Tag Archives: budget2022

35 Million Unprocessed Tax Returns Due To IRS Delays

The various pandemic-era programs introduced by the federal government have increased the tax authority’s workload and caused delays in the tax refund process.
The IRS has been under extreme pressure since the start of the pandemic, tasked with implementing a range of federal relief programs designed to support individuals, families and businesses affected by covid-19.
“The IRS and its employees deserve tremendous credit for what they have accomplished under very difficult circumstances, but there is always room for improvement.” Taxpayer Advocate Erin Collins wrote in her report. “This year, the IRS is dealing with an unprecedented number of returns requiring manual review, slowing the issuance of refunds,” Collins continued. “These processing backlogs matter greatly because most taxpayers overpay their tax during the year by way of wage withholding or estimated tax payments and are entitled to receive refunds when they file their returns. Moreover, the government uses the tax system to distribute other financial benefits.”
The 35 million pending returns account for 20 percent of the total returns submitted. And with the May 17 federal tax deadline almost two months in the past, the IRS is well beyond the 21-day processing time it typically strives for. Myriad reasons account for the delay.

The 2021 tax filing season started late and was extended an extra month due to the coronavirus pandemic. To make matters worse, the agency was inundated with phone calls and unable to keep up. During the 2021 filing period, the IRS received 167 million phone calls, four times more than during the 2019 season. As a result, only 9% of calls were answered by a live customer service representative.The popular “1040” line, the most frequently dialed IRS toll-free number, received 85 million calls during the 2021 filing season, with only 3% of callers reaching a live person.

Since the start of 2021, the IRS has issued the second and third economic impact payments, better known as stimulus checks. The second, for up to $600, started going out at the end of December 2020, as part of the Coronavirus Response and Relief Supplemental Appropriations Act. The third, for up to $1,400, started going out in the middle of March, as part of the American Rescue Plan Act. The IRS began accepting tax returns on February 12. So the latest check was processed during tax season, its busiest time of the year.

Another key component of the American Rescue Plan is the updated Child Tax Credit. Starting July 15, the IRS will pay $3,600 per child to parents of children up to age five. Half will come as six monthly payments, and half as a 2021 tax credit. That comes out to $300 per month and another $1,800 at tax time. The total amount changes to $3,000 per child for parents of six to 17 year olds, or $250 per month and $1,500 at tax time. The IRS has also been standing up this new program of monthly Child Tax Credit payments during tax season. While the agency has now sent out three stimulus checks, it has no experience sending out millions of periodic payments. Resources dedicated to setting up this program are resources not dedicated to its core mission, which is to “provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.”

Erin Collins’s report also cites limited resources and technology issues as reasons for delays in processing tax returns. The agency operated under many of the same limitations that have affected office workers the world over during the pandemic. That included remote work, which can affect efficiency. The IRS is also understaffed and underfunded. Congress has continually reduced the agency’s budget over the last decade. Funding and total employment are both down by about 20 percent.

Beginning the tax season at a disadvantage contributed to the 35 million-return backlog. Tasking the IRS with stimulus checks and the updated Child Tax Credit at the same time drew resources away from processing tax returns. And a history of understaffing and underfunding set them up for failure. All of this put a strain on Americans who were counting on timely refunds.

New York Forward Loan Fund accepting Pre-Applications

New York Forward Loan Fund (NYFLF) is a new economic recovery loan program aimed at supporting New York State small businesses, nonprofits and small landlords as they reopen after the COVID-19 outbreak and NYS on PAUSE.
Pre-applications for the New York Forward Loan Fund are now open. This is not a first-come, first-served loan program. Applications will be reviewed on a rolling basis.  For small businesses and nonprofits, you are encouraged to prepare your pre-application in advance by taking advantage of the application preparation resources available here.

Tax Highlights of New York’s 2021-2022 Budget Bill

On April 19, 2021, New York State Gov. Andrew Cuomo signed the state’s 2021-2022 Budget Bill, which contains significant tax measures including, but not limited to, increased taxes on businesses and high-net-worth individuals and an elective pass-through entity (PTE) tax.

Read the key tax provisions in this comprehensive Budget Bill  HERE. To this end, we anticipate that additional guidance will be issued by the New York State Department of Taxation and Finance (“the Department”), especially addressing the newly enacted PTE tax.

Corporation tax 

The Budget Bill sets the tax rate for corporations with business income that exceeds $5 million at 7.25%, up from 6.5%. It also delays the scheduled phase-out of the capital base tax to Jan. 1, 2024, and establishes a tax rate of 0.1875% for tax years beginning on or after Jan. 1, 2021. Note that the phase-out delay does not apply to manufacturers and small businesses.

