In light of rapidly changing events, the Firm has categorized updates for easier access. Please see the below links. To read the letter from our Managing Partner, please click HERE.
President Biden has signed the PPP Extension Act of 2021. The new law extends the Paycheck Protection Program (PPP) application filing deadline from March 31, 2021, to May 31, 2021, thus providing potential PPP borrowers additional time to submit their applications. The law doesn’t provide the PPP with any additional funding. However, $7.25 billion in additional funding was recently provided in the American Rescue Plan Act.
The PPP was established in March 2020 by the CARES Act. The program was designed to help small employers meet their payrolls during the economic crisis caused by the COVID-19 pandemic. PPP loans are available to virtually every U.S. business with fewer than 500 employees that was affected by COVID-19, including sole proprietors, self-employed individuals, independent contractors and nonprofits.
PPP loans generally are 100% forgivable if the borrower allocates the funds on a 60/40 basis between payroll and eligible nonpayroll costs. Nonpayroll costs originally were limited to mortgage interest, rent, utilities and interest on any other existing debt, but the Consolidated Appropriations Act (CAA), enacted in late 2020, significantly expanded the eligible nonpayroll costs. For example, borrowers now can apply the funds to cover certain operating expenses and worker protection expenses.
The CAA added an additional $284 billion in funding for PPP loans for both first-time and so-called “second draw” borrowers (the latter are restricted to smaller and harder hit businesses). It also clarified that PPP borrowers aren’t required to include any forgiven amounts in their gross income for tax purposes and that borrowers can deduct otherwise deductible expenses paid with forgiven PPP proceeds. In addition, it simplified the forgiveness process by calling for a one-page forgiveness application for loans up to $150,000.
The New Law
To recap, the new PPP Extension Act provides no additional funding for the program but extends the filing deadline for both first- and second-draw loan applications to May 31, 2021. The deadline extension may increase the odds of securing a loan, particularly for businesses that have struggled with the application process.
The law also gives the Small Business Administration (SBA) an additional 30 days — through June 30, 2021 — after the extended application deadline to complete its processing of applications. The SBA has a backlog of applications because of a variety of factors, including coding errors, delays in the release of guidance on implementation of the program and its many changes, and a recent revision of the formula used to calculate an applicant’s loan amount.
Previously, the loan amount was based on an applicant’s net profits, to the detriment of sole proprietors, independent contractors and self-employed individuals whose Schedule C tax forms didn’t show a net profit. In February, the Biden administration announced that it was revising the formula to focus on gross profits — the amount of money earned before taxes or expenses are deducted. While welcomed news for applicants, the revised formula required loan processors to make changes, leading to further delays and strain to keep up with demand.
With the PPP application filing deadline being extended, coupled with several recent reforms that widen the loan eligibility, more businesses have the opportunity the take advantage of PPP loans. We can help you determine if you’re eligible and ensure you comply with the applicable requirements to qualify for 100% forgiveness.
The Employee Retention Credit (ERC), which was created to encourage employers to keep their workforces intact during the COVID-19 pandemic, has been with us for a year. But questions about it remain for many employers. With the new American Rescue Plan Act (ARPA) extending the credit and expanding eligibility — and the credit worth as much as $28,000 per employee for 2021 — employers should brush up on the details.
The CARES Act, which was enacted in March of 2020, generally made the ERC available to employers whose:
- Operations were fully or partially suspended due to a COVID-19-related government shutdown order, or
- Gross receipts dropped more than 50% compared to the same quarter in the previous year (until gross receipts exceed 80% of gross receipts in the earlier quarter).
The credit originally equaled 50% of “qualified wages” — including health care benefits — up to $10,000 per eligible employee from March 13, 2020, through December 31, 2020. As a result, the maximum benefit for 2020 is $5,000 per employee.
The Consolidated Appropriations Act (CAA), which was enacted in December of 2020, extended the credit for eligible employers that continue to pay wages during COVID-19 closures or recorded reduced revenue through June 30, 2021. That wasn’t the only change the law made to the ERC, though.
The CAA increased the amount of the credit to 70% of qualified wages, beginning January 1, 2021, and raised the limit on per-employee qualified wages from $10,000 per year to $10,000 per quarter. In other words, you can obtain a credit as high as $7,000 per quarter per employee.
The CAA also expanded eligibility by reducing the requisite year-over-year gross receipt reduction from 50% to only 20%. And it raised the threshold for determining whether a business is a “large employer” — and therefore subject to a stricter standard when computing the qualified wage base — from 100 to 500 employees.
Under the CARES Act, Paycheck Protection Program (PPP) loan borrowers weren’t allowed to claim ERCs. The CAA also provided that employers that receive PPP loans still qualify for the ERC for qualified wages not paid with forgiven PPP funds. (This provides an incentive for PPP borrowers to maximize the nonpayroll costs for which they claim loan forgiveness.)
The ARPA extends the ERC through the end of 2021. It also makes some changes that apply solely to the third and fourth quarters of the year. For example, the credit will be applied against an employer’s share of Medicare taxes, rather than Social Security taxes; excess credits continue to be refundable.
The new law expands the pool of employers who can take advantage of the credit by establishing a third path — beyond the suspension of operations or decline in gross receipts — to eligibility. Now, so-called “recovery startup businesses” may also qualify for the ERC.
A recovery startup business generally is an employer that:
- Began operating after February 15, 2020, and
- Has average annual gross receipts of less than or equal to $1 million.
While these employers can claim the credit without suspended operations or reduced receipts, it’s limited to $50,000 total per quarter.
The ARPA also targets extra relief at “severely financially distressed employers,” meaning those with less than 10% of gross receipts for 2021 when compared to the same period in 2019. Such employers can count as qualified wages any wages paid to an employee during any calendar quarter — regardless of employer size. Otherwise, the ARPA continues to distinguish between large employers and small employers for purposes of determining qualified wages.
For large employers that averaged more than 500 full-time employees during 2019 (or 2020 if the employer didn’t exist in 2019), qualified wages are those paid to an employee who isn’t providing services because of the circumstances that made the employer eligible for the ERC. For smaller employers, qualified wages include wages paid — regardless of whether the employee was working — during the period of suspended operations or the calendar quarter in which the gross receipts test was satisfied.
Qualified wages can’t include wages used to compute other credits, loan forgiveness or certain grants received from the Small Business Administration. This applies to all eligible employers.
Note that the ARPA extends the statute of limitations for the IRS to evaluate ERC claims. The IRS will have five years, as opposed to the typical three years, from the date the original return for the calendar quarter for which the credit is computed is deemed filed.
IRS Guidance on “Partial Suspension of Operations”
In early March 2021, prior to passage of the ARPA, the IRS issued additional guidance on the ERC. Among other things, it provides some help for determining whether operations were partially suspended because of a COVID-19-related government order.
The IRS has previously stated that “more than a nominal portion” of operations had to be suspended. In Notice 2021-20, it explained that this criterion is met when:
- Gross receipts from the suspended operations are 10% or more of total gross receipts,
- Hours of service performed by employees in the suspended operations are 10% or more of total hours of service, or
- Modifications to operations result in a reduction of 10% or more of the employer’s ability to provide goods or services.
The notice provides additional guidance, but it’s applicable only for the ERC in 2020.
A Complicated Calculation
The precise amount of your ERC will vary depending on the period, your number of employees and other factors. We can help ensure that you properly calculate your credit and don’t leave money on the table.
The IRS has announced that the federal income tax filing deadline for individuals for the 2020 tax year is extended from April 15, 2021, until Monday, May 17, 2021. The IRS extended the deadline to provide relief to taxpayers facing challenges as a result of the pandemic and because it’s grappling with a rising backlog of 24 million unprocessed returns. As part of its announcement, the IRS stated it would soon be issuing additional guidance about the deadline extension.
Extended Deadline Details
Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including those who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17.
Individual taxpayers don’t need to file any forms to qualify for this automatic federal tax filing and payment relief. If you need additional time to file beyond the May 17 deadline, you can request a filing extension until October 15 by filing Form 4868. Filing Form 4868 gives you until October 15 to file your 2020 tax return but doesn’t grant you an extension of time to pay taxes due. You should pay the federal income tax due by May 17, 2021, to avoid interest and penalties.
Estimated Payment Deadline Not Extended
This relief doesn’t apply to estimated tax payments that are due on April 15, 2021. These payments are still due on that date. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS if your income isn’t subject to income tax withholding. This includes self-employment income, interest, dividends, prize winnings, alimony and rental income. Many taxpayers automatically have taxes withheld from their paychecks and sent to the IRS by their employers.
State Returns Not Included
Be aware that the federal tax filing deadline postponement to May 17, 2021, applies to only individual federal income returns and tax (including tax on self-employment income) payments otherwise due April 15, 2021. It doesn’t apply to state tax payments or deposits or payments of any other type of federal tax. Taxpayers also will need to file income tax returns in 42 states plus the District of Columbia. State filing and payment deadlines vary and aren’t always the same as the federal filing deadline. Check with your tax advisor or your state tax authority for more information.
In addition, earlier this year, the IRS announced relief for victims of the February winter storms in Texas, Oklahoma and Louisiana. These states have until June 15, 2021, to file various individual and business tax returns and make tax payments. The extension to May 17 doesn’t affect the June deadline.
File as soon as possible
Be aware that this extended deadline is optional. If you’re ready to file, contact us for an appointment to prepare your return. You’ll want to file as soon as possible — especially if you’re due a refund.
On March 11, 2021, President Biden signed into law the American Rescue Plan Act (ARPA). The $1.9 trillion law is intended to provide far-reaching relief from the economic and other repercussions of the ongoing COVID-19 pandemic. In addition to funding for testing, contact tracing, vaccinations, education, and state and local governments, the ARPA includes extensive relief that could directly impact your finances.
Under the ARPA, many people will receive a third round of direct payments (which the law calls recovery rebates). It provides for direct payments of $1,400 — plus $1,400 per dependent — for single tax filers with adjusted gross income (AGI) up to $75,000 per year, heads of households with AGI up to $112,500 and married couples with AGI up to $150,000. The rebates phase out when AGI exceeds $80,000, $120,000 and $160,000, respectively. Dependents include adult dependents, such as college students and qualifying family members.
The payments will be based on your 2019 or 2020 income, depending on whether you’ve filed your 2020 tax return. If you haven’t filed and expect your 2020 AGI to be at or near the applicable phaseout threshold, you might want to consider the timing of your 2020 filing.
Payments will be reconciled on your 2021 tax return. If you qualify for a rebate based on your 2020 income but didn’t receive a check because the government based your eligibility on your 2019 tax return, you can claim a credit on your 2021 return. But, if you receive a payment based on your 2019 AGI even though you don’t actually qualify based on your 2020 AGI, you won’t be required to return it.
The ARPA extends the extra $300 per week in unemployment benefits, over and above state unemployment benefits, through September 6, 2021. It also increases the maximum period of benefits from 50 weeks to 79 weeks.
In addition, the law spares unemployment beneficiaries an unwelcome surprise tax bill by making the first $10,200 in unemployment benefits received in 2020 nontaxable for households with incomes less than $150,000. If you qualify for this tax break and have already filed your 2020 returns, you’ll want to await IRS guidance as to how to proceed. The IRS is reviewing the possibility that they’ll be able to make the adjustments automatically.
Child Tax Credits
The new law temporarily expands the $2,000 Child Tax Credit (CTC) significantly. For 2021 only, eligible taxpayers will receive a $3,000 credit for each child ages 6 to 17 and a $3,600 credit for each child under age 6.
The $2,000 credit is subject to a phaseout when income exceeds $400,000 for joint filers and $200,000 for other filers. The ARPA continues this treatment for the first $2,000 of the credit in 2021, but it applies a separate phaseout for the increased amount — $75,000 for single filers, $112,500 for heads of household and $150,000 for joint filers. So, in other words, for 2021, the credit is subject to two sets of phaseout rules.
The ARPA directs the U.S. Treasury Department to create a program to make monthly advance payments for the increased CTC beginning in July, based on taxpayers’ most recently filed tax returns. That means eligible taxpayers will receive half of the credit before year end. If the advance payments end up exceeding the amount of the credit due on the 2021 tax return, the excess amount must be repaid. The IRS will establish an online portal where you can opt out of advance payments or enter information that modifies the amount of your monthly payments, if you’re eligible.
Child and Dependent Care Tax Credit
The ARPA expands the child and dependent care tax credit substantially, albeit again temporarily. For 2021, taxpayers can claim a refundable 50% credit for up to $8,000 in care expenses for one child or dependent and up to $16,000 in expenses for two or more children or dependents — so the credit ultimately is worth up to $4,000 or $8,000. It begins phasing out when household income levels exceed $125,000; for households with income over $400,000, the credit can be reduced below 20%.
For comparison, the 2020 expense limits were $3,000 and $6,000, and the credit topped out at 35% of the expenses. The phaseout began when household income exceeded $15,000, though the credit is no less than 20% of the allowable expenses regardless of household income.
The ARPA also increases the limit on tax-free employer-provided dependent care assistance for 2021 to $10,500 (50% for married couples filing separately). That’s more than double the current limit of $5,000.
Student Loan Forgiveness
The ARPA doesn’t forgive student loan debt, but it anticipates a possible development may occur in the near future. For now, it ensures the tax-free treatment of student loan debt forgiven between December 31, 2020, and January 1, 2026. Forgiven debt typically is treated as taxable income.
Health Care Insurance
Health insurance will become more affordable for some insured individuals in 2021 and 2022 because of two provisions in the ARPA. The provisions relate to the Affordable Care Act (ACA) and continuation coverage that may be available under the Consolidated Omnibus Budget Reconciliation Act, better known as COBRA.
The law increases both the availability and the amount of ACA subsidies, retroactive to January 1, 2021. It extends cost-sharing support to anyone who receives, or was approved to receive, unemployment benefits in 2021. It also limits the amount that anyone who obtains insurance through the federal or state marketplaces must pay for premiums to 8.5% of their modified adjusted gross income — regardless of their income.
And the ARPA provides a 100% premium subsidy for qualified beneficiaries who are 1) currently enrolled in COBRA or 2) either eligible but didn’t enroll previously or enrolled but dropped out. The subsidy is available only to employees who lost group coverage because they were involuntarily terminated or their hours were reduced. It covers the period of April 2021 through September 2021.
Like the CARES Act and the Consolidated Appropriations Act (CAA) before it, the ARPA includes assistance for those struggling to keep their homes due to the pandemic. For example, it provides rental assistance that eligible families can use for past-due rent, future rent, and utility and energy bills.
The law also provides additional funding to the Homeowner Assistance Fund. The fund is intended to prevent mortgage delinquencies, defaults, foreclosures, the loss of utility or home energy services, and the displacement of homeowners experiencing financial hardship after January 21, 2020.
The ARPA contains numerous provisions affecting businesses, too. For example, it provides an additional $7.25 billion in funding for the Paycheck Protection Program (PPP). However, the new law didn’t extend the current March 31 deadline for PPP loans to be approved but Congress is discussing another bill to extend it.
The ARPA also provides another $15 billion for Economic Injury Disaster Loan (EIDL) Advance Grants. Small businesses in low-income communities are eligible for EIDL grants of up to $10,000; $5 billion is reserved for $5,000 grants to businesses that experienced a revenue loss of more than 50% and have no more than 10 employees.
The law also includes targeted relief for some of the industries hit hardest by the COVID-19 pandemic. It establishes a $28.6 billion fund for businesses that primarily serve food or drinks, with $5 billion earmarked for restaurants with 2019 gross receipts under $500,000. In addition, the ARPA directs an additional $1.25 billion to the “shuttered venue operators” grant program that was created by the CAA and expands eligibility to include operators that received a PPP loan after December 27, 2020. These operators include live performing arts organizations and movie theaters.
Additional Guidance to Come
The ARPA is a sweeping piece of legislation, with substantial implementation guidance on certain provisions sure to come from regulators. We’ll keep you apprised of the developments most likely to affect you, your family and your business.
President Biden signed the $1.9 trillion American Rescue Plan Act (ARPA) on March 11. While the new law is best known for the provisions providing relief to individuals, there are also several tax breaks and financial benefits for businesses.
Here are some of the tax highlights of the ARPA.
The Employee Retention Credit (ERC). This valuable tax credit is extended from June 30 until December 31, 2021. The ARPA continues the ERC rate of credit at 70% for this extended period of time. It also continues to allow for up to $10,000 in qualified wages for any calendar quarter. Taking into account the Consolidated Appropriations Act extension and the ARPA extension, this means an employer can potentially have up to $40,000 in qualified wages per employee through 2021.
Employer-Provided Dependent Care Assistance. In general, an eligible employee’s gross income doesn’t include amounts paid or incurred by an employer for dependent care assistance provided to the employee under a qualified dependent care assistance program (DCAP).
Previously, the amount that could be excluded from an employee’s gross income under a DCAP during a tax year wasn’t more than $5,000 ($2,500 for married individuals filing separately), subject to certain limitations. However, any contribution made by an employer to a DCAP can’t exceed the employee’s earned income or, if married, the lesser of employee’s or spouse’s earned income.
Under the ARPA, for 2021 only, the exclusion for employer-provided dependent care assistance is increased from $5,000 to $10,500 (from $2,500 to $5,250 for married individuals filing separately).
This provision is effective for tax years beginning after December 31, 2020.
