Although the Infrastructure Bill was signed into law on November 15, 2021, there’s still time for eligible businesses to claim the Employee Retention Tax Credit (ERTC).

The ERTC (Employee Retention Tax Credit) is a one-time federal refundable tax credit designed to reward and encourage businesses to keep employees on payroll. It has been significantly expanded to provide more financial relief to a broader group of employers.

This credit is tied to payroll costs, similar to the PPP loans. However, unlike PPP, the ERTC is linked to payroll tax filings and related business tax returns. As a result, claiming the credit requires filing amended returns, making the process more complex than PPP. Nonetheless, we strongly encourage clients to pursue the credit—the financial benefit is substantial, and the funds are essentially “free” aside from preparation and filing costs.

How Much Is the Credit?

For 2021, employers can receive 70% of the first $10,000 of qualified wages paid per employee per quarter, up from 50% in 2020.

• The maximum ERTC is $5,000 per employee for 2020

• And $21,000 per employee for 2021

This is a tax credit, one of the most powerful tools in the tax code. While not quite as valuable as other credits (due to the required payroll deduction reduction), the ERTC still puts real money back in your company’s pocket.

Who Is Eligible?

You may qualify if your company:

1. Had a significant drop in revenue,
2. Was fully or partially shut down due to government orders, or
3. Started a new business with under $1 million in average annual revenue.

2020 Qualifications

• A drop in gross receipts by more than 50% in any calendar quarter compared to the same quarter in 2019

• Or a full or partial suspension of operations due to government mandates

2021 Qualifications

• A full or partial suspension due to government orders (even if you didn’t lose money)

• Gross receipts less than 80% of the same quarter in 2019

• Or alternatively, your preceding quarter’s gross receipts are less than the comparable 2019 quarter

These provisions reflect the government’s intent to support small businesses. We strongly recommend exploring and claiming this credit as soon as possible.

Note: You cannot double-dip. Wages claimed under ERTC may not also be used for PPP forgiveness, family leave credits, or similar COVID-19 relief programs. Strategic planning is required to optimize available benefits.

On September 13, 2021, the House Ways and Means Committee released draft legislation proposing various tax increases and cuts, which will undergo markups by the committee over the next few days. While most tax proposals were anticipated, the House introduced a few surprises.

Income Tax Provisions

Section 1202 – Qualified Small Business Stock

Taxpayers are currently eligible for 75% and 100% exclusions for sales of qualified small business stock (QSBS). The proposed legislation would eliminate these exclusions for sales of QSBS acquired after February 17, 2009, and sold after September 13, 2021, unless the sale was made pursuant to a written binding contract already in place and not materially modified thereafter. This provision would apply to taxpayers whose adjusted gross income equals or exceeds $400,000 and to trusts and estates.

Under the current 50% exclusion rules, the remaining 50% QSBS gain is taxed at 28%. The excluded QSBS gain is considered an alternative minimum tax (AMT) preference item, which, when combined with the net investment income tax on the taxable half of the gain, results in an effective rate of 16.88% for QSBS acquired after September 27, 2010, and sold after September 13, 2021.

Capital Gains

The current maximum tax rate on capital gains is 20%. The proposed legislation would increase the capital gains rate to 25% for taxable years ending after September 13, 2021. Transitional rules are proposed for taxable years that include September 13, 2021, taxing net gains realized before that date at 20%. Gains arising from a transaction pursuant to a binding written contract in effect before September 13, 2021, and not materially modified thereafter, would remain eligible for the 20% rate.

Planning opportunity: Consider deferring realization of some capital losses until 2022 to offset capital gains that would otherwise be taxed at 25%.

Top Marginal Individual Income Tax Rate

The top marginal individual income tax rate is currently 37%. The draft legislation would raise it to 39.6% for taxable income over $450,000 for married individuals filing jointly and surviving spouses, $425,000 for heads of households, $400,000 for single individuals, $225,000 for married individuals filing separately, and $12,500 for estates and trusts. This proposal would be effective for taxable years beginning after December 31, 2021.

Planning opportunity: Consider accelerating ordinary income to 2021.

Net Investment Income Tax

Currently, net investment income does not include income derived in the ordinary course of a trade or business or income attributable to the disposition of property earned outside of a passive activity. The proposed legislation would eliminate these carveouts, broadening the type of income subject to the net investment income tax (NIIT). NIIT would apply to the greater of “specified net income” or net investment income for high-income individuals, estates, and trusts. “Specified net income” includes net investment income even if derived in the ordinary course of a trade or business and other gross income and net gains attributable to the disposition of property, even if earned outside of a passive activity or the trade or business of trading financial instruments or commodities. Certain foreign income is includible in the definition of net investment income.

