Welcome

Join us June 9th at the Tax Professionals and IRS Working Together Virtual Seminar

Michigan Chapter Instructor Marilyn Meredith will be presenting

Pensions & Annuities 

Bring your pension and annuity questions for a dialogue on the opportunities that exist with each instrument, tax savings with

charitable contributions, correcting distribution codes as well as pension plans with basis and inherited IRAs.

Last year claimed a tax season like no other and 2021 is set up to provide just as unique an experience for us

as practitioners, clients and citizens. Join the IRS virtually to discuss the season’s challenges and what

developments are appearing on the landscape moving forward.

A UIA & State of Michigan Individual/Business Tax Update

American Rescue Plan Act of 2021

Tax practitioner data loss & safeguarding taxpayer data

Inside the IRS Return Preparer Office

Registration LEARN MORE & REGISTER TODAY AT:
MICPA.ORG/IRSC21 

Working Together Conference June 9th

Notice: Update to April 1, 2021 Notice Regarding the Treatment of Unemployment
Compensation for Tax Year 2020
Date: April 27, 2021
This Notice addresses the unemployment compensation exclusion (also, “unemployment
exclusion”) in the federal American Rescue Plan Act1
and its effect on the taxable income of
Michigan resident taxpayers under the Michigan Income Tax Act.2
This Notice is an update to the
Notice published April 1, 2021, and provides guidance to taxpayers who have already filed their
tax year 2020 returns.
Background
On April 1, 2021, the Department issued a Notice explaining the Michigan individual income tax
impact of the American Rescue Plan Act’s (ARPA) exclusion of up to $10,200 of unemployment
compensation. That Notice explained that taxpayers who filed tax year 2020 income tax returns
may not have included the unemployment exclusion and may therefore be entitled to a refund.
Similar to guidance issued by the Internal Revenue Service, the Notice requested that taxpayers
refrain from filing amended returns while the Department explored potential automated
mechanisms for making unemployment exclusion adjustments to original returns without the need
for an amended return. Taxpayers were advised that additional guidance would be forthcoming.
The Department is now providing updated instructions about how to report the unemployment
compensation exclusion in Michigan for taxpayers who have already filed.
Filing Amended Returns to Report the Unemployment Exclusion in Michigan
The Department is requesting that all taxpayers who already filed an original 2020 Michigan tax
return without reporting the unemployment exclusion (for example, if the original return was filed
prior to the American Rescue Plan Act) now report the unemployment exclusion by filing an
amended Michigan tax return. Though the Department is still exploring potential automated
mechanisms regarding the unemployment exclusion, taxpayers are strongly encouraged to file an
amended return to claim any refund that may be owed to them. Any information regarding an
automated solution — if possible — will be communicated in future guidance from the
Department, but there is no current timetable or certainty for this option.
An amended return reporting the unemployment exclusion will allow many taxpayers to receive
an additional tax refund and allow for some other taxpayers to reduce a scheduled tax payment.
Depending on the taxpayer’s original return, the exclusion should be reported in accordance with
the following instructions:
1 Public Law No: 117-2.
2 MCL 206.1 et seq.1. Taxpayers who filed an original return and either claimed a refund or paid
the tax at the time of filing.
Taxpayers eligible to receive a refund due to reporting the unemployment exclusion include
taxpayers who claimed a refund on the original Michigan return and taxpayers who paid any tax
due with the filing of that original return. These taxpayers should file an amended Michigan
income tax return to claim that refund. In amending the return, taxpayers who claimed a refund on
the original return should check the box on Form MI-1040, line 31a, and write any refund received
from the original return on the line.
2. Taxpayers who filed an original return resulting in tax due, but scheduled a
tax payment for a future date, such as May 17, 2021.
A taxpayer who owed tax on their original return may have scheduled the tax payment for a later
date, such as May 17, 2021.
3
The unemployment exclusion may allow these taxpayers to reduce
the tax liability subject to that scheduled payment or eliminate that payment altogether. These
taxpayers should also file an amended return, but because the tax payment is pending, there are
additional considerations:
• Before filing the amended return, the taxpayer should, if possible, cancel or stop the
pending payment by contacting the financial institution issuing that payment. If the
scheduled tax payment is cancelled, then the taxpayer must pay at the time of filing the
amended return any tax still owed – if any – on that return. In completing the amended
return, taxpayers should not write the amount of the original return payment on the
amended MI-1040, line 31b.
• If it is not possible to stop the payment, or if the amended return is filed after the scheduled
payment date, then the original return payment will be processed with the original return.
In this case, the taxpayers should claim a refund on the amended return. In completing the
amended return, check the box on line 31a of the amended MI-1040, and write the amount
of the original return payment on that line.
Instructions for Filing an Amended Return
The Department always encourages taxpayers to submit returns and in this case — amended
returns — electronically. Many software products that taxpayers used to file their original returns
have been updated to include this unemployment change for amendment purposes. E-filing the
amended return will ensure a greater level of accuracy and faster processing times. For any
3 The due date of tax year 2020 individual income tax returns was extended to May 17, 2021. See Notice: Automatic Extension for
Individual and Composite State Income Tax Returns Due on April 15, 2021 for more information. See also 2021 PA 8. taxpayer that chooses to paper file the amended return, that taxpayer should use Form MI-1040,
check the “Amended Return” box, and include Schedule AMD and all forms and schedules
submitted with the original return. For additional help, please visit:
www.michigan.gov/taxes/0,4676,7-238–557888–,00.html.
The following must be submitted with any amended return:
• If the taxpayer has received it, proof that the IRS has adjusted the federal return due to the
unemployment exclusion such as, for example, a copy of a federal adjustment letter.
• Schedule AMD, Amended Return Explanation of Changes (Form 5530), and all forms and
schedules submitted with the original return.
• A copy of the 1099-G that reports unemployment compensation.
In addition, taxpayers should note that direct deposit of a refund is only available on an original
return, so refunds for amended returns will be sent as a paper check in the mail. Please ensure the
address on the amended return is correct.
Failure to follow the instructions within this notice may result in delays in processing a refund
claimed on the amended return.
Miscellaneous
The Department will process these amended returns in an expedited manner and issue refunds
accordingly. Interest on any refund will be computed in accordance with Section 30 of the Revenue
Act.4
All amended returns remain subject to audit and review based on information received from
the IRS.
Following is a link to Treasury’s Notice: Treatment of Paycheck Protection Program (PPP) Loans Under the Michigan Income Tax Act

