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Restaurants and other hospitality businesses were among the hardest hit during the pandemic, and even as infection and hospitalization rates wane, many consumers are hesitant about returning to their pre-pandemic activities. Despite these challenges, businesses have managed to survive and thrive with the help of innovative technologies like Toast, a restaurant-only software solution that addresses point of sale, restaurant operations, kitchen dashboards, online ordering and delivery, and marketing. Though created years before COVID-19 as a means for improving operations, the product has helped restaurants large and small to adapt, minimize contact, improve overall service, and boost profitability.

Born in 2012 in the bars, restaurants, and cafes of Boston, Toast started as an app that eliminated the need to wait for a check. It allowed customers to start a tab and link it directly to their credit card. From there it grew into a comprehensive system that provided Android tablets that servers could carry with them and use to enter orders as well as process payments. The idea was that mobile technology would avoid the need for expensive in-house hardware and software systems. It would cut training time for staff, thus saving valuable money for owners. It also saved servers steps, thus allowing them to assume responsibility for more tables and grow their earnings while providing clients with better service. Finding a way to avoid running back and forth between the table and a terminal to place orders or process payments was a win for everybody. But that was just the beginning.

Because Toast relies on open-source Android technology, the system continued expanding. By the end of 2015, its functions included payroll, inventory management, and multi-location menu controls. it was being used by thousands of restaurants across the country. Then the pandemic struck, and though its founders feared that their single-minded focus on the restaurant industry might mean the end of their successful venture, when restaurants reopened their doors they realized that their product’s flexibility meant they could add new functions in response to the virus. They developed contactless ordering and mobile payments, curbside notifications for takeout, and flat-fee deliveries that limited contact between servers and diners.

According to Perry Quinn, senior vice president of business innovation development for the National Restaurant Association, businesses that adopted a digital presence were the ones that were able to emerge from the pandemic and survive where others closed their doors. “One restaurant I know of, within about four days in March, pivoted to more digital. They turned it on and had 250 orders that day,” he said. “Those that embraced and got in front of the digital side of this, whether it’s email, web, mobile, online ordering, etcetera, really hit the ground running as it related to just extending their services to their existing customers.”

Though the slow waning of the virus’s worst effects has calmed fears about signing checks and dining in, the advantages of these innovations have remained, boosting profits and efficiency in restaurants. Establishments that have adopted Toast often have QR codes printed on their receipt, allowing diners who have finished their meal to simply scan the code and pay directly instead of waiting for their server to arrive and process their credit card. That type of convenience is memorable, and brings diners back. The technology is returning to its original mission of improving operations for diners, owners, and staff alike.

Congress considers our tax system a “pay-as-you-earn” system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-earn” requirement. These include:

• Payroll withholding for employees;
• Pension withholding for retirees; and
• Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding.

When a taxpayer fails to prepay a safe harbor (minimum) amount, they can be subject to the underpayment penalty. This nondeductible interest penalty is higher than what might be earned from a bank. The penalty is applied quarterly, so making a fourth-quarter estimated payment only reduces the fourth-quarter penalty. However, withholding is treated as paid ratably throughout the year, so increasing withholding at the end of the year can reduce the penalties for the earlier quarters. This can be accomplished with cooperative employers or by taking an unqualified distribution from a pension plan, which will be subject to 20% withholding, and then returning the gross amount of the distribution to the plan within the 60-day statutory rollover limit (but check with this office before using the latter strategy).

Federal law and most states have so-called safe harbor rules, meaning if you comply with the rules, you won’t be penalized. There are two Federal safe harbor amounts that apply when the payments are made evenly throughout the year.

1. The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of your current year’s tax liability, you can escape a penalty.

   2. The second safe harbor—and the one taxpayers rely on most often—is based on your tax in the immediately preceding tax year. If your current year’s payments equal or exceed 100% of the amount of your prior year’s tax, you can escape a penalty, regardless of the amount of tax you may owe when you file your current year’s return. If your prior year’s adjusted gross income was more than $150,000 ($75,000 if you file married separate status), then your payments for the current year must be 110% of the prior year’s tax to meet the safe harbor amount.

Where taxpayers get into trouble is when their income goes up or their withholding goes down for the current year versus the prior year. Examples are having a substantial increase in income, such as when investments are cashed in, thereby increasing income but without any corresponding withholding or estimated payments. Another frequently encountered situation is when a taxpayer retires and their payroll income is replaced with pension and Social Security income without adequate withholding. Taxpayers who don’t recognize these types of situations often find themselves substantially underpaid and subject to the underpayment penalty when tax time comes around.

The bottom line is that 100% (or 110% for upper-income taxpayers) of your prior year’s total tax is the only true safe harbor because it is based on the prior year’s tax (a known amount), whereas the 90% of the current year’s tax amount is a variable based on the income for the current year, and often that amount isn’t determined until it is too late to adjust the prepayment amounts.

