Looks like tax changes are on the way. Below are some of the recommendations that President Biden’s team and the House Ways and Means Committee have each proposed recently that will impact the federal income taxes paid by successful healthcare professionals if enacted into law:
PROPOSED CHANGES TO PERSONAL TAXES
Restore the top tax rate to 39.6%
Both groups’ proposals would restore the top tax rate to 39.6%, up from the current top rate of 37%, for taxpayers with taxable income over $400k if single or $450k if married.
Eliminate the advantageous capital gains rates for high earners
For taxpayers earning over $1 Million, President Biden’s American Families Plan would double the tax rate on long-term capital gains by eliminating the current 20% tax rate and instead, having that income taxed as ordinary income at a rate of 39.6%. Add that most long-term capital gains for taxpayers earning over $250k are also subject to Medicare taxes (also known as the Net Investment Income Tax – NIIT) at 3.8%, and this brings the total proposed federal capital gains tax rate to 43.4%. Throw in your state’s income taxes on those gains, and the rate on realized long-term capital gains could top 50%.
The House Ways and Means Committee, meanwhile, has recommended a top federal capital gains tax rate of 25% for high income households plus the 3.8% Medicare Tax.
Limit who would qualify to defer taxes on real estate transactions
Over the years, taxpayers selling appreciated real estate could defer taxes indefinitely by purchasing more expensive real estate within 180 days of the sale of the appreciated property and by also following certain mandatory steps required for the transaction to qualify as a “like-kind exchange”. The American Families Plan would end this tax deferral strategy on realized gains exceeding $500,000.
PROPOSED CHANGES TO COMBAT NON-COMPLIANCE OF TAX RULES
Increase IRS funding to lead to better enforcement
The American Families Plan would allocate $80 billion over the next 10 years to increase IRS funding with a primary purpose of stronger enforcement towards individuals in the top tax bracket and for large corporations as well.
PROPOSED CHANGES TO BUSINESS TAXES
Raise the tax rate from 21% to 28% for C-Corps
Very few small healthcare practices operate as C-Corps these days, and with corporate tax rates potentially increasing by 33% from a current rate of 21% to a proposed rate of 28%, looks like S-Corps, LLCs, and other flow through entities will continue to be the entities of choice for practice owners.
Institute a 3.8% Medicare Tax on S-Corp Owners
Currently, S-Corp practice owners are exempt from paying the 3.8% Net Investment Income Tax (NIIT) on all non-salary income reported on the K-1. Biden’s proposal would institute this 3.8% tax on S-Corp income for practice owners with taxable income over $400k if single or $500k if married.
We’ll be keeping an eye on which tax changes are finally enacted and reach out to you on these changes and the related planning opportunities right away.
Just like the baseball and football season, the fall is where things really start to heat up in the Dental Practice Acquisition market. To that end, Bank of America is launching an extremely low interest rate loan product for dentists who are seeking financing to purchase a practice.
HISTORICALLY LOW INTEREST RATES!
Highlights of the offering are:
- 89% fixed interest rate for the first two years.
- Very competitive fixed interest rate thereafter – the blended rate is well under 3%!
- Available on 10, 12, and 15 year terms.
- Availability is limited to Practice Acquisition loans
- Rate promotion is available to both first time and existing owners.
- Ability to “opt-out” of the 1.89% rate promotion and choose the low blended fixed rate option – currently 2.69% on a 10 year loan!
For more info on Bank of America’s low interest rate offer, please email email@example.com.
More stimulus money is now available to small healthcare practices. According to HRSA at: https://www.hrsa.gov/provider-relief/future-payments:
On September 29, 2021, health care providers will be able to apply for $25.5 billion in relief funds, including $8.5 billion in American Rescue Plan (ARP) resources for providers who serve rural patients and $17 billion for Provider Relief Fund (PRF) Phase 4 for a broad range of providers who can document revenue loss and expenses associated with the pandemic.
In order to streamline the application process and minimize administrative burdens, providers will apply for both programs in a single application and HRSA will use existing Medicaid/CHIP and Medicare claims data in calculating portions of these payments.
Phase 4 General Distribution — $17 billion based on providers’ lost revenues and changes in operating expenses from July 1, 2020 to March 31, 2021.To promote equity and to support providers with the most need, HRSA will:
- Reimburse a higher percentage of lost revenues and expenses for smaller providers as compared to larger providers
- Provide “bonus” payments based on the amount of services they provide to Medicaid, CHIP, and Medicare patients, priced at the generally higher Medicare rates.
