The 2020 year has truly brought everyone many more surprises than anyone wanted. In our last several months meeting with clients, we have seen several common mistakes that unfortunately may bring some additional unwelcome surprises in 2021 when taxes are filed.
- Payroll – Early on in the pandemic, PFM suggested that our clients change their payroll to comply with the early PPP regulations. We all now know that these rules changed several times throughout the process. On June 4th, PFM recommended you go back to your standard pay template and away from the PPP pay recommendations. Unfortunately, some of our clients did not get this message and have maintained this scaled-down pay template to date. This has unfortunately led to under-withholding for federal and state tax and low deferrals to 401k plans. If you are still on a scaled-down pay template related to PPP recommendations, contact us to increase your pay template through year-end to get 401k deferrals caught up. You should also be prepared to make a payment with the filing of your 2020 tax returns.
- 401k Deferral Payments – During office closures that came with the pandemic, many of our clients stopped their payroll completely. Upon restarting their payroll some clients have forgotten to add back in an essential step to their payroll process – begin sending in their 401k deferrals once again. Unfortunately, withholding the amounts from payroll is not enough to complete the deferral process. The payments must be sent into the 401k account in order to satisfy ERISA and IRS compliance. ERISA guidelines regulate, that deferrals must be sent into the account within 7 days of being withheld from payroll. If you have not been sending in deferrals on a regular basis post-pandemic, begin doing so immediately. Audit your payroll records to send in any late deferrals now and contact your pension administrator to begin working through any actions needed to rectify the late deposits.
- Accounting – If you opened a new bank account for your PPP funds, make sure your accountant or bookkeeper is aware of the account. We have seen numerous cases where the new bank account is not included on the financial statements. This can lead to the transfers from the PPP account to your operating account to cover payroll, being listed as collections. If not corrected, this can lead to double taxation on the PPP funds once forgiven.
- Loan Deferments – Many banks allowed businesses and individuals to take advantage of loan payment deferments during the pandemic. Many of those deferments are coming to a close now. Several months of no payments could lead to you forgetting when practice notes and mortgages are due. Don’t let these due dates pass you by resulting in costly penalties and late fees when you have plenty of money in the bank to pay.