That being said, there are times when using the 100%/110% safe harbor method doesn’t make a lot of financial sense. For example, let’s say that in the prior year, you had a large one-time payment of income that boosted up your tax to $25,000, which is $10,000 more than you normally pay. You know that you won’t have that extra income in the current year. Rather than rely on the 100%/110% of prior tax safe harbor, where you’d be prepaying $10,000 more than your current year’s tax is likely to be, it may be appropriate to use the 90% current-year tax safe harbor, determined by making a projection of your current year tax, and as the year goes along, monitoring your income and the tax paid in to be sure you are on track to reach the 90% goal.

Please contact our office promptly if you have a substantial increase in income so that withholding or estimated tax payments can be adjusted to avoid a penalty.

It seems hard to believe, but the holiday season is almost upon us, and that means that the 2021 tax preparation season will soon follow. With the end of the tax year just around the corner, tax-savvy individuals need to take some time from their busy schedules to review the tax benefit steps they’ve already taken and see what else they need to do. Now is the time to ensure that you’ve taken advantage of all of the tax-saving strategies available to you.

There are a number of smart tax-advantaged moves available. Though you may not be eligible to utilize all of them, it’s a good idea to take a break from holiday shopping to make sure you’ve done all that you can to minimize your tax burden and get all of the write-offs and deductions possible. Here are ten of the most popular, most effective strategies available, including some important reminders that may save you from having to pay penalties:

Make the Most of Education Tax Credits: Both the Lifetime Learning education credit and the American Opportunity Tax Credit allow qualified taxpayers to prepay 2022 tuition bills for an academic period that begins by the end of March 2022, including the tuition payments when figuring the 2021 credit. That means that if you are eligible to take the credit and you have not yet reached the 2021 maximum for qualified tuition and related expenses paid, you can bump up your credits by paying for early 2022 tuition before ringing in the New Year. This may not apply to you if you’ve been paying tuition expenses for the entire 2021 tax year, but if your student just started school this fall, it will probably provide you with some additional help.

Convert a Traditional IRA to a Roth IRA: When a traditional IRA is converted to a Roth IRA, generally the amount converted is taxable in the conversion year. Taxpayers whose incomes have been very low in 2021 may be able to move the assets currently in their traditional IRA into a Roth IRA at a much lower tax rate than if they waited to make the conversion in a higher-income year.

Avoid Required Minimum Distribution (RMD) Penalties: Once U.S. taxpayers reach the age of 72, they are required to take what is known as a “required minimum distribution” from their qualified retirement plan or IRA every year. If this is the first year that this rule applies to you and you haven’t withdrawn the required amount yet, there’s no need to panic – you don’t have to do so until sometime during the first quarter of next year. Of course, if you wait until 2022 to take your 2021 distribution, you’re going to end up having to take two distributions in one year – one for 2021 and one for 2022. For those who have fallen into this category before 2021, you only have until December 31st to take the required distribution if you want to avoid penalties.

Charitable Deductions: Many people who itemize take advantage of the ability to take a deduction for their donations to their favorite charity or house of worship. Did you know that you can choose to pay all or part of your 2022 planned giving in 2021 in order to increase the amount you deduct in 2021? Though this may not be appealing to those who itemize every year, if you alternate between taking the standard deduction one year and itemizing the next, this can give you a big boost.

For 2021 only, even if you use the standard deduction and don’t itemize your deductions, you will be eligible to claim a tax deduction of up to $300 ($600 if you file jointly with your spouse) for cash contributions you make to qualified charities during 2021. Cash includes payments by check and credit card. Donations to donor advised funds and private foundations aren’t eligible for this non-itemizer deduction.

Charitable contributions are deductible in the year in which you make them. If you charge a donation to a credit card before the end of the year, it will count for 2021. This is true even if you don’t pay the credit card bill until 2022. In addition, a check will count for 2021 as long as you mail it in 2021.

Qualified Charitable Distributions: Those who are age 70½ or older are allowed to transfer funds (up to $100,000) from their IRA to qualified charities without the transferred funds being taxable, provided the transfer is made directly by the IRA trustee to a qualified charitable organization other than a private foundation or a donor-advised fund. If you are required to make an IRA distribution (i.e., you are age 72 or older), you may have the distribution sent directly to a qualified charity, and this amount will count toward your RMD for the year.

Although you won’t get a tax deduction for the transferred amount, this qualified charitable distribution (QCD) will be excluded from your income, with the result that you may get the additional benefit of cutting the amount of your Social Security benefits that are taxed. Also, since your adjusted gross income will be lower, tax credits and certain deductions that you claim with phase-outs or limitations based on AGI could also be favorably impacted.

If you plan to make a QCD, be sure to let your IRA trustee or custodian know well in advance of December 31 so that they have time to complete the transfer to the charity. If you have contributed to your traditional IRA since turning 70½, new rules may limit the amount of the QCD that isn’t taxable, so it is a good idea to check with this office to see how your tax would be impacted.

Optimize Your Contributions to Your Health Savings Account: Did you become eligible to make contributions into a Health Savings Account this year? If so, then you can make deductible contributions into that account up to the annual maximum amount, regardless of when you became eligible during the year.