Personal income tax 

The Budget Bill increases the personal income tax rates on high-income earners for the 2021 through 2027 tax years. The new rates are as follows:

  • 65% for individuals with income over $1,077,550 but not over $5 million; joint filers with income over $2,155,350 but not over $5 million; and heads of household with income over $1,646,450 but not over $5 million
  • 30% for all classes of taxpayers with income over $5 million but not over $25 million
  • 90% for all classes of taxpayers with income over $25 million

Factoring in the current New York City personal income tax rate (3.876%), these new rates will result in a combined state and local personal income tax rate of 14.776% for affected high-income taxpayers with taxable income exceeding $25 million. Clearly, high-net-worth individuals will be significantly impacted by this increase in personal income tax rates.

Pass-through Entity Tax

Partnerships and S corporations can elect to pay an optional pass-through entity income tax on the entity’s taxable income at rates ranging from 6.85% to 10.9%. Partners/shareholders of electing partnerships and S corporations will be allowed to take an offsetting personal income tax credit for the portions of the PTE tax paid by the entity that are attributable to such partners/shareholders.

An irrevocable, annual election must be made by the due date of the first estimated tax payment. For the 2021 tax year, the election must be made on or before Oct. 15, 2021, and there are no estimated taxes required to be remitted.

Resident Tax Credit

The Budget Bill also amends the resident tax credit provisions, and, effective for the 2021 tax year, New York residents who are partners or shareholders in entities that pay “substantially similar” PTE in other jurisdictions will be allowed a credit for their respective share of PTE taxes paid to other states. Prior to this amendment, it was the Department’s position that residents were not eligible for such a resident tax credit for entity-level taxes paid.

Sales and Use Tax 

The Budget Bill increases the threshold from $300,000 to $500,000 for gross receipts from property delivered into New York State and maintains the threshold of 100 sales transactions in the state to require vendors to register in response to the Wayfair decision.

Real Estate Transfer Tax 

The Budget Bill clarifies that the Real Estate Transfer Tax is the responsibility of the grantor. The grantor cannot pass the liability to the grantee unless there is a contract or a written agreement between both parties.

Real Property Tax Relief Credit

Individuals with qualified adjusted gross income of less than $250,000 will be eligible for a new credit if New York real property taxes on their New York State principal residence exceed 6% of qualified adjusted gross income. The credit is based on the real property tax paid in excess of that 6% amount, and the rate is determined on a gradual sliding scale from 14% to 0%.

Qualified Opportunity Funds 

Effective Jan. 1, 2021, taxpayers will no longer be able to defer current capital gains by reinvesting them into Qualified Opportunity Funds. The Budget Bill no longer allows a federal exclusion of the reinvested capital gain amount, and now requires an add-back modification for the gains deferred in the year of such deferral.

Restaurant Return-to-Work Tax Credit

The Budget Bill creates a new “Restaurant Return-to-Work-Tax Credit” program. Eligible businesses can claim a $5,000 credit for each full-time net employee increase, up to a total of $50,000 in tax credits. To qualify, the restaurant should have experienced at least a 40% decrease in gross receipts and/or average full-time employment due to the pandemic.

Employees working outside N.Y. due to COVID-19

Due to COVID-19, many businesses have New York-based employees working remotely. The Budget Bill allows these businesses to treat “such remote work as having been performed at the location such work was performed prior to the declaration of such state disaster emergency,” in order to claim tax credits and incentives requiring a minimum number of employees.

It is critical to note that the Budget Act does not address the personal income tax implications of remote workers. That is, the Department has already made its position clear on remote workers and its interpretation of its “convenience of the employee” rule. In this regard, “if you are a nonresident [of New York] whose primary office is in New York State, your days telecommuting during the pandemic are considered days worked in the state unless your employer has established a bona fide employer office at your telecommuting location.”

Given the magnitude and complexity of the tax changes in the Budget Bill, all taxpayers (New York and non-New Yorkers) should review the new provisions to see how these changes impact their specific tax positions. In addition, given New York State’s tax rate increases on high-net-worth individuals and businesses, coupled with the pandemic’s current remote workforce climate, we would anticipate more individuals contemplating a change in domicile/residency outside of New York State and businesses exploring whether they need to have a physical location within the State of New York.

Moreover, partnerships and S corporations also need to evaluate whether the newly enacted PTE tax should be timely elected and whether this would be beneficial to their respective entities and partners/shareholders. We expect that the Department will need to issue clarifying guidance on the PTE, as we anticipate there will be many open questions that will have to be addressed based on what we have seen in other states that are administering a PTE.