Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding!

Speaker1: [00:00:07] Well, hello everybody. Welcome to another Federal Tax Updates podcast. I'm Roger Harris, and as always, I am joined by Annie Schwab. Andy, how are you today?

Speaker2: [00:00:17] I'm doing well. I just was saying it's a monday during tax season, but we're here, we're smiling. So we're here. We're ready.

Speaker1: [00:00:23] Can't be too bad then. Can't be. So what are we talking about today, Andy? What are we going to spend the next hour talking about?

Speaker2: [00:00:29] Well, we're going to focus on the Secure Act 2.0, but then we'll hit some federal IRS ish highlights, kind of what's going on in the news. What are we reading about? What are we seeing about? So we'll we'll do a little bit of both.

Speaker1: [00:00:44] Just kind of bounce around a little bit. You know, I guess one of the things and maybe you can talk first about this is the Secure Act 2.0 means there had to be a secure act 1.0. And there was there was. But the secure act was really the only thing that really got passed at the end of the year to go along with the spending bill. So talk a little bit about how it became so important and how we got to even have a secure act in a divided Congress. Because remember, this was before the election. This was the Democrats, but they still needed some Republican votes. But we got to secure act at 2.0. How did that happen?

Speaker2: [00:01:23] Well, it's no guess here. I mean, we've seen it. We've heard it that the the retirees don't have enough money to take care of themselves. People are living longer. Social Security was meant to, you know, have our retirees survive on those funds and we just can't do it anymore. And so having a retirement plan for all Americans, the ability for them to get it, for them to be able to contribute to them, for their employers to be able to offer it, all of that has really come, you know, full circle. And both Democrats and Republicans are on board for that. Everyone is supporting a better retirement system for Americans. So that's that's the main goal. And you'll see as the baby boomers are starting to retire, they're struggling. They don't have enough savings. They're struggling to make ends meet. And so I think I think that's although it almost took two years. Right. It took a while to get it. We did end up getting something at the end of the year. Right.

Speaker1: [00:02:28] Because to your point, the Secure Act 1.0, I think was passed in 1919.

Speaker2: [00:02:34] The end of 19. Yep.

Speaker1: [00:02:35] And as you mentioned, and this is kind of where current events play into our our business you hear a lot about now that we're back into another election year, though, it seemed like we just finished one. Now we're talking about the presidential. We hear a lot of discussion about Social Security and its its ability to stay funded and changes to or whatever, because as you mentioned, a lot of people that is their only retirement plan. Now, if you work for larger companies, most larger companies, or if you're a government employee, have 401. Ks, 403 B's. But small business particularly has not always offered retirement plans. And and as we go through the highlights of the Secure Act, one of the things you're going to see is clearly this is Congress saying to small business, we need you to step up. We need you to make retirement savings an option for your employees. And Annie, I think if you look at it, it's probably more employee tilted than business tilted, though they try to balance.

Speaker2: [00:03:40] They do. And they tried to make it so that the administrative costs for very small businesses, you know, they're trying to make it affordable so that they can offer it. I mean, they don't want to put small businesses out of business because they require them to have a retirement plan. So they're trying to incentivize the employer to offer such a plan and then incentivize the employee to contribute. And they can do that through, you know, credits or through matching through low, lower administrative costs. So. It's a well rounded system. If you look at the details and the goals of both the Secure Act 1.0 and then Secure Act 2.0. Now, now, unfortunately, a lot of this stuff is not immediate. And we'll go through it and you'll see some of this is going to be effective this year, some 2024, some even 2025. So there's there's we're going to go over the highlights, the important things that you need to know right now as you're in tax season or talking to clients. You know, what do you need to know? What do you hear in the media to determine what's true, what's false? What are the concerns that either your small business owners have or maybe just individual taxpayers have? But we're still going to be waiting on a lot of guidance to come out on different sections. I think there was 92 provisions, something like that. I mean, it was huge. This bill was huge. So, you know, we don't have all the answers. We don't have all the details at this moment.

Speaker1: [00:05:13] Yeah, the best thing that we can hopefully do now, because some of it is current, some of its future is giving you the ability. If you have clients who ask about it or there are some planning opportunities or some information that is current that you can share, and we'll point that out. We're going to say things that you're going to say, Well, how do I define that? Well, that's some of the kind of things we're waiting on, but so we're going to get through it. You know, I'm looking at my notes here, and this passed right after Christmas by Senate vote of 68 to 29, which is like a landslide in Washington. So it was definitely bipartisan. And it was about the only thing we mentioned and the only thing that got through the end of the year at a time when we normally look for extenders or things such as that. So this got through and what didn't get through. And I think we've mentioned this, but what didn't get through and while this did, to kind of show you the importance that they put on, like.

Speaker2: [00:06:11] We were saying, you know, there was started in 2019 with secure Act 1.0 and then there were various versions of that, and that got passed and then various other acts, I don't know all their names, but various other acts sort of came into play and they developed what was called the 2.0. And then at the end of the year, I think it was the 29th of December, it passed and it was part of the omnibus package, right? And so we were all thinking nothing was going to happen. We know we're nearing year end. Are we going to get anything from Congress? And we did. But it wasn't everything that had been brought up over those two years in some sense. So a very easy example here is the enhanced child tax credit. There was talk of continuing that post COVID, you know, continuing it for additional years, that that didn't make the bill some R&D tax credit extensions, didn't make the bill bonus depreciation, interest deduction, tax credits. So a couple of things didn't make it some things kind of were on the table, got and then got pushed. So we've talked previously on a podcast about the 1099 reporting that was that threshold was supposed to significantly get reduced to the $600 level. And to be honest, I just don't think they were ready to support that huge change. And so that is now, you know, probably going to come up next year in the following year, etcetera. But you know, Roger, it's really hard to tell because when you have a divided government, how can anything pass? You know, and.