Paid Sick and Family Leave Credits. Changes under the ARPA apply to amounts paid with respect to calendar quarters beginning after March 31, 2021. Among other changes, the law extends the paid sick time and paid family leave credits under the Families First Coronavirus Response Act from March 31, 2021, through September 30, 2021. It also provides that paid sick and paid family leave credits may each be increased by the employer’s share of Social Security tax (6.2%) and employer’s share of Medicare tax (1.45%) on qualified leave wages.
Grants to restaurants. Under the ARPA, eligible restaurants, food trucks, and similar businesses that provide food and drinks may receive restaurant revitalization grants from the Small Business Administration. For tax purposes, amounts received as restaurant revitalization grants aren’t included in the gross income of the person who receives the money.
These are only some of the provisions in the ARPA. There are many others that may be beneficial to your business. Contact us for more information about your situation.
The U.S. Department of Labor (DOL) recently issued EBSA Disaster Relief Notice 2021-01, which is of interest to employers. It clarifies the duration of certain COVID-19-related deadline extensions that apply to health care benefits plans.
Extensions to Continue
The DOL and IRS issued guidance last year specifying that the COVID-19 outbreak period — defined as beginning March 1, 2020, and ending 60 days after the announced end of the COVID-19 national emergency — should be disregarded when calculating various deadlines under COBRA, ERISA and HIPAA’s special enrollment provisions.
The original emergency declaration would have expired on March 1, 2021, but it was recently extended. Although the agencies defined the outbreak period solely by reference to the COVID-19 national emergency, they relied on statutes allowing them to specify disregarded periods for a maximum of one year. Therefore, questions arose as to whether the outbreak period was required to end on February 28, 2021, one year after it began.
Notice 2021-01answers those questions by providing that the extensions have continued past February 28 and will be measured on a case-by-case basis. Specifically, applicable deadlines for individuals and plans that fall within the outbreak period will be extended (that is, the disregarded period will last) until the earlier of:
- One year from the date the plan or individual was first eligible for outbreak period relief, or
- The end of the outbreak period.
Once the disregarded period has ended, the timeframes that were previously disregarded will resume. Thus, the outbreak period will continue until 60 days after the end of the COVID-19 national emergency, but the maximum disregarded period for calculating relevant deadlines for any individual or plan cannot exceed one year.
Communication is Necessary
The DOL advises plan sponsors to consider sending notices to participants regarding the end of the relief period, which may include reissuing or amending previous disclosures that are no longer accurate. Sponsors are also advised to notify participants who are losing coverage of other coverage options, such as through the recently announced COVID-19 special enrollment period in Health Insurance Marketplaces (commonly known as “Exchanges”).
Notice 2021-01 acknowledges that the COVID-19 pandemic and other circumstances may disrupt normal plan operations. The DOL reassures fiduciaries acting in good faith and with reasonable diligence that enforcement will emphasize compliance assistance and other relief. The notice further states that the IRS and U.S. Department of Health and Human Services concur with the guidance and its application to laws under their jurisdiction.
Plan sponsors and administrators will likely welcome this clarification but may be disappointed in its timing and in how it interprets the one-year limitation. Determinations of the disregarded period that depend on individual circumstances could create significant administrative challenges.
In addition to making case-by-case determinations, plan sponsors and administrators must quickly develop a strategy for communicating these complex rules to participants. Contact us for further information and updates.
Congress has passed the latest legislation aimed at providing economic and other relief from the COVID-19 pandemic that has haunted the country for the last year. President Biden is expected to sign the 628-page American Rescue Plan Act (ARPA), which includes $1.9 trillion in funding for individuals, businesses, and state and local governments.
The ARPA extends and expands some of the critical provisions in the CARES Act and the Consolidated Appropriations Act (CAA). It also includes some new provisions that should come as welcome news to many families and businesses.
Key Provisions for Individuals, Businesses and Other Employers
Here’s a broad overview of some of the provisions that may affect you:
- Additional direct payments (or recovery rebates) of $1,400 — plus $1,400 per dependent (including adult dependents) will be made to eligible individuals. To qualify, individuals must have an adjusted gross income (AGI) of up to $75,000 per year, ($150,000 for married couples filing jointly and $112,500 for heads of households). The payments phase out and are no longer made when AGI exceeds $80,000 for individuals, $160,000 for married joint filers and $120,000 for heads of household.
- For eligible individuals, the Child Tax Credit (CTC) increases to $3,000 for each child age six to 17 and $3,600 per year for children under age six. To be eligible for the full payment, you must have a modified AGI of under $75,000 for singles, $112,500 for heads-of-households and $150,000 for joint filers and surviving spouses. The credit phases out at a rate of $50 for each $1,000 (or fraction thereof) of modified AGI over the applicable threshold.
- Parents will begin receiving advance payments of part of the CTC later this year. Under the ARPA, the IRS must establish a program to make monthly payments (generally by direct deposits) equal to 50% of eligible taxpayers’ 2021 CTCs, from July 2021 through December 2021.
- Some taxpayers who aren’t eligible to claim an increased CTC in 2021, because their income is too high, may be able to claim the regular CTC of up to $2,000, subject to the existing phaseout rules.
- For 2021, there’s an expanded child and dependent care tax credit of up to $4,000 for childcare expenses for one child and up to $8,000 for two or more children for households making up to $125,000.
- Any student loan debt forgiven between December 31, 2020, and January 1, 2026, will receive tax-free treatment.
- An additional $300 per week in unemployment benefits will be paid through September 6, 2021. In addition, the first $10,200 in unemployment benefits received beginning in 2020 isn’t included in gross income for taxpayers with AGIs under $150,000. (However, for joint filers below the AGI limit, the $10,200 exclusion applies separately to each spouse.)
- There’s expanded availability of and increased Affordable Care Act (ACA) subsidies for those who obtain insurance in the ACA marketplaces, for 2021 and 2022.
- Federal rental assistance is included for families affected by COVID-19, applicable to past due rent, future rent payments, and utility and energy bills.
- There’s expanded eligibility for low-income individuals with no qualifying children to claim the Earned Income Tax Credit.
Business and Other Employers
- Pandemic assistance grants will be made to eligible businesses serving food or drinks, including restaurants and food trucks.
- There will be additional funding for forgivable loans to eligible businesses under the Paycheck Protection Program (PPP), which is currently scheduled to expire on March 31, 2021.
- Nonprofit organizations and online news services will receive expanded PPP eligibility.
- New targeted Economic Injury Disaster Loan grants will be available for eligible small businesses in low-income communities.
- The Employee Retention Tax Credit is extended for eligible employers that continue to pay employee wages during COVID-19-related closures or experience reduced revenue through December 31, 2021. This includes “recovery startup businesses” (those businesses that launched after February 15, 2020, with average annual gross receipts of $1 million or less).
- Tax credits for paid sick and family leave are modified and extended to September 30, 2021.
- The excess business loss limitation is extended through December 31, 2026.
- The Section 162(m) limits on the tax deduction that public companies can take for executive compensation is extended to cover the CEO, the CFO and the five next highest paid employees, beginning in 2027.
Make the Most of the Benefits
With vaccination rates climbing, the ARPA may be the last of the major legislative relief packages addressing the effects of the pandemic. We’d be pleased to provide you with more information on how you can make the most of the benefits available to you, your family or your business.
The Biden administration has announced several reforms to the popular Paycheck Protection Program (PPP) to bring greater relief to the smallest and most vulnerable businesses. Among other things, the administration is imposing a two-week moratorium on loans to companies with 20 or more employees and focusing on smaller businesses. It’s also changing several program rules to expand eligibility for the 100% forgivable PPP loans.
The PPP in a nutshell
The CARES Act, passed in the early days of the COVID-19 pandemic, established the PPP to help employers cover their payrolls during the resulting economic downturn. The program is open to almost every U.S. business with fewer than 500 employees — including sole proprietors, self-employed individuals, independent contractors and nonprofits — affected by the pandemic.
Generally, the loans are 100% forgivable if the proceeds are allocated on a 60/40 basis between payroll and eligible nonpayroll costs. While the latter initially were limited to mortgage interest, rent, utilities and interest on any other existing debt, the Consolidated Appropriations Act (CAA), enacted in late December 2020, expanded the qualifying nonpayroll costs. They now include, for example, certain operating expenses and worker COVID-19 protection expenses.
The CAA also provided another $284 billion in funding for forgivable loans for both first-time and so-called “second-draw” borrowers. The second-draw loans are restricted to smaller and harder hit businesses.
In addition, the CAA established a simplified, one-page forgiveness application for loans up to $150,000. It clarified that PPP borrowers aren’t required to include any forgiven amounts in their gross income for tax purposes and that borrowers can deduct otherwise deductible expenses paid with forgiven PPP proceeds.
The impetus for the new changes
According to the Small Business Administration (SBA), the new reforms are intended to ensure equity in the program. The SBA says a “critical goal” of the latest round of PPP funding in the CAA was to reach small and low- and moderate-income (LMI) businesses that hadn’t yet received needed relief.
Under current policies, though, the second round has distributed only $2.4 billion of a $15 billion set-aside for small and LMI “first-draw” borrowers. The SBA says this is, in part, because a disproportionate amount of funding in both wealthy and LMI areas is going to businesses with more than 20 employees. The Biden administration hopes to remedy that disparity with the announced revisions.
The announcement outlined five reforms:
1. A two-week exclusive application period for smaller businesses. The SBA has established, beginning February 24, 2021, a two-week exclusive PPP loan application period for businesses and nonprofits with fewer than 20 employees. The restriction aims to give lenders and community partners more time to work with these applicants, which often struggle to collect the necessary paperwork and secure loans.
Larger PPP-eligible businesses need not worry about missing out. The SBA says that they’ll still have time to apply for and receive support before the program is set to expire on March 31, 2021.
2. A revised loan calculation formula. The current formula is based on net profits. As a result, many of the smallest businesses — sole proprietors, independent contractors and self-employed individuals — were excluded from the PPP.
The administration is revising the formula to focus instead on gross profits. That means solo ventures that don’t show net profits on their federal tax returns nonetheless can receive PPP loans. The administration also will set aside $1 billion for businesses in this category without employees located in LMI areas.
3. The elimination of the non-fraud felony exclusion. The existing rules restrict PPP eligibility based on criminal history. A business is ineligible for PPP funding if it’s at least 20% owned by an individual with either 1) an arrest or conviction for a felony related to financial assistance fraud in the previous five years, or 2) any other felony in the previous year.
To expand access, the administration is adopting some of the proposals in a bipartisan bill in Congress dubbed the Second Chance Act. Specifically, it will eliminate the one-year lookback for any kind of felony unless the applicant or owner is incarcerated at the time of the application.
4. The elimination of the student loan exclusion. Current rules prohibit PPP loans to any business that’s at least 20% owned by an individual who’s delinquent or has defaulted on a federal debt within the previous seven years. Federal student loans fall within the definition of such debt.
The pandemic has only exacerbated the number of Americans who are delinquent on their student loans. The SBA will work with the U.S. Departments of Treasury and Education to remove the student loan delinquency restriction to broaden PPP access.
5. Clarification of noncitizen small business eligibility. The CARES Act is clear that all lawful U.S. residents can apply for PPP loans. Lack of guidance from the SBA, though, has created inconsistent access for lawful U.S. residents who are holders of Individual Taxpayer Identification Numbers (ITIN), such as Green Card holders and those in the United States on a visa.
The SBA will issue new guidance to address this problem. The guidance will state that otherwise eligible applicants can’t be denied access to PPP loans solely because they use ITINs when paying their taxes.
Congress is currently debating the Biden administration’s proposed $1.9 trillion COVID-19 relief package, known as the American Rescue Plan. That bill doesn’t specifically address the PPP but includes $15 billion in grants to help small businesses, $35 billion in small business financing programs, and unspecified aid to restaurants, bars and other businesses that have suffered disproportionately.
We’ll keep you updated on any additional relevant changes to the PPP, as well as developments regarding the next round of pandemic relief.
The Small Business Administration (SBA) announced that the Paycheck Protection Program (PPP) reopened the week of January 11. If you’re fortunate to get a PPP loan to help during the COVID-19 crisis (or you received one last year), you may wonder about the tax consequences.
Background on the Loans
In March of 2020, the CARES Act became law. It authorized the SBA to make loans to qualified businesses under certain circumstances. The law established the PPP, which provided up to 24 weeks of cash-flow assistance through 100% federally guaranteed loans to eligible recipients. Taxpayers could apply to have the loans forgiven to the extent their proceeds were used to maintain payroll during the COVID-19 pandemic and to cover certain other expenses.
At the end of 2020, the Consolidated Appropriations Act (CAA) was enacted to provide additional relief related to COVID-19. This law includes funding for more PPP loans, including a “second draw” for businesses that received a loan last year. It also allows businesses to claim a tax deduction for the ordinary and necessary expenses paid from the proceeds of PPP loans.
Second Draw Loans
The CAA permits certain smaller businesses who received a PPP loan and experienced a 25% reduction in gross receipts to take a PPP second draw loan of up to $2 million.
To qualify for a second draw loan, a taxpayer must have taken out an original PPP Loan. In addition, prior PPP borrowers must now meet the following conditions to be eligible:
• Employ no more than 300 employees per location,
• Have used or will use the full amount of their first PPP loan, and
• Demonstrate at least a 25% reduction in gross receipts in the first, second or third quarter of 2020 relative to the same 2019 quarter. Applications submitted on or after Jan. 1, 2021, are eligible to utilize the gross receipts from the fourth quarter of 2020.
To be eligible for full PPP loan forgiveness, a business must generally spend at least 60% of the loan proceeds on qualifying payroll costs (including certain health care plan costs) and the remaining 40% on other qualifying expenses. These include mortgage interest, rent, utilities, eligible operations expenditures, supplier costs, worker personal protective equipment and other eligible expenses to help comply with COVID-19 health and safety guidelines or equivalent state and local guidelines.
Eligible entities include for-profit businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors and small agricultural co-operatives.
Deductibility of Expenses Paid by PPP Loans
The CARES Act didn’t address whether expenses paid with the proceeds of PPP loans could be deducted on tax returns. Last year, the IRS took the position that these expenses weren’t deductible. However, the CAA provides that expenses paid from the proceeds of PPP loans are deductible.
Cancellation of Debt Income
Generally, when a lender reduces or cancels debt, it results in cancellation of debt (COD) income to the debtor. However, the forgiveness of PPP debt is excluded from gross income. Your tax attributes (net operating losses, credits, capital and passive activity loss carryovers, and basis) wouldn’t generally be reduced on account of this exclusion.
This only covers the basics of applying for PPP loans, as well as the tax implications. Contact us if you have questions or if you need assistance in the PPP loan application or forgiveness process.
COVID-19 has shut down many businesses, causing widespread furloughs and layoffs. Fortunately, employers that keep workers on their payrolls are eligible for a refundable Employee Retention Tax Credit (ERTC), which was extended and enhanced in the latest law.
Background on the Credit
The CARES Act, enacted in March of 2020, created the ERTC. The credit:
- Equaled 50% of qualified employee wages paid by an eligible employer in an applicable 2020 calendar quarter,
- Was subject to an overall wage cap of $10,000 per eligible employee, and
- Was available to eligible large and small employers.
The Consolidated Appropriations Act, enacted December 27, 2020, extends and greatly enhances the ERTC. Under the CARES Act rules, the credit only covered wages paid between March 13, 2020, and December 31, 2020. The new law now extends the covered wage period to include the first two calendar quarters of 2021, ending on June 30, 2021.
In addition, for the first two quarters of 2021 ending on June 30, the new law increases the overall covered wage ceiling to 70% of qualified wages paid during the applicable quarter (versus 50% under the CARES Act). And it increases the per-employee covered wage ceiling to $10,000 of qualified wages paid during the applicable quarter (versus a $10,000 annual ceiling under the original rules).
Interaction with the PPP
In a change retroactive to March 12, 2020, the new law also stipulates that the employee retention credit can be claimed for qualified wages paid with proceeds from Paycheck Protection Program (PPP) loans that aren’t forgiven.
What’s more, the new law liberalizes an eligibility rule. Specifically, it expands eligibility for the credit by reducing the required year-over-year gross receipts decline from 50% to 20% and provides a safe harbor allowing employers to use prior quarter gross receipts to determine eligibility.
We Can Help
These are just some of the changes made to the ERTC, which rewards employers that can afford to keep workers on the payroll during the COVID-19 crisis. Contact us for more information about this tax saving opportunity.
The Consolidated Appropriations Act of 2021 (CAA) was signed into law in late December. The sprawling legislation contains billions of dollars in additional stimulus funding in response to the COVID-19 pandemic, as well as numerous unrelated provisions. Let’s take a closer look at the provisions that are most likely to affect your company’s bottom line.
Paycheck Protection Program
The CAA includes another $284 billion in funding for forgivable loans through the Paycheck Protection Program (PPP), for both first-time and so called “second draw” borrowers. New loans can be made through March 31, 2021, or until the funding is exhausted. The new law expands the allowable uses for PPP funds, provides a simplified forgiveness process for smaller loans, and clarifies the proper tax treatment of loan proceeds and forgiven amounts.
The second draw loans are intended for smaller and harder hit businesses. Eligible borrowers include businesses, certain nonprofits, self-employed individuals, sole proprietors and independent contractors.