PHASE 3 RECONSIDERATIONS
To promote transparency in the PRF program, HHS has released detailed information (PDF – 175 KB available at: https://www.hrsa.gov/sites/default/files/hrsa/provider-relief/phase-3-methodology-overview.pdf) about the methodology utilized to calculate Phase 3 payments. Providers who believe their Phase 3 payment was not calculated correctly according to this methodology will now have an opportunity to request a reconsideration [as follows]
If you have general questions about the PRF, please contact the Provider Support Line at 866-569-3522.
HHS recognizes that providers may have questions regarding their Phase 3 payment determinations.
HRSA is developing a structured process to review and reconsider applications and payment
determinations. Any corrections to payment determinations are subject to the availability of funds.
If after reviewing the above methodology you believe your payment was calculated incorrectly, or if you
would like to be notified when more information becomes available regarding the reconsiderations
process, please contact PRFReconsiderations@hrsa.gov.
If you would like our assistance to apply for the Phase-4 Provider Relief Fund subsidy, please email us at firstname.lastname@example.org.
Medical and other healthcare providers who received more than $10k in Provider Relief Funds prior to 6/30/20 are required to self-report by 9/30/21 that those funds were utilized correctly. Due to very lackluster self-reporting submission rates, HRSA recently announced a 60-day grace period for Reporting Period 1 only at: https://www.hrsa.gov/provider-relief/reporting-auditing:
Announcing 60-Day Grace Period – Reporting Period 1
The September 30, 2021 Reporting Period 1 deadline has not changed, however in response to challenges providers are facing given the Covid surges and natural disasters around the country a 60-day Grace Period is in place. This period allows providers to come into compliance with their PRF reporting requirements should they fail to meet the September 30, 2021 deadline.
- While you will be out of compliance if you do not submit your report by September 30, 2021, recoupment or other enforcement actions will not be initiated during the 60-day grace period (October 1 – November 30, 2021).
- The grace period begins on October 1, 2021 and will end on November 30, 2021.
- Providers who are able are strongly encouraged to complete their report in the PRF Reporting Portal by September 30, 2021.
- Providers should return unused funds as soon as possible after submitting their report. All unused funds must be returned no later than 30 days after the end of the grace period (December 30, 2021).
This grace period only pertains to the Reporting Period 1 report submission deadline. There is no change to the Period of Availability for use of PRF payments.
We have helped many medical practice owners with their PRF Self-reporting, and the process has turned out to be quite cumbersome. If you’d like our assistance with complying with the PRF self-reporting requirements, please email email@example.com. There is still time for us to help you meet the 9/30/21 self-reporting deadline.
One more ERC update as we prepare to contact our practice owner clients with an approximation of the amount of the Employee Retention Tax Credit their practice should be eligible to receive. Earlier this month, the IRS announced that the wages of owners of more than 50% of the value of the practice won’t qualify for this credit unless the shareholder has NO living relatives.
This crazy rule was detailed in IRS Notice 21-49 available at: https://www.irs.gov/pub/irs-drop/n-21-49.pdf.
We have considered waiting for Congress to provide clarity on this most recent IRS ruling. Not allowing the wages paid to practice owners to be included in the ERC calculation reduces this valuable payroll tax credit by $5k.
Everything we have read since the IRS issued Notice 21-49 has indicated that clarifying this issue is not currently a priority to Congress. For that reason, we plan to move forward with processing the amended payroll tax forms to file for the ERC once we get approval from each of our clients. Expect to hear from us by the end of September. If the rules change, we can re-file later to request the additional $5k ERC.
Our friends at the IRS continue to be way behind with processing their mail. Believe it or not, that includes many checks that the IRS has received in the mail since COVID hit last March.
For that reason, if you pay quarterly estimates, consider making those payments online at https://www.irs.gov/payments. I started paying my quarterlies online using direct debit last year during COVID and found the whole experience preferable to writing and mailing them a check along with a payment voucher 1040-ES.
The IRS has issued more info on What Taxpayers Need to Know About Making 2021 Estimated Tax Payments.
And remember, third quarter estimated tax payments are due 9/15/21.
Great news if you feel your PPP lender is making the loan forgiveness process too complicated. The SBA recently announced that they set up their own Direct Forgiveness Portal “to streamline forgiveness processing for PPP Borrowers. After registration, you may use this streamline process to automatically submit your forgiveness request to your lender.”
The SBA also offers live customer service to borrowers at 877-552-2692. More info is available at: https://directforgiveness.sba.gov./requests/borrower/login/?next=/
According to the SBA in their Press Release:
WASHINGTON – The U.S. Small Business Administration (SBA) is launching a streamlined application portal to allow borrowers with Paycheck Protection Program (PPP) loans $150,000 or less through participating lenders to apply for forgiveness directly through the SBA.