NOTE CHECK YOUR SOFTWARE ON THE CITY RETURNS TO MAKE SURE IT IS COMPUTING CORRECTLY.

The State of Michigan

For taxpayers that have already filed, we’re asking taxpayers to wait on filing any amended Michigan return until we learn how the IRS will communicate (if at all) any adjustments they make to the states.

IRS Changes Unemployment Exclusion Calculation
Update to posted guidance

Once again, the IRS has made changes to forms relating to the New Exclusion of up to $10,200 of Unemployment Compensation guidance.

Original IRS guidance said to include unemployment income when calculating the $150,000 modified adjusted gross income (AGI) limitation. Today, the IRS provided updated instructions for the unemployment compensation exclusion worksheet which now states modified AGI does NOT include unemployment compensation.

As noted within the guidance, if a 2020 Form 1040 or 1040-SR return has already been filed, there is no need to file an amended return to figure the amount of unemployment compensation to exclude. The IRS will refigure the taxes using the excluded unemployment compensation amount and adjust the tax account accordingly. The IRS will send any refund amount directly to the taxpayer.

Notice: Automatic Extension for Individual and Composite State Income Tax Returns Due on April, 15, 2021

This notice provides taxpayers with information on the extensions of time to file returns and remit tax and the waivers from penalty and interest that the Department will grant in conformity with IRS Notice 2021-59.[1]

IRS Notice 2021-59.  On March 17, 2021 the IRS issued Notice 2021-59 providing extensions to May 17, 2021 for any individual with a return or payment due on April 15, 2020. IRS Notice 2021-59 did not extend the first quarter estimated tax payment due on April 15, 2021.

Michigan conformity with IRS Notice 2021-59.  To conform to the automatic extensions granted through IRS Notice 2021-59, the Department will extend individual and composite State income tax returns and payments of 2020 taxes due on April 15, 2021 to May 17, 2021. Because the extension is limited to the 2020 taxes, first quarter estimates for tax year 2021 remain due on April 15, 2021.  The extension is limited to the state individual and composite income tax annual return and does not apply to fiduciary returns or corporate income tax returns. This notice does not apply to city income taxes. City income tax taxpayers should contact their respective tax administrators for information regarding that city’s potential conformity with IRS Notice 2021-59.

Because the extensions in conformity with IRS Notice 2021-59 are generally applicable to  individual and composite 2020 returns and any payment of 2020 taxes due on April 15, 2021, the following provisions have been modified:

1. Extension of Annual Return Filing and Payment Date for Individuals

The due date for the filing of the return and payment of tax based on the due date of the annual return has been automatically extended.  For individual and composite taxpayers that file state returns otherwise due on April 15, 2021, the due date for the filing of the return and payment of tax has been automatically extended to May 17, 2021.