To qualify for a second draw, a borrower must have no more than 300 employees and have used (or will use) all of the proceeds of its first PPP loan. Borrowers generally also must demonstrate at least a 25% reduction in gross receipts in one quarter of 2020 compared with the same quarter in 2019. For loans of $150,000 or less, a borrower can submit a certification attesting that it meets the revenue loss requirements on or before the date it submits its loan forgiveness application.
Loans are limited to 2.5 times average monthly payroll costs in the year prior to the loan or the calendar year, up to $2 million. Accommodation and food service businesses may receive loans for up to 3.5 times their average monthly payroll. Businesses can obtain only a single second draw loan, and businesses with multiple locations that are eligible under the initial PPP requirements can have no more than 300 employees per physical location.
The CARES Act, which created the PPP, limited the funds to payroll, mortgage, rent and utility payments. The CAA allows businesses to also apply the funds to:
- Covered operating expenses, including software or cloud computing services that facilitate business operations, product and service delivery, payroll processing, human resources, sales and billing, accounting or tracking supplies, inventory, records, and expenses,
- Uninsured costs related to property damage, vandalism or looting during 2020 public disturbances,
- Supplier costs according to a contract, purchase order or order for goods, in effect before taking out the loan, that are essential to the borrower’s operations, and
- Worker protection expenses incurred to comply with federal or state health and safety guidelines related to COVID-19 (for example, personal protective equipment, ventilation systems and drive-through windows).
As with the first round of PPP loans, full forgiveness requires a 60/40 cost allocation between payroll and nonpayroll costs. In other words, you must spend at least 60% of the funds on payroll over your covered period, which may range from eight to 24 weeks.
The CAA creates a simplified forgiveness application for loans up to $150,000. Such loans will be forgiven if the borrower signs and submits to the lender a one-page certification form from the Small Business Administration (SBA). The certification requires a description of the number of employees retained due to the loan, the estimated total amount of funds spent on payroll and the total loan amount. Borrowers must retain relevant records regarding employment for four years and other records for three years.
The CAA also eliminates the previous requirement that borrowers deduct the amount of any SBA Economic Injury Disaster Loan (EIDL) advances from their PPP forgiveness amount.
Additionally, the CAA addresses some of the confusion that had arisen regarding PPP tax issues. It specifies that a borrower need not include any forgiven amounts in its gross income. And — contrary to the position taken earlier by the IRS — it states that borrowers can deduct otherwise deductible expenses paid with forgiven PPP proceeds. The CAA also provides that tax basis and other attributes aren’t reduced by loan forgiveness (special rules apply to partnerships and S corporations). These tax provisions apply to second draw loans, too.
Other Financial Assistance
The CAA provides $20 billion for new EIDL grants for businesses in low-income communities and $15 billion for live venues, independent movie theaters and cultural institutions.
On the tax front, it states that a borrower’s gross income doesn’t include forgiveness of certain loans, emergency EIDL grants and certain loan repayment assistance provided by the CARES Act. As with PPP loans, you can deduct your otherwise deductible expenses paid with such forgiven amounts, and forgiveness won’t reduce your tax basis and other attributes (special rules apply to partnerships and S corporations). Similar treatment applies to targeted EIDL advances and Grants for Shuttered Venues.
Employee Retention Credit
To encourage businesses to maintain their workforces, the CARES Act created the Employee Retention Credit, a refundable credit against payroll tax for employers whose:
- Operations were fully or partially suspended due to a COVID-19-related governmental shutdown order, or
- Gross receipts dropped more than 50% compared to the same quarter in the previous year (until gross receipts exceed 80% of gross receipts in the earlier quarter).
Employers with more than 100 employees could receive the credit if they closed due to COVID-19. Those with 100 or fewer employees received the credit regardless of whether they were open for business.
The credit equaled 50% of up to $10,000 in compensation — including health care benefits — paid to an eligible employee from March 13, 2020, through December 31, 2020. The CAA extends the credit for eligible employers that continue to pay wages during COVID-19 closures or reduced revenue through June 30, 2021.
Notably, as of January 1, 2021, the CAA hikes the credit from 50% of qualified wages to 70%. It also expands eligibility by reducing the requisite year-over-year gross receipt reduction from 50% to only 20% and raises the limit on per-employee creditable wages from $10,000 for the year to $10,000 per quarter.
In addition, the threshold for a business to be deemed a “large employer” — and thus subject to a tighter standard when determining the qualified wage base — is lifted from 100 to 500 employees.
The CAA includes some retroactive clarifications and technical improvements regarding the original credit, as well. For example, it provides that employers that receive PPP loans still qualify for the credit for wages not paid with forgiven PPP funds.
Deferred Payroll Taxes
Businesses were given the option to withhold their employees’ share of Social Security taxes from September 1, 2020, through December 31, 2020. Those that did were originally directed to increase the withholding and pay the deferred amounts on a prorated basis from wages and compensation paid between January 1, 2021, and April 30, 2021.
Under the CAA, such employers now have all of 2021 to withhold and pay the deferred taxes.
Non-COVID-19 Disaster Relief
The CAA also acknowledges the recent disasters not related to the pandemic (for example, wildfires). Among other things, it provides a tax credit of up to $2,400 (40% of up to $6,000 of wages) per employee, to employers in qualified disaster zones.
The credit applies to wages paid, regardless of whether services were actually performed in exchange for those wages. The CAA also modifies the CARES Act to allow corporations to make qualified disaster relief contributions of up to 100% of their 2020 taxable income.
Business Meals Deduction
For 2021 and 2022, you can deduct 100% (up from 50%) for food and beverages as long as they’re “provided by a restaurant.” The IRS will likely issue guidance on the deduction, particularly the meaning of the term “provided by a restaurant.”
The tax code allows “qualified future transfers” of up to 10 years of retiree health and life costs from a company’s pension plan to a retiree’s health benefits or life insurance account within the plan. These transfers must meet certain requirements (for example, the plan must be 120% funded) that pandemic-related market volatility has made too difficult to meet in some cases.
In response, the CAA allows employers to make a one-time election on or before December 31, 2021, to end any existing transfer period for any taxable year beginning after the election in certain circumstances.
The law also includes a partial termination safe harbor for retirement plans in light of 2020’s pandemic-related workforce fluctuations. Plans won’t be treated as having a partial termination (which would trigger 100% vesting for affected participants) if the number of active participants on March 31, 2021, is at least 80% of the number covered by the plan on March 13, 2020. The safe harbor applies to plan years that include the period beginning on March 13, 2020, and ending on March 31, 2021.
The CAA extends, through 2021, the CARES Act provision that increases the limitation on corporations’ cash charitable contributions from 10% of taxable income to 25%. Any excess corporate cash contributions will be carried forward to subsequent tax years. The limitation on deductions for donations of food inventory, which the CARES Act increased to 25% for 2020, is similarly extended through 2021.
The CAA incorporates several “extenders” of tax breaks. For example, it extends both the New Markets Tax Credit and the Work Opportunity Tax Credit through 2025. The employer credit for paid family and medical leave is extended through 2025 for wages paid in tax years after 2020.
The law extends through 2025 the period for which an empowerment zone designation is in effect. But the enhanced expensing rules and nonrecognition of gain on rollover of empowerment zone investments are terminated for property placed in service in tax years beginning after December 31, 2020. Empowerment zone tax-exempt bonds and employment credits also weren’t extended beyond December 31, 2020.
A Loaded Law
At almost 5,600 pages, the CAA contains many more components that could impact your business and personal taxes. Please contact us if you have any questions about these or other provisions.
President Trump signed into law billions of dollars in long-awaited COVID-19 and economic relief. The relief package is part of the nearly 5,600-page Consolidated Appropriations Act (CAA), which also contains numerous other tax, payroll and retirement provisions. Here are some of the provisions most likely to affect individual taxpayers.
The most headline-grabbing component of the CAA is the second round of direct payments. The law calls for nontaxable “recovery rebates” of $600 per eligible taxpayer ($1,200 for married couples filing jointly) plus an additional $600 per qualifying child.
The payments begin phasing out at $75,000 of modified adjusted gross income (MAGI) for single filers, $112,500 for heads of household and $150,000 for married couples filing jointly. Payments are reduced by $5 for every $100 of income above these thresholds, and phaseouts reduce the total payment amount, including the amounts for qualifying children.
The CAA expands eligibility for the payments to so-called mixed-status households, meaning those where not every family member has a Social Security Number (SSN). This change is retroactive to the CARES Act. Eligible families who didn’t receive a payment in the first round because one spouse lacked an SSN can claim a credit for that payment on their 2020 federal tax returns.
Because the rebates are based on your 2019 tax returns, you could receive a payment that’s less than you’re entitled to under the law. If your income was lower in 2020 or your family grew, you may be able to claim an additional credit for the difference on your 2020 tax return. But, if you receive a payment and it turns out your actual 2020 income is high enough that your payment should have been phased out, you won’t have to repay the difference.
The CAA provides an extra $300 per week in unemployment benefits, over and above state unemployment benefits, for 11 weeks. It also extends for 11 weeks the Pandemic Unemployment Assistance program, which makes unemployment benefits available to workers who typically don’t qualify, including the self-employed, gig economy workers and others in nontraditional employment.
The new law includes multiple types of relief for those struggling with their housing costs. For example, the federal eviction moratorium is extended through January 31, 2021. The CAA also offers rental assistance for families affected by COVID-19. Eligible households can apply the funds to rent, utilities and energy costs — including amounts in arrears. And mortgage insurance premiums remain deductible through 2021 (subject to phaseout limits).
The CARES Act provides several forms of temporary relief related to retirement plan requirements. For example, it permits penalty-free withdrawals from certain retirement plans for expenses related to COVID-19 and lifts the limit on retirement plan loans. The CAA clarifies that money purchase pension plans are included among the retirement plans subject to the temporary relief measures under the CARES Act.
Unfortunately, the pandemic wasn’t the only disaster to befall taxpayers this year, and the CAA recognizes that. It includes tax relief for taxpayers in federally declared disaster areas for major disasters (not related to COVID-19) declared from January 1, 2020, through February 25, 2021.
The relief under the CAA mirrors some of the relief afforded under the CARES Act. For example, it provides that residents of qualified disaster areas can take distributions of up to $100,000 from retirement plans without the normal 10% early withdrawal penalty. A “qualified disaster distribution” must be made no later than June 25, 2021. The CAA also contains special rules for the recontribution of retirement plan distributions applied to a home purchase in a qualified disaster area and raises the limit for retirement plan loans made following a qualified disaster.
Be aware that the CAA doesn’t extend the CARES Act’s temporary waiver of required minimum distributions. Affected taxpayers should plan on resuming those distributions for 2021.
Earned Income and Child Tax Credits
The CAA includes a temporary change that could result in larger earned income tax credits (EITCs) and child tax credits (CTCs). It allows lower-income individuals to use their earned income from the 2019 tax year to determine their EITC and the refundable portion of their CTC for the 2020 tax year. This could produce larger credits for eligible taxpayers who earned lower wages in 2020 due to the pandemic.
Medical Expense Deductions
For tax years beginning before January 1, 2021, you could claim an itemized deduction for unreimbursed medical expenses that exceeded 7.5% of your adjusted gross income (AGI). The threshold was scheduled to jump to 10% of AGI for 2021, which would make it more difficult to qualify for a medical expense deduction. The CAA permanently sets the threshold at 7.5% of AGI for tax years beginning after December 31, 2020.
Under the CARES Act, taxpayers who don’t itemize their deductions on their tax returns can nonetheless claim a $300 “above-the-line” deduction for cash contributions to qualified charitable organizations in 2020. The CAA extends that deduction through 2021 and doubles the deduction for married filers to $600. Contributions to donor-advised funds and supporting organizations don’t qualify for the deduction.
The CARES Act also loosened the limitations on charitable deductions for cash contributions made in 2020, boosting it from 50% to 100% of AGI. The CAA carries that over for 2021. Cash contributions remain limited to the excess of AGI over the amount of all other charitable contributions. Any excess cash contributions are carried forward to later years.
Under the CARES Act, employers can provide up to $5,250 annually toward employee student loan payments on a tax-free basis before January 1, 2021. The payment can be made to the employee or the lender. The CAA extends the exclusion through 2025. The longer term may make employers more willing to offer this benefit.
The CARES Act also temporarily halted collections on defaulted loans, suspended loan payments and reduced the interest rate to zero through September 30, 2020. Subsequent executive branch actions extended this relief through January 31, 2021. The CAA leaves in place that expiration date.
Education Tax Credits
Qualified taxpayers generally can claim an education tax break with the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). Previously, though, the two credits were subject to different phaseout rules, with the AOTC available at a greater MAGI than the LLC. In addition, before the new law, taxpayers could claim a “higher education expense deduction” for qualified tuition and related expenses.
The CAA adopts a single phaseout for both the AOTC and the LLC, effective for tax years beginning after December 31, 2020. The credits will phase out beginning at $80,000 for single filers and ending at $90,000. For joint filers, they will begin to phase at $160,000 and disappear at $180,000.
The new law also repeals the higher education expense deduction. Instead, taxpayers can apply the LLC credit.
Discharged Mortgage Debt
The tax code provision allowing taxpayers to exclude the discharge of qualified debt on their principal residence up to $2 million (or $1 million for married individuals filing separately) from their gross income was scheduled to expire at the end of 2020. The CAA extends the exclusion to such debt discharged through 2025. But it also reduces the maximum acquisition debt limits to $750,000 for individuals — and $375,000 for married individuals filing separately — for debt discharged after 2020.
Flexible Spending Accounts
The CAA loosens certain rules related to health and dependent care Flexible Spending Accounts (FSAs) that could lead to taxpayers forfeiting unspent funds. It allows unused amounts from 2020 FSAs to roll over to 2021and unused amounts from 2021 FSAs to roll over to 2022. Grace periods for plan years ending in 2021 or 2022 may be extended to 12 months after the end of the plan year. For 2021, employees can make mid-year prospective changes in their FSA contribution amounts without a change in status.
These changes are voluntary for employers. If you have an FSA, check with your employer to see if it’s adopting the available relief.
Repayment of Deferred Payroll Taxes
In August 2020, President Trump issued an executive order allowing employees to defer their share of Social Security taxes. Subsequent IRS guidance allowed, but didn’t require, employers to suspend withholding of such taxes. If your Social Security taxes were deferred, the CAA includes a change that could affect your expected cash flow for 2021.
Originally, the IRS issued guidance requiring employees to pay any deferred employment taxes on a prorated basis from January 1, 2021, through April 30, 2021. The CAA gives employees the entire year in 2021 to make up those deferred payments. That means you could have modestly more cash flow than you would have without the law.
The CAA is one of the longest pieces of legislation in congressional history, and the provisions outlined above are only a sampling of those that could affect you. Contact us to make sure you make the most of the changes.
The COVID-19 relief bill, signed into law on December 27, 2020, provides a further response from the federal government to the pandemic. It also contains numerous tax breaks for businesses. Here are some highlights of the Consolidated Appropriations Act of 2021 (CAA), which also includes other laws within it.
Business Meal Deduction Increase
The new law includes a provision that removes the 50% limit on deducting business meals provided by restaurants and makes those meals fully deductible.
As background, ordinary and necessary food and beverage expenses that are incurred while operating your business are generally deductible. However, for 2020 and earlier years, the deduction is limited to 50% of the allowable expenses.
The new legislation adds an exception to the 50% limit for expenses of food or beverages provided by a restaurant. This rule applies to expenses paid or incurred in calendar years 2021 and 2022.
The use of the word “by” (rather than “in”) a restaurant clarifies that the new tax break isn’t limited to meals eaten on a restaurant’s premises. Takeout and delivery meals from a restaurant are also 100% deductible.
Note: Other than lifting the 50% limit for restaurant meals, the legislation doesn’t change the rules for business meal deductions. All the other existing requirements continue to apply when you dine with current or prospective customers, clients, suppliers, employees, partners and professional advisors with whom you deal with (or could engage with) in your business.
Therefore, to be deductible:
- The food and beverages can’t be lavish or extravagant under the circumstances, and
- You or one of your employees must be present when the food or beverages are served.
If food or beverages are provided at an entertainment activity (such as a sporting event or theater performance), either they must be purchased separately from the entertainment or their cost must be stated on a separate bill, invoice or receipt. This is required because the entertainment, unlike the food and beverages, is nondeductible.
The new law authorizes more money towards the Paycheck Protection Program (PPP) and extends it to March 31, 2021. There are a couple of tax implications for employers that received PPP loans:
- Clarifications of tax consequences of PPP loan forgiveness. The law clarifies that the non-taxable treatment of PPP loan forgiveness that was provided by the 2020 CARES Act also applies to certain other forgiven obligations. Also, the law makes clear that taxpayers, whose PPP loans or other obligations are forgiven, are allowed deductions for otherwise deductible expenses paid with the proceeds. In addition, the tax basis and other attributes of the borrower’s assets won’t be reduced as a result of the forgiveness.
- Waiver of information reporting for PPP loan forgiveness. Under the CAA, the IRS is allowed to waive information reporting requirements for any amount excluded from income under the exclusion-from-income rule for forgiveness of PPP loans or other specified obligations. (The IRS had already waived information returns and payee statements for loans that were guaranteed by the Small Business Administration).
These are just a couple of the provisions in the new law that are favorable to businesses. The CAA also provides extensions and modifications to earlier payroll tax relief, allows changes to employee benefit plans, includes disaster relief and much more. Contact us if you have questions about your situation.
