported on a W-2 form.
With the Potential Higher Capital Gains Rate Looming Interest in Opportunity Zone Funds Renews
Article Highlights:
Potential Tax Changes
Capital Gains Rates
Qualified Opportunity Fund
Deferred Capital Gains
Tax Benefits
Investment Care
The U.S. Treasury recently released the Biden administration’s 2022 Fiscal Year Budget, that includes a general explanation of the administration’s 2022 revenue proposals. The publication is commonly referred to as the ‘Green Book’ and outlines the Biden administration’s tax proposals. Keep in mind these are proposals and will have to be passed by Congress.One of the proposals included in the Green Book is to increase the long-term capital gain rates which currently, as illustrated in the table below, range from zero to 20%. Long term means the investment was held for a minimum of a year and a day.
CG TAX RATES BY AGI RANGE FOR 2021
Filing Status
Zero Rate
15% Rate
20% Rate
Single
0 – $40,400
$40,401 – $445,850
$445,851 and above
Head of Household
0 – $54,100
$54,101 – $473,750
$473,751 and above
Married Filing Joint
0 – $80,800
$80,801 – $501,600
$501,601 and above
Married Filing Separate
0 – $40,400
$40,401 – $250,800
$250,801 and above
The proposals would increase the tax rate for long-term capital gains to 39.6% (the proposed increase to the top individual rate is also included as one of the Green Book proposals) to the extent the taxpayer’s AGI (adjusted gross income) exceeds $1 million. That will result in a tax as high of 43.4% when including the 3.8% net investment income tax imposed on investment income of middle- to higher-income taxpayers. The proposal even suggests a retroactive rate change to be effective for gains and income recognized after April 28, 2021.
Example: Under the proposal, a taxpayer with $900,000 of wage income and $200,000 of long-term capital gain income would have $100,000 of capital gain income taxed at the current preferential tax rates shown in the table and $100,000 (which exceeds the $1 million threshold for the higher rates) taxed at ordinary income tax rates.
Qualified Opportunity Fund (QOF) – A tax tool at the disposal of taxpayers are investments in Qualified Opportunity Funds that can defer any long-term capital gain for several years. Here is how it works: Taxpayers who have a capital gain from selling or exchanging any non-QOF property to an unrelated party may elect to defer that gain if it is reinvested in a QOF within 180 days of the sale or exchange. A taxpayer can reinvest less than the full amount of the gain in a QOF, and the remainder is taxable in the sale year, as usual. A real benefit is only the gain need be reinvested in a QOF, not the entire proceeds from the sale. This is in sharp contrast to a 1031 real estate exchange where the entire proceeds must be reinvested to defer the gain. The gain amount is deferred until the date when the QOF investment is sold or December 31, 2026, whichever is earlier. At that time, the taxpayer includes the lesser of the following amounts as taxable income:
a. The deferred gain orb. The fair market value of the investment, as determined at the end of the deferral period, reduced by the taxpayer’s basis in the property. Initially, the basis is zero when the only investment in the QOF is the capital gain that is being deferred.
Additional QOF Benefits – Besides providing the ability to defer the gain, QOFs also provide these additional benefits:
For those that invest in a QOF before January 1, 2022, and hold it for 5 years the basis in the QOF is increased by 10% of the deferred gain. Thus 10% of the deferred gain ultimately avoids taxation.
Where a QOF investment is held for 10 years or longer before selling it any gain (appreciation) attributable to the QOF can be excluded and only the deferred gain will be taxable. Example: Phil sold a rental apartment building September 30, 2021, for $3 million, which resulted in a capital gain of $1 million. He invests the $1 million within the statutory 180-day window into a QOF and elects the temporary gain deferral exclusion. On October 1, 2026, Phil sells his interest in the QOF for $1.5 million. Since Phil had held the investment over five years, his basis is enhanced by $100,000 (10% of $1 million deferred). Since the QOF included in the example had done well and appreciated to $1.5 million, the long-term capital gain reported by Phil would be:
Sales Price
$1,500,000
Basis Enhancement (10% of $1 million deferred)
– 100,000
Reportable 2026 Capital Gain
$1,400,000
Had Phil not sold the QOF until 2032, and if the value of the QOF as of 12/31/2026 was greater than his deferred gain, he would have paid tax on the entire $1 million of deferred gain when he filed his 2026 tax return. His basis is then $1,000,000. When he sells the QOF in 2032 for the fair market value of $2,000,000, having held the QOF investment for 11 years (more than the 10 years required to make the FMV election), Phil can elect to treat the fair market value as his basis, and will have no taxable income ($2,000,000 sales price – $2,000,000 basis). Thus, he was able to defer for over 5 years paying tax on the original gain from selling the apartment and pays no tax on the $500,000 appreciation of the investment in the QOF. However, if Phil had sold his QOF before holding it for 10 years, he would not have been able to exclude all the appreciation.