Prepay State Income and 2022 Property Taxes: You probably know that if you are not subject to the alternative minimum tax and you itemize your deductions, you are eligible to deduct both your property taxes and state income (or sales) tax up to a maximum of $10,000. But did you know that in some cases, you can increase the amount that you deduct on your 2021 return by prepaying some of the taxes by December 31, 2021? You can ask your employer to boost the amount of your state withholding by a reasonable amount; or, if you are self-employed, pay your 4th-quarter state estimated tax installment in December (due in January) and increase your deduction. The same is true for your real estate taxes: if you pay your first 2022 installment in 2021, you can take it as part of your 2021 deduction. But be mindful of the so-called SALT limit – the maximum deductible amount of state and local taxes of all types is $10,000. So, don’t electively prepay state taxes if you are at or above the $10,000 cap.

Pay Outstanding Medical or Dental Bills: Taxpayers who itemize their deductions are able to deduct qualified medical and dental expenses that exceed 7.5% of their adjusted gross income. If you have reached that threshold or are close, then it may make sense for you to pay off any of those types of bills that are still outstanding rather than paying them over time. If you are near or above the limit, it may also make sense to look at what your medical and dental expenses will likely be for the next year and move those that you can into 2021 to increase the deduction. These expenses could include dental work or eyeglasses. An additional important issue: if you are thinking of doing this by paying using a credit card and you’re not going to pay the balance immediately, make sure that you’re not paying more in interest than you’re saving with the increased deduction.

Remember the Annual Gift Tax Exemption: Though gifts to individuals are not tax deductible, each year, you are allowed to make gifts to individuals up to an annual maximum amount without incurring any gift tax or gift tax return filing requirement. For tax year 2021, you are able to give $15,000 each to as many people as you want without having to pay a gift tax. If this is something that you want to do, make sure that you do so by the end of the year, as you are not able to carry the $15,000 over into 2022. Such gifts need not be in cash, and the recipient need not be a relative. If you are married, you and your spouse can each give the same person up to $15,000 (for a total of $30,000) and still avoid having to file a gift tax return or pay any gift tax.

Check the Payments You’ve Made to Date: If you think there’s a chance that the income taxes you’ve paid to date for 2021 are insufficient, it’s a good idea to increase your withholding in the time that’s left to make up for it. Underpaying taxes makes you vulnerable to an underpayment penalty that is assessed quarterly. The good news is that even if you have underpaid for any or all of the first three quarters of the year and will owe taxes when you file your 2021 return, you can make up for it by boosting your year-end withholding, since federal withholding is deemed paid ratably throughout the year. Plus, increased withholding and possible payment of estimated taxes can also reduce the fourth quarter underpayment penalty.

Every taxpayer’s situation is unique, and the suggestions offered here may not apply to you. The best way to ensure that you are putting yourself into a tax-advantaged position is to seek advice from an experienced, qualified tax professional. Please contact our office if you need assistance.

If you own rental real estate, its classification as a trade or business rather than an investment can have a big impact on your tax bill. The distinction is especially important because of the 20% Section 199A deduction for certain sole proprietors and pass-through entity owners.

The 199A deduction is available for qualified business income (QBI), which can come from an eligible trade or business, but not from an investment. So, assuming you otherwise meet the requirements, qualifying your rental real estate activities as a trade or business may yield substantial tax savings. Fortunately, an IRS Revenue Procedure establishes a safe harbor.

A brief review

The 199A deduction is too complex to cover fully here. But, in general, it allows owners of sole proprietorships and pass-through entities — partnerships, S corporations and, generally limited liability companies (LLCs) — to deduct as much as 20% of their net business income, without the need to itemize.

Eligible owners are entitled to the full deduction so long as their taxable income doesn’t exceed an inflation-adjusted threshold (for tax year 2021, $164,900 for singles and heads of households; $329,800 for joint filers). Above the threshold, the deduction may be reduced or eliminated for businesses that perform certain services or lack sufficient W-2 wages or depreciable property.

Rental real estate guidance

According to the IRS, for purposes of the 199A deduction, an enterprise is a trade or business if it qualifies as such under Internal Revenue Code Section 162. That section doesn’t expressly define “trade or business” — it’s determined on a case-by-case basis based on various factors. Generally, a trade or business is an activity conducted “on a regular, continuous and substantial basis” with the aim of earning a profit.

Uncertainty over whether rental real estate qualifies, especially for taxpayers with one or two properties, prompted the IRS to issue Revenue Procedure 2019-38 to establish a safe harbor. Under the Revenue Procedure, a rental real estate enterprise (RREE) is deemed a trade or business if the taxpayer (you or a “relevant pass-through entity” in which you own an interest):

• Maintains separate books and records for the enterprise,
• Performs at least 250 hours of rental services per year (for an enterprise that’s at least four years old, this requirement is satisfied if you meet the 250-hour test in at least three of the last five years),
• Keeps logs, time reports or other contemporaneous records detailing the services performed, and
• Files a statement with his or her tax return.