After months of negotiations in Washington, an agreement has been struck on a new aid package to address the ongoing fallout from the COVID-19 pandemic. The legislation has been passed by both the U.S. House of Representatives and the U.S. Senate, and President Trump is expected to sign it soon.
Included in the nearly 5,600-page Consolidated Appropriations Act of 2021, the package expands and extends several critical provisions of the CARES Act enacted in the spring of 2020 to deal with the emerging financial and health care crisis. The final bill includes neither the funding for state and local governments that Democrats sought nor the corporate liability protection from COVID-19-related lawsuits that Republicans favored.
Key provisions for individuals, businesses and employers
Here’s a broad overview of some of the provisions that may affect you:
- Additional payments (called recovery rebates) of $600 to individuals making up to $75,000 per year and $1,200 per married couple filing jointly earning up to $150,000 per year (based on 2019 tax returns) — with payments phased out at $99,000 and $198,000 respectively — plus $600 per qualifying child;
- An additional $300 per week in unemployment benefits, including for the self-employed, gig-economy workers and others in nontraditional employment, through March 14, 2021, with the maximum period for state-paid benefits extended to 50 weeks;
- An extended eviction moratorium;
- Federal rental assistance for families affected by COVID-19, applicable to past due rent, future rent payments, and utility and energy bills;
- Clarification that money purchase pension plans are included among the retirement plans subject to temporary relief measures under the CARES Act (for example, waiver of penalties on COVID-19-related early distributions);
- Potentially larger earned income tax credits and child tax credits for some taxpayers;
- Loosened requirements for medical expense deductions beginning in 2021;
- Extended expansion of charitable contribution tax deductions for non-itemizers through 2021;
- An extended exclusion for certain employer payments of student loans; and
- New rules for disaster-related distributions from retirement plans.
Businesses and other employers
- New funding for first-time and so-called “second draw” forgivable loans to eligible businesses under the Paycheck Protection Program (PPP), with dedicated set-asides for very small businesses and lending through community-based financial institutions;
- Expanded PPP-eligible expenses (for example, certain operating expenses, property damage costs, supplier costs and worker protection expenses);
- Expanded PPP eligibility for nonprofits, local newspapers, and TV and radio broadcasters;
- Clarification of tax treatment for PPP loans, certain loan forgiveness and other financial assistance under COVID-19 legislation;
- New targeted Economic Injury Disaster Loan grants from the Small Business Administration (SBA) for businesses in low-income communities;
- Continued SBA debt relief payments;
- Dedicated funding for live venues, independent movie theaters and cultural institutions;
- An extended and expanded retention tax credit for eligible employers that continue to pay employee wages during COVID-19 closures or after experiencing reduced revenue;
- Extended tax credits for paid sick and family leave;
- Extended mandatory paid sick and family leave for qualifying COVID-19-related reasons;
- 100% business meals tax deduction for 2021 and 2022 for food purchased from restaurants;
- Aid to farmers and ranchers;
- Enhanced Low Income Housing Tax Credit;
- Extended repayment period for deferred payroll taxes; and
- Extended Work Opportunity Tax Credit, New Markets Tax Credit and Empowerment Zone tax incentives.
Additional details to come
This is just a quick look at the latest COVID-19 aid package. We’ll dig more deeply into the provisions most likely to affect you or your business in the near future. In the meantime, please contact us with any questions or concerns about these new tax provisions affecting your individual financial or business situations. We’re here to help.
The IRS has reiterated its position that taxpayers can’t deduct expenses paid for with Paycheck Protection Program (PPP) loan money if the loan is forgiven:
- According to the Rev. Rul. 2020-27, expenses paid for with forgiven PPP loan money are not tax deductible (link to guidance is HERE). The IRS clarified that the expenses are non-deductible in 2020 regardless of whether the taxpayer has received loan forgiveness by the end of 2020 or simply has a reasonable expectation that the loan will be forgiven.
- A related Revenue Procedure (Rev Proc. 2020-51 is HERE) allows the taxpayer to deduct the expenses if they don’t intend to pursue forgiveness or if the loan forgiveness is subsequently denied in full or in part. The deduction can occur on the 2020 or 2021 tax return depending on when those tax returns are filed.
The AICPA and other interested parties continue to push for PPP loan forgiveness to be non-taxable as originally intended, however, at this point, only Congress can overturn the IRS ruling.
This is a developing story. We will continue to update you as we can. If you need assistance or have questions about how to proceed, contact us.
Today, many banks are working with struggling borrowers on loan modifications. Recent guidance from the Financial Accounting Standards Board (FASB) confirms that short-term modifications due to the COVID-19 pandemic won’t be subject to the complex accounting rules for troubled debt restructurings (TDRs). Here are the details.
Accounting for TDRs
Under Accounting Standards Codification (ASC) Topic 310-40, Receivables — Troubled Debt Restructurings by Creditors, a debt restructuring is considered a TDR if:
- The borrower is troubled, and
- The creditor, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession it wouldn’t otherwise consider.
Banks generally must account for TDRs as impaired loans. Impairment is typically measured using the discounted cash flow method. Under this method, the bank calculates impairment as the decline in the present value of future cash flows resulting from the modification, discounted at the original loan’s contractual interest rate. This calculation may be further complicated if the contractual rate is variable.
Under U.S. Generally Accepted Accounting Principles (GAAP), examples of loan modifications that may be classified as a TDR include:
- A reduction of the stated interest rate for the remaining original life of the debt,
- An extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk,
- A reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement, and
- A reduction of accrued interest.
The concession to a troubled borrower may include a restructuring of the loan terms to alleviate the burden of the borrower’s near-term cash requirements, such as a modification of terms to reduce or defer cash payments to help the borrower attempt to improve its financial condition.
Earlier this year, the FASB confirmed that short-term modifications made in good faith to borrowers experiencing short-term operational or financial problems as a result of COVID-19 won’t automatically be considered TDRs if the borrower was current on making payments before the relief. Borrowers are considered current if they’re less than 30 days past due on their contractual payments at the time a modification program is implemented.
The relief applies to short-term modifications from:
- Payment deferrals,
- Extensions of repayment terms,
- Fee waivers, and
- Other payment delays that are insignificant compared to the amount due from the borrower or to the original maturity/duration of the debt.
In addition, loan modifications or deferral programs mandated by a federal or state government in response to COVID-19, such as financial institutions being required to suspend mortgage payments for a period of time, won’t be within the scope of ASC Topic 310-40.
For more information
The COVID-19 pandemic is an unprecedented situation that continues to present challenges to creditors and borrowers alike. Contact your CPA for help accounting for loan modifications and measuring impairment, if necessary.
On August 28, the IRS issued guidance that provides some explanation of how employers can defer withholding and remitting an employee’s share of Social Security tax when wages are below a certain amount. The guidance in Notice 2020-65 was issued to implement President Trump’s executive action signed in early August.
The guidance is brief, and private employers still have questions about whether, and how, to implement the deferral. The President’s action only defers Social Security taxes; it doesn’t forgive them, meaning employees will have to pay the taxes later unless Congress passes a law to eliminate the liability.
Tax Deferral Background
On August 8, President Trump signed a Presidential Memorandum that permits the deferral of the employee portion of Social Security taxes for certain employees due to the COVID-19 pandemic.
The memorandum directed Treasury Secretary Steven Mnuchin to defer withholding, deposit and payment of an eligible employee’s share of Social Security taxes (or the employee’s share of Railroad Retirement taxes) on wages or compensation paid from September 1, 2020, through December 31, 2020. It applies to employees whose wages or compensation, payable during any biweekly pay period, generally are less than $4,000, or the equivalent amount with respect to other pay periods. Amounts can be deferred without penalties, interest or additions to the tax.
Note: Under the CARES Act, employers can already defer paying their portion of Social Security taxes through December 31, 2020. All 2020 deferred amounts are due in two equal installments — one at the end of 2021 and the other at the end of 2022.
Issued on August 28, the three-page guidance postpones the withholding and remittance of the employee share of Social Security tax until the period beginning on January 1, 2021, and ending on April 30, 2021. Penalties, interest and additions to tax will begin to accrue on May 1, 2021, for any unpaid taxes.
The guidance states that “if necessary,” the employer “may make arrangements to collect the total applicable taxes” from an employee. This appears to answer one question that employers have about what happens if an employee leaves a job later this year or before the deferred taxes are due. However, no additional details are given on how an employer should make arrangements to collect unpaid tax.
Pushback from Business Groups
Before the guidance was issued, several business and payroll groups stated that their members would not implement the deferral. The U.S. Chamber of Commerce and more than 30 trade associations sent a letter to members of Congress and the U.S. Department of the Treasury calling the deferral unworkable.
“If this were a suspension of the payroll tax so that employees were not forced to pay it back later, implementation would be less challenging,” the letter states. “But under a simple deferral, employees would be stuck with a large tax bill in 2021. Many of our members consider it unfair to employees to make a decision that would force a big tax bill on them next year… Therefore, many of our members will likely decline to implement deferral, choosing instead to continue to withhold and remit to the government the payroll taxes required by law.”
The National Payroll Reporting Consortium, a payroll services industry association, stated there are “substantial” computer programming changes that are needed to implement the deferral.
“Payroll systems are designed to apply a single Social Security tax rate for the full year, and to all employees equally,” the consortium explained. “Applying a different tax rate for part of the year, beginning in the middle of a quarter, and applying such a change to some employers but not others, and to some employees but not others, is quite complex. Not all employers and payroll systems will be able to make these complex changes by September 1.”
There are still unanswered questions about the payroll tax deferral. If you need assistance or have questions about how to proceed at your business, contact us. We can help you decide whether to participate and how to go forward.
According to a recent announcement, the Internal Revenue Service will be stopping Past Due Notices to taxpayers until the backlog of unopened mail, due to the pandemic, (including unopened checks) has been reduced.
The following notices will be suspended:
- CP501 (balance due)
- CP503 (unpaid balance with no response to the IRS)
- CP504 (unpaid balance, IRS intends to levy)
According to the IRS statement issued, “The IRS reminds taxpayers in this situation they should not cancel their checks and should ensure funds continue to be available so the IRS can process them to avoid potential penalties and interest. To provide fair and equitable treatment, the IRS is also providing relief from bad check penalties for dishonored checks the agency received between March 1 and July 15 due to delays in this IRS processing.”
Any checks received by the IRS will be posted and credited on the date the IRS received them and not the date they were opened/processed. This means you should not cancel your original check because in all likelihood it has not gone missing and will still be cashed.
More information regarding IRS’s progress on mission critical functions during COVID-19 can be obtained here.
The Coronavirus Aid, Relief and Economic Security (CARES) Act made changes to excess business losses. This includes some changes that are retroactive and there may be opportunities for some businesses to file amended tax returns.
If you hold an interest in a business or may do so in the future, here is more information about the changes.
Deferral of the Excess Business Loss Limits
The Tax Cuts and Jobs Act (TCJA) provided that net tax losses from active businesses in excess of an inflation-adjusted $500,000 for joint filers, or an inflation-adjusted $250,000 for other covered taxpayers, are to be treated as net operating loss (NOL) carryforwards in the following tax year. The covered taxpayers are individuals, estates and trusts that own businesses directly or as partners in a partnership or shareholders in an S corporation.
The $500,000 and $250,000 limits, which are adjusted for inflation for tax years beginning after the calendar year 2018, were scheduled under the TCJA to apply to tax years beginning in calendar years 2018 through 2025. But the CARES Act has retroactively postponed the limits so that they now apply to tax years beginning in calendar years 2021 through 2025.
The postponement means that you may be able to amend:
- Any filed 2018 tax returns that reflected a disallowed excess business loss (to allow the loss in 2018) and
- Any filed 2019 tax returns that reflect a disallowed 2019 loss and/or a carryover of a disallowed 2018 loss (to allow the 2019 loss and/or eliminate the carryover).
Note that the excess business loss limits also don’t apply to tax years that begin in 2020. Thus, such a 2020 year can be a window to start a business with large up-front-deductible items (for example capital items that can be 100% deducted under bonus depreciation or other provisions) and be able to offset the resulting net losses from the business against investment income or income from employment (see below).
Changes to the Excess Business Loss Limits
The CARES Act made several retroactive corrections to the excess business loss rules as they were originally stated in the 2017 TCJA.
Most importantly, the CARES Act clarified that deductions, gross income or gain attributable to employment aren’t taken into account in calculating an excess business loss. This means that excess business losses can’t shelter either net taxable investment income or net taxable employment income. Be aware of that if you’re planning a start-up that will begin to generate, or will still be generating, excess business losses in 2021.
Another change provides that an excess business loss is taken into account in determining any NOL carryover but isn’t automatically carried forward to the next year. And a generally beneficial change states that excess business losses don’t include any deduction under the tax code provisions involving the NOL deduction or the qualified business income deduction that effectively reduces income taxes on many businesses.
And because capital losses of non-corporations can’t offset ordinary income under the NOL rules:
- Capital loss deductions aren’t taken into account in computing the excess business loss and
- The amount of capital gain taken into account in computing the loss can’t exceed the lesser of capital gain net income from a trade or business or capital gain net income.
Contact us with any questions you have about this or other tax matters.
On August 8, President Trump signed four executive actions, including a Presidential Memorandum to defer the employee’s portion of Social Security taxes for some people. These actions were taken in an effort to offer more relief due to the COVID-19 pandemic.
The action only defers the taxes, which means they’ll have to be paid in the future. However, the action directs the U.S. Treasury Secretary to “explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.”
On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act. A short time later, President Trump signed into law the Coronavirus, Aid, Relief and Economic Security (CARES) Act. Both laws contain economic relief provisions for employers and workers affected by the COVID-19 crisis.
The CARES Act allows employers to defer paying their portion of Social Security taxes through December 31, 2020. All 2020 deferred amounts are due in two equal installments — one at the end of 2021 and the other at the end of 2022.
New Bill Talks Fall Apart
Discussions of another COVID-19 stimulus bill between Democratic leaders and White House officials broke down in early August. As a result, President Trump signed the memorandum that provides a payroll tax deferral for many — but not all — employees.
The memorandum directs the U.S. Treasury Secretary to defer withholding, deposit and payment of the tax on wages or compensation, as applicable, paid during the period of September 1, 2020, through December 31, 2020. This means that the employee’s share of Social Security tax will be deferred for that time period.
However, the memorandum contains the following two conditions:
- The deferral is available with respect to any employee, the amount of whose wages or compensation, as applicable, payable during any biweekly pay period generally is less than $4,000, calculated on a pretax basis, or the equivalent amount with respect to other pay periods; and
- Amounts will be deferred without any penalties, interest, additional amount, or addition to the tax.
The Treasury Secretary was ordered to provide guidance to implement the memorandum.
The memorandum (and the other executive actions signed on August 8) note that they’ll be implemented consistent with applicable law. However, some are questioning President Trump’s legal ability to implement the employee Social Security tax deferral.
Employers have questions and concerns about the payroll tax deferral. For example, since this is only a deferral, will employers have to withhold more taxes from employees’ paychecks to pay the taxes back, beginning January 1, 2021? Without a law from Congress to actually forgive the taxes, will employers be liable for paying them back? What if employers can’t get their payroll software changed in time for the September 1 start of the deferral? Are employers and employees required to take part in the payroll tax deferral or is it optional?
Contact us if you have questions about how to proceed. And stay tuned for more details about this action and any legislation that may pass soon.
On August 8, 2020, President Trump signed an executive memorandum that defers an employee’s portion of Social Security and Medicare taxes from September 1 through December 31, 2020. At this point, the taxes are just deferred, meaning they’ll still have to be paid at a later date. However, the action directs U.S. Treasury Secretary Steven Mnuchin to “explore avenues, including legislation, to eliminate the obligation to pay the taxes.”
The exact impact on employers and employees isn’t yet known. There are many open questions, including President Trump’s legal ability to implement the deferral. Some experts believe there may be legal challenges to this executive action.
The payroll tax deferral will be available for “any employee the amount of whose wages or compensation, as applicable, payable during any bi-weekly pay period generally is less than $4,000.”
The deferral will be calculated on a pretax basis or the equivalent amount with respect to other pay periods. Plus, the amounts will be deferred without any penalties, interest, additional amount or addition to the tax.
Stay Tuned for Additional Guidance
No doubt there is much to flesh out about this payroll tax deferral. Secretary Mnuchin has been instructed to provide additional guidance and employers can’t act on the deferral until that happens. It’s also possible Congress could take action. We’ll be monitoring developments and their implications, so turn to us for the latest information.
If your business was fortunate enough to get a Paycheck Protection Program (PPP) loan taken out in connection with the COVID-19 crisis, you should be aware of the potential tax implications.
The Coronavirus Aid, Relief and Economic Security (CARES) Act, which was enacted on March 27, 2020, is designed to provide financial assistance to Americans suffering during the COVID-19 pandemic. The CARES Act authorized up to $349 billion in forgivable loans to small businesses for job retention and certain other expenses through the PPP. In April, Congress authorized additional PPP funding and it’s possible more relief could be part of another stimulus law.
The PPP allows qualifying small businesses and other organizations to receive loans with an interest rate of 1%. PPP loan proceeds must be used by the business on certain eligible expenses. The PPP allows the interest and principal on the PPP loan to be entirely forgiven if the business spends the loan proceeds on these expense items within a designated period of time and uses a certain percentage of the PPP loan proceeds on payroll expenses.