Speaker1: [00:07:46] That's what I said, 68 to 29 in this political environment is is again is a big statement about the importance that that Congress and the White House put on expanding retirement availability for people who work in smaller businesses. Yeah. Now a good portion of the secure Act is really not going to be something that we're assuming most of the people who are tuned into to the podcast or in the tax and accounting profession, not into the retirement business. You don't work for companies who design and market retirement plans. So depending on where you are in the market, you know, some of this is going to be more important than others. We're going to focus on the pieces that we believe are important. To those of you that are advising small businesses. You do their taxes, you give them their advice that they need. But clearly, if you are in the the business of selling retirement plans, there's a lot more details you're going to be waiting on than we're going to cover here today. So let's go ahead and address that, because again, we're talking about it from a tax planning tax advice perspective, not sitting down and drawing up a retirement plan that is compliant with the Secure Act 2.0. That's that's and if you're our expertise. Yeah.

Speaker2: [00:09:05] And if you're sitting here listening to this, you may realize in order to help my clients, you know, that's not my the retirement planning development. Designing for a particular business is not what we're talking about today. But it may make you think, well, maybe I need to find somebody that I can partner with, somebody I can send my clients to, somebody I can bounce ideas off of. So you may you may decide, hey, you know, it's not a service necessarily that I'm going to provide, but finding someone in your network or, you know, in your town, something like that, that you can bounce ideas off or referral clients to or get, you know, information from.

Speaker1: [00:09:45] And actually do. What the Secure Act talks about is the start up cost. So I don't know. Again, some of this may be new to you, but there has always been a start up credit for starting one of these retirement plans. But the Secure Act changed that. So, Annie, what doubled it? If I'm a small business owner and I want to start up a plan, what does the Secure Act do to help me get some offset some of the cost of doing that right?

Speaker2: [00:10:14] So from Secure Act number one, to secure act number two, the percentage of the administrative costs that can be covered by what's called that start up credit went from 50% to 100%. So there's still a cap of 5000. And again, this is effective 2023. So this is relevant.

Speaker1: [00:10:32] This is a current to date, right?

Speaker2: [00:10:33] This is a current today. But the credit, the credit, the administrative costs that can be covered by the credit went from 50% to 100% for businesses with fewer than 50 employees. So, you know, that's a very big incentive for small business owners to look at to offer for their employees. Now, we all know I'm going to sort of back step a second, but. Is there. It's nothing new that the hiring market, staffing market is certainly hurting and we've been hurting. That market has been hurting for probably since the very beginning of COVID. And so for some of these small business owners to be able to offer a retirement plan is certainly an incentive for employees. So, you know, that was another part of the goal process. And the end result was for small business owners to be able to attract good employees. And some of that is with offering business retirement plans.

Speaker1: [00:11:30] Yeah, and sometimes it's those benefits that that put small businesses at a disadvantage to a larger company because the pay may be similar. But when you look at the benefits that a large company offers health vision, you know, whatever, and retirement, this gives the small business owner now the ability to to compete in the marketplace. Because now, as Andy said, $5,000 of start up cost, the government is going to give you a tax credit to help offset that. There are also and you can speak to this, Andy, the other part of a retirement plan, and we're talking now primarily of what helps the business more than kind of the employee, but also there are credits available to that small business owner for the actual. Matching of compassion. So if the employee contributes and you match, there's also some credits available for the small business owner in that area as well. Because of this, Yeah.

Speaker2: [00:12:28] I mean, we've been preaching for years at least contributing, you know, tell make get your employees, encourage your employees to at least contribute the amount of the match that you can get from your employer. And and it adds up over time. And I think Congress knew that that was something that they need to incentivize. And so they did that through credits and that the the the credit for the matching is also this year effective 2023. It starts.

Speaker1: [00:12:52] This year. And for the $1,000 per employee. Now there are some phasing down of the match credit over time. But again, the incentive is here to start the program. Think about what Congress is saying to the small business owner will help you pay to start the plan and we will help you match employee contributions. And again, these are things that are in the current year. So they're saying, we want you to go out and do this.

Speaker2: [00:13:22] Yep, yep, they are. And you're going to get questions. And that's why we're bringing it here today is, you know, as you're preparing tax returns or talking to your clients, you may get questions on, you know, what can I do? I you know, I've heard this. I've seen this. You know, what do you recommend? Is this something do you recommend for my type of business, you know, my business size, those kinds of things. So we'll see. I mean, right now we're seeing incentivizing. But you will see and we'll talk about in just a second that it's going to be a required automatic enrollment.

Speaker3: [00:13:53] Yeah, Yeah. There's going to.

Speaker1: [00:13:55] Be some some tightening of some screws here to try to get you to do it. Yeah, a couple of things to always pay attention to in these bills and I'll alert you to it. Think about it. Put your clients in two buckets 50 and fewer and more than 50 because the rules are going to change again. It's clearly there for the smaller for the small. And understand that these matching contributions are a five year phase out. So again, you've got to figure out which bucket your client fits in. There's incentive for both. This is not to say, but but it's important when when a client is asking you questions that you make sure you understand where they start and in terms of number of employees. And so somebody is going to say, well, how do you count employees? And what if you're 49 and then you go to 52 and back to 40? These are all the kind of things that we these are the kind of questions that, you know, we're not in a position to answer today because no one's again, this past December 29th. So, yeah, we'll get this guidance. But again, we can start having that discussion with clients that, hey, if you want to be competitive in the marketplace and you think a retirement plan would be helpful, we've got some credits available both for starting and for matching. Let's look at a few. You mentioned it kind of some automatic stuff. Now, this is I think the things we're going to talk about now are kind of out into the future. They're into they kind of want to hook you and then drag it out a little bit. We'll start putting some. So so in 2025, what what changes could we see in these plans or in plans set up? What are we.

Speaker2: [00:15:27] So as you get to it, as as small businesses set up those new retirement plans, there's going to be a required automatic enrollment. So that's like the 401 (K), the 403 B, all the retirement plan. Clearly, the participant can opt out. Now, Congress is hoping that if there's an automatic enrollment once you're in it, maybe they'll make the decision to the employee, will make the decision to stay in it rather than opting out. But but that's something that you you can see. And there's a $500 tax credit for that, too. So, I mean, there's other incentives. There's different thresholds for this. But but that's that's the roadmap. That is where it's going to 2025 automatic enrollment for for retirement plans.

Speaker3: [00:16:07] And the matching.

Speaker1: [00:16:08] Is going to be phased up. I mean, so again.

Speaker3: [00:16:11] You got to be careful.

