How Biden's Rescue Plan Might Impact Your Taxes

President Biden released his “American Rescue Plan” on January 14. It is a wish list of proposals he wants Congress to enact to address the COVID-19 pandemic and associated economic crisis. While some of the proposals are intended to be in effect for just one year, it isn’t too great a stretch of the imagination that these could later be extended or made permanent, as many of them have been on the Democrats’ agenda for some time. The anticipated cost of the American Rescue Plan, if all of the proposals are agreed to by Congress, is $1.9 trillion. None of Biden’s proposals are revenue raisers, and according to a January 15, 2021 Wall Street Journal report, he intends to use government borrowing to pay for his plan. Following are some of the tax-related proposals.

Stimulus (Economic Impact) Payments: Biden’s plan requests that Congress provide an additional stimulus payment of $1,400 to qualified lower income households. Combined with the $600 that Congress authorized in December legislation, this will bring the latest total direct assistance to $2,000 per person. The prior stimulus distributions included stipends for dependent children under the age of 17, whereas the proposed payments will be provided for all dependents regardless of age.

So far, the payments have counted as advances toward a 2020 Recovery Rebate Credit. This is so even for the second round of payments that didn’t reach recipients until early January 2021. Individuals will need to reconcile the payments they received and the credits they are entitled to on their 2020 returns. Whether the proposed additional payments will be considered part of the 2020 credit (which could delay some 2020 return filings) or as an advance toward a new 2021 credit will need to be clarified in the legislation.

Unemployment Compensation: This part of the plan requests that Congress provide a $400-per-week unemployment insurance supplement through September 2021, and extend the unemployment benefits to self-employed workers such as ride-share drivers and many grocery delivery workers, who do not typically qualify for regular unemployment compensation. Presumably, the $400-per-week enhancement would be in lieu of the $300-per-week benefit passed in the Consolidated Appropriations Act in December 2020. In any event, the unemployment benefits are taxable income for federal purposes; most states also tax this income, but a few do not.

Raise the minimum wage to $15 per hour.

Education Assistance: The CARES Act, passed in late March 2020, included a Higher Education Emergency Relief Fund that provides funding to institutions to provide emergency financial aid grants to students whose lives have been disrupted by the COVID-19 pandemic. Emergency financial aid grants to students are nontaxable and can be used for expenses related to the disruption of campus operations due to coronavirus (including eligible expenses under a student’s cost of attendance, such as food, housing, course materials, technology, health care, and child care). Biden’s proposal would increase funding for the Higher Education Emergency Relief Fund, including providing college and university students with up to an additional $1,700 in financial assistance from their institutions.

Families First Coronavirus Response Act: This part of the American Rescue Plan requests that Congress fund an extension of sick leave through September 30, 2021, which would provide over 14 weeks (up from 12) of paid sick and family and medical leave to help parents with additional caregiving responsibilities when a child or loved one’s school or care center is closed; for people who have or are caring for people with COVID-19 symptoms, or who are quarantining due to exposure; and for people needing to take time to get the vaccine. The maximum payment would be increased from $1,000 per week to $1,400 per week.

Under Biden’s plan, the exemptions for businesses with over 500 employees and those with fewer than 50 employees would be eliminated, making the program mandatory for all sizes of businesses. The government will reimburse employers with fewer than 500 employees for 100% of the cost.

Increase the Child Care Tax Credit: Currently, a nonrefundable tax credit is available to some taxpayers for the expenses they incur for the care of a child, spouse, or other dependent while the taxpayer is gainfully employed (or is seeking a job). The maximum expenses that can be used to determine the credit are $3,000 for one child and $6,000 for two or more children. The credit rate ranges from 20% to 35% depending on income (the higher the income, the lower the credit rate).

Biden’s plan requests Congress to authorize an increase in the child care credit and make it refundable for one year. The credit would be a full 50% of the expenses, with maximum expenses of $4,000 for one child under age 13 and $8,000 for two or more children. The credit would be phased out when income ranges from $125,000 to $400,000.

Child Tax Credit: For years 2018 through 2025, the child tax credit is a maximum of $2,000 per dependent child under the age of 17. In some cases, up to $1,400 of the credit is refundable. The credit phases out when the taxpayer’s modified adjusted gross income exceeds $200,000 ($400,000 for married joint filers). Biden is asking Congress, for a period of one year, to include children through age 17 in the credit and increase the Child Tax Credit to $3,000 ($3,600 for children under the age of 6).