2. Extension of Date for Application and Payment for Extension Requests

The due date for any application and payment of tax related to an extension of time to file the annual return has also been extended.  A taxpayer requesting an extension of time to file an annual return must therefore file an application and pay any tax with that extension request by May 17, 2021.  The due date of the extended annual return, however, will not be modified by this notice.  Accordingly, an individual or composite taxpayer requesting a 6-month extension of time to file a state individual income tax return must submit that request and pay the appropriate amount of tax by May 17, 2021, but the extended annual return remains due on October 15, 2021.

3. Penalty and interest

Penalty and interest will not accrue for the extension period that is automatically effective.  Penalty and interest for late filing of the return and payment of 2020 tax will therefore not begin to accrue for most individuals until May 18, 2021.  However, the suspension of penalty and interest is limited to the automatic extensions authorized under this notice; penalty and interest will continue to accrue as appropriate for taxes otherwise owed by any taxpayer.

The extensions provided throughout this notice are automatic.  There is no need for taxpayers to include any additional information upon the filing of the return or otherwise contact the Department in advance to request an extension.

Additional information can be found at www.michigan.gov/taxes.


[1] The Revenue Act, MCL 205.1 et seq., does not prevent a compromise of interest or penalties, or both, and further permits the Department to waive penalties where reasonable cause can be established. The relief provided within this notice is based on the Department’s general statutory authorization authority to waive penalty and interest related to the filing of the annual return or the payment of tax after the statutory due date.  Because this notice is based on the waiver of penalty and interest through May 17, 2021, the date set for filing the return for purposes of the statute of limitations under Section 27a of the Revenue Act remains the same.

Tax Day for individuals extended to May 17: Treasury, IRS extend filing and payment deadline

IR-2021-59, March 17, 2021

WASHINGTON — The Treasury Department and Internal Revenue Service announced today 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. The IRS will be providing formal guidance in the coming days.

“This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities,” said IRS Commissioner Chuck Rettig. “Even with the new deadline, we urge taxpayers to consider filing as soon as possible, especially those who are owed refunds. Filing electronically with direct deposit is the quickest way to get refunds, and it can help some taxpayers more quickly receive any remaining stimulus payments they may be entitled to.”

Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17.

Individual taxpayers do not need to file any forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the May 17 deadline can request a filing extension until Oct. 15 by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Filing Form 4868 gives taxpayers until October 15 to file their 2020 tax return but does not grant an extension of time to pay taxes due. Taxpayers should pay their federal income tax due by May 17, 2021, to avoid interest and penalties.

The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds associated with e-filed returns are issued within 21 days.

This relief does not apply to estimated tax payments that are due on April 15, 2021. These payments are still due on April 15. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS by people whose income isn’t subject to income tax withholding, including self-employment income, interest, dividends, alimony or rental income. Most taxpayers automatically have their taxes withheld from their paychecks and submitted to the IRS by their employer.

State tax returns

The federal tax filing deadline postponement to May 17, 2021, only applies to individual federal income returns and tax (including tax on self-employment income) payments otherwise due April 15, 2021, not state tax payments or deposits or payments of any other type of federal tax. Taxpayers also will need to file income tax returns in 42 states plus the District of Columbia. State filing and payment deadlines vary and are not always the same as the federal filing deadline. The IRS urges taxpayers to check with their state tax agencies for those details.

Winter storm disaster relief for Louisiana, Oklahoma and Texas

Earlier this year, following the disaster declarations issued by the Federal Emergency Management Agency (FEMA), the IRS announced relief for victims of the February winter storms in Texas, Oklahoma and Louisiana. These states have until June 15, 2021, to file various individual and business tax returns and make tax payments. This extension to May 17 does not affect the June deadline.

New Exclusion of up to $10,200 of Unemployment Compensation | Internal Revenue Service (irs.gov)

If your modified adjusted gross income (AGI) is less than $150,000, the American Rescue Plan enacted on March 11, 2021, excludes from income up to $10,200 of unemployment compensation paid in 2020, which means you don’t have to pay tax on unemployment compensation of up to $10,200. If you are married, each spouse receiving unemployment compensation doesn’t have to pay tax on unemployment compensation of up to $10,200. Amounts over $10,200 for each individual are still taxable. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation.

The exclusion should be reported separately from your unemployment compensation. See the updated instructions and the Unemployment Compensation Exclusion Worksheet to figure your exclusion and the amount to enter on Schedule 1, lines 7 and 8.

The instructions for Schedule 1 (Form 1040), line 7, Unemployment Compensation, are updated to read as follows.