Speaker1: [00:16:13] At least as of today, there's no requirement that you have to set up a retirement plan. Now, who knows where we go if people don't take advantage of this. But Congress has not gone so far to say as well, you've got to set up a retirement plan. But if you do under the Secure Act, you need to understand that yes, there are credits, but at a certain point there may be required enrollment, there may be required matching and and a lot of things that you need to be careful to fully understand. Again, this is where I think the people who sell these retirement plans are going to step in with this type of information. You're just going to be there to calculate the credits based on the advice that they're given by. The retirement plan manager. So again, but this is not till 2025 and there are some exceptions.

Speaker3: [00:17:00] Now, if you're here's.

Speaker1: [00:17:01] Another limit we talked about 50.

Speaker3: [00:17:03] And below and 50 and above.

Speaker1: [00:17:05] There are exceptions for this automatic matching and enrollment for ten or fewer.

Speaker2: [00:17:10] Yeah. Yeah. And that's common. Ten or fewer is kind of common.

Speaker3: [00:17:13] So we have a third level.

Speaker1: [00:17:16] Of numbers we have to have. Now, this is something that I think we're going to get into a lot of little areas, but there are also some incentives and incentives, not the right word. Some breaks, if you will, for early distributions, because, again, Congress recognizes that people who have money tied up in retirement plans occasionally run into situations where they need to tap into those funds. And as we all know.

Speaker3: [00:17:43] That can be very expensive.

Speaker1: [00:17:45] If they're not for qualified reasons. So the Secure Act has put together a few more reasons or ways to get around the 10% penalty. And what's the first one I think we want to focus on has to do and again, this is where we're going to get into definitions that we are about to say.

Speaker3: [00:18:01] But what about a financial hardship?

Speaker2: [00:18:04] Right. And whatever you call a financial hardship might be there. But they did have a penalty free emergency withdrawal. So that would include like a hardship, an individual retirement account. You could pull the money out, avoid, you know, it waives the 10% penalty. Now, you know, how do you define a hardship? How do you prove a hardship? Well, they're saying that they would let people self-certify. Well, okay, we can self certify, but what is the definition of self certified? What qualifies as that? And then there would be an option for them to be able to repay the funds. And that's over a three year period. So this actually becomes effective next year. But you can kind of see where they're going. They're giving you, they're incentivizing you to fund it and then giving you the be able to take a deep breath. Well, if I fund it and I need it for something, I can at least get it out penalty free. And so they're calling it penalty free withdrawals. There's some in there for domestic abuse victims, terminal illness, qualified disaster areas. So they're listing things that make people say, okay, it's not that I can never get this out, but if something scary happens and illness happens, a disaster happens, a hardship happens, an emergency in my life with my family, something happens then I know I can take the money out penalty free. And so, I mean, I think that's probably.

Speaker3: [00:19:29] Yeah, it's going to be interesting. They were.

Speaker1: [00:19:30] Going how they define financial hardship because.

Speaker3: [00:19:33] Some people have a really.

Speaker1: [00:19:34] Broad relationship of what is a financial hardship, hardship.

Speaker3: [00:19:38] Some may be just, you.

Speaker1: [00:19:39] Know, I lost money gambling, so.

Speaker3: [00:19:41] I need it, right? I mean, who knows?

Speaker2: [00:19:43] And you'll hear we'll get some FAQs for sure. We'll get some guidance, some at least some examples. And I'm sure it'll say in other similar circumstances or not limited to or, you know, something like that. But but that's that's what we've got. And it's still it's still an incentive to encourage people to to participate in the plan knowing that in an emergency they can get it out. So I mean that was the goal.

Speaker3: [00:20:06] You know, the the financial.

Speaker1: [00:20:08] Hardship is not a big amount. But you mentioned the domestic abuse. That's $10,000 you can take out.

Speaker2: [00:20:14] Yeah, Yeah. There's different thresholds depending on disaster areas.

Speaker1: [00:20:18] You can take up to 22,000. So terminal illness. So there's there's going to be again, different amounts for different quote, circumstances. And again, it exempts you from the penalty. And in some cases there'll be the ability to pay back that money. But again, you see the idea we want you to contribute, but we understand there's going to be times that sometimes you need to tap into those funds and we should let you do that without penalizing you. So those are that's in the 2.0 plan as well. Then they're also giving you the ability to set up something called an emergency. This is a 2024 rule next year. Try to be careful to point out what's 2023 versus the future. In 2024. You can offer what are called linked emergency savings account that permit non highly compensated employees. We assume that will be the same definition as we've had historically, but who knows? Until we get to make Roth contributions to a savings account within the retirement plan. So that's what it allows.

Speaker2: [00:21:26] And I think there's a cap of like $2,500 or something like that.

Speaker3: [00:21:31] Yeah. And you can.

Speaker1: [00:21:31] Only take a distribution I think, once a month. I think that's right. And employers can automatically opt employees into these accounts at no more than 3% of their salary. So as an employee, you can.

Speaker3: [00:21:45] Have this automatic feature and.

Speaker1: [00:21:46] It's capped at 2500. So again, you see this relationship of putting a little pressure on the employer, getting the employees covered, recognizing that they need to take money out for certain things. Again, what can you take out of a. Would we say emergency savings?

Speaker2: [00:22:04] Emergency savings? Yeah.

Speaker1: [00:22:06] When does this start? Guess we got time for this too.

Speaker2: [00:22:09] That's 2024.

Speaker3: [00:22:10] As well. 2024. So they got a year to give us further guidance on that. Yeah.

Speaker1: [00:22:16] They started something called a starter 401 (K) plan.

Speaker3: [00:22:19] So again.

Speaker2: [00:22:20] 2024.

Speaker3: [00:22:21] 2024. 2024. More complicated is.

Speaker1: [00:22:24] The farther out they bought themselves time for some.

Speaker3: [00:22:26] Time. Yeah, well, because without.

Speaker2: [00:22:28] Guidance, we're all going to be a.

Speaker3: [00:22:30] Little tough. So passing something.

Speaker1: [00:22:31] On December 29th, making it effective January 1st. But hey, it won't be the first time Congress has done that.

Speaker3: [00:22:36] But.

Speaker2: [00:22:37] Exactly.

Speaker3: [00:22:37] So tell us, what's the starter?

Speaker1: [00:22:39] What's the advantage or what's attractive about a starter 401 (K) plan versus.

Speaker3: [00:22:44] So this has plans. We have now.