Earned Income Tax Credit (EITC): Childless adults are eligible for a lesser earned income tax credit amount than if they had a qualifying child. Biden’s plan requests that Congress make a one-year increase in the EITC for childless adults from roughly $530 to $1,500 and increase these individuals’ income limit for the credit from roughly $16,000 to $21,000. Biden also would also like Congress to eliminate the age cap so that older workers without a qualifying child can claim the credit (currently, a childless individual cannot claim the credit after reaching age 65).

Healthcare Coverage: Individuals who purchase their health insurance through the government marketplace may be eligible for a premium tax credit, with an advance premium tax credit (APTC) used to reduce monthly premiums, and the advance and actual credits reconciled on their income tax return each year. Biden’s plan asks Congress to increase the premium tax credit so that workers will pay no more than 8.5% of their income for coverage.

Although not tax-related, other issues in the plan affecting individuals include:

Evictions and Foreclosures: President-Elect Biden is calling on Congress to extend the eviction and foreclosure moratoriums and continue applications for forbearance on federally guaranteed mortgages until September 30, 2021, as well as to provide funds for legal assistance for households facing eviction or foreclosure.

Homelessness: The plan requests that Congress provide $5 billion to help secure housing for the approximately 200,000 individuals and families.

Remember, these are only Biden’s proposed changes; quite often, what Congress ends up passing is not the same as the originally proposed legislation. If you need assistance or have questions related to other tax issues, please give our office a call.

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Seim Johnson Welcomes New Staff Accountant

Seim Johnson happily welcomes the addition of Trey Taubenheim to the firm as a tax associate.

“Welcoming a new accountant at the start of opportunity season is a great way to bring fresh energy to the team,” said Jerry O’Doherty, CPA, CGMA, managing partner of Seim Johnson. “I know that Trey will bring a great attitude throughout tax season, and I can’t wait to see how his career soars within the firm.”

Previously a tax and audit intern at Seim Johnson, Taubenheim will now work full-time in the tax department to prepare and reconcile individual, business, nonprofit, and limited liability company tax returns. A graduate of the University of Nebraska at Kearney, Taubenheim graduated in 2020 with a bachelor’s degree in business administration. He was the treasurer of Beta Alpha Psi, the honors accounting fraternity, while at university. Raised in Amherst, Nebraska, Taubenheim currently resides in Elkhorn.

Founded in 1975, Seim Johnson is one of the leading accounting and consulting firms in Nebraska. Based in Omaha, the firm’s team of nearly 90 professionals serves clients within the state, throughout the Midwest, and across the country. Seim Johnson’s dedicated professionals provide insightful, forward-looking solutions that truly benefit their clients. 

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New Paycheck Protection Program Guidance Released

On Wednesday, January 6, the U.S. Small Business Administration (SBA) and the Treasury issued joint guidance regarding the latest updates to the Paycheck Protection Program (PPP), as amended by the recent COVID-19 relief bill. A recent article from the Journal of Accountancy offers an overview of the guidance, which includes the following items:

  1. An interim final rule titled, “Business Loan Program Temporary Changes; Paycheck Protection Program as Amended” – This document includes a consolidation of PPP rules for borrowers using the program for the first time. It also gives an explanation of program changes made by the recent COVID-19 relief legislation. Click here to read the document in full. 
  2. An interim final rule titled, “Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans” – This document covers the various regulations for businesses that received PPP loans through the initial program and now want to pursue a second-draw loan. Click here to read the document in full. 
  3. Additional guidance titled, “Guidance on Accessing Capital for Minority, Underserved, Veteran and Women-Owned Business Concerns” – This document gives details on the SBA’s commitment to opening the second PPP application window exclusively to minority- and women-owned businesses for the first two days. Click here to read the document in full.

The article offers a helpful overview of a number of PPP details that have changed with this second round of loan funding, including the following:

  • Second-draw PPP loans of up to $2 million are available for eligible businesses that received first-round funding. Eligibility requirements include having 300 or fewer employees; having used the entirety of the first-round funding on eligible expenses prior to receiving second-draw funding; having experienced a reduction in revenue of 25% or more, comparing an eligible time period in 2020 with one in 2019. 
  • Businesses that did not receive PPP funding in the first round may be eligible for second-round PPP funding if they meet the following criteria: having 500 or fewer employees and being eligible for other SBA 7(1) loans; being a sole proprietor, independent contractor, or eligible self-employed individual; being a non-profit; being an operation in the accommodation and food services sector with fewer than 500 employees at a single physical location; being a Section 501(c)(6) business league with 300 or fewer employees; certain qualifying news organizations.
  • The maximum allowable amount for both first- and second-draw PPP loans is 2.5 times the organization’s average monthly payroll, though some eligible businesses can receive up to 3.5 times their average monthly payroll. For first-draw PPP loans, the maximum tops out at $10 million. 
  • In addition to the original definition of “eligible costs” for the purpose of PPP loan usage, PPP loans from the second round of funding can be used to cover PPE and facility modification, property damage related to public disturbances not covered by insurance, expenditures for purchases essential to current operations, and certain covered operating expenditures.
  • The latest COVID-19 relief bill included specific provisions for PPP applicants that are minority, underserved, veteran, and women-owned businesses. This includes certain amounts of PPP loans set aside for these groups and other commitments by the SBA to ensure that businesses in these categories are served through the PPP program. 