The forgoing is an example to demonstrate how the tax benefits of a QOF work. There is no guarantee that a QOF will be profitable. Like any other investment a QOF investment should be carefully analyzed for profit potential, not just based upon its tax benefits. There is no tax law lower limit on the amount that must be invested in a QOF, so they are available to taxpayers of any means. Not all states conform to the gain deferral and basis adjustments provided by QOFs. Please contact this office if you have questions related to how your tax situation would be impacted by investing in a QOF.
Small Businesses: Here’s How the U.S. Supreme Court Wayfair Decision Affects You
If you are a small business owner, chances are good you’re paying more attention to your accounts receivables and deliverables than to a three-year-old Supreme Court decision. But knowing what happened in the Wayfair decision on June 21st of 2018 is important if you do a significant amount of business in states other than where you have a physical presence. The Wayfair decision reversed the earlier ‘Quill’ decision made back in 1992, and in doing so it forever changed the tax liabilities of businesses. The Quill case established that businesses were not required to collect or remit sales or sellers use taxes for states in which they lacked a substantial physical presence. But the ‘burdensome’ administrative processes that were eliminated with that decision became the law of the land with the Wayfair decision, which established economic nexus for the state of South Dakota as either 200 transactions shipped to state residents or companies per year, or $100,000. Once that threshold is reached, states can require out-of-state companies to collect and remit sales and use taxes from their customers. Compliance with these requirements is no small thing, and the earlier court decision was correct in referring to it as ‘burdensome.’ But failing to comply has very real consequences in the form of back taxes and penalties. The solution is automation, almost by necessity: Without that kind of help, organizations would need at least one employee dedicated to nothing but managing and tracking sales volumes for each state as well as the various local and state regulations. To get an idea of exactly how complex the tax could be, consider this: There are approximately 10,000 different tax jurisdictions in the United States, and identifying all of them goes beyond anything as simple as zip code, county, or city borders. Though it would be nice to think that everybody adhered to standard taxability rules as is the case for SST member states, the fact is that each jurisdiction can have its own rules regarding what does and does not get taxed. Not only does this apply to product categories like clothing, food, or luxury items, but also to services such as shipping and handling or product usage. Each rule needs to be identified and adhered to, or risk fines and penalties. In addition to learning the rules and tax thresholds for nexus for each state, compliance requires adhering to the process that each state imposes. These are usually coordinated via state tax portals, meaning that sellers will need to have this information easily at hand – for as many as 50 states. And sellers will be responsible for tracking when tax requirements change, for every jurisdiction. Though some states offer resale exemption certificates, following the processes required to administer those certificates has turned out to be a bridge too far for many companies. Much of this is due to the fact that – as is true with other aspects of compliance – the certificates and rules for certificate renewals have to be collected and learned for each state and is an additional burden. But failure to properly fill the certificates out can lead to them being taxed on that revenue, and lead to penalties and interest being imposed if those taxes are not properly collected. Though following the rules represents an enormous headache and the need to invest time and money, doing so is preferable to being audited and penalized. By creating a strategy for dealing with these rules, you can not only eliminate your risk of non-compliance but also have a plan in place in case you do receive an audit letter. We strongly encourage you to contact us as soon as you receive an audit letter and do so before providing any response or submitting any information to a regional tax agency. We will be able to provide you with the information you need about how to best manage the situation.
Video Tip: A Quick Look into Higher Education Tax Credits
The cost for higher education is expensive, but it can be offset with federal tax credits. In this video, we will discuss the American opportunity tax credit (AOTC) and the lifetime learning credit (LLC).
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Checklist: Managing Vacation Requests Post-Lockdown
Vacation gives employees time away from work to recharge, spend time with family and friends, and take care of personal responsibilities so that they can be more productive when they return to work. During the height of the pandemic, though, many employees didn’t use as much vacation time because of travel and other restrictions. Now that these restrictions are easing, employers may find that there’s pent up demand. While encouraging employees to use their vacation has a number of benefits, you also need to ensure adequate staffing. Here is a checklist to help you develop a plan for managing vacation requests this year: 1. Review your vacation policy. Make sure your policy addresses:
Who is eligible to take vacation.
How much time eligible employees may use and in what increments.
How to request time off and how much advance notice is required.
That vacations may be restricted if necessary based on scheduling needs and guidance on how requests will be granted (such as, seniority, first-come first-served, or a combination).
Any blackout periods during which vacations are off limits, if applicable.
Whether and to what extent employees can carryover unused vacation time to the following year and whether unused vacation will be paid out at the time of separation. Note: Some states prohibit policies that force employees to forfeit unused vacation time (also known as use-it-or-lose-it policies). In these cases, employers must generally allow employees to carry over all accrued but unused vacation time from year to year, or pay employees for the unused time at the end of the year. Check your state law to ensure compliance.