Speaker2: [00:22:46] Let's say streamlined, made it less complicated, lower the cost, streamline the regulations, and the employers are not required to offer a matching contribution, but it still provides a safe harbor for employees to invest and the limit on that, let's see, annual defers I think is like 6000. And then there's a catch up of a thousand. Don't quote me on that, but if you're 50. Yeah, yeah, something like that. So I mean it's, it's another way, another incentive and they've got all these terms like starter 401 (K), you know, the emergency saving plans, all of these things that probably will become very common language as we maneuver closer to 2024 and we'll get, like you said, we'll get guidance examples. And I suspect the retirement plan companies are digging deep into this and they will be reaching out to small employers, trying to sell their services, sell the ideas. You know, we're going to we're going to see a lot of probably advertising for help to do this. People offering services to either the the clients or to accounting firms to partner with, like we had mentioned earlier. So I do expect an uptick in media articles, things you hear on the news, the radio and, you know, clients mentioning things. I heard my friend said, you know, is this true kind of kind of things, Right? Especially, you know, midyear, mid, mid 20, 23 and into 2024.

Speaker1: [00:24:16] And those plans do have automatic enrollment features as well.

Speaker3: [00:24:19] Again, So so be prepared for that. A couple of other things, too, just to tie it into what we.

Speaker1: [00:24:24] Hear in the news. I think it was about a week ago we heard hearings that the Supreme Court about the Biden administration wanting to forgive student loan interest. Well, guess what? The Secure Act already had a student loan forgiveness provision in it. So depending on what the Supreme Court rules could impact, the Secure Act does. So what does the Secure Act do in terms of this this way of recognizing people have a lot of student loan debt. It prohibits them from contributing to retirement plans or doing other things right. So the Secure Act addresses that. So what does.

Speaker3: [00:25:00] It do in that light?

Speaker2: [00:25:03] The goal was to help students with their student loans, and it's going to be attractive to the to workers with student loans trying to sort of prioritize, hey, do I pay down my loans? Should I be or should I be focusing on saving for retirement? You know, they have these two buckets to choose from, but they only you know, they don't have unlimited funds. And so it allows for 401 (K) match on the student loan payments, which means that an employee it permits the employer to make a match contribution under one of these 401 (K) Et-cetera plans. That's actually a student loan payment. So the match can help reduce the student loan payment. And again, that's effective 2024. And like you said, the go ahead.

Speaker3: [00:25:48] Well, plenty of time to hear from the.

Speaker1: [00:25:49] Supreme Court.

Speaker3: [00:25:50] And see if now if.

Speaker1: [00:25:51] It's forgiven, obviously, you're not going to pay it, so you probably won't get a match, but I'm sure most people would rather have.

Speaker3: [00:25:57] Their student loans forgiven than to pay them. But at least.

Speaker1: [00:26:00] If you pay them, you get a you will potentially get a match from your employer because those will be considered contributions to your retirement plan. All right. A couple of things that are relevant and they're here now.

Speaker3: [00:26:13] And that's we all get questions. I know from a lot of our clients.

Speaker1: [00:26:18] Hey, I've got a.

Speaker3: [00:26:18] Retirement plan and they're telling me I have to start taking.

Speaker1: [00:26:21] Money out of it. Why?

Speaker3: [00:26:22] What does all I mean.

Speaker2: [00:26:24] We've got.

Speaker3: [00:26:24] My RMD. What's my RMD? Is it taxable?

Speaker1: [00:26:27] Why do I have to take it? I don't need it.

Speaker3: [00:26:30] Skirack address that. So what does the secure.

Speaker1: [00:26:33] Act say about RMDs? Because this is effective.

Speaker2: [00:26:36] Now, now January of 2023. And and you probably remember I think it was in 2019 the first secure Act 1.0 actually increased the required minimum distribution age to 72. So were kind of floating at that 72 age bracket. Right. And so secure Act 2.0 increased it even more so now it's 73 starting on January of this year, and then it'll actually go periodically increase to 75 in like 2033 or something over a ten year period. So you can see, you know, as I mentioned at the start of this, people are living longer. The Social Security is not enough. We need to encourage people to save longer. And if you don't need the money, people are working longer. So if you don't need the money, then allowing them to wait. Now we're up to an additional 3 or 4 years to take the required minimum distribution. You know, that's a that's a that's another message. That's another trend that we're seeing as Congress reacts to the Times.

Speaker3: [00:27:42] One little catch here.

Speaker1: [00:27:43] And this is not new because the Secure Act, but it's a good time to be reminded of it.

Speaker3: [00:27:48] In the year that you turn these ages.

Speaker1: [00:27:50] You have until.

Speaker3: [00:27:51] April of the next year to.

Speaker1: [00:27:53] Take the the.

Speaker3: [00:27:54] Distribution. It's been that way for a while. So yeah, this.

Speaker1: [00:27:57] Is not new, but some people fail to think through it. If I wait and.

Speaker3: [00:28:01] Delay it.

Speaker1: [00:28:02] Then I've got to take two in the year. I delay it into that year because I can delay that first year.

Speaker3: [00:28:08] But then when I get into the next year, I have to take.

Speaker1: [00:28:10] Another one in the current.

Speaker3: [00:28:11] Year. And that may be good.

Speaker1: [00:28:13] Planning to do distributions in one year may be a lot better from a tax standpoint.

Speaker3: [00:28:17] Than the 1 in 1.

Speaker1: [00:28:18] Year and one in the next. But just understand, just because you delay the.

Speaker3: [00:28:21] Current year into the next year, you still got to take one for the next year.

Speaker1: [00:28:25] You don't you don't get to skip a year.

Speaker2: [00:28:27] It's not just skipping.

Speaker3: [00:28:28] Yeah, yeah, yeah.

Speaker1: [00:28:29] So again, this is something that you'll have to deal with in the current year. To people who ask that question, you'll need to start looking at now. When did they turn if they.

Speaker3: [00:28:38] Were already.

Speaker1: [00:28:39] Required? This doesn't change anything if you're already required, you've got to continue to take.

Speaker3: [00:28:43] Oh yeah, that's true.

Speaker2: [00:28:44] Good point. I'm glad you said that.

Speaker1: [00:28:45] So this is for new people.