The Revenue Procedure lists the types of services that count toward the 250-hour minimum and clarifies that they may be performed by the owner or by employees or contractors. It also defines an RREE as one or more rental properties held directly by the taxpayer or through disregarded entities (for example, a single-member LLC).

Generally, taxpayers must either treat each rental property as a separate enterprise or treat all similar properties as a single enterprise. Commercial and residential properties, for example, can’t be combined in the same enterprise.

Planning opportunities

There may be opportunities to restructure rental activities to take full advantage of the safe harbor. For example, Marilyn owns a rental residential building and a rental commercial building and performs 125 hours of rental services per year for each property. As noted, she can’t combine the properties into a single enterprise, so she doesn’t pass the 250-hour test.

But let’s say she exchanges the residential building for another commercial building for which she provides 125 hours of services. Then she can treat the two commercial buildings as a single enterprise and qualify for the safe harbor (provided the other requirements are met).

Don’t try this at home

The tax treatment of rental real estate is complex. To take advantage of the 199A deduction or other tax benefits for rental real estate, consult your tax advisor.

Sidebar: Are you a real estate professional?

Ordinarily, taxpayers who “materially participate” in a trade or business are entitled to deduct losses against wages or other ordinary income and to avoid net investment income tax on income from the business. The IRS uses several tests to measure material participation. For example, you materially participate in an activity if you devote more than 500 hours per year, or if you devote more than 100 hours and no one else participates more.

Rental real estate, however, is generally deemed to be a passive activity — that is, one in which you don’t materially participate — regardless of how much time you spend on it. There’s an exception, however, for “real estate professionals.”

To qualify for the exception, you must spend at least 750 hours per year — and more than half of your total working hours — on real estate businesses (such as development, construction, leasing, brokerage or management) in which you materially participate. (The hours you spend as an employee don’t count, unless you own at least 5% of the business.)

© 2021

Some might consider it a good problem to have: saving too much money for college. But if the money is held in a Section 529 college savings plan, there could be tax consequences to overfunding the account.

The tax man giveth

529 plans are tax-advantaged accounts designed to help families save money for college education expenses. Savings grow on a tax-deferred basis, and withdrawals are made tax-free if the money is used to pay for qualified education expenses such as college tuition, fees, books, and, generally, room and board. Further, some states offer tax incentives for contributions to 529s.

The tax consequences come into play if 529 funds are used for anything other than qualified education expenses. Specifically, earnings on investments held in the account will be taxable and a 10% penalty will be assessed if the money is used for noneducation-related expenses.

Note that only the earnings portion of the account will be subject to taxes and penalties. Funds you’ve contributed to the account (or principal) won’t be taxed upon withdrawal regardless of what they’re used for, because contributions were made with after-tax dollars.

Your alternatives

So what should you do if your child graduates from college and there are funds left in your 529 account? Here are a few options to consider:

Change the beneficiary. The flexibility that characterizes 529 plans includes the ability to name someone else as the account’s beneficiary. So if you have other children in college now or who’re planning to attend college, you can simply make them the beneficiaries of the account.

You can even change the beneficiary to yourself. This would allow you to use the funds for qualified expenses for your own education.

Use the funds to pay for private school education. The Tax Cuts and Jobs Act changed the 529 plan rules so that up to $10,000 of funds per year can now be used for private K-12 tuition. Therefore, if you have younger children, you can potentially make beneficiary changes so you can use the 529 plan funds to send them to a private school. But beware that, depending on the state, there could be state tax consequences.

Investigate nonqualified 529 plan withdrawal options. The law specifies certain situations where nonqualified withdrawals can be made from 529 plans penalty-free. These include a child’s death or disability and a graduate’s attendance at a U.S. military academy.

Also, if your child is awarded an academic or athletic scholarship, you can use withdrawals up to the scholarship amount for expenses that aren’t education-related and avoid the 10% penalty on earnings. But you’ll still have to pay income tax on the earnings when you file your federal tax return.

There’s also a new provision that allows — subject to restrictions, of course — 529 plans to be used to repay student loans.

Leave the money alone. There’s no deadline for 529 account withdrawals, so you can leave funds in the account to pay for future education expenses. The money will continue to grow tax-deferred as long as it stays in the account.

So if your child decides later to attend graduate school, funds can be used to help cover these expenses. You can even keep funds in the account for the long term to help pay education expenses for your future grandchildren. This will give your children a good head start on college saving for their kids.

If all else fails

If none of these strategies are ideal for your situation, you may just have to withdraw excess 529 funds and pay the taxes and penalties due. Since they apply only to the earnings portion of the account, the tax hit may not be too severe.

© 2021

On November 5, the House voted to pass the Infrastructure Investment and Jobs Act (IIJA), which had previously passed in the Senate. The bill now heads to the White House, where President Biden is expected to sign it into law.

