Tax

For the past few weeks, I have received questions about the Section 105 medical reimbursement plan from my self-employed and solo C corporation owners. Below are the main points from my answers.

When you have multiple businesses, all employees across these businesses are considered your employees under the Section 105-HRA plan. If you have more than one W-2 employee, the spouse-only 105-HRA plan may not be suitable. Similarly, the plan would not work for the one-person C corporation with two or more employees.

While there are no specific regulations on the timing of reimbursements, it is advisable to reimburse expenses monthly to maintain a professional business image.

Employee spouses under the Section 105 plan can receive W-2 wages that provide solid proof of employment. But a W-2 is not mandatory, and the Section 105-HRA plan can serve as the sole source of remuneration.

Premiums for long-term care policies can be included as reimbursable expenses under the Section 105-HRA plan, allowing for a full deduction without limitations.

If you receive compensation solely through the Section 105 plan without any W-2, there is no requirement for additional contributions to a SEP IRA on your behalf.

If you have any further questions or require more detailed information, please don’t hesitate to call me on my direct line at 408-778-9651.

• By Leon Clinton
• July 5, 2023

I am bringing to your attention an opportunity that might result in significant tax benefits for you or your corporation—the unclaimed 2020 and 2021 COVID-19 sick and family leave credits.

The IRS allows individuals and corporations to claim these credits to alleviate the pandemic’s impact. But many missed this opportunity on their previous tax returns.

If you did not claim these credits for 2020 and 2021, it’s not too late. You can now claim the credits by filing an amended return. Moreover, if you had a net profit of $143,866 on Schedule C or equivalent W-2 wages from your corporation, you could qualify for up to $32,220 in refundable tax credits.

Here’s a brief breakdown:

• Up to $15,110 under the 2020 rules
• Up to $17,110 under the 2021 rules

The 2020 rules apply from April 1, 2020, through March 31, 2021. For the period from April 1, 2021, through September 30, 2021, there are even more opportunities to qualify for the sick leave credit of up to $511 a day and the family leave credit of up to $200 a day.

To claim the credits, self-employed individuals should file a completed 2021 Form 7202 and IRS Form 1040-X. If your corporation missed the credits, it can amend its payroll tax returns using Form 941-X.

I recommend that you do not delay in claiming these credits. While the IRS provides a three-year window for filing amended returns, it’s beneficial to get that money working for you as soon as possible.

Of course, you need to gather the documentation that validates your tax credit claims.

One key point: you can’t claim a double benefit by using the qualifying wages and monies for other relief programs such as the Paycheck Protection Program loan forgiveness or the Employee Retention Credits.

I would happily assist in filing the amended returns and answering any questions. If you want to get the ball rolling, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• June 30, 2023

I am writing about potential COVID-19 sick and family leave tax credits you may have overlooked on your 2020 tax return. You might be eligible for up to $15,110 in tax credits, and the good news is it’s not too late to claim them.

If you’re self-employed or running a corporation, there’s a chance you failed to claim the family leave credits on your 2020 tax return. The IRS allows amended tax returns, so you can claim the credits today. Please be aware that the timeline for submitting an amended return is limited, and it is essential to act promptly.

To realize the maximum of $15,110 in tax credits, you need to meet the following requirements:

• Adequate 2020 income ($143,866 of net income if self-employed or equivalent W-2 income if an employee of your corporation).
• An inability to work in 2020 due to COVID-19.
• A son or daughter either under age 18 or incapable of self-care because of a mental or physical disability.

The law divides the credits into two categories:

• Up to $5,110 for individuals unable to work due to COVID-19-related reasons.
• Up to $10,000 for individuals who cared for a child due to COVID-19.

If you are self-employed and qualify, you can claim the credits by amending your 2020 tax return and filing a completed 2020 Form 7202 (Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals) along with IRS Form 1040-X.

For corporation owners, if your corporation paid you while you were not working due to COVID-19, your corporation may qualify for sick or family leave tax credits. If your corporation has not claimed the credits in its 2020 returns, it can amend its payroll tax returns using Form 941-X. Please note that there’s a three-year statute of limitations for correcting payroll tax overpayments on Form 941-X, which for 2020 expires on April 15, 2024.

Also, please be aware that you cannot receive double benefits. If you received assistance through the Paycheck Protection Program (PPP), the Employee Retention Credit (ERC), or similar programs, you cannot claim the same self-employed income or employee wages for the COVID-19 sick and family leave credits.

If you believe you qualify for the credits or have any questions regarding your eligibility or the amendment process, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• June 26, 2023