What Nonprofits Need to Know About the Consolidated Appropriations Act of 2021

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The Consolidated Appropriations Act of 2021 offers relief to nonprofits hit hard by the coronavirus pandemic. The new relief efforts clarify elements of the Paycheck Protection Program, offer funding for new loans (PPP2), enhance the employer tax credit, and extend employee benefit modifications.

Paycheck Protection Program Updates

The Paycheck Protection Program offered significant benefits to help organizations retain employees who might otherwise go on unemployment benefits. PPP2, an extension or continuation of the Paycheck Protection Program, allocated $284.45 billion for loans, $43.5 billion in Small Business Administration (SBA) debt relief, and $20 billion for certain live venues and cultural institutions that remain shut down or have significant operational restrictions due to the pandemic.

The new Act not only extends the PPP2 loans into 2021 but provides additional guidance and clarification. Nonprofit managers should now focus on PPP loan forgiveness and whether or not they should access funding under the new PPP2.

PPP2: New Guidelines

PPP2 comes with brand new guidelines for potential borrowers, so it is important for nonprofits to review the guidelines again in light of these changes. It encompasses organizations with 300 or fewer employees and reduces the maximum loan amount from. $10 million to $2 million. If your organization did not previously quality for the Paycheck Protection Program, these changes may qualify it in 2021.

SBA Requires “Loan Necessary” Questionnaire

The new PPP act requires borrowers to complete a new questionnaire from the Small Business Administration attesting to the necessity of the loan. The new version of the questionnaire for nonprofit was finalized on November 30, 2020 and is an entirely separate requirement for the loan application. Nonprofits seeking loans of $2 million or more are required to complete both the questionnaire and the loan application. Note that evidence must accompany the responses, too, such as proof of liquidity and revenues between 2019 and 2020 and other facts to attest to the need for the loan.

Tax Treatment of PPP Loans

The PPP loan clarification also includes confirmation that any amount of PPP loans forgiven will not be taxable.

Employer Tax Credit Enhancements

Two employer tax credits are in the Consolidated Appropriations Act of 2021: Employee Retention Tax Credit and Employer Tax Credit for Family and Medical Leave.

Under the 2021 bill, the Employee Retention Tax Credit (ERTC) has been extended to employers who claim PPP loans. One important item to note: wages used to justify forgiveness of any PPP loan may not be used again to calculate the ERTC. Although this limits the possible benefits for recipients of PPP loans, it also expands the eligibility for the credit to others.

The Employer Tax Credit for Family and Medical Leave refundable payroll tax credits have been extended through March 2021. Note that this extension does not require an employer to provide the leave—it simply extends the credit for employers who voluntarily provide the leave.

The credit is equal to 12.5% of eligible wages if the rate of payment is 50% of such wages. It is increased by 0.25 percentage points (but not above 25%) for each percentage point that the rate of payment exceeds 50%. The maximum amount of family and medical leave that may be taken into account with respect to any qualifying employee is 12 weeks per taxable year.

Seek Professional Advice

As with any new bills, this one may take some time to fully understand its limits and ramifications. If you’re in doubt about the financial or tax implications to your organization, please contact Welter Consulting.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

New Year, New Guidelines – 2021 Mileage, Retirement Plan Limits, and More

By | Accounting, Tax | No Comments

It’s 2021, and we all hope this year brings health, happiness, and prosperity to all. With the new year comes new guidelines for many aspects of accounting, so let’s dive right into the changes, updates, and other information you’ll need for your business accounting.

CARES Act Rules

The CARES Act provided economic relief to American workers and healthcare workers during the coronavirus crisis. First passed in March, the act was intended to provide aid and economic support to workers negatively impacted by the COVID-19 crisis. Several components of the ACT provided direct financial aid as well as assistance to businesses and individuals.