An eligible recipient may have a PPP loan forgiven in an amount equal to the sum of the following costs incurred and payments made during the covered period:
- Payroll costs;
- Interest (not principal) payments on covered mortgage obligations (for mortgages in place before February 15, 2020);
- Payments for covered rent obligations (for leases that began before February 15, 2020); and
- Certain utility payments.
An eligible recipient seeking forgiveness of indebtedness on a covered loan must verify that the amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage, make payments on a covered lease or make eligible utility payments.
Cancellation of Debt Income
In general, the reduction or cancellation of non-PPP indebtedness results in cancellation of debt (COD) income to the debtor, which may affect a debtor’s tax bill. However, the forgiveness of PPP debt is excluded from gross income. Your tax attributes (net operating losses, credits, capital and passive activity loss carryovers, and basis) wouldn’t generally be reduced on account of this exclusion.
Expenses Paid with Loan Proceeds
The IRS has stated that expenses paid with proceeds of PPP loans can’t be deducted, because the loans are forgiven without you having taxable COD income. Therefore, the proceeds are, in effect, tax-exempt income. Expenses allocable to tax-exempt income are nondeductible, because deducting the expenses would result in a double tax benefit.
However, the IRS’s position on this issue has been criticized and some members of Congress have argued that the denial of the deduction for these expenses is inconsistent with legislative intent. Congress may pass new legislation directing IRS to allow deductions for expenses paid with PPP loan proceeds.
Be aware that leaders at the U.S. Treasury and the Small Business Administration recently announced that recipients of Paycheck Protection Program (PPP) loans of $2 million or more should expect an audit if they apply for loan forgiveness. This safe harbor will protect smaller borrowers from PPP audits based on good faith certifications. However, government leaders have stated that there may be audits of smaller PPP loans if they see possible misuse of funds.
Contact us with any further questions you might have on PPP loan forgiveness.
A widely circulated article about the COVID-19 pandemic, written by author Tomas Pueyo in March, described efforts to cope with the crisis as “the hammer and the dance.” The hammer was the abrupt shutdown of most businesses and institutions; the dance is the slow reopening of them — figuratively tiptoeing out to see whether day-to-day life can return to some semblance of normality without a dangerous uptick in infections.
Many business owners are now engaged in the dance. “Reopening” a company, even if it was never completely closed, involves grappling with a variety of concepts. This is a new kind of strategic planning that will test your patience and savvy but may also lead to a safer, leaner and better-informed business.
When to Move Forward
The first question, of course, is when. That is, what are the circumstances and criteria that will determine when you can safely reopen or further reopen your business. Most experts agree that you should base this decision on scientific data and official guidance from agencies such as the U.S. Department of Health and Human Services and Centers for Disease Control and Prevention (CDC).
But don’t stop there. Although the pandemic is, by definition, a worldwide issue, the specific situation on the ground in your locality should drive your decision-making. Keep tabs on state, county and municipal news, rules and guidance. Plug into your industry’s experts as well. Establish strategies for expanding operations or, if necessary, contracting them, based on the latest information.
Testing and Working Safely
Running a company in today’s environment entails refocusing on people. If employees are unsafe, your business will likely suffer at some point soon. Every company that must or chooses to have workers on-site (as opposed to working remotely) needs to consider the concept of COVID-19 testing.
Employers are generally allowed to test employees, but there are dangers in violating privacy laws or inadvertently exposing the company to discrimination claims. The CDC has said that routine testing will likely pass muster “if these goals are consistent with employer-based occupational medical surveillance programs” and “have a reasonable likelihood of benefitting workers.” Consult your attorney, however, before implementing any testing initiative.
There’s also the matter of working safely. If you haven’t already, look closely at the layout of your offices or facilities to determine the feasibility of social distancing. Re-evaluate sanitation procedures and ventilation infrastructure, too. You may need to invest, or continue investing, in additional personal protective equipment and items such as plastic screens to separate workers from customers or each other. It might also be necessary or advisable to procure or upgrade the technology that enables employees to work remotely.
Move Forward Cautiously
No one wanted to do this dance, but business owners must continue moving forward as cautiously and prudently as possible. While you do so, don’t overlook the opportunity to identify long-term strategies to run your company more efficiently and profitably. We can help you make well-informed decisions based on sound financial analyses and realistic projections.
The CARES Act was enacted in an attempt to mitigate the economic effects of the COVID-19 pandemic. Among other things, it extends favorable tax treatment to qualified individuals who take so-called “coronavirus-related distributions” (CRDs) from IRAs, 401(k) plans and certain other retirement plans.
Specifically, the CARES Act waives the 10% early distribution penalty for CRDs taken between January 1, 2020, and December 31, 2020. Under the law, the waiver applies to CRDs made to an individual:
- Who’s diagnosed with COVID-19,
- Whose spouse or dependent is diagnosed with COVID-19, or
- Who experiences adverse financial consequences as a result of COVID-19. These include being quarantined, furloughed or laid off; having work hours reduced; being unable to work due to lack of child care; closing (or reducing the hours of) a business owned by the individual; or other factors determined by the Treasury Secretary.
IRS Notice 2020-50 expands the definition of qualified individuals for purposes of CRDs and plan loans to take into account additional factors, such as a reduction in pay or self-employment income, the rescission of a job offer and the delay of a start date for a job. In addition, the definition now also considers adverse financial consequences arising for the impact of COVID-19 suffered by an individual’s spouse or household member.
Eligible individuals can withdraw up to $100,000. They can repay withdrawn funds within three years of the day after the CRD without regard to the applicable cap on annual contributions. To the extent such early distributions aren’t repaid within three years or eligible for tax-free rollover treatment, the related income tax can be prorated over three years.
The CARES Act also allows plans to implement certain relaxed rules for qualified individuals on plan loan amounts and repayment terms. For example, plans can suspend loan repayments due from March 27, 2020, through December 31, 2020 (delaying each payment up to one year), and the limit on loans made on or after March 27, 2020, and before September 23, 2020, is increased from $50,000 to $100,000. The limit on the aggregate amount of loans in that period is increased from 50% of the employee’s vested accrued benefit to 100%.
Notice 2020-50 makes clear, too, that the $100,000 limit on CRDs applies to a qualified individual’s aggregate CRDs from all eligible retirement plans — the limit doesn’t apply on a per-plan basis. It explains that CRDs can be used for purposes not related to COVID-19 and that repayments to an IRA don’t count against the one-rollover-per-12 months limit on IRA rollovers. And it warns that qualified individuals who elect to include the entire amount of a CRD in their 2020 income, rather than prorating it over three years, will be held to that choice after they file their 2020 income tax returns; they can’t subsequently revoke the election.
As for loans, the notice provides a safe harbor to help employers avoid complicated calculations related to the stacking of individually reamortized payments on top of regularly scheduled payments due after December 31, 2020. The safe harbor permits reamortized payments to begin after the period of payment suspension and continue for up to one year after the loan was originally scheduled to be repaid. The guidance notes, though, that other reasonable methods of administering the loan relief exist.
Notice 2020-50 further clarifies that it’s up to employers to decide whether — and to what extent — their plans will provide the CRD and loan relief allowed by the CARES Act. (Qualified individuals can claim the tax benefits even if plan provisions aren’t changed.) We can help you determine which aspects of the relief to offer and how best to implement them.
Rollover of RMDs
The CARES Act waives the RMD rules for certain defined contribution plans and IRAs for calendar year 2020. The waiver applies to both 2019 RMDs required to be taken by April 1, 2020, and RMDs required for 2020. It applies for calendar years beginning after December 31, 2019.
But, because the law wasn’t enacted until late March 2020, some individuals had already taken RMDs for the year. If they wanted to roll over those now non-RMD distributions to an eligible retirement account, they needed to satisfy the rule that generally requires tax-free rollovers to be made within 60 days of distribution. Moreover, IRAs generally are subject to a “one-rollover-per-12 month” restriction.
The IRS previously extended the 60-day rollover period to the later of 60 days after receipt or July 15, 2020, for 2020 RMDs taken as early as February 1, 2020, but that left out individuals who took their 2020 RMDs in January. Notice 2020-51 extends that period to the later of 60 days after receipt or August 31, 2020, for all distributions that, but for the CARES Act, would have been RMDs (even if the distribution normally would be treated as part of a series of substantially equal periodic payments).
Notice 2020-51 also permits an IRA owner or beneficiary who has already received a distribution that would’ve been an RMD for 2020 to repay it to the IRA by the later of 60 days after receipt or August 31, 2020 (non-spouse beneficiaries generally are prohibited from doing rollovers of distributions). The repayment is exempt from the one-rollover-per-12 month limit on IRAs.
The notice includes a sample plan amendment employers can adopt to give plan participants and beneficiaries whose RMDs are waived the option to receive the waived RMD. The sample will have no effect on other distribution provisions.
As the number the COVID-19 cases continues to spike across the country, it’s possible that Congress, the Department of Treasury and the IRS may provide additional tax and financial relief. We’ll let you know about the latest developments that could affect your finances.
Just last week, the Small Business Administration (SBA) announced that it has reopened the Economic Injury Disaster Loan (EIDL) and EIDL Advance program to eligible applicants still struggling with the economic impact of the COVID-19 pandemic.
The EIDL program offers long-term, low-interest loans to small businesses and nonprofits. If your company hasn’t been able to procure financing through the Paycheck Protection Program (PPP) — or even if it has — an EIDL may provide another avenue to relief.
Applicants must be businesses with 500 or fewer employees, sole proprietors, independent contractors or certain other small entities. EIDL funds come directly from the SBA and provide working capital up to certain limits.
The loans have terms of up to 30 years and interest rates of 3.75% for businesses and 2.75% for nonprofits. The first payment is deferred for one year. Plus, the Coronavirus Aid, Relief and Economic Security (CARES) Act has temporarily waived requirements that applicants must have been in business for one year before the crisis and be unable to obtain credit elsewhere. A borrower of $200,000 or less doesn’t need to provide a personal guarantee.
Recipients must use EIDL proceeds for working capital necessary to carry a business until resumption of normal operations and for expenditures needed to alleviate specific economic hardships related to the pandemic. These may include fixed debts (such as rent or mortgage), payroll, accounts payable and other bills that could’ve been paid had the disaster not occurred and aren’t already covered by a PPP loan.
EIDL proceeds may not be used to refinance indebtedness incurred before the COVID-19 crisis or to pay down loans owned by the SBA or other federal agencies. Loan funds also cannot be used to pay federal, state or local tax penalties, or any criminal or civil fine or penalty. (Other limitations apply.)
Under the CARES Act, EIDL applicants may request an Emergency Economic Injury Grant, also referred to as an “EIDL advance,” of up to $10,000. The grant is to be paid within three days and must be used to:
- Provide paid sick leave to employees unable to work because of COVID-19,
- Retain employees during business disruptions or substantial shutdowns,
- Meet increased costs to obtain materials unavailable because of supply chain disruptions,
- Make rent or mortgage payments, or
- Repay other obligations that cannot be met because of revenue losses.
Recipients of an emergency grant don’t have to repay it — even if the business is eventually denied an EIDL. However, in April, the SBA announced that it has implemented a $1,000 cap per employee on EIDL advances up to the $10,000 maximum. Thus, an applicant with three employees would receive an advance of only $3,000.
The EIDL program may not have received as much attention as the PPP, but it’s equally valuable to small businesses and nonprofits striving to remain operational during the ongoing public health and economic crisis. We can help you determine whether you’re eligible and, if so, complete the application process.
As you may recall, the Small Business Administration (SBA) launched the Paycheck Protection Program (PPP) back in April to help companies reeling from the economic impact of the COVID-19 pandemic. Created under a provision of the Coronavirus Aid, Relief and Economic Security (CARES) Act, the PPP is available to U.S. businesses with fewer than 500 employees.
In its initial incarnation, the PPP offered eligible participants loans determined by eight weeks of previously established average payroll. If the recipient maintained its workforce, up to 100% of the loan was forgivable if the loan proceeds were used to cover payroll expenses, certain employee health care benefits, mortgage interest, rent, utilities and interest on any other existing debt during the “covered period” — that is, for eight weeks after loan origination.
On June 5, the president signed into law the PPP Flexibility Act. The new law makes a variety of important adjustments that ease the rules for borrowers. Highlights include:
Extension of covered period. As mentioned, under the CARES Act and subsequent guidance, the covered period originally ran for eight weeks after loan origination. The PPP Flexibility Act extends this period to the earlier of 24 weeks after the origination date or December 31, 2020.
Adjustment of nonpayroll cost threshold. Previous regulations issued by the U.S. Treasury Department indicated that eligible nonpayroll costs couldn’t exceed 25% of the total forgiveness amount for a borrower to qualify for 100% forgiveness. The PPP Flexibility Act raises this threshold to 40%. (At least 60% of the loan must still be spent on payroll costs.)
Lengthening of period to reestablish workforce. Under the original PPP, borrowers faced a June 30, 2020 deadline to restore full-time employment and salary levels from reductions made between February 15, 2020, and April 26, 2020. Failure to do so would mean a reduction in the forgivable amount. The PPP Flexibility Act extends this deadline to December 31, 2020.
Reassurance of access to payroll tax deferment. The new law reassures borrowers that delayed payment of employer payroll taxes, which is offered under a provision of the CARES Act, is still available to businesses that receive PPP loans. It won’t be considered impermissible double dipping.
Important note: The SBA has announced that, to ensure PPP loans are issued only to eligible borrowers, all loans exceeding $2 million will be subject to an audit. The government may still audit smaller PPP loans, if there is suspicion that funds were misused.
This is just a “quick look” at some of the important aspects of the PPP Flexibility Act. There are many other details involved that could affect your company’s ability to qualify for a PPP loan or to achieve 100% forgiveness. Also, new guidance is being issued regularly and further legislation is possible. We can help you assess your eligibility and navigate the loan application and forgiveness processes.
The U.S. Senate has passed the bipartisan Paycheck Protection Program Flexibility Act of 2020, which loosens several of the Paycheck Protection Program’s (PPP’s) more onerous restrictions regarding loan forgiveness. President Trump has signed the bill into law.
The new law follows the May 22, 2020, release of an interim final rule from the U.S. Department of Treasury and the Small Business Administration (SBA) on PPP loan forgiveness requirements. Among other areas, that guidance addresses the calculation of full-time employees and total salary or wages for purposes of loan forgiveness reductions.
The PPP in a Nutshell
The Coronavirus Aid, Relief and Economic Security Act (CARES Act) established the PPP to help employers cover payroll during the ongoing COVID-19 pandemic. The program is open to U.S. businesses with fewer than 500 employees — including sole proprietors, self-employed individuals, independent contractors and nonprofits — affected by COVID-19. The loans may be used to cover payroll, certain employee health care benefits, mortgage interest, rent, utilities and interest on any other existing debt for the “covered period.”
Under the CARES Act and subsequent guidance, the covered period ran for eight weeks after loan origination. The PPP Flexibility Act extends that period to the earlier of 24 weeks after the origination date or December 31, 2020.
PPP loan proceeds applied to cover payroll, mortgage interest, rent and utilities are subject to 100% forgiveness if certain criteria are met. Earlier Treasury Department regulations indicated that eligible nonpayroll costs couldn’t exceed 25% of the total forgiveness amount, but the PPP Flexibility Act raises the threshold to 40%.
At least 60% of the loan must be spent on payroll costs to qualify for any forgiveness. For unforgiven costs, the new law extends the repayment period from two years to five years. However, employers are still required to maintain their staff headcount and payroll to qualify for full forgiveness.
Loan forgiveness may be reduced if:
- The average weekly number of full-time equivalent (FTE) employees is reduced, or
- Salaries and wages are cut by more than 25% for any employee who made less than $100,000 annualized in 2019.
Borrowers originally had until June 30, 2020, to restore full-time employment and salary levels from reductions made between February 15, 2020, and April 26, 2020, and avoid reductions in the forgiveness amount. The PPP Flexibility Act extends that deadline to December 31, 2020.
The Covered Period
Although the CARES Act provides that the covered period runs for eight weeks from the date of origination, the May 22 guidance lays out an alternative covered period. Borrowers with a biweekly, or more frequent, payroll schedule can elect to base their calculations on the eight-week period beginning on the first day of their first pay period following the disbursement date.
Note that the alternative covered period is available only for calculating payroll costs; it doesn’t apply to calculating mortgage interest, rent or utilities. And, if a borrower does use the alternative period to compute payroll costs, it also must use that alternative period to calculate FTE employees and salary or wage reductions.
The May 22 guidance clarifies that payroll costs paid or incurred during the covered period are eligible for forgiveness. Nonpayroll costs are eligible for forgiveness if paid during the covered period or incurred during that period and paid on or before the next regular billing date, even if the billing date is after the covered period.
According to the guidance, payroll costs include bonuses and hazard pay, as well as salary, wages and commission payments to furloughed employees (as long as they don’t exceed an annual salary of $100,000, as prorated for the covered period). They’re considered paid on the day paychecks are distributed.
Payroll costs are deemed to be incurred on the day the employee’s pay is earned. Payroll costs incurred but not paid during the borrower’s last pay period in the covered period are eligible for forgiveness if paid on or before the next regular payroll date. An eligible nonpayroll cost must be paid during the covered period or incurred during the period and paid on or before the next regular billing date, even if the billing date is after the covered period.