This provision would apply to taxpayers whose modified adjusted gross income exceeds $500,000 for married individuals filing jointly and surviving spouses, $250,000 for married individuals filing separately, $12,500 for estates and trusts, and $400,000 for all other tax filers. It would be effective for taxable years beginning after December 31, 2021.

Carried Interests

The holding period to obtain long-term capital gains treatment for gain allocated to carried interest partners is currently three years. The proposal would extend this to five years. The three-year holding period would remain in effect for income attributable to real property trades or businesses and for taxpayers (other than estates or trusts) with adjusted gross income of less than $400,000. The proposal also includes provisions to encompass all items treated as capital gain (e.g., Section 1231 gain) and prevent avoidance of the holding period rules. This would be effective for taxable years beginning after December 31, 2021.

Qualified Business Income

The qualified business income deduction currently has no maximum allowable deduction. The proposal would introduce a cap, limiting the maximum allowable deduction to $500,000 for married individuals filing jointly and surviving spouses, $250,000 for married individuals filing separately, $10,000 for estates and trusts, and $400,000 for all other taxpayers. This would be effective for taxable years beginning after December 31, 2021.

Excess Business Loss Limitation

Under a temporary provision, excess business losses of non-corporate taxpayers exceeding $500,000 for joint filers ($250,000 for all other taxpayers) are disallowed and treated as net operating losses in the following year; however, this provision is set to expire on December 31, 2025. The proposal would make this provision permanent and modify how a disallowed excess business loss (EBL) is treated. Instead of treating the disallowed loss as a net operating loss in the following year, the EBL would be treated as a deduction attributable to a taxpayer’s trades or businesses when computing the EBL in the subsequent year. This would be effective for taxable years beginning after December 31, 2020.

Surcharge on High-Income Individuals

Currently, there is no surcharge imposed on high-income individuals. The proposal would impose a 3% surcharge on modified adjusted gross income exceeding $2,500,000 for married individuals filing separately, $100,000 for estates and trusts, and $5,000,000 for all other individuals. This would be effective for taxable years beginning after December 31, 2021.

Transfers Between Deemed Owner and Irrevocable Grantor Trust

Transfers between a deemed owner and their irrevocable grantor trust are currently nontaxable events. The proposal would disregard grantor trust status when determining whether a transfer between a deemed owner and their grantor trust is a sale or an exchange, possibly resulting in a taxable event. Additionally, the proposal would expand the definition of related party under Internal Revenue Code Section 267(b) to include grantor trusts and their deemed owners. This would apply to trusts created on or after the enactment date and to any portion of a trust established before the enactment date that is attributable to a contribution made on or after such date.

Planning opportunity: Consider sales to intentionally defective grantor trusts.

Estate and Gift Tax Provisions

Estate Tax Basic Exclusion Amount

The estate tax basic exclusion amount is $11,700,000 for 2021. The proposal would terminate the temporary increase in the basic exclusion amount, returning it to $5,000,000, indexed for inflation. Under this proposal, the basic exclusion amount in 2022 is anticipated to be $6,030,000. This would apply to estates of decedents dying and gifts made after December 31, 2021.

Planning opportunity: Consider making gifts up to the 2021 estate tax basic exclusion amount of $11,700,000.

Grantor Trusts

When a deemed owner of a grantor trust dies, the assets of that grantor trust (other than a fully revocable trust) are generally not included in the deemed owner’s estate. The proposal would require that assets in a grantor trust be included in the gross estate of the deceased deemed owner. Additionally, the proposal would treat distributions (other than to the deemed owner or spouse) during the life of the deemed owner and the termination of grantor trust status during the life of the deemed owner as completed gifts.

This would apply to trusts created on or after the enactment date and to any portion of a trust established before the enactment date that is attributable to a contribution made on or after such date.

Planning opportunity: Consider terminating grantor trust status or making a gift to a grantor retained annuity trust (GRAT) or spousal lifetime access trust (SLAT).

Valuation Discounts

Valuation discounts, such as marketability discounts and minority interest discounts, are currently allowed for transfers of nonbusiness assets for estate and gift tax purposes. The proposal would eliminate valuation discounts for certain transfers of nonbusiness assets. Nonbusiness assets are defined as passive assets held for the production or collection of income and not used in the active conduct of a trade or business. This would apply to transfers after the enactment date.

Planning opportunity: Consider making gifts that will be eligible for valuation discounts.