Speaker3: [00:28:47] There's some higher catch ups.

Speaker1: [00:28:50] For older individuals.

Speaker3: [00:28:51] Older individuals, one for.

Speaker1: [00:28:53] This year. If you're 50 or older, you can contribute an extra 7500 per year into your 401. K. So again, allowing you to put more more aside and and that's going to continue to increase.

Speaker3: [00:29:06] I think it goes to all the way to five for people that are.

Speaker2: [00:29:08] 60 or 6263. I don't know. There's like an incremental increase. This one actually increases pretty quickly over, you know, a two year period. So.

Speaker3: [00:29:20] Yeah, there is one little interesting.

Speaker1: [00:29:22] Kind of catch up here. You know, again, you can see politics floating all through every bill that comes out of Washington. And when you get to higher income people, they kind of put special.

Speaker3: [00:29:32] Rules.

Speaker1: [00:29:34] After 2023, which means in.

Speaker3: [00:29:36] 2024.

Speaker1: [00:29:38] All catch up Contributions for participants earning over $145,000 must be made on a Roth basis.

Speaker3: [00:29:47] So that's after tax after tax.

Speaker1: [00:29:49] So again, when you get to a certain income level, you're going to have to deal with Roth rules as opposed to the 401. K rules.

Speaker3: [00:29:59] Oh, like I said, I.

Speaker2: [00:29:59] Think there were like 92 provisions and I don't know how many hundreds of pages. I mean, there's a lot, a lot of little rules for different plans for different ages that come into effect in a different year that, you know, are incremental or maybe it's a one time shot, some that are increasing, some that are decreasing. I mean, it's it's a very complex piece of legislation. And and so that's why we're we're focusing on the highlights so that you can become aware and understand some of the things. But the details behind all of this are still pending.

Speaker3: [00:30:31] Yeah. And you can, you know the kind of questions you're getting so you'll.

Speaker1: [00:30:35] Know which parts of this act you need to really dig deeper into. Because some of these things people aren't going to ask you. But there again, there are some things. The next one we're going to cover, if if it's possible, might be a good benefit for you to tell people. A lot of our clients have 529 plans that they put money aside in to pay for education. Well.

Speaker3: [00:30:57] I've been around a while.

Speaker1: [00:30:59] If you've sent any children to college lately.

Speaker3: [00:31:03] You're broke. No, you're broke. Yeah.

Speaker1: [00:31:05] You're five. 25 plans broke if you're not. But assuming you have money left in a 529 plan. And what did the secure Act say we can do with that?

Speaker2: [00:31:15] It allows you to roll it over. Yes. So, yes, the the 529 account must have been in existence for, I think, 15 years at the time of the rollover. But it allows you to be rolled over into a Roth IRA for the beneficiary without tax or penalty. I mean, that's big. That's big. And it's, I think 35, 35,000. 35,000. Yeah.

Speaker3: [00:31:38] That's the aggregate for all the accounts, not just each.

Speaker2: [00:31:41] Yeah, that's true. And I know tuition one year, probably one semester at some schools is more than 35,000. But it's still you still again we're seeing the same thing encouraging people to participate in a 529 plan with giving them a way to get their money back, whether they what if their kid drops out or they don't use it or, you know, who knows? So you're seeing this plan now, but we'll give you a way to not, you know, a way to get the money out or use it for something else or roll it into an IRA. A Roth IRA.

Speaker3: [00:32:13] So yeah, but if if college.

Speaker1: [00:32:16] Costs don't start coming down or your kids don't get scholarships, that may be kind of irrelevant.

Speaker2: [00:32:21] But I don't even want to talk about it. I have a seven and a five year old.

Speaker3: [00:32:24] You got two young kids. So I've got two young kids. Yeah. You'll be lucky to have anything left in your.

Speaker2: [00:32:31] I try to I try to just put the money away and know that it's there and take a deep breath and hope I don't need to get it out. But. Well, now.

Speaker3: [00:32:40] You know, sometimes.

Speaker1: [00:32:41] If you can get them both through college and have up to 35,000 left, you can.

Speaker3: [00:32:45] Roll it over and.

Speaker2: [00:32:46] Wish them luck. Yeah. When I ask them what they want to be when they grow up, sometimes I'm just crossing my fingers saying, Don't say medical school. Don't say you want to be a vet. Don't say, you know, pick something that's cheap to be.

Speaker3: [00:32:59] So yeah, that's right. We need it. We need a.

Speaker1: [00:33:01] Scholarship.

Speaker3: [00:33:02] Be a great athlete. That's a Yeah. Or a great something that gets you a scholarship.

Speaker2: [00:33:06] Gets you to college for free. Yeah, I wish.

Speaker3: [00:33:09] Another part that probably.

Speaker1: [00:33:10] Impacts us, though. It doesn't start till.

Speaker3: [00:33:12] 2024 is.

Speaker1: [00:33:14] The surviving spouse rules for inheriting. Basically, they're going to allow the surviving spouse to elect to be treated as if the surviving spouse were the employee for purposes of the required minimum distribution rules.

Speaker2: [00:33:28] So this one actually got a lot of chatter. I did hear a lot of chatter about this one. So I don't know if it was that, if it was controversial or or what. But this one I've seen questions from our clients. I've seen a little bit in the media. So that one's.

Speaker3: [00:33:47] Now as and again.

Speaker1: [00:33:50] We're about finished going through the Secure Act at a very high level because again, we're waiting for some guidance on some things. Some of this is more applicable currently, other things aren't so much in the future. But interestingly in, I guess, the rush to get this bill passed. Congress made a mistake and they had to admit it. Now, that doesn't mean it's been fixed yet, but it has said they will fix it because.

Speaker3: [00:34:18] And correct me if I'm.

Speaker1: [00:34:19] Wrong, the way the secure act is written, if they do not fix the bill, which they say they're going to do starting after 2024, catch up. Contributions to a Roth are no longer allowed.

Speaker3: [00:34:34] That's right. So say that properly calling it.

Speaker2: [00:34:36] Yeah, you said it right. They're calling it a technical drafting error. So guess that's a term a staffer.

Speaker3: [00:34:43] They did it.

