Auditor Ying Sa gave unusual advice to his clients this week.
“Wait,” she said, “until you can’t wait any longer.”
Sa, founder of Community CPA & Associates, is usually concerned about the looming onslaught of income tax work this time of year. With the April 15th tax return only weeks away, she envisions last-minute customers congregating at the company’s Des Moines, Iowa City and Bloomington, Minnesota offices. Like most accountants, she would normally prefer to come in early and split the work for the staff.
Not this year. After Congress passed a COVID-19 relief package on Wednesday that includes tax forgiveness for unemployment benefits and Iowa lawmakers debated a similar proposal, Sa urged customers to stop all filings.
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If they submit their forms to the Internal Revenue Service before the changes go into effect, they will need to file modified forms later. She fears these changes will delay the benefits her clients might get as they pile more paperwork over the Internal Revenue Service.
“Wait until (the congressional coronavirus aid package) is put into law,” Sa said. “We’re going to find out. But we don’t want people to pay thousands and thousands extra.”
Usually, any money received through unemployment insurance counts as income for tax purposes. But the aid package that the US House passed on Wednesdayincludes a provision to waive the first $ 10,200 of unemployment insurance received by workers.
Benefit only applies to federal taxes and households with income of $ 150,000 or less. The tax forgiveness that state lawmakers are considering would apply to money workers received from federal unemployment programs, including the $ 600 per week many Iowans received through state pandemic unemployment benefits.
US Representative Cindy Axne, D-Iowa, proposed a similar tax forgiveness scheme in a standalone bill in early February, but her legislation could have applied to households making more than $ 150,000 a year.
“This is fantastic news for millions of Americans and thousands of Iowans who have faced a surprising unemployment benefit tax burden,” Axne said in a statement.
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Republicans and Democrats at Iowa House support the concept of forgiving state income tax laws and unanimously pass a March 3 proposal. That legislation is now in the Senate.
The legislature’s proposal exempts any unemployment insurance that employees have received under federal programs. Workers would continue to be taxed on benefits they receive from the state’s standard unemployment insurance.
The bill would also exempt money companies received from government agencies related to coronavirus-related grants. The proposal calls on the Iowa Economic Development Authority, the Iowa Finance Authority, and the Iowa Department of Agriculture and Land Stewardship to determine which grants are corporate tax exempt.
State officials estimate the proposal will reduce government revenues by $ 128 million. They propose to offset the cuts in part with a transfer of $ 103 million from the Taxpayer Relief Fund over the next two years.
The Taxpayer Relief Fund, created by lawmakers in 2011, is where the state sends money if it receives more than the projected revenue in a given year. State law dictates that these funds may only be used to reduce tax burdens on individuals.
“(The Proposal) is a major COVID relief package that cares for both businesses and individuals, and is fair in the most meaningful way possible,” said Rep. Brian Lohse, R-Bondurant, on the House Floor on Dec. March when he introduced the proposal as an amendment to another bill.
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Senator Joe Bolkcom, D-Iowa City, added, “It’s really amazing, frankly, that the house is moving and there is bipartisan support. I’ve been around for a while. We don’t usually do blue-collar tax cuts, major ones Workers. It is an important help to people when they need it. “
The proposals come a year after a record wave of unemployment in Iowa as the COVID-19 pandemic caused businesses to shut down. Iowa had about 562,800 jobless claims in 2020, nearly four times the number the year before.
In her office, Sa said, customers are excited to see what kind of tax bills they’ll have to pay for their unemployment insurance benefits. Community CPA & Associates specializes in working with minority families and hosts weekly webinars with tax updates in Chinese, English, Spanish and Vietnamese. She said 80 customers signed up for Tuesday’s webinar, which is roughly twice the normal number of viewers.
Using a database of the company’s customers, employees believe the new unemployment insurance exemption will lower the average customer’s income tax by $ 1,200.
However, Sa said the unemployment insurance benefit exemption could have an even bigger impact. She said some applicants will now qualify for federal limited-income tax credits, earning them an additional $ 2,000.
Sa said she expected the IRS to extend the deadline for federal income tax filings to summer, as the agency did last year. The IRS will take time to adjust to changes in Congress, and the American Institute of Certified Public Accountants sent the agency a letter on Thursday asking the agency to postpone the registration deadline to June 15.
Ann Hartz, another chartered accountant at Des Moines, said she also advised some clients to suspend income tax filings until lawmakers worked out changes. She estimated that around half of her clients had received unemployment insurance in the past year.
“It’s going to be quite a job,” she said.
Your office is already considering the best ways to deal with the onslaught of amendments customers have to table due to changes in Congress or legislation.
Hartz said customers are also making urgent inquiries because of the $ 1,400 stimulus checks that are part of the U.S. House’s legislation. The amount of money people receive depends on their income and whether they are single, parents and / or married.
A single person with no children can receive the maximum payment if, for example, total earnings are less than $ 75,000. The payment will decrease until the income exceeds $ 100,000.
According to Hartz, some customers qualify for the incentive based on their 2019 income, but not based on their 2020 income. In this case, customers want to slow down the process of filing their new income tax returns in the hopes that the federal government will make payments based on them issuing the latest data for 2019.
In other instances, customers made way more in 2019 than they did in 2020. They want just the opposite: they need to file their federal income taxes quickly to show they qualify for the incentive.
Hartz said she couldn’t imagine another year with so many significant changes in tax law happening so soon before the deadline.
“It’s just a crapshoot, to be completely honest,” she said. “It’s just very difficult to work with. For the most part, we just go with the flow.”
Tyler Jett covers jobs and economics for the Des Moines Register. Reach him at [email protected], 515-284-8215, or on Twitter at @LetsJett.