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The child tax credit has been around for a long time, but as part of the American Rescue Plan Act that was enacted in March 2021, the child tax credit was expanded — the amount has increased for certain taxpayers; it is fully refundable (meaning you get it back even if you don’t owe the IRS); and it may be partially-received in monthly advance payments. The new law also raised the age of qualifying children to 17 (from 16).
The thing is, the amount folks are starting to receive right now is just an advance payment of half of what the IRS thinks your credit will be based on last year’s tax return. The entire credit itself will be calculated and show up on your annual tax return for 2021, and any advance payments will be subtracted from it.
So: let’s say that you qualified for a big credit based on last year’s tax return, but then you made more money this year than last year (which is the case for many small business owners) — then you’d have to pay the difference back on your tax return. As a result, we’re actually recommending to most folks that they just opt-out entirely to be safe. Don’t worry — you will get the entire amount that’s coming to you on the next tax return; you just won’t have to worry about paying back an accidental overpayment.
These tax changes are temporary and only apply to the 2021 tax year. The credit is normally part of your income tax return and would reduce your tax liability. The choice to have the child tax credit advanced will affect your refund or amount due when you file your return. To avoid any unpleasant surprises, I strongly recommend you opt out, or at least contact your tax preparer to run the numbers.
Our colleagues over at Wegner CPAs put together a 5-minute video explaining when you might want to opt out versus receiving the advance payments — it’s worth a watch! She does a great job explaining the situations when you might want to remain enrolled in the program, and other scenarios when you should definitely opt out.
If that wasn’t enough for you, please read on for more details about what it means to qualify and how much you might receive.
Qualifications and how much to expect
The child tax credit and advance payments are based on several factors, including the age of your children and your income.
The credit for children ages five and younger is up to $3,600 –– with up to $300 received in monthly payments.
The credit for children ages six to 17 is up to $3,000 –– with up to $250 received in monthly payments.
To qualify for the child tax credit monthly payments, you (and your spouse if you file a joint tax return) must have:
Filed a 2019 or 2020 tax return and claimed the child tax credit or given the IRS your information using the non-filer tool;
A main home in the U.S. for more than half the year or file a joint return with a spouse who has a main home in the U.S. for more than half the year;
A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number;
Income less than certain limits.
You can take full advantage of the credit if your income (specifically, your modified adjusted gross income) is less than $75,000 for single filers, $150,000 for married filing jointly filers and $112,500 for head of household filers. The credit begins to phase out above those thresholds.
Higher-income families (e.g., married filing jointly couples with $400,000 or less in income or other filers with $200,000 or less in income) will generally get the same credit as prior law (generally $2,000 per qualifying child) but may also choose to receive monthly payments.
Taxpayers generally won’t need to do anything to receive any advance payments as the IRS will use the information it has on file to start issuing the payments.
IRS’s child tax credit update portal
Using the IRS’s child tax credit and update portal, taxpayers can update their information to reflect any new information that might impact their child tax credit amount, such as filing status or number of children. Parents may also use the online portal to check on the status of payments or elect out of the advance payments. (To reiterate: that’s what we’re recommending to most of our clients. In general, we’d rather our clients be happily surprised at tax-time rather than frustrated that they have to return a portion of what they received.) The IRS also has a non-filer portal to use for certain situations where the taxpayers haven’t filed a tax return, similar to the one that existed for the stimulus payments.
Lastly, if you haven’t filed a tax return for 2020 yet — do not fret! The credit will show up on your 2021 tax return for the full amount; you are not missing out on getting your fair share.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
Excerpt from SBA email informing an applicant that their application for the RRF was approved.
The Journal of Accountancy reported on May 10th that, “a week after opening the $28.6 billion RRF, the U.S. Small Business Administration (SBA) said late Monday afternoon that it had begun sending out more than $2 billion in a first round of funding to restaurants, bars, and other eligible applicants.”
For the first 21 days the SBA will prioritize reviewing applications from small businesses owned by women, veterans, and socially and economically disadvantaged individuals.
After the first 21 days, the SBA will fund all eligible applications on a first-come, first-served basis. Approved applicants should expect an average of 14 days for processing, review, approval, and funds distribution.