The guidance makes clear that costs related to personal property (for example, office equipment) are eligible nonpayroll costs. Mortgage interest payments for real or personal property are included, as well as rent or lease payments for real or personal property. Advance payments on mortgage interest, however, aren’t eligible for forgiveness. Utility payments include payments for electricity, gas, water, transportation, telephone or internet access.
The FTE Reduction
The May 22 guidance spells out that when determining whether an adjustment in the forgiveness amount is necessary due to an FTE reduction, the number of FTE employees is calculated using a 40-hour workweek. For each employee, the average number of hours paid (not worked) per week is divided by 40. The maximum for each employee is capped at 1.0 FTE employee.
For employees who were paid for less than 40 hours per week, borrowers can calculate the average number of hours the employee was paid per week during the covered period. The guidance also provides a simplified method, under which employees who work 40 hours or more per week are assigned a 1.0, and those who work less are assigned a 0.5. Borrowers must select one of these two approaches and apply it consistently to all part-time employees.
The amount of loan forgiveness may be reduced if the average weekly FTE during the covered period is less than its average FTE in 1) the period of February 15, 2019, through June 30, 2019, 2) the period of January 1, 2020, through February 29, 2020, or 3) in the case of seasonal employers, either of the preceding periods or a consecutive 12-week period between May 1, 2019, and September 15, 2019. The borrower can elect which period to use as its reference period. The good news is that the comparison isn’t made against the last full quarter worked, as some borrowers feared.
The May 22 guidance also includes exceptions for employees who:
- Reject a good faith offer to return at the previous pay and hours (borrowers must maintain documentation of the offer and rejection and notify the state unemployment office of an employee’s rejected offer within 30 days of the rejection), and
- During the covered period, were fired for cause, voluntarily resigned or voluntarily requested and received a reduction in hours.
Any FTE reductions due to these reasons won’t reduce the forgiveness amount.
The PPP Flexibility Act adds a new exemption based on employee availability. For the period from February 15, 2020, through December 31, 2020, the amount of loan forgiveness won’t be reduced due to a reduction in the number of FTE employees if a borrower 1) is unable to rehire an individual who was an employee on or before February 15, 2020, or 2) can demonstrate an inability to hire similarly qualified employees on or before December 31, 2020.
The exemption also applies if the employer is unable to return to the same level of business activity it was operating at before February 15, 2020, due to governmental requirements or guidance issued from March 1, 2020, through December 31,2020, related to COVID-19 safety standards.
The Salary/Wage Reduction
The CARES Act indicates that the forgiven loan amount may be reduced if the total salary or wages of any applicable employee is reduced more than 25% of the “total salary or wages” in the “the most recent full quarter during which the employee was employed before the covered period.” With the covered period running only eight weeks, borrowers fretted that the total wages in the covered period would almost certainly fall more than 25% compared to a full quarter.
The PPP Flexibility Act doesn’t address this concern, but the SBA’s loan forgiveness application does. In making the determination of whether salary or wages were reduced 25%, it compares “average annual salary or hourly wage” for the relevant periods — not total wages.
In addition, to ensure that borrowers aren’t doubly penalized, the May 22 guidance directs that the salary/wage reduction applies only to the portion of the decline in employee salary and wages that isn’t attributable to the FTE reduction.
Delayed Payment of Payroll Taxes
The PPP Flexibility Act also takes steps to ensure borrowers have full access to the CARES Act’s payroll tax deferment, which is intended to provide businesses with adequate capital to withstand the COVID-19 pandemic. The new law provides that the delayed payment of employer payroll taxes on top of the receipt of a PPP loan doesn’t constitute impermissible double dipping.
Fast and Furious
The rules for the PPP — whether in legislative, regulatory or other forms — continue to emerge at a brisk pace, often updating previous guidance. We can help ensure you’re satisfying all of the requirements to obtain a loan and secure full forgiveness.
The U.S. Senate passed the House version of Paycheck Protection Program (PPP) legislation on Wednesday, June 3rd allowing more time and less restrictions for PPP loan recipients to qualify for loan forgiveness.
Following is a summary of the legislation’s main points as compiled by the AICPA:
- PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
- The payroll expenditure requirement drops to 60% from 75%.but is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75% threshold isn’t met.
- Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
- The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
- Borrowers now have five years to repay the loan instead of two. The interest rate remains at 1%.
- The bill allows businesses that took a PPP loan to also continue delaying payment of their employer portion of their FICA liability.
We will provide more information as it becomes available.
This afternoon the Internal Task Force team presented on the following topics pertaining to businesses.
• Tax Due Date Reminders
• Status of Government Incentive Programs
• Government Incentive Programs
• Payroll Protection Plan Loan Forgiveness
• Reopening Challenges
For a copy of the recording, please go HERE.
The IRS has issued guidance clarifying that certain deductions aren’t allowed if a business has received a Paycheck Protection Program (PPP) loan. Specifically, an expense isn’t deductible if both:
- The payment of the expense results in forgiveness of a loan made under the PPP, and
- The income associated with the forgiveness is excluded from gross income under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
The CARES Act allows a recipient of a PPP loan to use the proceeds to pay payroll costs, certain employee healthcare benefits, mortgage interest, rent, utilities and interest on other existing debt obligations.
A recipient of a covered loan can receive forgiveness of the loan in an amount equal to the sum of payments made for the following expenses during the 8-week “covered period” beginning on the loan’s origination date: 1) payroll costs, 2) interest on any covered mortgage obligation, 3) payment on any covered rent, and 4) covered utility payments.The law provides that any forgiven loan amount “shall be excluded from gross income.”
So the question arises: If you pay for the above expenses with PPP funds, can you then deduct the expenses on your tax return?
The tax code generally provides for a deduction for all ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. Covered rent obligations, covered utility payments, and payroll costs consisting of wages and benefits paid to employees comprise typical trade or business expenses for which a deduction generally is appropriate. The tax code also provides a deduction for certain interest paid or accrued during the taxable year on indebtedness, including interest paid or incurred on a mortgage obligation of a trade or business.
No Double Tax Benefit
In IRS Notice 2020-32, the IRS clarifies that no deduction is allowed for an expense that is otherwise deductible if payment of the expense results in forgiveness of a covered loan pursuant to the CARES Act and the income associated with the forgiveness is excluded from gross income under the law. The Notice states that “this treatment prevents a double tax benefit.”
More Possibly to Come
Two members of Congress say they’re opposed to the IRS stand on this issue. Senate Finance Committee Chair Chuck Grassley (R-IA) and his counterpart in the House, Ways and Means Committee Chair Richard E. Neal (D-MA), oppose the tax treatment. Neal said it doesn’t follow congressional intent and that he’ll seek legislation to make certain expenses deductible. Stay tuned.
On May 15, 2020, the Small Business Administration issued the following application for Payroll Protection Plan (PPP) loan forgiveness. This document can be used as the guidelines at this point for loan forgiveness under the PPP. It may be found HERE.
We will provide more information as it becomes available.
The following information was taken directly from the charitities.nys.com website:
The Attorney General’s Charities Bureau currently grants an automatic six-month extension to charities required to file an annual financial report with the Charities Bureau. For example, the annual financial report of organizations whose year-end is December 31, 2019 is due to be filed by May 15, 2020, but, with the automatic extension, the report is not due until November 15, 2020. However, due to the COVID-19 pandemic, any organization whose filing deadline, including the automatic six-month extension, was originally after February 15, 2020, will be given an additional six-month extension to file its annual financial report.
The Small Business Administration (SBA) has extended the repayment deadline for Payroll Protection Program (PPP) borrowers that wish to take advantage of the “good faith” self-certification of eligibility option. The deadline is now automatically extended from May 7, 2020, to May 14, 2020.
Companies that repay their loans by that date preempt the possibility of criminal liability if they’re subsequently found ineligible for PPP loans. The loans are intended to help small businesses with fewer than 500 employees weather the novel coronavirus (COVID-19) pandemic, but some large companies have applied for and received funds.
Extended Safe Harbor
In April 2020, the U.S. Treasury and the SBA issued frequently asked questions (FAQs) on PPP loans. One question asks whether businesses owned by large companies with adequate sources of liquidity to support their ongoing operations qualify for PPP loans.
The SBA explained that — in addition to reviewing applicable affiliation rules to determine eligibility — all borrowers must evaluate their economic need for a loan under the standards in effect at the time of the loan application. The standards are set by the Coronavirus Aid, Relief and Economic Security (CARES) Act, which established the PPP, as well as subsequent regulations.
Among other things, borrowers must certify that their PPP loan request is necessary. Specifically, they must certify that “current economic uncertainty” makes the loan necessary to support ongoing operations. The certification must be made in good faith, taking into account the borrower’s current business activity and ability to access other sources of liquidity in a way that’s not “significantly detrimental” to the business.
The FAQs originally provided that any borrower that applied for a loan prior to April 24, 2020, and repays the funds in full by May 7, 2020, would be deemed by the SBA to have made the certification in good faith. As of May 5, 2020, though, the FAQs have been revised to reflect an extension of this safe harbor to May 14, 2020. The extension will be automatically implemented, with no need for borrowers to apply for it.
Potential Criminal Liability
Companies that don’t take advantage of the safe harbor and are later found ineligible for the PPP could face criminal liability, according to Treasury Secretary Steven Mnuchin. The loan application notes that making a false statement to obtain a guaranteed loan from the SBA is punishable by imprisonment of up to five years and/or a fine of up to $250,000.
A borrower that falsely self-certified also could be subject to criminal or civil liability under the False Claims Act (FCA). The FCA permits treble damages, or triple the amount of the government’s actual damages, as well as civil penalties, imprisonment up to five years and a fine up to $250,000 for criminal liability.
A Tangled Web
Be aware that, according to a recently revised IRS FAQ, companies must repay their PPP loans by May 7, 2020, to qualify for the employee retention credit. We can help you evaluate all of the potential strategies to make the most of the federal COVID-19 relief programs.
The coronavirus (COVID-19) pandemic has affected many Americans’ finances. Here are some answers to questions you may have right now.
My employer closed the office and I’m working from home. Can I deduct any of the related expenses?
Unfortunately, no. If you’re an employee who telecommutes, there are strict rules that govern whether you can deduct home office expenses. For 2018–2025 employee home office expenses aren’t deductible. (Starting in 2026, an employee may deduct home office expenses, within limits, if the office is for the convenience of his or her employer and certain requirements are met.)
Be aware that these are the rules for employees. Business owners who work from home may qualify for home office deductions.
My son was laid off from his job and is receiving unemployment benefits. Are they taxable?
Yes. Unemployment compensation is taxable for federal tax purposes. This includes your son’s state unemployment benefits plus the temporary $600 per week from the federal government. (Depending on the state he lives in, his benefits may be taxed for state tax purposes as well.)
Your son can have tax withheld from unemployment benefits or make estimated tax payments to the IRS.
The value of my stock portfolio is currently down. If I sell a losing stock now, can I deduct the loss on my 2020 tax return?
It depends. Let’s say you sell a losing stock this year but earlier this year, you sold stock shares at a gain. You have both a capital loss and a capital gain. Your capital gains and losses for the year must be netted against one another in a specific order, based on whether they’re short-term (held one year or less) or long-term (held for more than one year).
If, after the netting, you have short-term or long-term losses (or both), you can use them to offset up to $3,000 ordinary income ($1,500 for married taxpayers filing separately). Any loss in excess of this limit is carried forward to later years, until all of it is either offset against capital gains or deducted against ordinary income in those years, subject to the $3,000 limit.
I know the tax filing deadline has been extended until July 15 this year. Does that mean I have more time to contribute to my IRA?
Yes. You have until July 15 to contribute to an IRA for 2019. If you’re eligible, you can contribute up to $6,000 to an IRA, plus an extra $1,000 “catch-up” amount if you were age 50 or older on December 31, 2019.
What about making estimated payments for 2020?
The 2020 estimated tax payment deadlines for the first quarter (due April 15) and the second quarter (due June 15) have been extended until July 15, 2020.
These are only some of the tax-related questions you may have related to COVID-19. Contact us if you have other questions or need more information about the topics discussed above.
The Coronavirus Air, Relief, and Economic Security (CARES) Act allows ALL employers to defer the deposit and payment of the employer’s share of Social Security taxes. This frees up cash on hand.
Who Can Defer Deposits and Payments
Beginning March 27, 2020 through December 31, 2020, employers may defer the deposit and payment of the employer’s portion of Social Security taxes.
Who Cannot Defer These Payments
Employers that received a loan under the Small Business Administration Act (the Paycheck Protection Program) may not defer the deposit and payment of the employer’s share of Social Security tax that is otherwise due after the employer receives a decision from the lender that the loan was forgiven. The employer can defer these deposits until the loan is forgiven. Once the loan is forgiven, the employer can continue to defer previous payments that will be due on the applicable dates.
When are the Deferred Deposits Considered Timely Made?
The deferred deposits of the employer’s share of Social Security tax must be deposited by the following dates (referred to as the “applicable dates”) to be treated as timely (and avoid a failure to deposit penalty):
- On December 31, 2021, 50 percent of the deferred amount; and
- On December 31, 2022, the remaining amount.
Personal Liability for Executives and Board Members
Social Security taxes are trust fund taxes and liability for the failure to remit them usually extends to those deemed “responsible persons” under Subtitle C, which could include executives and board members. However, since the portion being allowed for deferral under the CARES Act represents the employer’s portion, it may not be covered by the penalties under Section 6672 of the code. Therefore, if the organization finds itself in a position unable to fully remit those taxes at the time the deferral becomes due, personal liability may not extend to these individuals.
We understand the affect these changes have on your organization and are here to assist. Please contact us if you have questions or need more information about the topics discussed above.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act eliminates some of the tax-revenue-generating provisions included in a previous tax law. Here’s a look at how the rules for claiming certain tax losses have been modified to provide businesses with relief from the novel coronavirus (COVID-19) crisis.
Basically, you may be able to benefit by carrying a net operating loss (NOL) into a different year — a year in which you have taxable income — and taking a deduction for it against that year’s income. The CARES Act includes favorable changes to the rules for deducting NOLs. First, it permanently eases the taxable income limitation on deductions.
Under an unfavorable provision included in the Tax Cuts and Jobs Act (TCJA), an NOL arising in a tax year beginning in 2018 and later and carried over to a later tax year couldn’t offset more than 80% of the taxable income for the carryover year (the later tax year), calculated before the NOL deduction. As explained below, under the TCJA, most NOLs arising in tax years ending after 2017 also couldn’t be carried back to earlier years and used to offset taxable income in those earlier years.
These unfavorable changes to the NOL deduction rules were permanent — until now.
For tax years beginning before 2021, the CARES Act removes the TCJA taxable income limitation on deductions for prior-year NOLs carried over into those years. So NOL carryovers into tax years beginning before 2021 can be used to fully offset taxable income for those years.
For tax years beginning after 2020, the CARES Act allows NOL deductions equal to the sum of:
- 100% of NOL carryovers from pre-2018 tax years, plus
- The lesser of 100% of NOL carryovers from post-2017 tax years, or 80% of remaining taxable income (if any) after deducting NOL carryovers from pre-2018 tax years.
As you can see, this is a complex rule. But it’s more favorable than what the TCJA allowed and the change is permanent.
Carrybacks Allowed for Certain Losses
Under another unfavorable TCJA provision, NOLs arising in tax years ending after 2017 generally couldn’t be carried back to earlier years and used to offset taxable income in those years. Instead, NOLs arising in tax years ending after 2017 could only be carried forward to later years. But they could be carried forward for an unlimited number of years. (There were exceptions to the general no-carryback rule for losses by farmers and property/casualty insurance companies).
Under the CARES Act, NOLs that arise in tax years beginning in 2018 through 2020 can be carried back for five years.
Important: If it’s beneficial, you can elect to waive the carryback privilege for an NOL and, instead, carry the NOL forward to future tax years. In addition, barring a further tax-law change, the no-carryback rule will come back for NOLs that arise in tax years beginning after 2020.
Past Year Opportunities
These favorable CARES Act changes may affect prior tax years for which you’ve already filed tax returns. To benefit from the changes, you may need to file an amended tax return. Contact us to learn more.
On April 30th, the IRS issued Notice 2020-32 addressing the taxation of Paycheck Protection Program (PPP) funds. The PPP provides funding that allows for forgiveness if used for qualified Payroll, Rent, Utilities, and certain other expenses over an eight-week period. The funds are not taxable, but the original law did not address the deductibility of the costs used or being claimed for forgiveness. The recent IRS Notice addresses this issue.
Under Notice 2020-32, the IRS clarifies that no deduction is allowed for an expense that results in forgiveness under section 1106(b) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). To reiterate, while the proceeds of the CARES Act are not taxable, the organization utilizing them will not be able to deduct the portion directly attributable to its forgiveness for tax purposes.
As organizations continue to weigh the benefits of this or other available programs, it adds another layer of complexity to the analysis. This is certain to garner action in Washington and the best course of action at this time may be to wait on further guidance before making any decisions. The SBA and Treasury departments have yet to release specifics concerning the details involving how loan forgiveness will occur and Congress can elect to pass legislation allowing for more favorable tax treatment of the PPP. We will provide more information as it becomes available.