Several elements are involved in the CARES Act relief bill, but the ones potentially impacting nonprofits and their employees include:

  • Penalty for early withdrawal of IRA funds is waived on up to $100,000 withdrawn for coronavirus reasons.
  • For nonitemizers, up to $300 of cash donations may be deducted.
  • For itemizers, deduct charitable contributions of up to100% of AGI (adjusted gross income).

Nonprofits should seek to educate their donors about these changes to encourage additional donations. The Journal of Accountancy provides a tax season preview that offers additional insights into various effects and impacts of the CARES Act.

Additional information is available from Welter Consulting on the provisions of the CARES act for nonprofit organizations.

Mileage Reimbursement Changes

The business mileage rate is 56 cents per mile. Business mileage is no longer deductible as an unreimbursed employee business expense. Charitable services rate is 14 cents per mile.

Retirement Plan Limits

The maximum employee 401K deferral remains at $19,500 with $6,500 additional “catch up” for employees age 50 and older. The overall plan limit moves from $57,000 to $58,000. The defined benefit plan maximum is at $230,000.

The Roth IRA contribution limit is $6,000 with an added $1,000 for “catch up” for 50 and over. The Roth IRA contribution limit phaseout (MAGI) is $196,000 to $206,000 for married, filing jointly, and $124,000 to $139,000 for single head of household. Married, filing separately ranges from 0 to $10,000.

The SEP minimum required compensation is $600. The compensation limit for determining maximum allowable contributions by employer is $285,000.

Social Security Changes

The Social Security Administration also published their set of guidelines for 2021. This includes the number of credits needed to accrue from time in the workforce to qualify for social security, and much more. All employees of nonprofit organizations must still pay into the social security system; working for a tax-exempt organization does not exempt individuals from paying taxes, including social security and Medicare taxes.

Looking for Additional Information?

The IRS now has an opt-in form for exempt organizations to sign up for their ongoing news briefs. Each news brief contains an update about new materials for exempt organizations and links to the IRS publication pertaining to the update. It’s a time-saving service for nonprofits and available directly on the IRS website.

As the new year progresses, stay informed of the latest news from the accountancy and tax world for nonprofits right here at Welter Consulting. Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

The New IRS 1099-NEC Form: What You Need to Know

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The IRS is typically on the ball when it comes to changing their forms. After all, the organization is perhaps the “king of forms” and juggles hundreds of forms, schedules, and instructions to manage the complex U.S. tax code.

That’s why it was so surprising when they made a rather glaring error on the updated 1099-MISC. The mistake: assigning two different deadlines to the same form. (Oops.)

Their solution: separate non-employee commission from all the other income types reported on the 1099 to create the new 1099-NEC form.

Here’s what you need to know about the 1099-NEC.

What Is 1099-NEC?

Starting in the tax year 2020, all non-employee compensation should be reported using the new 1099-NEC form. Instructions for both the 1099-MISC and 1099-NEC may be found on the IRS site.

The new 1099-NEC separates non-employee compensation from all other forms of compensation, such as royalties, rents, and other income payments.

Why Did the IRS Change the 1099-MISC?

Initially, the IRS tried to change the filing deadline for Box 7 on the 1099-MISC form. The problem, however, is that they ended up with two deadlines for the same form. As you can imagine, that caused considerable confusion.

To address the issue, they split out the information formerly reported in Box 7 of the 1099-MISC into the new 1099-NEC. This enabled them to assign different deadlines for the information because each deadline is now assigned to a unique form.

What Are the New Deadlines?

The new filing deadlines for the forms are January 31 for the 1099-NEC and March 31 for the 1099-MISC.

Will the Changes Affect Your Organization?

You’ll need to review the IRS publications linked above to determine how to report income from any non-employees compensated by your organization. For example, if you have independent contractors providing over $600 in services to your organization, you may need to file 1099-NEC for each contractor according to the earlier deadline.

Those who may receive royalties on book sales, however, would continue to receive the 1099-MISC.

Other changes to the 1099-MISC may be confusing. Boxes have moved and changed, so be especially careful when completing the form to avoid common mistakes.