So what will this approval look like for you and your clients? The SBA will send an email with the subject “SBA Restaurant Revitalization Fund – Congratulations – Award Approved”. Enough phishers are out there that it pays to be careful, and so some recipients have ignored it because it seems too good to be true, or were suspicious of the no-reply@sba.gov email address. Remember that the SBA will not ask you for any information or provide a link for you in this email. Do not click on any links. If you have any questions, please contact the SBA’s RRF call-center support at 1-844-279-8898. The are available Monday-Friday, from 8 am – 8 pm ET.
When you log into the SBA’s RRF portal that you registered for before applying — restaurants.sba.gov — you will see, on the left-hand side, a “Status” tab. If your application was approved, it will list your award amount, SBA Number, and application status will say “SBA Decision (Approved)”.
The SBA will process the funding of the award directly to the bank account you provided during the application. Again, do not enter any bank information — this was verified during the application process and the SBA will not ask you for it again. If you have any concerns, please call their support line at 1-844-279-8898. The award will be funded within seven business days of the email notification — check your bank account as the final confirmation that this is real.
Make sure to use the restaurants.sba.gov portal to check your application’s status and monitor any messages from the SBA. They will send an email if they have any issues funding the award, but if you are worried about phishing or the message going to your spam folder, the portal and the call center are resources you can access.
UPDATE: For those not yet in the approval stage: it may appear that your application has reverted to a previous step. Please don’t panic — if more information is needed to process your application, you will receive a note directly from the SBA with an email ending in @sba.gov.
In yesterday’s Journal of Accountancy, they noted that the RRF program received 266,000 applications seeking a total of $65 billion, far more than the $28.6 billion Congress allocated the program. As a result, it has less than half the money needed to fund the existing requests.
“Unless Congress passes legislation providing the RRF with fresh funding, the program looks certain to provide the vast majority of its funding to eligible businesses owned by women, veterans, and socially and economically disadvantaged individuals. The American Rescue Plan Act, P.L. 117-2, which created the RRF, mandated that those businesses, which have submitted 147,000 applications totaling $29 billion, receive priority review for the first 21 days of the program,” the Journal notes.
The SBA said it would keep the RRF application portal open for now, because it still has some portion of funding set aside for eligible establishments with 2019 annual revenue of not more than $50,000.
After the first 21 days, the SBA will fund all eligible applications on a first-come, first-served basis, which is why it was so important to submit on Day One.
UPDATE: The Independent Restaurant Coalition released a fact sheet late this afternoon outlining what’s next and it deserves a read.
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4/7/2021 UPDATE: I attended yesterday’s Independent Restaurant Coalition zoom call, and wrote up notes here. Please give it a read after you’ve taken a look at the blog post below, as it answers some FAQs.
4/1/2021 UPDATE: the SBA just announced that RRF applicants will not need a DUNS number or SAM account. This is a change from March, when it was expected that applications would require this process as they currently do under the Shuttered Venues Operators (SVO) grant program. The shift by SBA recognized the significant demand for the program – up to hundreds of thousands of applicants are expected.
From the start of the Paycheck Protection Program (PPP), my small business clients — specifically the restaurants, bars, cafes and caterers — were confused and frustrated. We put so much time and effort into applying for PPP funds, working through the tortuous planning for spending in a way that would lead to 100% forgiveness, and had practically nothing left to show for it. Shuttered or take-out only, there was simply not enough revenue coming in to support the extremely high labor, inventory, and overhead costs typical of the industry. Had it not been for state and local grants, most of them would have had to close their doors permanently.
They weren’t alone — in fact, restaurant lobbyists have been working for many months on crafting financial relief legislation that suits the specific needs of the hospitality industry. And I’m amazed to say — they did a great job, and most of it made it into the final law. Unlike the constantly-changing mess that the PPP has been, this new program is thought-through, carefully-written, and has clearly learned from PPP’s mistakes. (It’s also taken the better part of a year to bring it into existence, so there are two sides to this coin, as is usually the case.) And it will be opening soon.