Speaker2: [00:34:44] Maybe so. Yeah. But they've identified they've acknowledged that it needs to be fixed. It wouldn't have an impact, so to say, until 2024. But right now, how it reads is that there is a ban on all retirement catch up contributions in 2024. So definitely keep your ears and eyes open. That should be addressed. You know, there's still time, but that should be addressed for sure.

Speaker3: [00:35:10] And there's no controversy.

Speaker1: [00:35:12] The assumption is it will be fixed. It's like everything else, though, finding a bill that they can attach it to. But again, because it's not today's problem, it doesn't start until 2024. You would think they would just turn around and fix it as soon as they become aware of it. But that's not the way Washington works.

Speaker3: [00:35:29] So but I fully.

Speaker1: [00:35:31] Expect it to be corrected. So I don't think you need to run around and tell your clients that they can't do that. But if Congress.

Speaker3: [00:35:38] Fails to act, then that's the way the law before now.

Speaker2: [00:35:41] Written. It's happened before.

Speaker3: [00:35:42] So so so again, very.

Speaker1: [00:35:45] High level discussion. That was the only bill that got through Congress this year. We've got a lot of information we're still waiting on.

Speaker3: [00:35:53] But. There are some some opportunities.

Speaker1: [00:35:56] I think in talking to clients for some advisory service options, particularly around distributions and and for your business clients and again, if they're facing competitive challenges in hiring, I think as we get more information on these plans and and the credits that are available, it's something that I think we should have a discussion with our small business clients that, hey, if you're finding it difficult to have qualified hire qualified people, maybe you should take advantage of some of these credits and set up some retirement plans. Just be be aware of not only the rules when you set them up, but the rules that are coming in the future. In the.

Speaker2: [00:36:34] Future. Yeah, I think it's I think it's good and it's a very as I mentioned, you know, it's intensive piece of legislation. Additional guidance has to come. I know most of you listening today are in the heat of tax season and thinking to yourself, I don't really want to focus on this right now. And and that's fine. But being able being knowledgeable and able to talk to your clients about it is going to be important. So just, you know.

Speaker3: [00:37:00] Get through tax season and get through tax time. There'll be plenty of.

Speaker1: [00:37:03] Webinars focusing on a lot more details and things like that, that and maybe even on certain sections of the Secure Act. So as you plan your education for the next rest.

Speaker3: [00:37:13] Of the year.

Speaker1: [00:37:14] I think you should spend some time on the Secure Act, particularly if.

Speaker3: [00:37:17] You a lot.

Speaker1: [00:37:18] In the small business community.

Speaker3: [00:37:19] Yep, yep. Okay, let's switch to the IRS.

Speaker1: [00:37:24] You can't we try to find time for the IRS at the end of all of our podcasts and it doesn't seem like we can ever do a podcast without talking about the IRC.

Speaker3: [00:37:33] So any we don't know what.

Speaker2: [00:37:35] You don't know what the IRC is. It's the employer I'm sorry, employee retention credit. And there's been it has been in the headlines over and over again. We've done webinars, podcasts on this topic, but it's still going to rear its head during this tax season, even though many of us feel as though COVID has passed us, there is still some issues, so to say, topics Why? Why does it matter during tax season and why do you still need to be talking to your clients about IRC? Well, the short answer is it's not too late for your clients to actually apply for and get the retention credits. So it's not that it's gone, there is still time to do it. And secondly, if you haven't heard the term IRC mills, there's been a strong push from, want to say almost marketing advertising type firms, pushing clients, pushing your clients, pushing taxpayers, small business owners to go ahead and apply for the employee retention credit based on sort of maybe some gray area qualifiers. And so I know, Roger, you were attending just a webinar not too long ago about fraud and how the IRC is is definitely a topic.

Speaker3: [00:38:52] To be one of the.

Speaker1: [00:38:53] Biggest fraud problems within the IRS, partly because the dollars are.

Speaker3: [00:38:57] So big.

Speaker2: [00:38:57] Oh yeah, it's huge.

Speaker3: [00:38:59] I mean, I saw a commercial the other day and they said.

Speaker1: [00:39:01] Their average refund was over $250,000. So think about that.

Speaker3: [00:39:06] So multiply that free money, right? Yeah, free money. Now it is creating.

Speaker1: [00:39:10] Some some practical issues in the tax preparation.

Speaker3: [00:39:15] Community.

Speaker1: [00:39:16] Because again, these.

Speaker3: [00:39:18] Mills.

Speaker1: [00:39:19] Pop up out of nowhere. And I'm not saying they're not legitimate, they're not qualified, but obviously they make their money by making sure that more people get credits than less. So they, at least in the eyes of a lot of the people in the tax preparation business, are being overly aggressive. And when they are coming to have their taxes done, they're being made aware that they have to amend the returns. But the tax preparer believes that those credits should have never.

Speaker3: [00:39:46] Been.

Speaker1: [00:39:47] Paid.

Speaker3: [00:39:47] That the client didn't.

Speaker2: [00:39:49] Actually qualify.

Speaker3: [00:39:50] Right now, again, knowing versus suspecting. And really, you know, we've never how do you prove it? You have to.

Speaker1: [00:39:56] Audit something that somebody else did. We can rely on.

Speaker3: [00:39:59] Third parties.

Speaker1: [00:40:01] To some extent. So there's a lot of confusion and concern about actually amending returns when you know the claim.

Speaker3: [00:40:10] And I keep.

Speaker1: [00:40:11] Saying no and I put that in air quotes, if you will, because.

Speaker3: [00:40:14] Yeah, what do you really.

Speaker1: [00:40:16] Know? But what should we do in that instance if if you believe that that claim is inaccurate?

Speaker3: [00:40:23] Annie, how practical is it to go back and give the money back? Because you just say, no, this is wrong. Me Let me I'm going to send it back to you. Well, there's a.

