An important payroll tax deadline is coming up for certain employers. To provide relief from the economic ravages of COVID-19, the CARES Act allowed employers to defer their share of Social Security tax from March 27 through Dec. 31, 2020. Those employers must now pay 50% of the deferred tax by Dec. 31, 2021, and the balance by Dec. 31, 2022.
In guidance, the IRS Office of Chief Counsel states that to avoid penalties, deposits must be made of “all amounts deferred by the applicable due dates.” If any portion is unpaid by the due date, the entire deferral will be invalidated, and penalties will be applied based on the original due dates. (Program Manager Technical Advice 2021-07)
The tax code imposes a penalty on employers that fail to timely deposit (or pay) their employment taxes. The amount of the penalty depends on how delinquent the deposit it, but generally, it ranges from 10% to 15%
As the White House seeks to add $80 billion to IRS funding (over 2022-2031), the Congressional Budget Office (CBO) evaluated potential effects of that move. CBO Director Phil Swagel said in a blog that the extra funding would increase audits and “revenues by approximately $200 billion.” CBO estimates that about $60 billion would be used for enforcement and related operations, new technology and new-hire training.
The proposal would expand information reporting by taxpayers, which could raise revenue, CBO said. It would also focus “enforcement activity on high-wealth taxpayers, large corporations and partnerships.”
Taxpayers who engage in businesses to make a profit can generally deduct related expenses on their tax returns. In one case, a retired taxpayer pursued new ventures including acting. She devoted 35-45 hours weekly to acting in commercials and films, sought help from professionals and operated in a businesslike manner. The IRS denied her deductions, stating she didn’t show a profit motive, in part because she didn’t ask her daughter (a famous actress) to help her secure more roles.
The U.S. Tax Court found she did show a profit motive and allowed certain deductions. However, for another venture, she was denied deductions because she hadn’t put enough “sustained effort” into the business to turn a profit. (TC Memo 2021-107)
U.S. Treasury Secretary Janet Yellen has urged Congress to consider an international plan as it writes new tax laws. Recently, more than 130 countries and jurisdictions (including the U.S.) have signed on to the Organization for Economic Cooperation and Development (OECD) plan for reforming international tax rules. It provides countries with a fairer distribution of profits and taxing rights over multinational enterprises, including digital companies. It would re-allocate some taxing rights over multinational enterprises from their home countries to markets where they do business and earn profits, regardless of whether they have a physical presence there. The plan would also introduce a global minimum corporate tax rate.
Legislation recently proposed by the Biden administration and being discussed by Congress would change many of the international tax provisions enacted in the Tax Cuts and Jobs Act of 2017. On Twitter, Yellen wrote: “As Congress begins to finalize their legislation, I urge them to remember the historic opportunity that we have to end the race to the bottom and finally have a foreign policy and a tax code that works for the middle class.”
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Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.