Important Tax Updates – February/March 2021

Treasury, IRS Extend Upcoming Filing and Payment Deadline 

The Treasury Department and Internal Revenue Service announced Wednesday, March 17 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. Information on state congruence and information on quarterly filings pending.

American Rescue Plan Act Enacted

On 3/11/21, President Biden signed the American Rescue Plan Act of 2021 (P.L. 117-2), which provides for $1.9 trillion in relief funds. This Act has various components that will impact tax profiles, including the expansion of some personal credits and unemployment exclusions, stimulus checks for eligible taxpayers, the extension of increased unemployment benefits, and additional funds allocated to the Paycheck Protection Program.

Biden Discusses Tax Increases for Certain Individuals and Businesses

As a follow-up to the recently approved COVID-related relief bill, the Biden administration is beginning talks around tax law changes. For individuals, the Biden administration has discussed raising the tax rate for the highest earners (those above $400,000) to 39.6%, taxing capital gains like ordinary income if taxpayers earn more than $1,000,000, and increasing estate tax rates to 45% for assets worth $1,000,000. For businesses, the most significant proposal would raise the corporate tax rate to 28%. There have also been discussions around changing the way that pass-through entities are treated (i.e., not respected as LLCs or partnerships).

Upcoming Tax Deadline News

Some House Ways & Means members have asked the IRS to extend the tax filing deadline as the COVID-19 pandemic continues to pressure on taxpayers and IRS processing; at a virtual tax conference earlier this week, the IRS Commission again said that the IRS has no plans to extend the tax return filing deadline beyond April 15, 2021. We will continue to update as news develops around this topic.

Payroll Tax Deferral

The Internal Revenue Service today released Notice 2021-11 addressing how employers who elected to defer certain employees’ taxes can withhold and pay the deferred taxes throughout 2021 instead of just the first four months of the year. See overview  and notice.

The Government Accountability Office (“GAO”) Foresees Potential Problems for IRS During Current Filing Season

GAO was asked to review IRS’s performance during the 2020 filing season. This report (1) describes the changes IRS made to operations and services for the 2020 filing season due to the COVID-19 pandemic; (2) assesses IRS’s performance on providing customer service and processing individual and business income tax returns during the 2020 filing season and compare to prior filing seasons, where appropriate; and (3) evaluates IRS’s plans to prepare for the 2021 filing season.

New Information on Filing Form 1040-X

The IRS has released the 2020 revision of Form 1040-X (Amended U.S. Individual Income Tax Return) and associated instructions. The revision contains new information about e-filing and mailing the form. E-filing is available for amending 2019 and 2020 returns that were originally e-filed; an amended return for tax year 2019 or 2020 also can be filed on paper. Instructions for mailing and correct addresses can be found in the Form 1040-X instructions. If a taxpayer is amending a return in response to an IRS notice, the return should be mailed to the address in the notice and FAQs.

Administration Releases 2021 Trade Policy Agenda

US Trade Representative released its 2021 Trade Policy Agenda  outlining the new Administration’s plans for trade policy in the year ahead. The Trade Policy Agenda lays out a focus on expanding the domestic economy and dealing with the economic impacts of COVID-19; it does not call for a conclusion of any of the outstanding trade agreements.

Pennsylvania 2021 SUI tax rate factors and taxable wage base to remain the same
In the calendar year 2021 employer state unemployment insurance (SUI) experience tax rates continue to range from 1.2905% to 9.9333%. The new employer rate remains at 3.6890% for non-construction employers and 10.2238% for construction employers. (Pennsylvania Department of Labor & Industry, Office of Unemployment Compensation website.)