Speaker2: [00:40:30] Couple of issues associated with this. Like you said, the emails are popping up and by the time, you know, they would be identified or, you know, as preparing your credits for where they don't qualify, they're probably their storefronts gone. You probably can't even find these folks. But but they're encouraging people to apply for it through the payroll tax returns. And then when these these clients, these small businesses, come to the tax preparer, it affects not only their business return, but their individual return. Now, the tax preparers there with the paperwork, looking at it, perhaps asking some questions of the client and thinking to themselves, I don't I really don't think that this client qualified. So now what do I do? I don't want to be on the hook for this. What if I am in the tax return? Am I going to be subject to penalties? You know, can I get in trouble? Do I have to fire this client? Can I still do the returns for this client? And so all of these kind of questions where the tax practitioners are like kind of I'm stuck here, I want to do the work, I want to do the returns and get paid for, but I don't want to be responsible for some IRK mill third party that calculated the IRC and the client. Unfortunately, probably at the time talking to the IRC mills was convinced they qualified. It's not that the client was, you know, being overly aggressive, you know from from what we're seeing, these IRC mills were convincing them that they truly did qualify. So you know, you've got good intentions, you've got kind of. Something that's new to the to the tax preparation environment. Late, if not lacking guidance. It's kind of it's just a unique situation. And while you like I said earlier, while you think covid's over and all of these, you know, provisions to assist small businesses, you know, have expired, it's still around and it's still affecting our current year work as tax practitioners.

Speaker3: [00:42:18] Yeah, I heard a hard.

Speaker2: [00:42:19] Place to be.

Speaker3: [00:42:20] It's a hard place to be. An interesting story that.

Speaker1: [00:42:22] A client was told by an IRC Miller that they put up plexiglass, they qualified. So trust me listeners, it's not that simple. If somebody just put up plexiglass that does not qualify them for the IRC credit.

Speaker3: [00:42:36] And again, a lot of times when we.

Speaker1: [00:42:38] Faced with mistakes we just amend to fix the mistake. But most of these mills are charging 15 to 20 to 25% of the credit. So let's say you had a client get $100,000 credit, they only.

Speaker3: [00:42:49] Got 80 of it.

Speaker1: [00:42:50] So to fix the problem, they'd.

Speaker3: [00:42:52] Have to give back the entire 100. So yeah, the.

Speaker1: [00:42:55] Traditional methods of correcting errors are not as easy. We're hoping the IRS is going to give us a little guidance on making sure how far we can go and not, you know, bring any of the problems of the mills to us. But it's an issue.

Speaker3: [00:43:09] And it is. The IRS could also say, just be just be quiet.

Speaker1: [00:43:12] And we have to make our own calls. There. Again, we're the amended returns are sending money back to the government.

Speaker3: [00:43:18] We're not taking.

Speaker1: [00:43:19] Money from the government. So my sense is we're okay.

Speaker3: [00:43:22] But I've never seen the.

Speaker2: [00:43:23] Government turn down money. I'm just saying.

Speaker3: [00:43:25] No. And I don't know how they.

Speaker1: [00:43:26] Penalize me for sending them money they weren't entitled to if the credit for. But, you know, it's we live in a different world.

Speaker3: [00:43:32] I don't know.

Speaker2: [00:43:33] And we need to be aware of it. We need to as tax practitioners.

Speaker3: [00:43:36] Again, if you know, the credits were valid and.

Speaker1: [00:43:38] There's nothing to be concerned about, amend the returns. It's required by law.

Speaker3: [00:43:42] Yeah, you get paid for doing that.

Speaker1: [00:43:44] This is only in these instances where you think you know that they shouldn't have got the credit. Okay, let's touch on a couple of other IRS things. They made a change to the lookback period. Is any can you touch briefly on what that means to these folks?

Speaker2: [00:43:57] And it's kind of relevant again, to the pandemic. And basically the IRS is giving taxpayers more time to file tax refund claims. There were additional extensions for filing. And so they're basically lining up the the lookback period for those extended deadlines. And you may have missed it because that came out not too long ago in the middle of tax season and probably everybody's head was down. And so that's that's one thing. Let's see if we can get through a couple We've got just a few minutes here. Yeah. The extension.

Speaker3: [00:44:27] Deadlines that they extend.

Speaker1: [00:44:29] They fail to extend those lookback periods.

Speaker3: [00:44:31] So that's why they're trying to line.

Speaker1: [00:44:32] And make them consistent.

Speaker3: [00:44:36] Tax payments. We talked about state tax already. We talked about that depends on your state, whether they're taxable.

Speaker1: [00:44:41] And it really comes down to whether.

Speaker3: [00:44:42] You get any benefit from them.

Speaker2: [00:44:44] Exactly. So just take a look at your state and take a look at that. The IRS did come out and note that just I want to say a week or so ago, there was a ruling, I think it was federal district court determined that the IRS charged tax practitioners too much for their p-10. And so now they have to come determine how much is appropriate to refund. I think it was like from 2011 to 2017, they said the fees were excessive, so we may see something along those lines. I have no idea what an appropriate and they.

Speaker3: [00:45:16] Haven't said an amount and the.

Speaker1: [00:45:17] Irs could appeal. But as of right now, all of us that have patterns would be due a refund if the court's ruling stands, how we'll get it or when.

Speaker3: [00:45:27] Maybe we just get a free year of.

Speaker1: [00:45:28] Patterns, who.

Speaker3: [00:45:29] Knows? I mean.

Speaker1: [00:45:29] And they could also decide they owe that it was only a few dollars and it becomes insignificant. But at least. Yeah.

Speaker2: [00:45:35] But a ruling is out there. And so.

Speaker1: [00:45:37] Yeah, and we'll watch that. What about information returns? It's not necessarily new, but it's a reminder that we've got a deadline and a change heading our way.

Speaker2: [00:45:45] That is true. So for those information returns, they're like the W-2s, ten 1099 W-2s type thing for now, the aggregation rules. So the number of those when you combine all of those information returns. So it's not just, you know, I hit, you know, ten W-2s or ten, ten, 99, so to say it's when you look at it all together, the thresholds. So it's across all types of returns, you'll need to file those tax returns when you meet the ten return threshold. So that's starting first of 2024, first of next year, January 2024. So keep in mind, if you're doing after the fact payroll or if you're helping your your clients with information returns. And that's also like the 1090 fives, 1090 eights, what else am I missing? So it's not the income tax returns. Think of more. It's not the.

Speaker3: [00:46:44] 941. You can't e-file them.

Speaker1: [00:46:46] But. But it's.

Speaker3: [00:46:47] Not there.

Speaker2: [00:46:48] Yeah, it's not the 940 or 941 but yeah, that threshold, what was it?

Speaker3: [00:46:52] Two 5250 So it's a big drop from. Two 5210.

