The Inflation Reduction Act (IRA), signed into law on August 16, 2022, includes tax provisions affecting businesses, individuals, the clean-energy industry, healthcare, and more. Let’s look:

Businesses

Sec. 461(l) Business Loss Limitation. The pass-through tax deduction for small business owners (sole proprietorships, some limited liability companies, partnerships, and S-corporations) was enacted under tax reform (TCJA of 2017). The tax break limited individuals from taking more than $250,000 ($500,000 for married taxpayers filing jointly) of business losses to offset nonbusiness income. In effect for tax years 2021 through 2026, it has been extended through 2028.

Research Credit Against Payroll Taxes.strong> For tax years beginning after December 31, 2022, the limitation amount increases by $250,000 to $500,000 for the Sec. 41(h) research credit against payroll tax for small businesses . The first $250,000 of the credit limitation will be applied against the FICA payroll tax liability. The second $250,000 of the limitation will be applied against the employer portion of Medicare payroll tax liability.

Alternative Minimum Tax for Large Corporations.strong> The corporate AMT repealed under tax reform in 2017 has been reinstated but is based on book income – the amount of income corporations publicly report on their financial statements to shareholders – instead of taxable income. Generally, this new corporate AMT of 15% applies only to large corporations with an average adjusted financial statement income exceeding $1 billion for the three consecutive tax years preceeding the tax year.

Nondeductible 1% Excise Tax on Corporate Stock Repurchases. A new 1% excise tax applies to corporate stock repurchases after December 31, 2022. The tax is paid on the stock’s fair market value (FMV); however, the excise tax does not apply if the total value of stock repurchased during a tax year is $1 million or less. Furthermore, it also does not apply if repurchased stock is contributed to an employer-sponsored retirement plan, employee stock ownership plan, or for stock repurchases that are part of a reorganization in which the shareholder recognizes no gain or loss.

Healthcare

Affordable Care Act Premium Tax Credits. The premium tax credit is extended through 2025 for taxpayers whose household income exceeds 400% of the poverty line.

IRS Funding

Approximately $80 billion is allocated to fund IRS activities such as taxpayer services, enforcement against tax evasion by high earners and corporations, operations, and modernization of IRS business systems. The IRS has stated that it does not intend to use this increased funding to “increase audit scrutiny on small businesses or middle-income Americans.”

Clean Energy

Clean Vehicle Tax Credits. The clean vehicle tax credit was extended through 2032, in addition to a new credit for previously owned clean vehicles. However, for new clean vehicles purchased after August 16, 2022, the tax credit is generally available only if the qualifying vehicle’s final assembly occurred in North America (the “final assembly requirement”). To determine whether the vehicle meets the final assembly requirement, taxpayers should enter the vehicle’s 17-character vehicle identification number (VIN) into the National Highway Traffic Safety Administration’s VIN Decoder tool. They can view the “Plant Information” field identifying where the vehicle was built.

Buyers who entered into a written, binding contract to purchase a qualifying clean vehicle before August 16, 2022, – but did not take possession of the vehicle until on or after that date – should abide by pre-existing rules in effect before August 16, 2022.

Clean Energy Credits for Individuals. Renamed the energy-efficient home improvement credit, the nonbusiness energy property credit is extended through 2032. It is now equal to 30% of the sum of the amount paid or incurred by the taxpayer for energy-efficient improvements installed during the tax year, the amount of residential energy property expenditures paid or incurred by the taxpayer during the tax year, and the amount paid by the taxpayer for home energy audits.

Clean Energy Credits for Individuals. Renamed the energy-efficient home improvement credit, the nonbusiness energy property credit is extended through 2032. It is now equal to 30% of the sum of the amount paid or incurred by the taxpayer for energy-efficient improvements installed during the tax year, the amount of residential energy property expenditures paid or incurred by the taxpayer during the tax year, and the amount paid by the taxpayer for home energy audits.

Also renamed (the residential clean energy credit) and extended (through 2034) is the Sec. 25D residential energy-efficient property credit. Furthermore, the new energy-efficient home credit under Sec. 45L has increased dwelling units acquired after December 31, 2022, and the credit extended through 2032.

Clean Energy Credits for Manufacturing. Several new credits have been created: Sec. 45Y to encourage clean electricity production at qualified facilities placed in service after December 31, 2024, with zero greenhouse gas emissions; Sec 45X for US production of photovoltaic cells and solar and wind components. In addition, starting January 1, 2023, the Section 48C Manufacturers’ Tax Credit is expanded to provide $10 billion in tax credits. The tax credit is 30 percent of the amount invested in new or upgraded factories to build specified renewable energy components.