“The SBA’s new streamlined application portal will simplify forgiveness for millions of our smallest businesses — including many sole proprietors — who used funds from our Paycheck Protection Program loans to survive the pandemic,” said Administrator Isabel Casillas Guzman. “The vast majority of businesses waiting for forgiveness have loans under $150,000. These entrepreneurs are busy running their businesses and are challenged by an overly complicated forgiveness process. We need to deliver forgiveness more efficiently so they can get back to enlivening our Main Streets, sustaining our neighborhoods and fueling our nation’s economy.”
This new change will help rush relief to over 6.5 million smallest of small businesses which has been the Administrator’s priority since day one. The new forgiveness platform will begin accepting applications from borrowers on August 4th, 2021. Lenders are required to opt-in to this program through https://directforgiveness.sba.gov. In addition to the technology platform, the SBA is standing up a PPP customer service team to answer questions and directly assist borrowers with their forgiveness applications. Borrowers that need assistance or have questions should call (877) 552-2692, Monday – Friday, 8 a.m. – 8 p.m. EST.
You can find out if your lender is participating in this process at: https://www.sba.gov/document/support-ppp-lenders-participating-direct-forgiveness
Practice owners who received grants and subsidies through the CARES ACT or other sources can finally see the light at the end of the tunnel. Here are the remaining steps to take in connection with these grants and subsidies.
PPP1 Loan Forgiveness:
Most practices received their PPP1 loans back in April or May 2020. They had 24 weeks to spend the money, and then 10 months from the end of the Covered Period to file for the PPP Loan forgiveness before payments would become due on the loan. The real deadline to file for the PPP Loan Forgiveness is the end of the loan term, which is 2 years for the early PPP loans that were paid out. When a practice owner files for forgiveness, any payments made towards the PPP loan would be fully refunded at that time.
While some of our clients filed for the PPP Loan Forgiveness on their own, others asked for our assistance. If you filed on your own, please email firstname.lastname@example.org to confirm:
- Whether your loan was fully or partially forgiven
- And whether you only reported payroll costs on the PPP forgiveness application or included facility costs in addition to the payroll costs.
We’ll need to know how you filed for your PPP1 forgiveness to be able to calculate the maximum Employee Retention Tax Credit (ERTC) that your practice is eligible to receive. (See below)
PPP2 Loan Forgiveness:
Most practices received their PPP2 loans in January or February 2021. That means the end of the 24-week Covered Period is right about now, and the PPP lenders have begun asking those PPP2 loan recipients to file for forgiveness. Generally, the same rules apply as filing for PPP1 forgiveness, and the deadline to file is 10 months after the end of the Covered Period.
If you filed with your lender for forgiveness on your own, please feel free to file the PPP2 application by yourself as well. If you’d like our help, the fee for practices that received less than $150k is $750, discounted to $500 if our firm handles the payroll for your practice. If you think you might be eligible for the ERTC for any quarter of 2021, you might qualify for a larger payroll tax credit if you have us complete the PPP2 loan forgiveness. To be eligible for the ERTC in 2021, your quarterly collections for any quarter in 2020 must be 20% lower than the same quarter of 2019.
Employee Retention Tax Credit (ERTC):
We have just started working through the calculations to see how much of an Employee Retention Tax
Credit your practice will be eligible to receive. This calculation is quite involved since the ERTC period and the PPP1 period overlap one another, and wages used for the PPP loan forgiveness must be excluded from the ERTC calculation. We have read through the instructions multiple times and have developed a few complex Excel spreadsheets utilizing Pivot tables to help us sift through your QuickBooks and Payroll data to do the math and come up with the highest allowable ERTC.
Here is the order that we will be making the ERTC Calculations:
- First batch: Practices using the online version of QuickBooks and also clients of our firm’s payroll service
- Second batch: Practices using QuickBooks Online who use another payroll service provider
- Third batch: Practices using the desktop version of QuickBooks
Our plan is to start by calculating the amount of the ERTC your practice is eligible to receive and email you that potential tax credit. You can then decide if you want us to move forward to prepare the paperwork to file for the ERTC.
Remember, the amount of the ERTC reduces the deduction you can claim for your payroll costs, causing most practice owners to repay about 40% of the tax credit received to the IRS and their home state.
Our fee to make the ERTC calculation and prepare the necessary paperwork will be $500 per employee for the first six employees included in the ERTC calculation, and then $250 per employee starting with the seventh employee eligible for the tax credit, capped at $7,500. $1,000 will be due at the time the Form 941-X is prepared by us, with the remainder due when you receive the tax credit.