Though the main focus of the new legislation is on allocating tax dollars for infrastructure investment throughout the nation, the IIJA also contains a number of tax provisions. A recent article from the Journal of Accountancy offers a helpful overview of the tax changes, which include the following:

• An early end to the employee retention credit (ERC)
• New reporting requirements for brokers working with cryptoassets
• Modification of the language governing the definition of a disaster area
• Extensions of some highway-related taxes
• Extensions and modifications of some superfund excise taxes
• Allowance of private activity bonds for broadband projects and carbon dioxide capture facilities that meet certain qualifications

For further details, click here to read the article in full.

According to a recent U.S. Travel Association forecast, only about one-third of companies are requiring their employees to travel. With business travel still at a low, how can companies develop a travel policy that reduces the risk of COVID-19?

Occupational Safety and Health Administration

When it comes to business travelers, whether employees are traveling domestically or internationally, OSHA recommends employers consult the Centers for Disease Control and Prevention (CDC) for guidance.

Travel Guidance

The CDC advises against traveling internationally for those who are not vaccinated, have been exposed to the virus, are sick with it, test positive for it, and/or are waiting for results from COVID-19 exposure. Even for travelers who are fully vaccinated, the CDC reminds us that becoming infected and/or spreading the virus is still possible.

Travelers should follow all guidelines at their point of departure, on the airline, and at their destination (e.g., wear face masks, get tested to show proof of being COVID-19 negative, maintain social distancing) to be compliant with requirements during each point of the journey.

For those returning to the United States, fully vaccinated travelers must have a negative COVID-19 test taken within 72 hours of travel. Fully vaccinated individuals are suggested to test three to five days post-travel, keep an eye out for symptoms, and test and isolate if there are symptoms. Travelers who are not fully vaccinated must have a negative COVID-19 test within 24 hours of travel. Travelers who are not fully vaccinated are advised to test three to five days after, along with self-quarantining for seven days, post-return. Even if the COVID-19 test is negative, self-quarantining for seven days after travel is advised. If the COVID-19 test is positive, travelers should quarantine. If unvaccinated travelers don’t get tested, they should stay at home and self-quarantine for 10 days post-travel. If symptomatic, test and isolate.

When it comes to domestic travel, differences exist between fully vaccinated and partially/non-vaccinated travelers. Along with masking and government mandates for fully vaccinated travelers, upon return, they need to keep an eye out for symptoms and isolate if any develop. However, there are no recommendations for testing or self-quarantining for fully vaccinated or those who have recovered from an infection within the past three months.

For unvaccinated domestic travelers, along with adhering to masking, social distancing, hand hygiene practices, and government mandates, testing 24 to 72 hours before departure is recommended. Upon return, travelers are advised to get tested three to five days later and quarantine for one week. If non-vaccinated travelers don’t test, a 10-day quarantine is recommended. If a test is done and it’s negative, a one-week isolation period is recommended.

Assessing Financial/Legal Risk

Employers must determine if the work that requires travel is truly essential, and if it is in all jurisdictions, it should be documented. There are a few types of potential financial and/or legal liabilities if employees travel to perform their work duties. If an employee becomes infected, a workers’ compensation claim could be opened. If an employee does not receive accommodation, either not having to travel or being unable to work safely in the office with a worker who may have been exposed to COVID-19, legal issues may develop. Additionally, a whistleblower lawsuit may exist if an employee alleges the company has violated public health requirements. However, if business travel can’t be delayed, there must be guidelines to reduce the risk of travel becoming a way to catch COVID.

Protect Employees Before Travel Begins

Businesses are advised to give their employees adequate personal protective equipment (PPE). Depending on how and where the employee is traveling, he or she is required by federal law to wear a mask in and on mass transit (e.g., airplanes, trains). It also may help to provide gloves, hand sanitizer, and wipes.

Study Transit and Destination COVID-19 Policies

Whether it’s domestic or international travel, different cities, states, and countries have different requirements for those who are vaccinated and those who are not. Depending on where the traveler has a layover, there could be testing, proof of vaccination, or masking/social distancing requirements in place at various spots.

Agree to Travel-Related Activities

By highlighting the risks of visiting certain venues that may pose higher risks (e.g., restaurants, gyms), an employer also can mandate employees to wear masks, socially distance, wash hands frequently, etc., regardless of the locale’s requirements.

Plan Ahead for Post-Travel Office Work

Another important component of a travel policy is how the business and its employee(s) will return safely to work and interact with co-workers and clients. For the most extreme cases, there could be a 14-day work-from-home policy to reduce the risk. Businesses can mandate testing for employees as long as they cover testing costs and testing requirements are applied fairly companywide.

While the world is reopening to commerce, especially instances when business deals necessitate face-to-face meetings with people from different cities and continents, safety with COVID-19 is paramount.