Energy Credits for Businesses. Several energy credits for business have been created, extended, or modified in the Inflation Reduction Act, including a new sustainable aviation fuel credit, the Sec 48 energy credit (extended through 2024 and modified to increase the energy credit for qualified solar and wind facilities placed in service in connection with low-income communities), the Sec. 45 credit for electricity produced from renewable sources such as geothermal, solar, and wind facilities (extended through 2024 and modified), the Sec. 40A biodiesel and renewable fuel credit, and several alternative fuel credits (extended through 2024).

Help is Just a Phone Call Away

As always, tax law is complex, and it pays to speak with a qualified tax and accounting professional. Don’t hesitate to contact the office if you have any questions about the Inflation Reduction Act and your tax situation.

While the recently passed Infrastructure Investment and Jobs Act primarily addresses infrastructure-related issues, it includes several tax provisions affecting individuals and small business taxpayers. Let’s look:

Individuals

Cryptocurrency Reporting. Cryptocurrency reporting requirements are expanded to stem underreporting of cryptocurrency transactions. However, some have raised concerns that the reporting requirements of this tax provision are so broad that they apply to people who generate cryptocurrency and to people who do not have the information needed to comply with the reporting requirements.

Disaster Relief. The legislation extends certain tax deadlines for taxpayers affected by federally declared disasters. Also amended is the definition of a disaster area.

Tax Deadlines. The types of tax deadlines that are extended due to service in a combat zone are expanded.

Businesses

Employee Retention Credit. The Infrastructure Investment and Jobs Act legislation eliminates the credit for wages paid after September 30, 2021. Previously, however, The American Rescue Plan Act of 2021 extended the Employee Retention Credit to December 31, 2021. As such, there is some concern about the retroactive application of eliminating the credit since the legislation was not passed until after the start of the fourth quarter (i.e., December 1, 2021).

Employer-sponsored Retirement Plans. The relaxation of minimum funding requirements for employer-sponsored retirement plans is further extended, adding to tax revenue projections as funding requirements are decreased.

Contributions to Water and Sewer Utilities. Restoration of an exclusion for contributions to a regulated public utility for water or sewer construction.

Private Activity Bonds. The authorized private activity bond uses are expanded to include qualified broadband projects and qualified carbon dioxide capture facilities

Excise Taxes. Excise taxes on fuels, retail sales of heavy trucks and trailers, and tires are expanded. Superfund excise taxes have been restored.

If you have any questions about these and other tax provisions, please contact the office.

Signed into law on March 11, 2021, the American Rescue Plan Act (ARPA) contains several tax provisions affecting individuals and families. Let’s look:

Economic Impact Payments (EIP3). A third round of economic impact payments (EIP3) will be sent to qualifying taxpayers; individuals will receive $1,400 ($2,800 for married taxpayers filing jointly) plus $1,400 for each dependent, which includes college students and relatives who can be claimed as dependents. These payments are sent out as advance payments of the recovery rebate credit. Anyone not receiving EIP3 will be able to claim the recovery rebate credit when they file a 2021 tax return next year. There are specific income phaseouts, and eligibility is determined using a taxpayer’s 2019 adjusted gross income unless the taxpayer has already filed a 2020 return. For more information, see, Economic Impact Payments: Round Three, below.

Loan Debt Forgiveness. Normally, canceled debt – including student loan debt – is considered taxable income and taxed as such. Under the ARPA, however, for eligible loans, the discharge of student loan debt – either full or partial – will not be viewed as taxable income for tax years 2021 through 2025. Eligible loans are those that have been used solely for post-secondary education and that are made, insured, or guaranteed by the US government.

COBRA: Continuing Health Coverage. ARPA requires employers to subsidize at 100 percent premiums paid for COBRA continuation coverage for assistance eligible individuals (AEIs) and is in effect for the period April 1, 2021, to September 30, 2021. Employer costs for the subsidy are offset by a payroll tax credit against the employers’ quarterly taxes. Employers whose credit is greater than the amount of payroll tax owed receive a refund when they submit Form 941, Employer’s Quarterly Federal Tax Return.

Unemployment Benefits. A $300-per-week supplement to federal unemployment benefits that would have expired March 14, 2021, is now extended through September 6, 2021. ARPA also gives eligible taxpayers a special tax break for 2020: the first $10,200 in unemployment benefits is tax-free for taxpayers whose income is less than $150,000 per year. For more information about this topic see, Q & A: the $10,200 Unemployment Tax Break, below.

Child Tax Credit. ARPA includes several important changes pertaining to families, which are summarized below:

• The amount of the credit is $3,000 per child ($3,600 for children under age 6)
• The credit is reduced by $50 for each additional $1,000 of income above the following threshold limits: $150,000 and up for married taxpayers filing jointly, $112,500 for heads of household, and $75,000 for single taxpayers and married filing separately.
• The amount of child tax credit is to be paid monthly in advance in the amount of one-twelfth of an annual amount estimated by the IRS. Payments begin in July 2021 and continue through December 2021.