Retirement Plans

Annual Contributions to Plans

Annual contributions to retirement plans are not currently limited by the value of the retirement plans owned by a taxpayer. The proposal would prohibit annual contributions by “applicable taxpayers” to “applicable retirement plans” (including tax-qualified defined contribution plans, IRC Section 403(b) and 457(b) plans, and traditional and Roth IRAs) if the total value of all the taxpayer’s applicable retirement accounts exceeds $10 million as of the end of the prior year. Applicable taxpayers are head of household filers with adjusted taxable income over $425,000, married individuals filing jointly and surviving spouses over $450,000, and all other taxpayers over $400,000. Both the $10 million cap and income limitations are indexed for inflation beginning after 2022. This would be effective for taxable years beginning after December 31, 2021.

Minimum Required Distributions from Plans

Taxpayers are not currently required to take additional distributions if the total value of their retirement plan accounts exceeds $10 million. The proposal would require applicable taxpayers (as defined above) of any age to take a minimum required distribution equal to 50% of the aggregate vested balances in applicable retirement plans exceeding $10 million. If an applicable taxpayer’s combined retirement plan account balances exceed $20 million, the taxpayer would be required to take distributions equal to the lesser of (i) the aggregate plan balances in excess of $20 million or (ii) the aggregate balances in Roth IRAs and designated Roth accounts in defined contribution plans. Once the taxpayer distributes the amount of any excess required under this rule, they would then be allowed to determine the retirement accounts from which to make distributions in satisfaction of the 50% distribution rule.

This would be effective for tax years beginning after December 31, 2021.

Roth Rollovers and Conversions

Currently, the definition of a qualified rollover or conversion does not exclude any portion of the rollover or contribution that is not includible in gross income. The proposed legislation would amend the definition of qualified rollovers and conversions to Roth IRAs to include only amounts that would be includible in gross income and subject to tax. This would be effective for rollovers and conversions made after December 31, 2021.

“Back Door” Roth IRAs

“Back door” Roth IRA strategies currently allow taxpayers who exceed existing Roth income limits to make nondeductible contributions to a traditional IRA and shortly thereafter

The Biden Administration’s American Families Plan and other tax proposals may significantly reshape the tax landscape for high-income earners, particularly those making over $400,000 annually.

Key Tax Proposals from the American Families Plan

• Increase the top marginal income tax rate to 39.6% for households earning over $400,000

• Tax long-term capital gains at 39.6% for households earning over $1 million

• Eliminate step-up in basis for gains above $1 million at death (unless donated to charity)

• Tax carried interest as ordinary income

• Permanently extend excess business loss limitation rules

• Apply the 3.8% net investment income tax uniformly to those earning over $400,000

IRS Enforcement Expansion

To reinforce compliance, President Biden also proposes $80 billion in funding for IRS audits, targeting high-income taxpayers and those suspected of tax avoidance. This effort would be paired with expanded IRS enforcement authority.

Additional Campaign Proposals Still on the Table

Although not part of the American Families Plan, these proposals remain under consideration:

• Phase out the 20% QBI deduction

• Limit itemized deductions to a 28% benefit and reinstate the Pease limitation

• Reduce the estate tax exemption from $11.7 million to $3.5 million and raise the estate/gift tax rate to 45%

• Impose the 12.4% Social Security tax on wages over $400,000

What Should Taxpayers Do Now?

1. Review Your Current Tax Profile

High-net-worth individuals, business owners, and family offices should assess:

• Current income and deductions

• Estate structure and multi-generational planning needs

• Business interests and succession goals

2. Plan with Flexibility

Due to the uncertainty around the final scope or timing of new legislation:

• Use “what-if” modeling and scenario planning

• Consider the impact of retroactive provisions (e.g., capital gains tax changes effective April 28, 2021)

3. Capital Gains Strategy

• Accelerate gains before rate increases

• Coordinate capital gains with other income to avoid higher thresholds

• Use or opt out of installment sales based on timing

• Consider deferral tools: like-kind exchanges, opportunity zones, and ESOP rollovers

4. Revisit Your Estate Plan

• Consider gifting now before exemption limits change

• Explore trust strategies for multi-generational planning

• Prepare to act quickly if legislative changes gain momentum

How We Can Help

We offer full-service planning for wealthy individuals and families, including:

• Tax consulting and compliance for estate, income, gift, and trusts

• Charitable giving and foundation strategies

• Executive compensation and retirement planning

• Cross-border tax analysis and compliance

• IRS audit support and representation

Our experienced professionals can help you:

• Monitor and interpret legislative developments

• Model tax scenarios

• Implement preemptive strategies to minimize liabilities

Let us guide you through the complexities of today’s tax environment—with clarity, foresight, and customized planning tailored to your financial goals.
Contact us to schedule a confidential consultation.

On December 21, 2020, Congress passed H.R. 133, the Consolidated Appropriations Act (CAA), 2021, which includes:

• Division N – Additional Coronavirus Response and Relief (ACRR)

• Division EE – Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR)

The bill passed with strong bipartisan support and is expected to be signed into law. Below is a summary of the most relevant provisions for individuals and small businesses.