The Restaurant Revitalization Fund (RRF), as it is now known, was signed into law as part of the recent American Rescue Plan Act. Unlike the PPP, which was based on payroll costs, the RRF is structured to disburse tax-free federal grants in the amount of a restaurant’s “pandemic-related revenue loss“.
Grants are calculated by subtracting 2020 receipts from those of 2019. PPP funds received will offset (reduce) the grant amount, but those funds will not be considered part of gross receipts. The total grant amount for an eligible business and any affiliated businesses is capped at $10 million and is limited to $5 million per physical location of the business.
In addition to basing the award amount on revenue loss rather than any other measure, other features of the RRF program that seem a better fit for restaurants are the flexibility on how the funds can be spent and over how long (Feb 15, 2020-Dec 31, 2021). Categories of eligible costs include:
payroll;
principal or interest on mortgage obligations;
rent;
utilities;
maintenance (including construction to accommodate outdoor seating);
supplies such as protective equipment and cleaning materials;
normal food and beverage inventory;
operational expenses;
and many other expenses that the SBA determines to be essential to maintaining operations.
Another area where there is a great deal of flexibility — eligible entities can be “a restaurant, food stand, food truck, food cart, caterer, saloon, inn, tavern, bar, lounge, brewpub, tasting room, taproom, licensed facility or premise of a beverage alcohol producer where the public may taste, sample, or purchase products, or other similar place of business in which the public or patrons assemble for the primary purpose of being served food or drink.”
There will be an initial 21-day period when the SBA will prioritize awarding grants for businesses owned by women, veterans, or socially and economically disadvantaged individuals.
To learn more, I strongly encourage you to read the Independent Restaurant Coalition’s FAQ, and attend one of their upcoming zoom “round table” webinars. The next ones will be held on Tuesday, April 6th at 12pm ET / 9am PT, and Wednesday, April 7th at 11am ET / 8am PT.
4/1/2021 UPDATE: In today’s AICPA Town Hall, they shared that the SBA has announced that RRF applicants should prepare with the following next steps —
The “checklist similar to SVOG” refers to another program, the Shuttered Venue Operators Grant — their checklist can be found on a download via the SBA website. We expect a similar one to be released specifically for RRF soon, but this is probably a good guideline.
I’m looking forward to seeing at least one Covid-19 financial relief program play out right and run smoothly — which I recognize may be too much to ask, but for the sake of all our beloved community watering holes, gathering spots, and the places that nourish our bodies and souls, I will keep my fingers crossed. They’ve been through so much already and I would love to see this program help them make it to the finish line.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
The American Rescue Plan Act (ARPA), just recently signed into law, offers many generous tweaks to federal programs for employers trying to take care of their staff, and for former employees. There are six in particular every employer should research on their own behalf and for the benefit of workers:
Paid Sick & Family Leave
COBRA Subsidies
Dependent Care FSAs
Employee Retention Credit
Short-Time Compensation
Unemployment Insurance
The Department of Labor will be issuing regulations or other guidance regarding these changes to the FFCRA.
Under the previously passed Families First Coronavirus Response Act (FFCRA), companies with fewer than 500 employees were required to provide paid leave to employees who were unable to come to work for a number of Covid-19 related reasons. FFCRA provided employers a refundable tax credit, which would offset for employers the costs of providing the paid leaves.
The requirement to provide paid leave expired for employers with fewer than 500 employees at the end of last year. But employers can still voluntarily choose to provide FFCRA paid sick or paid family leave to employees and receive refundable tax credits for costs related to providing the leave through March 31, 2021.
This is a great value for staff and to employers, and helps keep customers and the community safer as well.
With the passage of the American Rescue Plan Act of 2021, employers should note the following additions and changes:
Refundable Tax Credits Available through September 30, 2021: Employers who choose to voluntarily provide FFCRA paid sick or paid family leave may now receive refundable tax credits through September 30, 2021.