Line 7
Unemployment Compensation

You should receive a Form 1099-G showing in box 1 the total unemployment compensation paid to you in 2020. Report this amount on line 7.

Caution. If the amount reported in box 1 of your Form(s) 1099-G is incorrect, report on line 7 only the actual amount of unemployment compensation paid to you in 2020.

Note. If your modified adjusted income (AGI) is less than $150,000, the American Rescue Plan enacted on March 11, 2021 excludes from income up to $10,200 of unemployment compensation paid to you in 2020. For married taxpayers, you and your spouse can each exclude up to $10,200 of unemployment compensation. For example, if you were paid $20,000 of unemployment compensation and your spouse was paid $5,000, report $25,000 on line 7 and report $15,200 on line 8 as a negative amount (in parentheses).  The $15,200 excluded from income is $10,200 for you and all of the $5,000 paid to your spouse. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation. Use the Unemployment Compensation Exclusion Worksheet to figure your modified AGI and the amount you can exclude.

If you made contributions to a governmental unemployment compensation program or to a governmental paid family leave program and you aren’t itemizing deductions, reduce the amount you report on line 7 by those contributions. If you are itemizing deductions, see the instructions on Form 1099-G.

Caution. Your state may issue separate Forms 1099-G for unemployment compensation received from the state and the additional $600 a week federal unemployment compensation related to coronavirus relief. Include all unemployment compensation received on line 7.

If you received an overpayment of unemployment compensation in 2020 and you repaid any of it in 2020, subtract the amount you repaid from the total amount you received. Enter the result on line 7. Also enter “Repaid” and the amount you repaid on the dotted line next to line 7. If, in 2020, you repaid more than $3,000 of unemployment compensation that you included in gross income in an earlier year, see Repayments in Pub. 525 for details on how to report the payment.

Tip. If you received unemployment compensation in 2020, your state may issue an electronic Form 1099-G instead of it being mailed to you. Check your state’s unemployment compensation website for more information.

Unemployment Compensation Exclusion Worksheet – Schedule 1, Line 8

  1. Enter the total of lines 1 through 7 of Form 1040 and Schedule 1, lines 1 through 7. Include the full amount of unemployment compensation you received in 2020 on Schedule 1, line 7.
  2. Use the line 8 instructions to determine the amount to include on Schedule 1, line 8 and enter here. Do not reduce this amount by the amount of unemployment compensation you may be able to exclude.
  3. Add lines 1 and 2.
  4. Enter the total of line 10b of Form 1040 and Schedule 1, lines 10 through 21.
  5. Subtract line 4 from line 3. This is your modified adjusted gross income.
  6. Is the amount on line 5 $150,000 or more?
    • [ ]Yes. Stop You can’t exclude any of your employment compensation
    • [ ]No. Go to line 7
  7. Enter the amount of unemployment compensation paid to you in 2020. Don’t enter more than $10,200
  8. If married filing jointly, enter the amount of unemployment compensation paid to your spouse in 2020. Don’t enter more than $10,200
  9. Add lines 7 and 8 and enter the amount here. This is the amount of unemployment compensation excluded from your income.
  10. Subtract line 9 from line 2 and enter the amount on Schedule 1, line 8. If the result is less than zero, enter it in parentheses. On the dotted line next to Schedule 1, line 8, enter “UCE” and show the amount of unemployment compensation exclusion in parentheses on the dotted line. Complete the rest of Schedule 1 and Form 1040, 1040-SR, or 1040-NR.

Information for filing Michigan Taxes at this time this was the response from the State of Michigan

(The laws are evolving and we will strive to keep everyone up to date)

Based on how the American Recovery Plan reads, the $10,200 would not be in AGI and therefore would not flow to the Michigan return.  I am not currently aware of any plans to modify the Michigan Income Tax Act to have the $10,200 added back.  As for THR, the $10,200 would be included in there in accordance with MCL 206.510(1) as the unemployment waiver is specifically excluded from AGI.

 

Total House Hold Resources

MCL 206.508(4) “Total household resources” means all income received by all persons of a household in a tax year while members of a household, excluding for tax years beginning after December 31, 2018 any compensation received pursuant to the wrongful imprisonment compensation act, 2016 PA 343, MCL 691.1751 to 691.1757, and increased by the following deductions from federal gross income:
  (a) Any net business loss after netting all business income and loss.
  (b) Any net rental or royalty loss.
  (c) Any carryback or carryforward of a net operating loss as defined in section 172(b)(2) of the internal revenue code.
 
MCL 206.510  (1) “Income” means the sum of federal adjusted gross income as defined in the internal revenue code plus all income specifically excluded or exempt from the computations of the federal adjusted gross income.