Individual Economic Relief

• $600 Stimulus Payments
  Individuals earning up to $75,000 (or $150,000 for married couples) will receive $600, plus $600 for each child dependent.

• $300 Weekly Unemployment Boost
  Additional federal unemployment benefits are reinstated through March 14, 2021, with eligibility extended through April 5, 2021, and maximum weeks increased to 50 weeks.

Business Meals Deduction

To support the restaurant industry, businesses can now deduct 100% of restaurant meals (dine-in and takeout) for expenses incurred from January 1, 2021 through December 31, 2022.

Paycheck Protection Program (PPP) Updates

• Second Round of Funding
  Eligible businesses may apply for a second PPP loan of up to $2 million, provided they:

  • Employ 300 or fewer employees per location

  • Have used or will use their first PPP loan

  • Experienced at least a 25% drop in gross receipts in any 2020 quarter compared to the same quarter in 2019

  Special Rule for Hospitality and Food Services:
  These businesses may borrow up to 3.5x average monthly payroll costs, still capped at $2 million.

• PPP Expense Deductibility Clarified
  PPP loan forgiveness is not taxable, and expenses paid with PPP funds are fully deductible, allowing for full tax benefits.

• EIDL Advance Adjustment Repealed
  PPP borrowers are no longer required to reduce their forgiveness amount by the EIDL advance they received.

• Simplified Forgiveness for Loans Under $150,000
  Borrowers can submit a simplified certification of eligibility and retain records for possible SBA review.

• Expanded Eligible Expenses
  In addition to payroll, rent, utilities, and mortgage interest, businesses can now use PPP funds for:

  • Personal protective equipment (PPE) and facility modifications

  • Supplier costs essential to operations

  • Software and cloud-based services

  • Accounting services

Grants for Shuttered Venue Operators

$15 billion is allocated for grants to eligible live venue operators, theaters, museums, promoters, and talent agents.

• Must show 25% revenue reduction

• Tiered distribution prioritizes applicants with the most significant revenue losses (90%+ or 70%+ revenue decline compared to 2019)

At least $2 billion is reserved for venues with fewer than 50 full-time employees.

Paid Leave Tax Credit Extensions

• Employer Paid Sick and Family Leave Credits
  Extended through March 31, 2021. Employers are not required to offer leave, but if they do, credits are available.

• Self-Employed Leave Credits
  May continue using 2019 earnings instead of 2020 to calculate credit amounts.

• Payroll Tax Treatment
  Qualified wages under this leave program are excluded from Social Security tax.

Deferred Payroll Tax Repayment Extension

Employers that postponed the 6.2% employee Social Security tax in 2020 now have until December 31, 2021 to repay it, with penalties and interest delayed until January 1, 2022.

Employee Retention Credit (ERC) Expansion

Changes apply to wages paid through June 30, 2021:

• Credit rate increased from 50% to 70% of qualified wages

• Per employee wage limit increased to $10,000 per quarter

• Applies to employers with 500 or fewer employees

• New employers that did not exist in 2019 may also qualify

Employers can now claim both PPP and ERC, subject to restrictions.

Unemployment Insurance Enhancements

• Extended Pandemic Unemployment Assistance (PUA) through March 14, 2021

• $300/week federal supplement reinstated

• State reporting required to track individuals refusing to return to suitable work

If you have questions about how these provisions affect your business or individual situation, contact our office at 561-995-0064 for assistance.

QR Codes will now show up on some IRS documents for the first time! The IRS has included this barcode technology to new notices going out to millions of taxpayers. CP14 and CP14 IA balance-due notices that inform taxpayers that they owe money on unpaid taxes and their payment options are now equipped with QR barcodes to assist in navigating to IRS.gov.

Simply use your smartphone to scan a QR code in the CP14 or CP14 IA to go directly to IRS.gov and securely access your account, set up a payment plan or contact the Taxpayer Advocate Service. Scanning the QR code on the CP14 or CP14 IA will give the taxpayer direct access to the information they need on IRS.gov to resolve their account balance online without the need to call or interact with the IRS directly.

“These codes will give taxpayers immediate access to the most important information for them to pay their balances, set up payment agreements or reach out for help,” said Darren Guillot, the IRS Small Business/Self-Employed deputy commissioner for collection and operations support, in a statement. “We understand there’s a lot of information on the web, and we want to give taxpayers more secure tools that can more easily help them resolve their tax situations.” Generally sends more than 8 million CP14 notices to taxpayers annually. These are the first legal notice alerting taxpayers that they have a balance due. “This will help make the entire process easier for taxpayers,” Guillot said.
Stay tuned, the IRS is assessing the possibility of adding QR codes to other balance-due notices in the future.