Author: Leon Clinton

Have you missed partying and having business meals with your prospects, customers, and employees?

Well, get ready to start again. Soon, COVID-19 will behind us. It could be just a few short months away.

To help you get ready, check the table below for what you can do in 2021 and 2022 as the law stands now:

If you have any questions on this chart, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• May 14, 2021

In our files, we show that you have a self-employed business that you file on Schedule C of your Form 1040. 

As you likely know, in times of economic dislocation such as the COVID-19 pandemic, the self-employed get no special government help. For example, you generally do not receive benefits that employees get, such as unemployment and paid sick leave.

But this time it’s different. Because of the COVID-19 pandemic, you can qualify for the following seven benefits:

1. PPP monies. Self-employed individuals with no employees can obtain forgivable first- and second-draw PPP monies of up to $20,833 for each draw, or $41,666 in total. 

These monies are available through May 31. Apply now if you haven’t already done so. If you already received a PPP loan, you may qualify for a second-draw loan if your 2020 income for any quarter declined by 25 percent compared with the same 2019 quarter.

2. EIDLs. These 3.75 percent interest loans of up to $500,000 are available to the self-employed and are not forgivable. You can borrow up to $25,000 without any collateral.

3. Prior EIDL Advances. The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, enacted on December 27, 2020, eliminates the rules that required reducing your PPP forgiveness by the amount of your EIDL Advance and requires the SBA to refund your advance if your loan forgiveness has been previously reduced.

4. New Targeted EIDL Advances. You might qualify for a Targeted EIDL Advance of up to $10,000 if (a) your business is located in a low-income community, and (b) you suffered a 30 percent reduction in revenue during an eight-week period beginning March 2, 2020, or later. Unlike EIDLs, Targeted EIDL Advances need not be paid back. They are tax-free government grants.

5. Sick and family leave tax credits. If you’re unable to work due to COVID-19, or if you need to care for a family member, you can qualify for refundable sick leave and family leave tax credits of up to $15,511 in 2020 and $17,511 in 2021. You can get up to $511 per day for 10 days if you’re sick. You can get up to $200 per day for 70 days if you need to care for others. These credits last through September 30, 2021.

6. ACA premium tax credits. Congress removed the subsidy cliff (400 percent of the federal poverty level) for 2020 and 2021. During these years, you need pay no more than 8.5 percent of your household income for ACA coverage. You are entitled to premium tax credits to the extent midlevel silver ACA coverage exceeds this amount. 

7. Unemployment for the self-employed. For the first time ever, self-employed individuals may receive unemployment benefits. The Pandemic Unemployment Assistance program has been extended to September 6, 2021. You’ll qualify for unemployment only if you’re earning little or no income.

If you have any questions or need my assistance, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• May 11, 2021

The earned income tax credit (EITC) has been around for years. But for some folks, it’s never been worth as much as it will be for 2021. 

That’s thanks to liberalizations included in the American Rescue Plan Act of 2021 (ARPA). Some of the favorable changes are only for the 2021 tax year. Others are permanent. 

EITC Basics

The EITC is targeted at low-income and moderate-income individual taxpayers. Perhaps most important, it’s a refundable credit. 

That means you can collect it even if you don’t owe any federal income tax. In other words, it’s free money. 

If you’re an eligible individual, your tentative EITC (the maximum you can hope for) equals the applicable credit percentage of your earned income for the year. 

The tentative EITC is then reduced by the phaseout amount, if applicable, to arrive at your allowable EITC. 

Eligible Individual Defined

In general, you are an eligible individual if you have at least one qualifying child for the tax year in question. 

Earned Income Defined 

The term earned income generally means

• wages, salaries, tips, and other taxable employee compensation, and 
• any net earnings from self-employment reduced by the deduction for 50 percent of self-employment tax.

Qualifying Child Defined

The term qualifying child means your child; a descendant of your child (such as a grandchild); or your brother, sister, stepbrother, or stepsister (or a descendant of one of those persons). 

To be your qualifying child, the individual must also have the same principal residence as you have for over half of the year in question. The individual must be younger than you and

• under age 19 at the end of the year, or 
• a student who is under age 24 at the end of the year, or 
• permanently and totally disabled at any time during the year. 

Finally, the individual cannot have filed a joint Form 1040 for the year.

EITC Calculations in a Nutshell

Under the rules that apply for your 2020 Form 1040, tentative EITC equals 

• 7.65 percent of the first $7,030 of earned income if you don’t have a qualifying child, 
• 34 percent of the first $10,540 of earned income for one qualifying child, 
• 40 percent of the first $14,800 of earned income for two qualifying children, or 
• 45 percent of the first $14,800 of earned income for three or more qualifying children. 

If the couple’s adjusted gross income exceeds $47,646, their EITC is completely phased out. Use the table in the Form 1040 instructions to find the exact allowable EITC amounts.

For 2021, the inflation-adjusted earned income amounts are $7,100, $10,640, $14,950, and $14,950, respectively.

Finally, if you have certain types of investment income over the applicable annual inflation-adjusted threshold, you’re completely ineligible for the EITC. For 2020, the investment income cap was $3,650.

Thanks to the ARPA, you can have up to $10,000 of disqualified income without losing out on the EITC for 2021. For 2022 and later years, the $10,000 limit will be adjusted for inflation.

Calculate 2021 EITC Using Either Your 2019 or 2021 Earned Income (Whichever Offers the Bigger Credit)

To calculate your EITC for 2021, you can use either your 2019 earned income or your 2021 earned income. Use whichever number gives you the bigger 2021 credit.

While your income may be way too high to claim the EITC, you may have loved ones who are eligible. According to a report by the Treasury Inspector General for Tax Administration, about 5 million potentially eligible taxpayers fail to claim the EITC each year, resulting in about $7 billion in unclaimed credits each year. Don’t let a loved one fall into this category. 

There’s no IRS form dedicated to the EITC. You must use the worksheets provided in the Form 1040 instructions to calculate your allowable credit. Pack a lunch—it takes a while!

Sincerely,

P.S. If you would like to discuss the EITC, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• May 3, 2021