 

Special Alert
President to sign American Rescue Plan Act of 2021

The House and Senate have just passed the American Rescue Plan Act (ARP) and shortly the president is expected to sign it into law. This bill includes many provisions that have major tax impacts for 2020 and 2021 tax returns.

2020 tax-free unemployment benefits

Initially the bill didn’t include retroactive tax provisions, but during the Senate’s voting session, a compromise was made on unemployment benefits that will affect 2020 tax returns. The bill provides a $300 weekly federal unemployment benefit through Sept. 6 and also makes the first $10,200 of unemployment payments nontaxable ($20,400 in the case of a joint return, but only $10,200 per spouse) in 2020 for households earning less than $150,000.

Retroactive advanced premium tax credit

An individual can receive an advanced premium tax credit (APTC) to lower their monthly health insurance payment (premium). If at the end of the year they have received more APTC than the credit allowed based on final household income, the taxpayer does not have to pay back the excess when filing their 2020 federal tax return. For those who have already filed their 2020 return, we are waiting for guidance as to how to get the refund.

Recovery rebates to individuals

Single taxpayers with AGI under $75,000 will receive a $1,400 refundable tax credit, while joint filers with AGI under $150,000 will receive $2,800. In addition, taxpayers will receive $1,400 for each qualifying dependent (including adult dependents). The credit will completely phase out at an income threshold of $80,000 for single filers and $160,000 for joint.

The Treasury is directed to issue this credit as an advance payment based on the information on 2019 or 2020 tax returns. This credit will be reconciled on the 2021 tax return. Taxpayers who are married to undocumented residents will be able to receive the stimulus payments. If your client has changes to income, dependencies, or filing status, it may be advantageous to file before/after these payments are issued.

Child tax credit

Special rules for 2021 include an expansion of the credit from $2,000 to $3,000 per eligible child under age 18 ($3,600 per child under age 6). The fully refundable credit, with 50% of the credit issued as advance periodic payments starting in July, will be reconciled on the 2021 tax return. For 2021, the increased credit amount (additional $1,000 or $1,600 per-child in excess of the present-law $2,000 per-child) begins to be phased-out at $75,000 ($150,000 for MFJ and surviving spouse and $112,500 for head of household). Once the increased credit amount is reduced, the credit plateaus at $2,000, and the phaseout begins at $200,000 ($400,000 for MFJ).

Starting in July, the Treasury will issue advance payments of the child tax credit based on 2019 or 2020 tax return information. The Treasury is tasked with establishing an online portal to allow taxpayers to opt out of receiving advanced payments and provide information regarding changes in income, marital status and the number of qualifying children for purposes of determining each taxpayer’s maximum eligible credit.

Earned income credit

For 2021 only, the bill expands the eligibility and the amount of the earned income credit (EIC) for taxpayers with no qualifying children. The maximum credit amount for childless people will increase from $543 to $1,502. For 2021, taxpayers can use their 2019 income if it was higher than 2021.

The bill also includes permanent changes, allowing a married but separated individual to be treated as not married for purposes of the EIC if a joint return is not filed and the individual lives with a qualifying child for more than half the year. Individuals who otherwise would be eligible for EIC, but whose children do not have Social Security numbers, are now permitted to claim the childless credit. The disqualified investment income limit has increased from $3,650 (2020) to $10,000 and will be adjusted for inflation.

Other provisions

The act includes other tax changes, such as:

  • Refundability and enhancement of child and dependent care tax credit
  • Increase in exclusion for employer-provided dependent care assistance
  • Extension and expansion of the Families First Coronavirus Response Act (FFCRA) paid sick leave and paid family leave credits
  • Extension of employee retention credit
  • Modification of the premium tax credit
  • Change to the tax treatment of targeted economic injury disaster loan (EIDL) advances
  • Exemption of student loan forgiveness from federal taxation through 2026
  • Expanded COBRA continuation coverage premium assistance credit

 

Treasury: Michiganders Granted Relief from Unemployment Benefit Tax Penalties and Interest

Click to read more

 Individual Income Tax Return Processing Begins on Feb. 12

 

Michigan Total Household Resources:

Total Household Resources DO NOT INCLUDE:

Economic impact payments through the 2020 federal Coronavirus Aid, Relief and Economic Security (CARES) Act and Covid-Related Tax Relief Act (COVIDTRA).

Please see the link below for a full list of instructions:

MI-1040CR_Property_Tax_Credit_Instructions_712106_7

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Save the Date 2021

May 2021      Annual Meeting and Educational opportunities

July 11 – 15   National Conference/ Baltimore. MD

September   Two for One

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