Sources

https://www.ustravel.org/press/new-forecast-signals-long-road-recovery-business-travel

https://www.osha.gov/coronavirus/control-prevention/business-travelers

https://www.cdc.gov/coronavirus/2019-ncov/travelers/travel-during-covid19.html

https://www.cdc.gov/coronavirus/2019-ncov/travelers/international-travel-during-covid19.html

Employers must comply with numerous requirements, including paperwork and notices, when hiring new employees. In addition to required new hire paperwork, documentation is recommended to help administer payroll, benefits, and other HR responsibilities. Here are some key forms to keep in mind:

Required New Hire Paperwork:

• Form I-9. An I-9 Form must be completed for each new hire to verify the individual’s identity and that they are authorized to work in the United States. To complete Section 2 of the I-9, employees must present documents for this verification. The I-9 Form includes a List of Acceptable Documents (List A, List B, and List C). An employee must present one document from List A or one document from List B and one document from List C.
  • List A documents: establish both identity and employment authorization
  • List B documents: establish identity only
  • List C documents: establish employment authorization only

Employers must generally inspect Section 2 documents in the employee’s physical presence. However, due to the pandemic, the U.S. Department of Homeland Security (DHS) has offered employers some flexibility. Specifically, from April 1, 2021 through December 31, 2021, the requirement that employers inspect the I-9 documentation in-person applies only to those employees who physically report to work at a company location on any regular, consistent, or predictable basis, according to the DHS. If employees hired on or after April 1, 2021 work exclusively in a remote setting due to COVID-19-related precautions, they are temporarily exempt from the physical inspection requirements until they go back into the workplace on a regular, consistent, or predictable basis, or the DHS terminates the flexible option, whichever is earlier.

• Form W-4. All new hires must complete a W-4 to determine the amount of federal income tax to withhold from their wages. Several states also require a tax withholding form. Employers should ensure that they are using the latest version of the form, which may change each year. If the employee has questions or asks for advice on how to complete a W-4, instruct them to speak with a tax advisor.
• Notice of Coverage Options. Under the Affordable Care Act (ACA), employers must provide a Notice of Coverage Options to all new hires within 14 days of their start date. This requirement applies even if the employer doesn’t offer health insurance and/or the employee is not eligible for health insurance.
• Wage and hour. Under federal law, employers that use the tip credit must first notify tipped employees of:
  • The minimum cash wage that will be paid;
  • The tip credit amount, which cannot exceed the value of the tips actually received by the employee;
  • That all tips received by the tipped employee must be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips.
• State and local notices. Many states and local jurisdictions also require that employers provide specific notices to employees at the time of hire. These required notices may cover state disability insurance, state-run retirement programs, leave entitlements, harassment and discrimination, workers’ compensation, unemployment, and other employment-related benefits and protections. Many states require employers to provide, in writing, the employer’s business name, address, and telephone number; the employee’s rate of pay and regular payday; and certain other information. Provide new hire notices in accordance with your state and local requirements.
• New hire reporting. Federal law requires that employers submit certain information to their state regarding each new hire within 20 days of the employee’s start date, but several states have shorter timeframes. New hire reporting is included in many RUN Powered by ADP® packages. If you have to fulfill these responsibilities on your own, you have several options, such as submitting the new hire’s W-4 or an equivalent form. Check your state’s new hire reporting program for details.

Recommended new hire paperwork: 

• Handbook acknowledgment. After new hires are provided with a copy of your employee handbook, they should sign a form acknowledging that they have received and are responsible for complying with all company policies. Make sure you give employees enough time to read and ask questions about the handbook before they are required to sign the acknowledgment form. Make sure you provide new hires with your policies related to preventing the spread of COVID-19, such as any mask and vaccination requirements.
• Payroll authorizations. If you offer direct deposit, provide new hires with a direct deposit authorization if they would like their pay deposited directly into their bank account each pay period. A payroll deduction authorization should also be provided for voluntary deductions, such as health insurance premiums and retirement savings plans.
• Benefits information. All new hires should receive information about the benefit programs you offer as well as any forms required to enroll. Note: Employers with health benefit and/or retirement plans must provide a summary plan description (SPD) to individuals when they become a participant in the plan or a beneficiary under such a plan. New employees must receive a copy of the SPD within 90 days after becoming covered by the plan.
• Emergency contact. An emergency contact form lets you know who to contact in the case of an emergency. This form should be completed within the employee’s first few days of work.
• Receipt of company property. If you provide your new hire with company property, such as a laptop, cell phone, or key, have the employee complete a receipt of company property form. This acknowledges that the employee has received the company property listed, that they will maintain it in good condition, and that they will return it upon separation from the company, or earlier if requested.

Conclusion:

The forms listed above can be found in the New Hire Paperwork section of HR411®. Consider using a checklist to ensure that you complete and provide all required documents to each new hire.

This story originally published on HR Tip of the Week – a blog providing practical information on hiring, benefits, pay, and more – by ADP®. Learn more about how ADP’s small business expertise and easy-to-use tools can simplify payroll & HR at adp.com.

Based in California, Rivian is an American automotive manufacturer that specializes in electric vehicles. Originally founded back in 2009, the company now has manufacturing plants in Illinois, Michigan, California, Vancouver, and England. Designing cars intended for both on and off-road driving, the organization currently employs more than 7,000 people as of 2021.

