News & Views
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The IRS recently sent out letters to taxpayers who claimed the deduction for deferral of self-employment tax permitted under the CARES Act of 2020. This deferral allowed self-employed taxpayers to defer their payment for self-employment tax and pay it over the next two years. While this is not usually a significant number but the IRS has made a point of reminding taxpayers that is due so it is useful to remind ourselves what this payment is and how it is calculated.
In addition, legislation passed in March 2021 retroactively removed the requirement for taxpayers to repay any excess health care premium credits received in 2020. While retroactive legislation is very unfair because it does not allow for a level playing field for tax planning, certain taxpayers who received this benefit had already filed by the time the legislation was passed and were entitled to a credit.
The IRS has calculated the amount of the repayment for excess health care premium credits (this is reported on Line 8 or Part II of Schedule 3 in the 1040 tax return) and applied it to any deferred self-employment tax. So instead of receiving a refund for the excess healthcare premium credits the IRS has unilaterally decided to reduce outstanding self-employment taxes.
The self-employment taxes owing after this calculation have to be paid as follows:
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