Most practices owners, therefore, will be repaying about half of the Employee Retention Tax Credit they receive in taxes and fees. Please factor in these costs when trying to decide whether to have us prepare this paperwork for you to file for the ERTC.
Check out https://schwartzaccountants.com/2021/06/ertc-summary/ for our most recent blog post on the ERTC.
Provider Relief Fund Self-Reporting:
If your practice received a Provider Relief Fund Grant of more than $10k from HRSA, you are required to self-report that you utilized those funds properly. On 6/11/21, the Health Resources and Services Administration (HRSA) issued guidance available at: https://www.hhs.gov/sites/default/files/provider-post-payment-notice-of-reporting-requirements-june-2021.pdf.
For medical practices that received more than $10k prior to 6/30/20, the self-reporting period already commenced on July 1st and you need to complete the online application by 9/30/21. In August, we will be reaching out to our medical practice clients who received more than $10k in Provider Relief Funds prior to 6/30/20 to help fulfill this filing requirement. Our fee to assist with the HRSA Provider Relief Fund self-reporting is $500.
For those practices that received PRFs of more than $10k between 7/1/20 and 12/31/20, your self-reporting period starts 1/1/22 and ends 3/31/22. And the self-reporting period for practice receiving PRFs in excess of $10k between 1/1/21 and 6/30/21 commences on 7/1/22 and ends on 9/30/22.
You can access the Provider Relief Fund Reporting Portal at: https://prfreporting.hrsa.gov/s/. The first step is to register to set up your account. Please register using your email address as the username, but then use email@example.com as the contact email if you will be having us help you out with this self-reporting application. Our fee is $500 to assist with the self-reporting application.
Check out https://schwartzaccountants.com/2021/06/hrsa-provides-update-on-the-provider-relief-fund-prf-self-reporting-requirement/ for our most recent blog post on the HRSA Provider Relief Fund.
From IRS News – Edition IR-2021-79, April 8, 2021
WASHINGTON — The Treasury Department and the Internal Revenue Service today issued Notice 2021-25 providing guidance under the Taxpayer Certainty and Disaster Relief Act of 2020. The Act added a temporary exception to the 50% limit on the amount that businesses may deduct for food or beverages. The temporary exception allows a 100% deduction for food or beverages from restaurants.
Beginning January 1, 2021, through December 31, 2022, businesses can claim 100% of their food or beverage expenses paid to restaurants as long as the business owner (or an employee of the business) is present when food or beverages are provided and the expense is not lavish or extravagant under the circumstances.
Where can businesses get food and beverages and claim 100%?
Under the temporary provision, restaurants include businesses that prepare and sell food or beverages to retail customers for immediate on-premises and/or off-premises consumption. However, restaurants do not include businesses that primarily sell pre-packaged goods not for immediate consumption, such as grocery stores and convenience stores.
Additionally, an employer may not treat certain employer-operated eating facilities as restaurants, even if these facilities are operated by a third party under contract with the employer.
Various changes were made to the Child Tax Credit and Dependent Care Tax Credit for 2021, including:
- Dependent Care Expenses qualifying for the dependent care tax credit have increased from $3,000 to $8,000 for one qualifying child and from $6,000 to $16,000 for two or more qualifying children.
- The allowed dollar amount parents can fund into their pre-tax Dependent Care Benefit Plan through their employer Flexible Spending Account has been increased from $5,000 to $10,500 (if this change has been adopted by your employer).
- The Child Tax Credit, available to qualifying taxpayers based upon their income, has been increased from $2,000 per child under the age of 17 to $3,000 per child under the age of 18 or $3,600 per child for children under the age of 6. However, the income threshold for taxpayers to qualify for this tax credit has been significantly reduced from the 2020 income threshold.
- Qualifying taxpayers will begin to receive advance payments of the Child Tax Credit beginning in July 2021. The advance payments are determined based upon a taxpayer’s previously filed 2020 or 2019 tax return and who qualify for the child tax credit based upon the income reported on their most recently filed tax return (2020 or 2019). These advance payments will be paid monthly beginning July 2021. Qualifying taxpayers will be pre-paid from the US Treasury: 50% of their anticipated 2021 child tax credit ratably over the last 6 months of 2021 (maxed at $250 or $300 per child per month). The remaining 50% of the tax credit will be included the taxpayer’s 2021 filed tax return. Taxpayers can choose to opt out of the government pre-payments and “Unenroll from the Advance Payments” via the following IRS link: https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021.
More info about these expanded tax breaks for families is available at: 2021 Child Tax Credit and Advance Child Tax Credit Payments: Resources and Guidance.