Child and Dependent Care Credit. For tax year 2021, the child and dependent care credit is refundable and is a maximum of $4,000 for one qualifying individual and a maximum of $8,000 for two or more. The credit begins to decrease for households whose income exceeds $125,000 – and as much as 20 percent for households whose income is more than $400,000.

Earned Income Tax Credit. Several special rules pertain to individuals without children. For 2021, the age range of workers without children is expanded to include adults ages 19-24 and older adults age 65 and over. Students under age 24 who are attending school at least part-time are excluded. The maximum earned income credit increases threefold and income levels required to qualify for the credit increase from $16,000 to $21,000. Additional changes under ARPA include:

• Allowing taxpayers to temporarily use 2019 instead of 2021 income if that income is greater
• Allowing certain separated spouses to take the credit
• Increasing the amount of investment income that would disqualify a taxpayer from receiving the EITC from $2,200 to $10,000.

Affordable Care Act Premium Tax Credit. For 2020, taxpayers who received premium tax credits in advance that were more than what they should have received will not have to repay the excess amount. It applies to taxpayers who have received, or have been approved to receive, unemployment compensation for any week beginning during 2021.

Taxes are Complicated
If you have any questions or would like more information about how recent tax law changes affect your tax situation, please call.

On March 12, following the American Rescue Plan Act’s approval and signing, the IRS began sending out the third round of Economic Impact Payments. Most payments were sent out via direct deposit, but approximately 150,000 checks were mailed by the Treasury Department as well. Taxpayers who received EIP1 or EIP2 but didn’t receive a third payment (EIP3) via direct deposit will generally receive a check or, in some instances, a prepaid debit card (EIP Card).

Highlights:

• The third stimulus payment will generally be larger for most people. Most eligible people will get $1,400 for themselves (those filing joint returns will get $2,800) and $1,400 for each of their qualifying dependents claimed on their tax return. Eligible families will get a payment based on all of their qualifying dependents claimed on their return, including older relatives like college students, adults with disabilities, parents, and grandparents. Unlike the first two payments, the third stimulus payment is not restricted to children under 17. Typically, this means a single person with no dependents will get $1,400, while a family of four (married couple with two dependents) will get $5,600.Under the new law, an EIP3 cannot be offset to pay various past-due federal debts or back taxes.
• The first batch of payments primarily went to eligible taxpayers who provided direct deposit information on their 2019 or 2020 returns, including people who don’t typically file a return but who successfully used the non-Filers tool on IRS.gov last year. Additional batches and payments will be sent in the coming weeks by direct deposit and through the mail as a check or debit card.
• The payments are automatic and, in many cases, like how people received their first and second round of Economic Impact Payments in 2020. No action needs to be taken by most taxpayers and contacting either financial institutions or the IRS on payment timing will not speed up their arrival.
• Income levels in this new round of stimulus payments have changed. As such, some people will not be eligible for the third payment even if they received a first or second Economic Impact Payment or claimed a 2020 Recovery Rebate Credit. Payments begin to phase out for individuals making $75,000 or above in Adjusted Gross Income ($150,000 for married filing jointly). The payments end at $80,000 for individuals ($160,000 for married filing jointly); people above these levels are ineligible for a payment.
• Taxpayers who received EIP1 or EIP2 but didn’t receive a third payment (EIP3) via direct deposit will generally receive a check or, in some instances, a prepaid debit card (referred to as an “EIP Card).
  A payment will not be added to an existing EIP card mailed for the first or second round of stimulus payments.
• If a taxpayer’s payment is less than the full amount and is based on their 2019 return, they may qualify for a supplemental payment after filing their 2020 return. The IRS will automatically reevaluate their eligibility. If they are entitled to a larger payment or the full payment, then a supplemental payment will be sent covering the difference. If the reevaluated amount is smaller, they won’t need to pay back the difference. Aside from filing a 2020 tax return, no additional action needs to be taken.

Paper Checks and Prepaid Debit Cards

Taxpayers who did not receive a direct deposit by March 24 should check their mail carefully in the coming weeks for a paper check or a prepaid debit card, known as an Economic Impact Payment Card, or EIP Card.

The form of payment for the third EIP may be different than earlier stimulus payments. More people are receiving direct deposits, whereas those receiving the economic impact payments in the mail may get either a paper check or an EIP Card. This may be different from how they received their previous stimulus payments.

Paper Checks. Paper checks will arrive by mail in a white envelope from the U.S. Department of the Treasury. For those taxpayers who received their tax refund by mail, this paper check will look similar but referenced as an “Economic Impact Payment” in the memo field.

EIP Card. The EIP Card will also come in a white envelope prominently displaying the seal of the U.S. Department of the Treasury. The card has the Visa name on the front and the issuing bank, Meta Bank, N.A., on the back. The information included with the card will explain that this is an Economic Impact Payment. Each mailing will include instructions on how to activate and use the card securely.

