EDD employment verification
The EDD is sending out letters to self-employed/Schedule C filers who received Pandemic Unemployment Assistance (PUA) benefits to verify their employment. The letter asks for documentation that proves that the taxpayer was or planned to be self-employed or employed at some point between January 1, 2019, and March 15, 2020.
Failure to provide documentation could result in having to pay back the benefits the taxpayer received: the PUA benefits plus the additional $600/300 weekly benefit. The EDD may assess a 30% penalty if they determine a taxpayer gave false information to receive benefits.
Taxpayers may submit documentation through their UI Online account by February 11, 2022.
The rules for taxing passthrough entity income and withholding on distributions continue to get more and more complex. Passthrough entities must not forget about their nonresident withholding obligations and the new withholding procedures implemented last year for distributions made to a passthrough entity’s nonresident shareholders, partners, members, or beneficiaries. If you are making payments to nonresidents, make sure you know these new rules to avoid the severe penalties for compliance failure. Click here for more info.
California advance Premium Tax Credit issues
Due to a retroactive change in the federal Premium Tax Credit per the American Rescue Plan Act, taxpayers who are purchasing their health insurance through Covered California may see that they owe California some money at tax time. The good news is that you will likely be receiving a federal subsidy that will offset this amount. However, be aware of the potential cash flow shortage as the amount due to California may be due before you receive your federal refund.
1099-NEC filing requirements
And finally some good news!! According to the FTB, the IRS will send information reported on the Form 1099-NEC, Nonemployee Compensation, to California beginning with forms filed in 2022 for the 2021 year. As a result, you will not be required to send a copy of the Form 1099-NEC to the state of California as you did last year.