Additional Covered Reasons for Providing Paid Sick Leave: Previously under the FFCRA, qualifying reasons for providing paid sick time were limited to if the employee is unable to work (or telework) because (s)he: (1) is subject to a federal, state or local quarantine or isolation related to Covid-19; (2) has been advised by a healthcare provider to self-quarantine; (3) is experiencing Covid-19 symptoms and seeking a diagnosis; (4) is caring for an individual who is subject to quarantine or is self-quarantining; (5) is caring for a child whose school or place of care is closed (or child care provider is unavailable) because of Covid-19; or, (6) is experiencing any other substantially similar condition specified by the US Secretary of Health and Human Services.
ARPA expands on the list and now allows employers to provide leave to employees for three additional reasons: (1) obtaining a Covid-19 immunization; (2) recovering from an injury, disability, illness or condition related to the immunization; or, (3) seeking or awaiting the result of a Covid-19 test or diagnosis when the employee has either been exposed to Covid-19 or the employer has requested the test or diagnosis.
Additional Covered Reasons for Providing Paid Family Leave: The scope of reasons for providing emergency family leave is now expanded. Originally, tax credits were available to employers for providing paid family leave only if the employee was unable to work (or telework) to care for a child whose school or place of care was closed or unavailable because of the public health emergency. Now, employers can claim tax credits for providing family leave which arises from any of the six qualifying reasons provided for in the FFCRA and the additional three reasons added under ARPA (noted above).
Duration of Paid Sick and Family Leave for Receiving Tax Credits: ARPA allows employers to receive the tax credit for providing up to 10 days of paid sick leave beginning on April 1, 2021, even if the employer previously took a tax credit for providing paid sick leave to an employee for a covered reason before April 1, 2021. In addition, employers can receive a tax credit for providing up to 12 weeks of paid family leave. In other words, the clock sort of “re-sets” on sick and family leave.
Amount of Tax Credits Availablefor Paid Sick Leave: Employers providing voluntary paid sick leave receive a tax credit, up to a cap of $511 a day, at the employee’s regular rate of pay if the employee is on leave because of coronavirus quarantine, self-quarantine or has symptoms. ARPA now includes the additional covered reasons (discussed above) for receiving tax credits at the employee’s regular rate of pay. For any other paid sick leave reason, the amount of tax credit available to an employer is calculated at two-thirds the employee’s regular rate of pay and capped at $200 a day.
Amount of Tax Credits Available for Paid Family Leave: Employers providing paid family leave receive a tax credit, up to a cap of $200 a day, at two-thirds the employee’s regular rate of pay for leave which is due to any of the covered reasons for providing paid family leave. ARPA also removes the two-week waiting period (during which the leave was unpaid) for taking paid emergency family leave. The Act also increases the cap on the aggregate paid leave from $10,000 to $12,000, meaning employers can now take an additional $2,000 in tax credits per employee for providing qualifying leave.
Addition of Non-Discrimination Rules: Employers who are voluntarily providing leave and receiving tax credits must also follow the new non-discrimination rule. The anti-discrimination rule makes the tax credit available only to those employers who provide leave to all employees without discriminating against certain categories of workers. Specifically, the tax credit is not available to those employers who discriminate (1) in favor of highly compensated employees, (2) full-time employees or (3) on the basis of the employment tenure of the employee.
Cobra Subsidies
Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage allows employees to continue to remain covered under their employer’s health insurance for up to 18 months after coverage is lost because of a reduction in work hours or the employee’s involuntary termination of employment.
Prior to ARPA, workers and dependents assumed full responsibility for payment of premiums. ARPA now provides up to six months of 100% subsidized COBRA coverage to those who are eligible for COBRA because of an involuntary termination from employment or a reduction in work hours. The premium subsidy will last from April 1, 2021, through September 30, 2021, and sponsors of group health plans will be subject to new notice requirements. Employers will receive reimbursements for the subsidy through a payroll tax credit.
Employers must provide three notices to eligible former employees notifying them of the premium subsidy, the extended opportunity to elect coverage, and when the premium subsidy will be terminated.
In addition, employers may, at their option, allow former employees who are currently electing COBRA to elect coverage under a different plan offered by the employer as long as (i) the premium for the new coverage does not exceed the premium for the current coverage, (ii) the new coverage is not an excepted benefit, a QSEHRA, or a FSA, and (iii) the employee did not voluntarily terminate employment.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
