Tax

With the passage of the American Rescue Plan Act of 2021 (ARPA), Congress has temporarily abolished the health insurance premium tax credit “subsidy cliff.” 

For 2020 and 2021, self-employed and small-business owners and other individuals who must purchase individual health insurance may qualify for premium tax credit health insurance subsidies even if their income far exceeds the old limit of 400 percent of the federal poverty level (FPL).

To take advantage of the government subsidy, go to the health insurance marketplace (federal marketplace or state exchange) before August 15, 2021. The government expanded the open enrollment period. You can’t be turned down.

For 2020 and 2021, Americans who earn over 400 percent of the FPL are required to pay no more than 8.5 percent of their modified adjusted gross income (MAGI) for their premium tax credit (PTC) health insurance. Regardless of how high their income is, they are entitled to a PTC to the extent the cost of the silver benchmark plan exceeds 8.5 percent of MAGI.

Let’s take a look at Al and Alice. They are a self-employed, married couple who live in Seattle. Both are 62 years old. The annual cost for them of the benchmark silver plan in their area is $21,000. Their MAGI is $150,000. 

For 2021 and 2022, they are required to pay no more than $12,750 for PTC health insurance (8.5 percent x $150,000 = $12,750). Thus, they are entitled to a PTC of $8,500 ($21,000 – $12,500 = $8,500). 

If their MAGI was $200,000, they would have to pay $17,000 for PTC coverage and would still be entitled to a $4,000 tax credit ($21,000 – $17,000 = $4,000).

If you are looking for a possible reduction in your health insurance cost, I suggest checking out www.healthcare.gov. The government will direct you to the proper place (federal marketplace or state exchange).

• By Leon Clinton
• April 21, 2021

With the Consolidated Appropriations Act, 2021, millions of small-business owners like you now qualify for the employee retention credit (ERC), thanks to three big changes:

1. You can now obtain the ERC and the Paycheck Protection Program loan, but not on the same wages.
2. This new rule applies retroactively to 2020.
3. The new law adds an enhanced ERC for 2021.

And thanks to the latest new law, the American Rescue Plan Act of 2021 (ARPA), the already enhanced 2021 ERC is extended for an additional six months, through December 31, 2021.

The ERC is a big deal. It can put tens of thousands of dollars directly in your pocket to help offset your cost of paying employees during the COVID-19 pandemic.

Say during the first quarter of this year (2021) your S corporation paid the following wage and health expenses.

For the first quarter of 2021, the credit rate is 70 percent on up to $10,000 of W-2 wages per employee.

Your ERC for the first quarter of 2021 is $28,000, or 70 percent of $40,000. That’s a hefty chunk of change.

If you would like my help with your ERC, please don’t hesitate to call me on my direct line at 408-778-9651.

• By Leon Clinton
• April 17, 2021

You likely already know that the employee retention credit (ERC) is a good deal—if you qualify.

Now, thanks to the recently enacted American Rescue Plan Act of 2021 (ARPA), you can qualify for up to $100,000 of ERC in the third and fourth quarters of 2021 if you

• begin the business after February 15, 2020 (you could start today),
• have average annual gross receipts of $1 million or less, and
• do not meet either of the ERC tests—the suspended operations test or the gross receipts test—in place before ARPA was passed.

When you meet the three requirements above, you qualify as a recovery start-up business and, as such, can claim an ERC of up to $50,000 in both the third and fourth quarters of 2021. 

It works like this: your recovery start-up business ERC is equal to 70 percent of the qualified wages paid to each employee (up to $10,000 per employee per quarter), with an overall maximum credit of $50,000 per quarter.

The big deal with the two quarters of 2021 is that your business has to be new, but it does not have to suffer from COVID-19 stresses. In fact, it can’t qualify for the recovery start-up business special deal if it otherwise qualifies under the suspended operations test or the gross receipts test.

If you are thinking of starting a new business this year and would like to discuss the possible benefits of this new law, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• April 15, 2021