The timeline for the second PPP application window is as follows:

  • January 11, 2021 – Applications for first-draw PPP loans can be submitted by community financial institutions.
  • January 13, 2021 – Applications for second-draw PPP loans can be submitted by community financial institutions.
  • To be announced – Applications for first- and second-draw PPP loans can be submitted by all participating lenders.
  • March 31, 2021 – The second PPP application window closes. 

For more details on the second application window for PPP loans, check out this article from the Journal of Accountancy

To apply for PPP funds in this second round of funding, first-time borrowers should use Form 2483 – Paycheck Protection Program Borrower Application Form and borrower seeking second-draw loans should use Form 2483-SD – PPP Second Draw Borrower Application Form. For more details on these forms and the procedures that accompany them, click here for a helpful article from the Journal of Accountancy

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Seim Johnson Announces Retirement

The Omaha accounting and consulting firm Seim Johnson is sad but proud to announce the retirement of long-time team member Brent Friehauf, CPA.

Friehauf joined Seim Johnson in 1994, devoting more than 27 years of his three decades in professional accounting to the firm. As a tax partner, he specialized in serving clients in the real estate, wholesale, manufacturing, agriculture, healthcare, and financial services sectors. Friehauf provided tax planning, tax consulting, tax compliance, and estate planning services to both individuals and businesses. Additionally, he served on the firm’s Executive Committee.

“It is with mixed emotions that I congratulate Brent on his retirement—I am happy for him but know that he will be sorely missed,” said Jerry O’Doherty, CPA, CGMA, managing partner of Seim Johnson. “I am very grateful to Brent for his many years of dedicated service, and I wish him the best as he enters this new stage of his life.”

A 1982 graduate of the University of Nebraska – Lincoln, Friehauf holds a Bachelor of Science in Business Administration in Accounting and Finance. Professionally, he is a member of the American Institute of Certified Public Accountants (AICPA), the Nebraska Society of Certified Public Accountants (NSCPA), the Great Plains Federal Tax Institute Board of Directors, and the Omaha Estate Planning Committee. Additionally, he is a member of Southwood Lutheran Church.

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Seim Johnson Announces Four Promotions

Seim Johnson is pleased to announce the promotions of Joseph Wagman, JD, Vanesa Salcido, CPA, Mark Furasek,  and Taylor Gehring. 

A member of the firm since 2016, Wagman specializes in healthcare regulatory compliance, including Medicare and Medicaid enrollment and reimbursement. Previously a senior, he now takes on the responsibilities of a supervising senior. Salcido has been with Seim Johnson since 2018. With this promotion, she moves from the role of associate III auditor to senior auditor. A member of the firm since 2017, Furasek previously served as an associate III in the firm’s tax department. He now takes on the responsibilities of a senior accountant. Gehring joined Seim Johnson in 2019 and serves in the audit department. With this promotion, she steps from associate II to associate III. 

“These promotions make for a very exciting time at Seim Johnson,” said Jerry O’Doherty, CPA, CGMA, managing partner of Seim Johnson. “These professionals span across departments and job positions, but they have this in common: their hard work and dedication have proven that they are ready to take the next step in their careers.”

A graduate of Creighton University, Wagman earned a Bachelor of Science in Business Administration in 2012 and a Juris Doctorate in 2016. He remains involved with the school via the Creighton University Alumni Association. Wagman lives in Omaha, Nebraska. 

Salcido is a graduate of the University of Nebraska at Kearney. She currently resides in Amarillo, Texas with her husband, Lalo, and daughter, Salome. 

In 2008, Furasek earned a Bachelor of Science in Business Administration from Nebraska Wesleyan University. He later returned to his studies, graduating cum laude with a Bachelor of Art in Accounting from Doane University in 2016. He lives in Bennington, Nebraska with his wife, Jackie, and their daughter, Lennon. 

Gehring attended the University of Nebraska – Lincoln, earning a Bachelor of Business Administration in 2018 and a Master of Professional Accountancy in 2019. Currently in pursuit of her CPA license, Gehring has passed all four sections of the exam and is working towards completing her hours requirement. She currently resides in Omaha, Nebraska.

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