Speaker2: [00:46:55] 252 200. They talked about doing 100, but it never stuck. And so it's down to ten. So that's something for tax practitioners to keep an eye on for sure. Yeah.

Speaker3: [00:47:05] And the key thing.

Speaker1: [00:47:06] That Andy mentioned, if you do six, ten, 99 and five W-2s, you would think, well, neither one did I do ten, But you add those together, it's 11. You got to e-file, aggregate, there's penalties if you don't.

Speaker3: [00:47:15] So yeah, yeah, start preparing your clients if they're not filing.

Speaker1: [00:47:18] Yeah, the penalties aren't cheap.

Speaker3: [00:47:19] Start preparing your clients.

Speaker1: [00:47:21] And set up the processes because.

Speaker3: [00:47:23] Next January.

Speaker1: [00:47:25] When these forms are due, more than likely you're going to have to send them electronically. The IRS just wants everything electronically. I mean, we get that they're big hang up during COVID was processing paper returns.

Speaker3: [00:47:35] So well you do the.

Speaker2: [00:47:37] Notices now there's, I don't know, ten, 8 or 10 types of notices that taxpayers, if you receive one of these, there's going to be a link in the notice, I think an access code or something where you can go online and respond via like a portal. And I think there's 8 or 10 different CPO, the CPO that. And so you can actually.

Speaker3: [00:47:58] Upload your documents straight into the.

Speaker1: [00:48:00] Irs. Yeah.

Speaker2: [00:48:01] So, you know, they're trying I know we've had discussions before, Roger, you and I, about all this funding that the IRS is getting over a period of time and what are they going to use the money for? Is it just, you know, IRS audit agents or are they going to actually increase their technology? And and this is a sign that they are they're trying to improve communication between the taxpayer and the agency. Right.

Speaker3: [00:48:24] And they have to because, again, so much of their.

Speaker1: [00:48:27] Problems came during COVID was too much still being sent in in paper.

Speaker3: [00:48:31] And oh, yeah, the bank can't.

Speaker1: [00:48:33] Open paper from remote locations. You have to send people back into buildings to open them and process them. So I think we're going to continue to see more and more push towards all types of electronic thresholds being lowered and requirements being increased because they're not going to be able to keep up otherwise. And they'll always be exceptions, but they'll be small.

Speaker3: [00:48:53] Sure.

Speaker2: [00:48:53] Yeah.

Speaker3: [00:48:54] But improvements House filing season going so far.

Speaker2: [00:48:58] It's off to a start. I read an article not too long ago saying that they have processed the IRS has not only received more returns at this point compared to last year, but have processed those returns. Not surprisingly, the refunds are lower, but that's as a result of a lot of expiring COVID provisions. So, you know, that's not really shocking. Let's see, they're doing they're processing faster. The backlog is getting smaller, which we just talked about. And that's good. I will say this. They have listed the top five procrastination cities. And I'm going to say what number one is because you live there, Roger, Or close to it. Yeah. So the top five are Atlanta, Orlando, Salt Lake City, Miami and Fort Lauderdale. So either guess you're skiing or at the beach and you don't want to file your taxes. Yeah, the.

Speaker3: [00:49:52] Weather's either nice or you're skiing and you can't get your mind around taxes. I don't know. But yeah, it's nice to be number one.

Speaker2: [00:49:59] Yeah. They are saying that less people have visited the IRS website or submitted questions, so I don't know if that's I mean, it's a good sign, but I'm not really sure how they know all that, but we'll see.

Speaker3: [00:50:12] One last little thing.

Speaker1: [00:50:13] For some of you that look for CPE during the summer, the IRS open registration for their tax forums. I think either this week or last week. If you've never been to a forum, there are three day events. They're fairly inexpensive. You can pick up a lot of CPE on different topics. They move them around the country. Let's see how good my memory is. The five cities this year are New Orleans, Atlanta, just outside of DC and National.

Speaker3: [00:50:38] Harbor, San Diego and Orlando, one of the procrastinating cities. Well, actually two of the.

Speaker1: [00:50:44] Procrastinating cities get visits from.

Speaker3: [00:50:47] The IRS forums.

Speaker1: [00:50:48] Yep. Again, they're relatively inexpensive. You can go to the IRS Forum website if you're interested and pick up some CPE. They're traditionally in July and August, the rates for hotels if you can't commute to them. So if you're interested in doing.

Speaker3: [00:51:01] That.

Speaker1: [00:51:01] Registration is now open.

Speaker2: [00:51:03] They haven't put out the actual course listings yet, but they have like a summary of what's going on and they have the dates of each location. So you know, you can.

Speaker3: [00:51:12] Take the sessions are.

Speaker1: [00:51:13] Presented, about half of them are presented by IRS personnel and the other half are presented by people from the different accounting associations, from a CPA to a NAR, NSA and ATP and STP, the American Bar. So I mean, you get a split between the IRS version and then the practitioner.

Speaker3: [00:51:32] World practitioner version.

Speaker1: [00:51:34] So again, if you're looking for some CPE during the summer and you're close by to one of those five cities, you might want to consider attending a forum.

Speaker3: [00:51:41] You might even.

Speaker2: [00:51:42] See us there. You might. You just might see us on attending.

Speaker3: [00:51:46] So anything else, Annie? Are we done?

Speaker2: [00:51:48] No, that's it. That was a lot of information. I know. But as always, we appreciate all the. Nurse. Do like us. Do follow us. Tell your friends about us. Roger And I'll be back with some more topics.

Speaker3: [00:52:01] To cover a couple of weeks. Yeah, just what's the old saying?

Speaker1: [00:52:04] You can find us wherever you find your podcast.

Speaker3: [00:52:06] So tell your.

Speaker1: [00:52:07] Friends to go find the federal Tax Updates podcast and and listen in and.

Speaker3: [00:52:12] Send us your.

Speaker1: [00:52:12] Comments of what we can do to make it better. Yeah, and topic ideas.

Speaker2: [00:52:16] Let us know what you want to hear. Yeah.

Speaker3: [00:52:19] Andy, always a pleasure. It's always fun to do. Thank you, Roger. Thank you. It is.

Speaker1: [00:52:24] Thank thank you for being here today. Thank you for listening. And we'll be back in a couple of weeks.

Speaker2: [00:52:31] Sounds good. Take care. Bye, everybody.