You may have heard about Rivian recently because they just rolled off their first production electric truck. That in and of itself is notable — but the success it has already enjoyed is equally so. Experts from Motor Trend have dubbed it “one of the most remarkable vehicles” they had ever test drove. All told, it’s the product of ten years of hard work finally coming to fruition — and entrepreneur R.J. Scaringe has been a big, big part of that up to this point.

Rivian: The Story So Far

Robert “R.J” Scaringe and Rivian began focusing on autonomous, electric-powered vehicles as far back as 2011. Just a few years later, they received a substantial investment that allowed them to open research facilities in both Michigan and on the West Coast a few years later. The Michigan headquarters, in particular, proved to be very strategic, as it allowed them to operate closer to some of their key supply chain partners.

But in those early days of the company, Scaringe had his eyes set on one thing: an electric sports car. Production was supposed to begin in 2013, but a number of setbacks prevented that from happening.

As is true with any successful entrepreneur, R.J. Scaringe was not one for giving up. By September 2016, Rivian was already in talks to buy a manufacturing plant that formerly belonged to Mitsubishi in Illinois. Not only did they purchase the plant itself, but they also got access to everything in it — allowing them to build a new manufacturing facility with an eye toward a decidedly different direction than the one they had settled on prior. All of that hard work and perseverance paid off in the form of the 2022 Rivian R1T — the first mass-produced electric truck in the United States. Again, Motor Trend called it “part truck, part sport sedan and 100 percent amazing” — no faint praise, to be sure.

The Rivian R1T offers a four-motor, four-wheel-drive system that is capable of delivering 415 horsepower and no less than 413-foot pounds of torque to the front wheels. This, along with 420 horsepower and 495-foot pounds delivered to the rears, allow it to go from 0mph to 60mph in as little as three seconds.

When people think about electric vehicles, they often call to mind situations where they would have to make certain compromises. Maybe an electric car doesn’t go as fast as its traditional alternatives, or maybe it can’t travel as far. They assume that they’ll probably be limited in terms of performance under certain conditions.

The Rivian R1T shatters all of these assumptions for the benefit of an entire industry.

Building a Successful Business, One Brick at a Time

Rivian has been so successful up to this point that it has attracted the attention of a number of unlikely people — including Jeff Bezos, currently known as the richest man in the world. In the fall of 2020, while the COVID-19 pandemic was still at its height, Bezos was able to preview the Rivian R1T at the company’s plant in Plymouth, Michigan. It’s safe to say that he was enthusiastic about what he saw because Bezos’ own Amazon soon invested $700 million into the company. This caused a ripple effect in the best possible way. Just two months later and Ford had invested an additional $500 million. Overall, Rivian has been able to raise more than $1.7 billion in capital — all without actually selling one truck or sport utility vehicle in the United States.

During this period, R.J. Scaringe has come a long way from his humble beginnings studying mechanical engineering at the Massachusetts Institute of Technology. After earning his doctorate, he returned to his native Florida and began Rivian. During these early days, not only did he lack the resources to properly execute his vision — he was also the sole employee for a period of time.

R.J. Scaringe’s entrepreneurial story is one filled with adversity from that point forward. Unfortunately, not only did he found his company at the height of the financial crisis during a time when investors were being very, very precise about where they were spending their money, but he also had to deal with the negative side effects brought on by the bankruptcies of both General Motors and Chrysler. To say that nobody wanted to invest in a car company at that point was a bit of an understatement.

But still, Scaringe never gave up.

He spoke to family and friends and collected as much money as he could. Both he and his father took out second mortgages on their homes to raise as much money as possible. He slowly put together a small team to work on the aforementioned electric sports car but unfortunately had to end that project when he was unsatisfied with the results.

Flash forward to today and Rivian is aiming for an IPO. It wants to go public with a valuation of nearly $70 billion. Not only would that be significantly higher than what the market thinks that rival Ford is worth, but it would also make it one of the most valuable auto manufacturers on the planet.

All of this is thanks to the fact that R.J. Scaringe shared one important quality with all the entrepreneurs he’s always admired: He was never willing to give up. It’s a mantra that has certainly served him well over the next decade and will continue to do so for years to come.

The Covid-19 pandemic has had a significant impact on the labor market – mandated government lockdowns and workers’ and customers’ fears of contracting the illness resulted in businesses closing or temporarily cutting back and laying off or furloughing millions of employees. In April 2020, the unemployment rate reached 14.8%, the highest rate since such data started to be collected in 1948. While by September 2021 the unemployment rate had declined to 4.8%, millions of job openings went unfilled as former employees were reluctant to return to work. Some businesses still weren’t operating at full capacity because they weren’t able to find enough employees.

If you are a business owner, and are hiring new workers, you may be able to claim a Work Opportunity Tax Credit (WOTC) if you hire someone who has been unemployed for 27 consecutive weeks or more or if the individual is from one of several other categories of eligible employees, as explained below. This credit is an income tax credit, unlike some of the pandemic-related credits that are applied to employment taxes of the business.