None of the EIP cards issued for any of the three rounds is reloadable; recipients will receive a separate card and will not be able to reload funds onto an existing card. EIP Cards are safe, convenient, and secure. EIP Card recipients can make purchases online or in stores anywhere Visa Debit Cards are accepted.

They can get cash from domestic in-network ATMs, transfer funds to a personal bank account, and obtain a replacement EIP Card if needed without incurring any fees. They can also check their card balance online, through a mobile app, or by phone without incurring fees. The EIP Card provides consumer protections against fraud, loss, and other errors and is sponsored by the Bureau of the Fiscal Service and issued by Treasury’s financial agent, Meta Bank, N.A. The IRS does not determine who receives a prepaid debit card.

Social Security and Other Federal Beneficiaries

Most Social Security retirement and disability beneficiaries, railroad retirees, and recipients of veterans benefits who are eligible for an Economic Impact Payment do not need to take any action to receive a payment. These payments will be automatic, and Social Security and other federal beneficiaries will generally receive this third payment the same way as their regular benefits.

Anyone who didn’t file a return but receives Social Security retirement, survivor or disability benefits (SSDI), Railroad Retirement benefits, Supplemental Security Income (SSI), or Veterans Affairs benefits, will receive their third round of economic impact payments the same way as their regular benefits – similar to the first and second rounds of Economic Impact Payments.

If You Don’t Normally File a Tax Return

While payments will be automatic for many people based on their federal benefits information, some may need to file a 2020 tax return – even if they don’t usually file – to provide information the IRS needs to send payments for any qualified dependent. People in this group should file a 2020 tax return to be considered for an additional payment for their dependent as quickly as possible.

People who don’t normally file a tax return and don’t receive federal benefits may also qualify for these stimulus payments, including those experiencing homelessness and others. If you’re eligible and didn’t get a first or second Economic Impact Payment (that is, an EIP1 or EIP2) or got less than the full amounts, you may be eligible for the 2020 Recovery Rebate Credit but will need to file a 2020 tax return.

The Paycheck Protection Program Extension Act of 2021 was signed into law on March 31, 2021, extending the deadline to apply for a loan by an extra 60 days, from March 31 to May 31, 2021. The law also gives the Small Business Administration (SBA) an additional 30 days after the May 31 deadline to review and process loan applications.

The passage of the PPP Extension Act does not provide additional funding; however, as part of the American Rescue Plan Act, an additional $7.25 billion was earmarked for the Paycheck Protection Program to expand eligibility to additional nonprofits and digital news services.

In February 2021, SBA also made four additional changes to open the PPP to more underserved small businesses, generally small and low- and moderate-income (LMI) businesses who have not received the needed relief a forgivable PPP loan provides. Congress set a $15 billion set-aside for small and LMI First Draw borrowers. To advance these goals, SBA has:

• Allowed sole proprietors, independent contractors, and self-employed individuals to receive more financial support by revising the PPP’s funding formula for these categories of applicants
• Eliminated an exclusionary restriction on PPP access for small business owners with prior non-fraud felony convictions, consistent with a bipartisan congressional proposal
• Eliminated PPP access restrictions on small business owners who have struggled to make student loan payments by eliminating student loan debt delinquency as a disqualifier to participating in the PPP
• Ensured access for non-citizen small business owners who are lawful U.S. residents by clarifying that they may use Individual Taxpayer Identification Number (ITIN) to apply for the PPP

Prior to addressing these inequities, the current 2021 round of PPP loans had only deployed $2.4 billion to small LMI borrowers, in part because a disproportionate amount of funding in both wealthy and LMI areas is going to firms with more than 20 employees. As a result, in February 2021, SBA established a 14-day, exclusive PPP loan application period for businesses and nonprofits with fewer than 20 employees. The program opened to all borrowers on March 10, 2021, and, as mentioned, has been extended through May 31, 2021.

Business owners who have not received a PPP loan previously can apply for a First Draw Loan. Certain businesses that have already received a PPP loan are eligible for a Second Draw PPP loan.

Finally, borrowers may be eligible for PPP loan forgiveness. First Draw PPP loans made to eligible borrowers qualify for full loan forgiveness if during the 8 to 24-week covered period following loan disbursement:

• Employee and compensation levels are maintained
• The loan proceeds are spent on payroll costs and other eligible expenses; and
• At least 60 percent of the proceeds are spent on payroll costs

Second Draw PPP loans made to eligible borrowers qualify for full loan forgiveness under the same requirements as First Draw PPP loans provided employee and compensation levels are maintained in the same manner as required for the First Draw PPP loan.

If you’re thinking about applying for a PPP loan, don’t hesitate to contact the office with any questions.