Congress and the Trump administration have struck a deal on another piece of legislation, the latest in a series of federal measures intended to provide relief in response to the novel coronavirus (COVID-19) pandemic. The $484 billion legislation, which is being referred to as the Interim Stimulus Plan, amends the Coronavirus Aid, Relief and Economic Security (CARES) Act enacted in late March. Among other things, it provides additional funding to two loan programs designed to help small businesses slammed by the economic shutdown.
Paycheck Protection Program Funds
Most notably, the Interim Stimulus Plan adds another $310 billion to the Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA). The CARES Act originally allotted $349 billion to the program, but those funds were depleted in less than two weeks.
The PPP program is available to many U.S. small businesses — including sole proprietors, self-employed individuals, independent contractors and nonprofits — affected by COVID-19. Businesses can qualify for 100% loan forgiveness for amounts used for payroll costs, mortgage interest, and rent and utility payments during the eight weeks after receipt of the loan, as long as no more than 25% of the loan proceeds are used for nonpayroll costs.
Borrowers also must maintain staff and payroll to qualify for full forgiveness. Loan forgiveness will be reduced if salaries and wages are reduced by m
Some small businesses also ran into problems when applying for the first round because they didn’t have existing credit relationships with major financial institutions. The new law aims to remedy this problem by carving out $60 billion of the additional funding for smaller lenders. Specifically, it designates $30 billion of the $310 billion for banks and credit unions with $10 billion to $50 billion in assets and another $30 billion for institutions with less than $10 billion in assets.
The Interim Stimulus Plan also adds $50 billion in loans and $10 billion in grants to the SBA’s Economic Injury Disaster Loan (EIDL) program. And it extends EIDL relief to agricultural businesses with no more than 500 employees.
Under the CARES Act, small businesses with fewer than 500 employees experiencing a temporary loss of revenue due to COVID-19 can obtain advances of up to $10,000 within days of a successful application; the loan advance doesn’t have to be repaid. The SBA has simplified its existing EIDL application process and relaxed the credit standards in light of the COVID-19 crisis.
The interest rate on EIDLs is 3.75% for businesses, and businesses can borrow up to $2 million. Repayment periods can run as long as 30 years, determined on a case-by-case basis based on the borrower’s ability to repay. The CARES Act provides an automatic one-year deferment on repayment, but interest begins to accrue when the proceeds are disbursed.
Preparing for Another Round of Stimulus
Congressional leaders Nancy Pelosi and Mitch McConnell, Treasury Secretary Steven Mnuchin and President Trump have made clear that another stimulus package is already in the works. The provisions being discussed are wide ranging. For example, democrats hope to secure support for essential workers and state and local governments and address food aid, election security and funding for the U.S. Post Office. The president has indicated a preference for infrastructure spending, a payroll tax cut and bigger tax breaks for business meals and entertainment. We’ll keep you posted on the latest developments.
The IRS recently issued Notice 2020-23, expanding on previously issued guidance extending certain tax filing and payment deadlines in response to the novel coronavirus (COVID-19) crisis. This guidance applies to specified filing obligations and other “specified actions” that would otherwise be due on or after April 1, 2020, and before July 15, 2020. It extends the due date for specified actions to July 15, 2020.
Specified actions include any “specified time-sensitive action” listed in Revenue Procedure 2018-58, including many relating to employee benefit plans. The relief applies to any person required to perform specified actions within the relief window, and it’s automatic — your business doesn’t need to file any form, letter or other request with the IRS.
Filing extensions beyond July 15, 2020, may be sought using the appropriate extension form, but the extension won’t go beyond the original statutory or regulatory extension date. Here are some highlights of Notice 2020-23 specifically related to employee benefit plans:
Form 5500. The relief window covers Form 5500 filings for plan years that ended in September, October or November 2019, as well as Form 5500 deadlines within the window as a result of a previously filed extension request. These filings are now due by July 15, 2020. Notably, the relief window does not include the July 31, 2020 due date for 2019 Form 5500 filings for calendar-year plans. Those plans may seek a regular extension using Form 5558.
Retirement plans. The extended deadlines apply to correcting excess contributions and excess aggregate contributions (based on nondiscrimination testing) and excess deferrals. They also apply to:
- Plan loan repayments,
- The 60-day timeframe for rollover completion, and
- The deadline for filing Form 8955-SSA to report information on separated plan participants with undistributed vested benefits.
The relief for excess deferrals is a change from previous guidance indicating that 2019 excess deferrals still needed to be corrected by April 15, 2020. In addition, while loan relief is already available to certain individuals for specified reasons related to COVID-19, this relief appears to apply more broadly — albeit for a shorter period. The Form 8955-SSA due date is the same as for the plan’s Form 5500, so the extension applies in the same manner.
Health Savings Accounts (HSAs). The notice extends the 60-day timeframe for completing HSA or Archer Medical Savings Account (MSA) rollovers. It also extends the deadline to report HSA or Archer MSA contribution information by filing Form 5498-SA and furnishing the information to account holders. The regular deadline for the 2019 Form 5498-SA would be June 1, 2020, placing it squarely within this relief period.
Business owners and their plan administrators should carefully review Notice 2020-23 in conjunction with Revenue Procedure 2018-58 to determine exactly what relief may be available. For example, the revenue procedure covers various cafeteria plan items, but many deadlines may fall outside the notice’s window. We can provide you with further information about this or other forms of federal relief.
The law providing relief due to the coronavirus (COVID-19) pandemic contains a beneficial change in the tax rules for many improvements to interior parts of nonresidential buildings. This is referred to as qualified improvement property (QIP). You may recall that under the Tax Cuts and Jobs Act (TCJA), any QIP placed in service after December 31, 2017 wasn’t considered to be eligible for 100% bonus depreciation. Therefore, the cost of QIP had to be deducted over a 39-year period rather than entirely in the year the QIP was placed in service. This was due to an inadvertent drafting mistake made by Congress.
But the error is now fixed. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. It now allows most businesses to claim 100% bonus depreciation for QIP, as long as certain other requirements are met. What’s also helpful is that the correction is retroactive and it goes back to apply to any QIP placed in service after December 31, 2017. Unfortunately, improvements related to the enlargement of a building, any elevator or escalator, or the internal structural framework continue to not qualify under the definition of QIP.
In the current business climate, you may not be in a position to undertake new capital expenditures — even if they’re needed as a practical matter and even if the substitution of 100% bonus depreciation for a 39-year depreciation period significantly lowers the true cost of QIP. But it’s good to know that when you’re ready to undertake qualifying improvements that 100% bonus depreciation will be available.
And, the retroactive nature of the CARES Act provision presents favorable opportunities for qualifying expenditures you’ve already made. We can revisit and add to documentation that you’ve already provided to identify QIP expenditures.
For not-yet-filed tax returns, we can simply reflect the favorable treatment for QIP on the return.
If you’ve already filed returns that didn’t claim 100% bonus depreciation for what might be QIP, we can investigate based on available documentation as discussed above. We will evaluate what your options are under Revenue Procedure 2020-25, which was just released by the IRS.
If you have any questions about how you can take advantage of the QIP provision, don’t hesitate to contact us.
Today the IRS launched the Economic Stimulus Payment application allowing individuals to learn when they can expect their payment. You can find the link on the IRS webpage here: https://www.irs.gov/coronavirus/get-my-payment and on our COVID Resource & Tools page here: https://efprgroup.com/covid-19-updates-and-response/covid-resources-tools/
IMPORTANT REMINDER: The IRS will not call , text you, email you or contact you on social media asking for personal or bank account information – even related to the economic impact payments. Watch out for emails with attachments or links claiming to have special information about economic impact payments or refunds.
The IRS has issued guidance providing relief from failure to make employment tax deposits for employers that are entitled to the refundable tax credits provided under two laws passed in response to the coronavirus (COVID-19) pandemic. The two laws are the Families First Coronavirus Response Act, which was signed on March 18, 2020, and the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act, which was signed on March 27, 2020.
Employment Tax Penalty Basics
The tax code imposes a penalty for any failure to deposit amounts as required on the date prescribed, unless such failure is due to reasonable cause rather than willful neglect.
An employer’s failure to deposit certain federal employment taxes, including deposits of withheld income taxes and taxes under the Federal Insurance Contributions Act (FICA) is generally subject to a penalty.
COVID-19 Relief Credits
Employers paying qualified sick leave wages and qualified family leave wages required by the Families First Act, as well as qualified health plan expenses allocable to qualified leave wages, are eligible for refundable tax credits under the Families First Act.
Specifically, provisions of the Families First Act provide a refundable tax credit against an employer’s share of the Social Security portion of FICA tax for each calendar quarter, in an amount equal to 100% of qualified leave wages paid by the employer (plus qualified health plan expenses with respect to that calendar quarter).
Additionally, under the CARES Act, certain employers are also allowed a refundable tax credit under the CARES Act of up to 50% of the qualified wages, including allocable qualified health expenses if they are experiencing:
- A full or partial business suspension due to orders from governmental authorities due to COVID-19, or
- A specified decline in business.
This credit is limited to $10,000 per employee over all calendar quarters combined.
An employer paying qualified leave wages or qualified retention wages can seek an advance payment of the related tax credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.
The Families First Act and the CARES Act waive the penalty for failure to deposit the employer share of Social Security tax in anticipation of the allowance of the refundable tax credits allowed under the two laws.
IRS Notice 2020-22 provides that an employer won’t be subject to a penalty for failing to deposit employment taxes related to qualified leave wages or qualified retention wages in a calendar quarter if certain requirements are met. Contact us for more information about whether you can take advantage of this relief.
More Breaking News
Be aware the IRS also just extended more federal tax deadlines. The extension, detailed in Notice 2020-23, involves a variety of tax form filings and payment obligations due between April 1 and July 15. It includes estimated tax payments due June 15 and the deadline to claim refunds from 2016. The extended deadlines cover individuals, estates, corporations and others. In addition, the guidance suspends associated interest, additions to tax, and penalties for late filing or late payments until July 15, 2020. Previously, the IRS postponed the due dates for certain federal income tax payments. The new guidance expands on the filing and payment relief. Contact us if you have questions.
The IRS and the U.S. Department of Treasury have announced new relief for federal taxpayers affected by the coronavirus (COVID-19) pandemic. The IRS had already extended certain deadlines to file and pay federal income taxes and estimated tax payments due April 15, 2020, without incurring late filing penalties, late payment penalties or interest. The additional relief, outlined in Notice 2020-23, applies to a wider variety of tax filers. The IRS also has announced new tools for taxpayers expecting Economic Impact Payments (also known as “recovery rebates”).
The Extensions in a Nutshell
The extensions apply to taxpayers, including Americans living and working abroad, with filing or payment deadlines on or after April 1, 2020, and before July 15, 2020. Covered tax forms and payments include:
- Individual income tax payments and returns,
- Calendar-year or fiscal-year corporate income tax payments and returns,
- Calendar-year or fiscal-year partnership return filings,
- Estate and trust income tax payments and returns,
- Gift and generation-skipping transfer tax payments and returns, and
- Tax-exempt organizations’ payments and returns.
The due dates for these payments and returns are automatically postponed to July 15, 2020. Taxpayers don’t need to contact the IRS, file any extension forms, or send letters or other documents to take advantage of the extensions. The accrual of interest, penalties and additions to tax for failure to file or pay will be suspended from April 1, 2020, to July 15, 2020, resuming on July 16, 2020.
The IRS is also extending the earlier relief regarding quarterly estimated tax payments. As of now, the payments ordinarily due on both April 15 and June 15 aren’t due until July 15. This applies to individual and businesses that must make estimated tax payments.
Extensions for Other Time-Sensitive Actions
Notably, the IRS is giving taxpayers extra time to perform specified other time-sensitive actions originally due to be performed on or after April 1, 2020, and before July 15, 2020. Those include filing petitions with the U.S. Tax Court or seeking review of a Tax Court decision, filing claims for tax credits or refunds, and filing a lawsuit based on a tax credit or refund claim. Taxpayers generally have three years to claim refunds, so the deadline for 2016 refunds otherwise would be April 15, 2020 (three years after the April 2017 filing date for 2016 tax returns).
Unfortunately for some taxpayers, the notice also provides the IRS with additional time to perform certain time-sensitive acts. It allows a 30-day postponement if the last date for performance of an action is on or after April 6, 2020, and before July 15, 2020. This extension could affect taxpayers who are currently under IRS examination, whose cases are with the Independent Office Appeals or who file amended returns or submit payments for a tax for which the assessment period would expire in that time period.
Economic Impact Payment Tools
On April 10, 2020, the day after announcing the deadline extensions, the IRS launched a new online tool allowing quick registration for Economic Impact Payments for individuals who don’t normally file an income tax return. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides for payments of up to $1,200 for eligible individuals or $2,400 for married couples, plus $500 for each qualifying child. Eligible taxpayers who filed tax returns for 2019 or 2018 will receive the payments automatically.
The non-filer tool is intended for people who didn’t file a tax return for 2018 or 2019 and who don’t receive Social Security retirement, survivors or disability benefits. It’s available at IRS.gov.
The IRS says it expects to launch another tool, called “Get My Payment,” by April 17. It will provide taxpayers with information on the status of their payments, including the date payments are scheduled to be deposited in their bank accounts or mailed to them. Eligible taxpayers also will be able to provide their bank account information to expedite payment, assuming the payment hasn’t already been scheduled for delivery.
The IRS, Department of Treasury, Congress and the Trump administration continue to work on new forms of relief to help individuals and businesses cope with the effects of the COVID-19 crisis. Turn to us for all of the latest developments and available opportunities.
The IRS has opened the Economic Impact Payment webpage. This page allows non-tax filers to enter their information to the IRS to receive stimulus payment. If you have filed your tax return in 2018 or 2019, no further action is generally required.
IMPORTANT REMINDER: The IRS will not call , text you, email you or contact you on social media asking for personal or bank account information – even related to the economic impact payments. Watch out for emails with attachments or links claiming to have special information about economic impact payments or refunds. https://www.irs.gov/coronavirus/economic-impact-payments
As we all try to keep ourselves, our loved ones, and our communities safe from the coronavirus (COVID-19) pandemic, you may be wondering about some of the recent tax changes that were part of a tax law passed on March 27.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act contains a variety of relief, notably the “economic impact payments” that will be made to people under a certain income threshold. But the law also makes some changes to retirement plan rules and provides a new tax break for some people who contribute to charity.
Waiver of 10% Early Distribution Penalty
IRAs and employer sponsored retirement plans are established to be long-term retirement planning accounts. As such, the IRS imposes a penalty tax of an additional 10% if funds are distributed before reaching age 59½. (However, there are some exceptions to this rule.)
Under the CARES Act, the additional 10% tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) is waived for distributions made between January 1 and December 31, 2020 by a person who (or whose family) is infected with COVID-19 or is economically harmed by it. Penalty-free distributions are limited to $100,000, and may, subject to guidelines, be re-contributed to the plan or IRA. Income arising from the distributions is spread out over three years unless the employee elects to turn down the spread-out.
Employers may amend defined contribution plans to provide for these distributions. Additionally, defined contribution plans are permitted additional flexibility in the amount and repayment terms of loans to employees who are qualified individuals.
Waiver of Required Distribution Rules
Depending on when you were born, you generally must begin taking annual required minimum distributions (RMDs) from tax-favored retirement accounts — including traditional IRAs, SEP accounts and 401(k)s — when you reach age 70½ or 72. These distributions also are subject to federal and state income taxes. (However, you don’t need to take RMDs from Roth IRAs.)
Under the CARES Act, RMDs that otherwise would have to be made in 2020 from defined contribution plans and IRAs are waived. This includes distributions that would have been required by April 1, 2020, due to the account owner’s having turned age 70½ in 2019.
New Charitable Deduction Tax Breaks
The CARES Act makes significant liberalizations to the rules governing charitable deductions including:
- Individuals can claim a $300 “above-the-line” deduction for cash contributions made, generally, to public charities in 2020. This rule means that taxpayers claiming the standard deduction and not itemizing deductions can claim a limited charitable deduction.
- The limit on charitable deductions for individuals that is generally 60% of modified adjusted gross income (the contribution base) doesn’t apply to cash contributions made, generally, to public charities in 2020. Instead, an individual’s eligible contributions, reduced by other contributions, can be as much as 100% of the contribution base. No connection between the contributions and COVID-19 is required.
The CARES Act goes far beyond what is described here. The new law contains many different types of tax and financial relief meant to help individuals and businesses cope with the fallout.
The Treasury department released overnight an updated FAQ for Borrowers and Lenders on the PPP.
The biggest news is they defined in question #7 the $100,000 limit of payroll cost to be on CASH compensation, and not non-cash benefits of retirement plan contributions and group health care coverage, including insurance premiums.. Here are a couple of quick examples the way we see it:
Annual cash wages to an employee 95,000
Retirement plan contribution 5,000
Employer paid health benefit 12,000
Total to include for employee payroll cost 112,000
Annual cash wages to an employee 145,000
Excess cash comp <45,000>
Retirement plan contribution 8,000
Employer paid health benefit 18,000
Total to include for employee payroll cost 126,000
Up to this point the guidance we were receiving capped the $100,000 in aggregate, which would have looked like this:
Annual cash wages to an employee 145,000
Retirement plan contribution at 5% 8,000
Employer paid health benefit 18,000
Excess over max <71,000>
Total to include for employee payroll cost 100,000
The new FAQ goes on to say in question #17 that if an application was filed and approved, nothing needs to be done by the borrower or lender as they can rely on the “laws, rules and guidance available at the time of the relevant application” HOWEVER, BORROWERS WHOSE PREVIOUSLY SUBMITTED LOAN APPLICATIONS HAVE NOT YET BEEN PROCESSED MAY REVISE THEIR APPLICATIONS BASED ON CLARIFICATIONS REFLECTED IN THE FAQs. Therefore, if clients could gain a substantial higher loan amount based on the new guidance and their loan has not been processed yet, they may want to consider changing their application.