Abila MIP Software Takes the Confusion Out of 1099 Reporting

This is one of the many reasons why we recommend using Abila MIP accounting software. Starting in 2020, Abila announced they’d added the 1099-NEC to their software. To code items to the new 1099-NEC in Abila MIP, you’ll need to:

  1. Update your version of Abila to the latest edition.
  2. Change vendor defaults to the new box.
  3. Make sure to use the new box in transaction entry.
  4. Move historical information from MISC-07 to the NEC via 1099 Adjustments.

If you aren’t running Abila MIP but are interested in true fund accounting for nonprofits, give Welter Consulting a call. We’ve helped many nonprofits transition their accounting and finance software to packages such as Abila, explicitly created for the nonprofit world.

Accounting for nonprofits includes fund accounting and unique setups to trace income and expenses to grants and other specific budget lines. Only with software created specifically for the nonprofit world can you do this easily and quickly.

For more information, contact Welter Consulting at 206-605-3113.

Five Tips for Accurate Form 990 Reporting and Filing

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One of the most important financial filings nonprofit organizations must complete annually is IRS Form 990. For smaller nonprofits, this form may be the only action it takes each year to provide comprehensive financial information to the public and other organizations, such as grantors or charity watchdogs.

According to the Journal of Accountancy, Form 990 is one of the more challenging IRS forms. It’s complex, lengthy, and intimidating. The following tips may make reporting on 990 easier for your organization.

Which Version Should You File?

As with the personal income tax form 1040, there is an “EZ” version and a standard version. Nonprofits with gross receipts of less than $50,000 may wish to consider completing the EZ version. It’s always a good idea to meet with your accountant or with Welter Consulting to discuss which form may suit your nonprofit better and the advantages and disadvantages of each.

If your organization earns gross receipts between $50,000 and $200,000, you can choose between 990 EZ and 990. Any organization earning more than $200,000 should complete the standard 990. Private foundations, regardless of income status, must complete 990-PF.

Prepare for Filing

Gather your financial information, calculator, pens, paper, and records before sitting down to work on your 990. Some like to print a paper copy of the form and use it as a draft version. Once they are satisfied they have completed the form, they can then transfer it to the online filing system.

If you are using a not-for-profit accounting system such as Abila MIP Fund Accounting, it is easy to review the financial information needed for form 990. Others still using spreadsheets or general small business accounting software may need more time to review the numbers, find all the information, and prepare their report.

5 Tips for IRS Form 990

As you work on form 990, keep the following in mind:

  1. Do not include unnecessary personal information: Form 990 is made public and often shared with other organizations. Including personally-identifying information should be avoided as much as possible. In today’s world, with rampant identity theft, thieves find information through many sources, including published data. Don’t make their job any easier than it already is – do not disclose anything other than what is required.
  2. Complete parts I through XII: You can’t skip any parts between I and XII if you are filling out form 990 standard. Some mistakenly believe sections do not apply to their organization, but the IRS requires completion of the entire form.
  3. Include required schedules: After completing Part IV, you will have a list of all required schedules for your form. The IRS recommends double-checking the schedules to ensure they are complete. Be sure to include “0” on lines without an entry and answer “yes” or “no” to each question as required.
  4. Complete Schedule A: Speaking of Schedules, all 501(c) 3 organizations should complete Schedule A. Organizations with a designation of 4947(a) should also complete Schedule A. Failing to complete this schedule can result in penalties.
  5. Sign the return: You’d be surprised at how often people forget this simple step. Sign, date, and file the return!

Although no one enjoys completing IRS forms, they are necessary to ensure all financial information is reported accurately and promptly to the government.  Nonprofits must adhere to IRS reporting guidelines or run the risk of losing their tax-exempt status. By completing Form 990 promptly and thoroughly, you’ll rest easy knowing it’s done for the year and have a valuable document demonstrating your organization’s financial status.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.