Payroll professionals would be proactive to help their clients with payroll tax deferral guidance with the Democratic Party presently controlling Congress. President Joe Biden has announced some major changes in the labor and tax laws. For instance, in the first week after coming to power, the Biden administration froze several pending regulations that former president Trump had announced. Particularly, this included a Labour Department norm that would have eased up the recruiters to categorize staff as independent contractors. Along with this, other changes have also hit the tax regime.
While you provide the right Payroll tax guidance to your clients, you need to stay abreast of the latest rules governing the tax department. This explains the value of CPE programs and online webinars for professionals.
The Consolidated Appropriations Act of 2021 put forward several provisions that would impact payroll processing. These provisions would need additional updates to the quarterly tax return of employers and updates to form number 941 . Therefore, you need to know about the new payroll tax cut norms.
As per the revised set of regulations, employers need to fulfill their gross receipts condition or business suspension condition for being eligible for its employee retention credit. The Biden administration has also changed the gross receipts condition with respect to the time between 1st January and 20th June 2021. For the phase between 1st January and 30th June, the gross receipts condition makes the employer eligible for the mentioned payroll tax credit. This would be valid for a quarter, in case the gross receipts of the employer for that particular is lower than 80% of the overall gross receipts for the respective quarter in 2019. Apart from this, there are other federal payroll tax norms associated with this aspect. Once you attend the CPE webinars or enroll in a comprehensive course, you will be well-versed with all the updates.
Certain changes are applicable to Form 941 regarding the tax returns for employers. This involves changes to the areas that had resulted in deferred amounts in the past for the employee and employer portions of Social Security Tax. As per the new norms, the authorities have changed these four lines. Other changes that are presently applicable to the new draft of this form are the quarter-selection section, present on the first page of the form on the top right corner. This implies that in 2021, one may choose any quarter as the reported quarter. Similarly, Line 1 presently makes it possible for payroll professionals to choose any quarter of the ongoing year in the quarter-selection section. Using Line 1, one can report the data about the number of employees being addressed in that quarter.
Apart from these aspects, professionals should also be aware of the payroll tax cut 2021 .
Before the Consolidated Appropriations, The act came into place, recruiters did not have the freedom to apply for employee retention credit (ERC) against their employment tax liability. This was true even when the recruiter used the Paycheck Protection Program to obtain a loan, even when there were no waivers. However, presently several provisions exist that remove the preclusion of the employer to use the ERC when they obtain a PPP loan. Some clauses also govern the loan amounts, which tax professionals should be aware of.
For detailed information on ERC & PPC Loan we suggest you click on the following webinars placed under self-study (on demand) courses* to know more -
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In 2020, the States were mostly prevented from making any changes to personal income tax. However, this took effect in 2021 due to the pandemic that had disrupted legislatures' operations. Therefore, the tax agencies had to postpone the deadlines. Several states, including South Carolina, Rhode Island, Massachusetts, and Nebraska, made an extension in the effective period of regulations, guidance, and exceptions related to the Covid-19 pandemic in 2021. Gov. Asa Hutchinson had proposed further cuts in the income tax on 12th January 2021. Here, a rate reduction of 4.9% would be applicable for new residents for the next five years.
California payroll tax also witnessed certain changes, which you can check out during the webinars. Given that professionals should be on the top with these updates, it’s recommended to follow the tax news. Besides, you may consider enrolling at a CPE course in accounting or payroll management to broaden your industry knowledge.
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The author Imtiaz Munshi is a Certified Public Accountant and CFO at Azstec, LLC. He is Business Strategist, Tax Planner, Entrepreneur and Advisor to "HNEs" (High Net Worth Entrepreneurs).