Category Archives: Taxes

Tax News from EJK Accounting & Tax

04.01 2021

Get Ready for Individual Tax Returns

On March 17, 2021, IRS announced that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021 to May 17, 2021. That means you do not have to file Form 4868 for the tax return extension unless you plan to file after May 17. For any return or payment postponed by this announcement, no penalty and interest to file a federal income tax return and its payment will be accrued between April 15 and May 17, 2021*.

* Postponement applies only to individual taxpayers (Form 1040); estimated income tax payments are due April 15, 2021 for 2021 tax years.

Taxpayers should double-check to ensure they have all their documents before filing a tax return.  If taxpayers find errors or missing documents such as a W-2 or Form 1099, they should contact the employers and payers or other issuers to request the missing documents or to reissue corrected forms. If taxpayers do not receive missing or corrected documents in time to their returns, they may need to estimate the payments made to them. Estimated amounts can be reported on Form 3852 on their federal tax return. If they receive the missing or corrected Form W-2 or Form 1099-R after filing their return and the information differs from their estimate, they must file Form 1040-X, Amended U.S. Individual Income Tax Return.

Most taxpayers should have received income documents near the end of January, including:

  • Forms W-2, Wage and Tax Statement
  • Form 1099-MISC, Miscellaneous Income
  • Form 1099-INT, Interest Income
  • Form 1099-NEC, Nonemployee Compensation
  • Form 1099-G, Certain Government Payments; like unemployment compensation or state tax refund

 

New Exclusion of Unemployment Compensation

On March 11, 2021, the American Rescue Plan announced that up to $10,200 of unemployment compensation paid in 2020 can be excluded from your 2020 tax return if your modified adjusted gross income (AGI) is less than $150,000. That means you won’t have to pay tax on unemployment compensation of up to that threshold.

Additionally, if you are married, the $10,200 exclusion can be applied separately for each spouse.  Amounts over $10,200 for each individual are still taxable. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation.

The exclusion should be reported separately from your unemployment compensation. Visit the IRS website for more information.

 

Payroll and Payroll Taxes

All businesses should know about their obligations for filing with local, state, and federal tax systems. Businesses with employees are required to withhold payroll taxes from employees’ paychecks. Calculating payroll taxes can be complicated. Here are some basic payroll tax components that businesses and owners should know:

 

  • Federal Income Tax Withholding

Federal income tax withholding is withholding taxes from employee pay for federal income taxes owed by the employees. By completing Form W-4, the amount of federal income tax is determined. Employees can change this form anytime to update their information.

  • Social Security and Medicare

These are also called FICA taxes (Federal Insurance Contributions Act), which is shared between employers and employees. The employer deducts the employee’s share, which is one-half the total due, from employee wages/salaries, and the employer pays the other half.

  • Additional Medicare Tax

In 2013 as part of the Affordable Care Act, employers withhold 0.9% additional Medicare Tax on employees’ earnings that exceed a threshold. This medicare tax has no employer match.

  • Federal Unemployment (FUTA) Tax: 

FUTA is paid separately from the other taxes by the employer and isn’t withheld from employee pay.

  • Self-Employment Tax

This is basically social security and medicare taxes for self-employed individuals.

 

Washington State does not impose a personal State income tax on employees. However, they do require State Unemployment and Paid Family Medical Leave to be paid to the Employment Security Department, and disability insurance to be paid through the Department of Labor and Industry.

Here are what employers in Washington State need to know:

Register as Employer

As an employer in Washington, you need to register with the Secretary of the State, and then file a new business license application through the Washington State Department of Revenue (DOR). After submission of application, Washington Department of Labor and Industries (for worker’s compensation) and Washington Employment Security Department (for Unemployment insurance) will notify and provide you the information you need to run your payroll, such as tax rates.

Payroll Tax Filing Requirements

Completed by Employee 

Form W-4 (IRS) Employee information for the determination of federal income tax withholding
Form I-9 (USCIS) Proof of an employee’s eligibility to work in the United State
Completed by Employer

New Hire Report (form to DSHS or Online report to Secure Access WA) Report all newly and rehired employees within 20 days of hire
Electronic Federal Income Tax Payment System System allows employer to set up schedule payment for taxes through online
Form 941 (Quarterly ) to IRS Report Employee earnings, employer and employee Social Security and Medicare taxes, and Employee federal income taxes
Worker’s Compensation-L&I (Quarterly) Workers’ compensation insurance for medical costs and wage replacement if injured on the j
WA State Unemployment Tax Report Unemployment benefits for employees who lose their job
Paid Family and Medical Leave Paid leave for employee to care for themselves or their family.
Form 940 (Annually) Pays for administration of the federal unemployment insurance program
Form W-2 and W-3 (Annually) Security Administration need for recordkeeping. IRS needs for reconciliation with Forms 940 & 941

Quarterly report schedules:
1st Quarter – April 30
2nd Quarter – July 31
3rd Quarter – October 31
4th Quarter – January 31 the following year

12.30 2020

Standard Mileage Rates for 2021

The Internal Revenue Service (IRS) issued the standard mileage rate for 2021 to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purpose.

 

 

Standard Mileage Rates for the beginning on January 1, 2021 for the uses of car, vans, pickups or panel truck will be:

Period Business Charity Medical Moving
2021 56 14 16
2020 57.5 14 17

 

  • 56 cents per mile driven for business use, down 1.5 cents from the rate for 2020
  • 14 cents per mile driven in service of charitable organizations, the rate is set by statute and remains unchanged from 2020
  • 16 cents per mile driven for medical or moving purposes for qualified active duty members of the Armed Forces, down 1 cent from the rate for 2020

 

The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

 

 

Important Note:

  • Under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses.
  • Taxpayers also cannot claim a deduction for moving expenses, unless they are members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details see Moving Expenses for Members of the Armed Forces.