2. Discourage last-minute requests. Some employers require at least one weeks’ notice for vacations of a few days or less and more notice for longer periods. Some employers establish early deadlines for all summer vacation requests. 3. Set reasonable limits. Employers generally have the right to control how much vacation employees take at any particular time. For example, an employer could limit vacations to five consecutive days or less, or institute blackout periods during which vacations are completely off limits. Assess what impact any restrictions would have on employee morale considering the challenges employees have faced over the past 18 months. 4. Hold supervisors accountable. Whatever strategy you choose, give supervisors guidance on handling time off requests and hold them accountable for ensuring adequate staffing levels and applying your policy consistently. 5. Understand the latest COVID-19 rules and guidance. The rules and guidance continue to change rapidly. For example, if employees are fully vaccinated and travel in the United States, they’re no longer required by the CDC to get tested before or after travel or to self-quarantine after travel. The rules differ for international travel, and state and local jurisdictions may have their own travel restrictions in place. Advise employees to make sure they understand and follow applicable travel rules and guidance and ensure your post-travel screening and return-to-work protocols comply. Generally, employers may ask employees about geographic areas where they have traveled or intend to travel, absent a claim that an employee has a recognized privacy interest in their travel activities. Under federal law, employers may also ask employees whether they’re fully vaccinated for COVID-19, but check state and local laws to determine whether they allow such inquiries. Employers will also need to determine to what extent (if any) they’re allowed to use vaccination status to determine return-to-work protocols following travel. 6. Remind employees of your policy. Prior to peak vacation times, such as the summer and holiday season, it’s a good idea to remind employees of your vacation policy and highlight any changes made in the prior year. Conclusion: Providing paid vacation and developing a culture that encourages employees to use their time can help attract and retain employees as well as improve productivity, particularly in these unprecedented times. However, you should consider measures that ensure adequate staffing and make sure that the policy is applied fairly, consistently, and in compliance with applicable laws. This story originally published on HR Tip of the Week – a blog providing practical information on hiring, benefits, pay, and more – by ADP®. Learn more about how ADP’s small business expertise and easy-to-use tools can simplify payroll & HR at adp.com.
Businesses Have 60 Days to Notify the IRS of Changes in Contact Information and Responsible Party
Article Highlights
Employer Identification Numbers (EINs)
Contact Information
Update Responsibilities
ID Theft and Fraud Issues
Responsible Party
Filing Tips
Updating Individual Contact Information
The Internal Revenue Service (IRS) is reminding entities with Employer Identification Numbers (EINs) of their responsibility to update that information whenever the contact information or responsible party changes. IRS regulations require EIN holders to update responsible party information within 60 days of any change. Notifying the IRS of those changes is easily accomplished by filing Form 8822-B, Change of Address or Responsible Party – Business. Calling it a key security issue, the IRS is urging those entities with EINs to update their applications if there has been a change in the responsible party or contact information. It is critical that the IRS has accurate information in cases of identity theft or other fraud issues related to EINs or business accounts. According to the IRS, the data around the “responsible parties” for business-type entities is often outdated or incorrect, meaning that the IRS does not have accurate records of who to contact for identity theft issues. This results in a time-consuming process to identify the point of contact so the IRS can inquire about a suspicious tax filing. It is estimated that there are approximately 100,000 EIN holders where it appears the responsible party information is outdated. The IRS is planning a mail campaign to these EIN holders in August. Responsible Party – Generally, a responsible party is the individual (that is, a natural person) who ultimately owns or controls the entity or who exercises ultimate effective control over the entity. The person identified as the responsible party should have a level of control over, or entitlement to, the funds or assets in the entity that, as a practical matter, enables the person, directly or indirectly, to control, manage, or direct the entity and the disposition of its funds and assets.
Tax-exempt organizations – the responsible party is generally the same as the “principal officer” as defined in Form 990 instructions.
Trusts – the responsible party is a grantor, owner, or trustor.
Decedent estates – the responsible party is the executor, administrator, personal representative, or other fiduciary.
For publicly traded entities and government entities see the instructions with form SS-4 – Application for Employer Identification Number (EIN).
Here are some tips for completing the 8822-B (used by businesses):
P.O. Box – Enter your box number instead of your street address only if your post office does not deliver mail to your street address.
Foreign Address – Follow the country’s practice for entering the postal code. Do not abbreviate the country name.
“In Care of” Address – If you receive your mail in care of a third party (such as an accountant or attorney), enter “C/O” followed by the third party’s name and street address or P.O. box.
Signature – An officer, owner, general partner or LLC member manager, plan administrator, fiduciary, or an authorized representative must sign. An officer is a president, vice president, treasurer, chief accounting officer, etc. If you are a representative signing on behalf of the responsible party, you must attach to Form 8822-B a copy of your power of attorney. To do this, you can use Form 2848. The Internal Revenue Service will not complete an address or responsible party change from an “unauthorized” third party.
See the instructions for filing Form 8822-B which are included with the form.
If you need to change both the business and personal contact information, use Form 8822 to change your home address. Although the IRS will automatically update their records to match a taxpayer’s most recent tax filing, it is wise to file Form 8822 to make sure you receive any correspondence from the IRS since the IRS is only required to mail correspondence to your last known address. If you have a state filing obligation, you should also notify the appropriate state agencies of the changes. After you file either the 8822-B or Form 8822, please forward a copy to this office so we can update your file. If you need assistance, please give this office a call.