The WOTC is typically worth up to $2,400 for each eligible employee, but it can be worth up to $9,600 for certain veterans and up to $9,000 for “long-term family assistance recipients.” The credit, which was extended by Congress in late 2020 legislation, is available for eligible employees who begin working for the new employer after 2020 and before 2026.

Generally, an employer is eligible for the WOTC only when paying qualified wages to members of any of the targeted groups listed below. For more details on the required qualifications for each group, see the instructions for IRS Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit).

(1) Qualified IV-A recipients – generally, members of a family that is receiving assistance under the Temporary Assistance for Needy Families (TANF) program;
(2) Qualified veterans;
(3) Qualified ex-felons – generally, those hired within one year of release from prison;
(4) Designated community residents – those who are aged 18 through 39 and who are living in an empowerment zone or a rural renewal area*;
(5) Vocational rehabilitation referrals – handicapped individuals who are referred by rehabilitation agencies;
(6) Qualified summer youth employees – those who are 16 or 17 years old, have never previously worked for the employer and reside in an empowerment zone*;
(7) Qualified members of families who participate in the Supplemental Nutritional Assistance Program (SNAP);
(8) Qualified Supplemental Security Income recipients;
(9) Qualified long-term family assistance recipients – those receiving TANF assistance payments; and
(10) Qualified long-term-unemployed individuals. The period of unemployment cannot be less than 27 consecutive weeks, and must include a period (which may be less than 27 consecutive weeks) in which the individual received unemployment compensation under state or federal law.

* Both empowerment zones and rural renewal areas are listed in the IRS Form 8850 instructions. The empowerment zone designations expired at the end of 2020. However, the legislation that extended the WOTC through 2025 also provides for an extension of the designations to the end of 2025.

For an employer to qualify for the credit, the employee must work a minimum of 120 hours and receive at least 50% of his or her wages from that employer for working in the employer’s trade or business. Relatives of the employer and employees who have previously worked for the employer do not qualify for the credit.

For an employee from most of the targeted groups, the credit is based upon the first $6,000 of first-year wages. If an employee completes at least 120 hours but less than 400 hours of service for the employer, the credit is equal to those wages multiplied by 25%. If the employee completes 400 or more hours of service, the credit is equal to the wages multiplied by 40%. Thus, the maximum credit per employee in one of these groups would be $2,400 (.4 x $6,000). For the summer youth employees, only the first $3,000 of the first-year wages are taken into account, resulting in a maximum per-employee credit of $1,200 (.4 x $3,000)

Two categories allow for higher first-year wages to be eligible when calculating the credit:

• Long-term family assistance recipients – For this category, the first-year wage that can be taken into account for the credit is increased to $10,000, thus allowing a maximum credit of $4,000 (.4 x $10,000). In addition, this group qualifies for a credit in the second year (immediately following the first year); this is equal to 50% of second-year wages up to $10,000.
• Veterans – The three possible qualifications of veterans (family received SNAP benefits, unemployed, or service-related disability) have applicable first-year wages for the credit of up to $12,000, up to $14,000 and up to $24,000. Thus, the maximum credit for this group is between $4,800 (.4 x $12,000) and $9,600 (.4 x $24,000), depending upon the qualification. The unemployment-based qualification for veterans without a service-related disability is either that the veteran was:
  • (1) Unemployed for a period or periods totaling at least 4 weeks (whether or not consecutive) but less than 6 months in the 1-year period ending on the hiring date, or
  • (2) Unemployed for a period or periods totaling at least 6 months (whether or not consecutive) in the 1-year period ending on the hiring date.

Certification Process – To be eligible to claim the WOTC, the employer must file Form 8850 with its state workforce agency (SWA) no later than 28 days after an eligible employee begins work. Due to the COVID-19 emergency, the IRS has extended many filing due dates, including if the 28th calendar day falls on or after January 1, 2021, and before October 9, 2021; in that case, employers are allowed to submit Form 8850 to the SWA by November 8, 2021. Once the worker is state-certified as a member of a targeted group and has worked sufficient hours, the employer can claim the WOTC on Form 5884 (Work Opportunity Credit).

Other Issues:

• No Multiple Benefits – No deduction is allowed for the portion of wages equal to the WOTC for that tax year. Also, the same wages used to compute the WOTC can’t be used by the employer when claiming the coronavirus-related Employee Retention Credit, the credit for qualified sick and family leave, and the disaster-related employee retention credit.
• Unused Current-Year Credit – The credit is included in the general business credit, and if an employer’s credit is greater than its income-tax liability (including the alternative minimum tax), the excess credit is considered an unused credit that is available for use on another year’s return. The unused credit is first carried back one year (generally by amending the return for the carryback year) and then carried forward until any remaining credit is used up (but for no more than 20 years).

If you are expanding your work force as the pandemic winds down, be sure to keep in mind that you may be eligible to claim the WOTC for eligible employees from the targeted tax groups noted in this article. However, in some circumstances, electing not to claim the WOTC may be more valuable tax-wise for you. Please call our office for additional information related to the WOTC and to see if it would be beneficial in your particular tax circumstances.