The FAQ also answers the question of what time period to use to determine the number of employees and payroll cost. See question 14, which says you can use either calendar year 2019 or the previous 12 months.
Finally, the FAQ lays out in question #16 the proper treatment on payroll taxes and what is and what is not included in payroll cost. Use gross payroll, meaning no reduction for employee FICA or withholding, but do not add employer FICA.
The Task Force will continue to look at this new FAQ and any other guidance to keep you as up to date as possible.
To help mitigate the financial and health crises related to the coronavirus (COVID-19), on Friday, March 27, 2020, President Trump signed into law the largest economic relief package in modern U.S. history. The $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is intended to shore up the country on multiple fronts and includes several components aimed at individuals.
One of the aspects receiving the most attention is the CARES Act’s so-called “recovery rebates.” The federal government will generally make direct payments of up to $1,200 to those who file their federal income tax returns as single filers or heads of households; married couples filing jointly can receive up to $2,400. Additional $500 payments will generally be made per qualifying child.
The nontaxable rebates are subject to phaseouts based on adjusted gross income (AGI) as reported on taxpayers’ federal 2019 income tax returns.
If 2019 returns haven’t been filed, the 2018 tax returns will be used. The phaseouts begin at $75,000 for singles, $112,500 for heads of household and $150,000 for married couples. Payments are completely phased-out for single filers with AGIs exceeding $99,000 and for joint filers with no qualifying children and AGIs exceeding $198,000. For a head of household with one child, the payment is completely phased out when AGI exceeds $146,500.
Expanded Unemployment Benefits
The CARES Act increases unemployment compensation benefits significantly, providing an extra $600 per week for up to four months, over and above state unemployment benefits. The expansion generally applies to those who can’t work as a direct result of COVID-19.
The law generally provides temporary full federal funding of the first week of unemployment benefits through December 31, 2020, for states that opt to pay recipients as soon as they become unemployed, rather than requiring a one-week waiting period. And it provides an additional 13 weeks of unemployment benefits through year end, generally for those who remain unemployed after state unemployment benefits are no longer available.
The law also creates a temporary Pandemic Unemployment Assistance program through the end of the year. The program generally will extend unemployment benefits to workers who traditionally don’t qualify for them — meaning self-employed individuals, independent contractors, those with limited work histories and others.
Penalty-free Early Retirement Distributions
The CARES Act waives the 10% early distribution penalty for COVID-19-related withdrawals from IRAs, 401(k) plans and certain other retirement plans made on or after January 1, 2020, and through December 31, 2020. The waiver applies to distributions made to an individual:
- Who’s diagnosed with COVID-19,
- Whose spouse or dependent is diagnosed with COVID-19, or
- Who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care because of COVID-19, or the closing or a reduction of hours of a business owned by the individual due to COVID-19.
Eligible individuals can withdraw up to $100,000 penalty-free. They can repay withdrawn funds within three years of the day after the distribution without regard to the applicable cap on annual contributions. To the extent such early distributions aren’t repaid within this period, the related income tax will be prorated over three years.
Waived Required Minimum Distribution Rules
The CARES Act similarly waives the required minimum distribution (RMD) rules for certain defined contribution plans and IRAs for calendar year 2020. This will help individuals avoid a financially imprudent sale of retirement assets during the stock market downturn.
The waiver covers both 2019 RMDs required to be taken by April 1, 2020, and RMDs required for 2020. It applies for calendar years beginning after December 31, 2019.
Expanded Charitable Contribution Deductions
Individual taxpayers can take advantage of a new above-the-line $300 deduction for cash contributions to qualified charities in 2020. “Above-the-line” means the deduction reduces AGI and is available to taxpayers regardless of whether they itemize deductions.
The CARES Act also loosens the limitation on charitable deductions for cash contributions made to public charities in 2020, boosting it from 60% to 100% of AGI.
Student Loan Relief
Under the CARES Act, employers can provide up to $5,250 annually toward employee student loan payments on a tax-free basis before January 1, 2021. The payment can be made to the employee or the lender. (The employee can’t take a student loan interest deduction for any loan payment for which the exclusion is available.)
The law also allows individuals to stop making payments on federal student loans through September 30, 2020, without incurring penalties or late fees. In addition, no interest will accrue on federal student loans during this period. And the government is temporarily suspending garnishments to collect on federal student loans.
Mortgage and Foreclosure Relief
Homeowners with federally backed mortgages can request forbearance, regardless of their delinquency status and without incurring penalties, fees or interest. Eligible homeowners must submit a request to their loan servicers and affirm financial hardship during the COVID-19 emergency.
A servicer is required to grant forbearance for up to 180 days and to extend it for an additional period of up to 180 days at the borrower’s request.
Further, except for vacant or abandoned property, servicers of federally backed mortgages can’t initiate any foreclosure process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale for at least 60 days, starting March 18, 2020.
Borrowers with federally backed mortgages on multifamily properties can request a forbearance for up to 30 days if they were current on their loans on February. 1, 2020. They also can request two additional 30-day extensions.
The Swiftly Changing Environment
No one knows when the COVID-19 public health emergency will end, or for how long the economic repercussions will linger. We’ll keep you informed on the latest developments and help you plan for a more stable financial future.
This morning the Treasury Department revised the application to request a Paycheck Protection Loan through the SBA. A link to that application can be found HERE. Some SBA-approved lenders are starting to submit applications today, Friday, April 3, 2020. It is critical that those interested, reach out to your lending institution and learn what information they require and start the process immediately.
Yesterday evening, the SBA released a sample of the application that may be used to request a loan through the Paycheck Protection Program. A link to that application is found here:
These loans will be administered through an SBA-approved lender on a first-come, first-serve basis. Starting April 3rd, small businesses and sole proprietorships can apply. Starting April 10th, independent contractors and self-employed individuals will be allowed to apply. Once you contact your lender and they have communicated what information they will require, it is imperative that all interested parties apply. Please reach out to us once you have communicated with your lender and we would be happy to assist with this process.
Please follow us on Social Media or on our dedicated COVID-19 Resource Page for more information as it happens. For updates sent directly to your inbox, signup for our e-newsletter and COVID updates HERE.
Last week, the US Congress passed the Coronavirus Aid, Relief, Economic Security Act (“CARES Act”). Included in this legislation are several resources for small to medium sized business, certain non-profits and other employers.
The CARES Act includes several business and individual provisions that assist during this pandemic. A link to the full EFPR blog about the CARES Act is HERE. A few of the key business takeaways include:
• Creation of $350 Billion Paycheck Protection Program (“PPP”), a loan program with various forgiveness provisions to assist in covering payroll and other expenses thru June 30th, 2020.
• 50% Refundable Payroll tax credit on certain wages during the crisis
• Deferral of Employer Social Security tax payments
• Expansion of NOL carryback provisions
EFPR Group has created an internal Covid-19 Task Force whose sole focus will be:
• Understand the eligibility requirements and benefits of various programs
• Determine how newly created benefits will impact other tax credits and incentives that already exist
• Assist all of our team members in counseling clients about what make sense to them
All loans provided under the PPP loan program will be administered by the SBA, with approved SBA lenders providing the application/underwriting. At this time, PPP loans are not being made. It is anticipated that this will start occurring as soon as the SBA builds out their infrastructure and instructs their network of lenders on how to process and administer. Trust that we are in constant contact with these resources, and that we will be able to assist our clients in this process as needed. Applications for SBA-related grants and disaster loans can be currently filed through their website. However, these funds could adversely impact your ability to have a PPP loan forgiven. Careful consideration must be given before you make a decision.
We have provided a few links to resources as well to assist business owners in gaining an understanding of the landscape.We recommend that you consult your accountant and lender for your best course of action, as everyone’s facts and circumstance differ.
As our client, we will help you navigate the best financial course forward during these uncertain times. Specific guidelines will be issued in the next few weeks and we will keep you informed of new developments that could affect your bottom line.
Click HERE for the Stimulus Loan Calculator
From NYS Senator Chuck Schumer’s Office: The programs and initiatives in the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was just passed by Congress are intended to assist business owners with whatever needs they have right now. When implemented, there will be many new resources available for small businesses, as well as certain non-profits and other employers. The below links provides information about the major programs and initiatives that will soon be available from the Small Business Administration (SBA) to address these needs, as well as some additional tax provisions that are outside the scope of SBA.
Click HERE for the guide that provides information pertaining to:
- Paycheck Protection Program Loans
- Small Business Debt Relief Program
- Economic Injury Disaster Loans & Emergency Economic Injury Grants
- Small Business Consulting
- Small Business Contracting
- Small Business Tax Provisions
Click HERE for the Keeping American Workers Paid and Employed Act (section-by-section)
Click HERE a description of the small business provisions included in the stimulus.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) represents the third phase of Congress’s legislative efforts to address the financial and health care crisis resulting from the coronavirus (COVID-19) pandemic. In addition to providing relief to individuals and mustering forces to shore up the medical response, the CARES Act includes numerous provisions intended to help affected businesses, including eligible self-employed individuals, weather the crisis.
Employee Retention Tax Credit
To encourage employers to keep their workforces intact, the CARES Act creates a new refundable credit against payroll tax. The credit is generally available to employers whose:
- Operations have been fully or partially suspended due to a COVID-19-related governmental shutdown order, or
- Gross receipts have dropped more than 50% compared to the same quarter in the previous year (until gross receipts exceed 80% of gross receipts in the earlier quarter).
Employers with more than 100 employees can receive the credit for employees who’ve been furloughed or who’ve had their hours reduced due to one of the reasons above. Those with 100 or fewer employees can receive the credit regardless of whether employees have been furloughed.
The credit equals 50% of up to $10,000 in compensation — including health care benefits — paid to an eligible employee from March 13, 2020, through December 31, 2020. Additional rules and limits apply.
Payroll Tax Deferral
The new law allows employers to delay their payment of the employer share (6.2% of wages) of the Social Security payroll tax. These taxpayers can pay the tax over the next two years, with the first half due by December 31, 2021, and the second half due by December 31, 2022.
Self-employed individuals receive similar relief under the law.
Relaxed Restrictions on Losses
Before the Tax Cuts and Jobs Act (TCJA), taxpayers could carry back net operating losses (NOLs) two years, and carry forward the losses 20 years, to offset taxable income. The TCJA limited the NOL deduction to 80% of taxable income for the year, eliminated the carryback of NOLs and removed the time limit on carryforwards.
The CARES Act loosens the TCJA restrictions. It allows NOLs arising in 2018, 2019 or 2020 to be carried back five years and temporarily removes the taxable income limitation for years beginning before 2021, so that NOLs can fully offset income.
The new law also amends the TCJA to temporarily eliminate the limitation on excess business losses for pass-through entities and sole proprietors. These taxpayers can now deduct excess business losses arising in 2018, 2019 and 2020.
Taxpayers may need to file amended tax returns to obtain the full benefits of these changes.
Modified Limitation on Business Interest Deductions
For tax years beginning after 2017, the TCJA amended the Internal Revenue Code to limit the deduction for business interest incurred by both corporate and noncorporate taxpayers. It generally limits the deduction to 30% of the taxpayer’s adjusted taxable income (ATI) for the year.
The CARES Act allows businesses to deduct up to 50% of their ATI for the 2019 and 2020 tax years. (Special partnership rules apply for 2019.) It also permits businesses to elect to use 2019 ATI, rather than ATI in 2020, for the calculation, which will increase the amount of the deduction for many businesses.
Expedited Depreciation of Qualified Improvement Property
Prior to the TCJA, qualified retail improvement property, restaurant property and leasehold improvement property were depreciated over 15 years under the modified accelerated cost recovery system (MACRS). The TCJA classifies all of these property types as qualified improvement property (QIP).
The legislative history of the TCJA is clear that Congress intended QIP placed in service after 2017 to have a 15-year MACRS recovery period and, in turn, qualify for 100% bonus depreciation through 2023, when the allowable deduction will begin to phase out. But, in what’s been called “the retail glitch,” the statutory language didn’t define QIP as 15-year property, so QIP defaulted to a 39-year recovery period, making it ineligible for bonus depreciation.
The CARES Act includes a technical correction to fix this drafting error. Hotels, restaurants and retailers that have made qualified improvements during the past two years can claim an immediate tax refund for the bonus depreciation they missed. They also can claim bonus depreciation going forward, according to the phaseout schedule.
Expanded SBA Assistance for Small Businesses
The CARES Act expands the ways the Small Business Administration (SBA) can help small businesses remain open and meet payroll. For example, it temporarily doubles the maximum loan amount under its primary low-interest loan program from $5 million to $10 million (or 2.5 times the average total monthly payroll costs for the prior year, whichever is less).
The law expands the allowable use of the so-called “Section 7(a)” funds to include payroll support, including paid leave, mortgage payments, insurance premiums and debt obligations, and waives many of the usual requirements, such as collateral and personal guarantees. Moreover, if employers maintain their payrolls for eight weeks after the loan origination, the portion of the loan applied to payroll, mortgage interest, rent and utilities will be forgiven.
To qualify, businesses generally must have 500 or fewer employees and have been operational on February 15, 2020. Sole proprietors, independent contractors and other self-employed individuals may qualify.
Amendments to the New Paid Leave Law
The CARES Act also makes some critical modifications to the Families First Coronavirus Response Act, which was signed into law on March 18. That law temporarily requires certain employers to provide expanded paid sick and family leave for certain employees affected by COVID-19.
The CARES Act provides a new rule that defines “eligible employee” for purposes of paid sick and family leave to include employees who:
- Were laid off by the employer March 1, 2020, or later,
- Had worked for the employer for at least 30 days in the 60 calendar days prior to the layoff, and
- Have been rehired by the employer.
And the CARES Act allows advances on anticipated tax credits for employers’ paid leave costs and provides penalty relief for employers that don’t deposit tax amounts because they expect credits.
More to Come?
Several members of Congress have suggested that the CARES Act won’t be the end of the federal legislative relief in response to the COVID-19 pandemic. We’ll keep you informed of new developments that could affect your bottom line and help you navigate the best financial course forward during these uncertain times.
Governor Cuomo issued an executive order authorizing the Commissioner to provide relief from certain tax filing and payment deadlines, under guidance N-20-2 “Announcement Regarding relief from Certain Filing and Payment Deadlines due to the Novel Coronavirus, COVID-19” which can be found here. Excerpts from the Department of Taxation and Finance notice are below:
The Commissioner has extended the April 15, 2020, due date to July 15, 2020, for New York State personal income tax and corporation tax returns originally due on April 15, 2020.
Except as specified below, this extension applies to returns for individuals, fiduciaries (estate and trusts), and corporations taxable under Tax Law Articles 9, 9-A and 33. In addition, the Commissioner is allowing taxpayers to defer all related tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed.
Taxpayers do not need to file any additional forms or call the Tax Department to request or apply for this relief. The returns due on April 15, 2020, will automatically be granted the filing and payment deadline extension and relief from penalties and interest. Taxpayers who are due a refund are urged to file as soon as possible.
- 2019 returns due on April 15, 2020, and related payments of tax or installments of tax, including installments of estimated taxes for the 2020 tax year, will not be subject to any failure to file, failure to pay, late payment, or underpayment penalties, or interest if filed and paid by July 15, 2020.
- If you are unable to file your 2019 return by July 15, 2020, you can request an automatic extension to file your return. Your return will be due on October 15, 2020,1 if the extension request is filed by July 15, 2020, and you properly estimate and pay your 2019 tax liability with your extension request.
- Interest, penalties, and additions to tax with respect to such extended tax filings and payments will begin to accrue on July 16, 2020.
- If you already have filed your 2019 return and scheduled your direct debit payment, your direct debit payment will not be automatically rescheduled to occur on July 15, 2020. You must cancel and schedule a new direct debit payment.
- No extension is provided in this notice for the payment or deposit of any other type of state tax, or for the filing of any state information return.
- Remittance of income tax withheld by employers required to be made using Form NYS-1, Return of Tax Withheld, must be made on time.
The entire notice may be found here.
We will keep you updated about any developments. In the meantime, please contact us with any questions or concerns about your tax or financial situation.
After extensive negotiations between the U.S. House of Representatives, the U.S. Senate and the White House, an agreement has been reached on a massive stimulus bill to address the financial and health care crisis resulting from the coronavirus (COVID-19) pandemic.
As of this writing, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) has been passed by the Senate and is expected to be passed by the House, although the mechanics are still to be determined because most House members are currently in their home districts. The President has indicated that he will sign the legislation.
The CARES Act includes a “Marshall Plan” for the health care system to help provide needed treatment during the pandemic and financial assistance to state, local, tribal and territorial governments, as well as to private nonprofits providing critical and essential services. It also provides significant relief to individuals, businesses and other employers to help them weather the pandemic.
Here’s a quick look at some of the CARES Act provisions that may affect you — keep in mind that it’s possible that some provisions could change before the act is signed into law:
- Recovery rebates of up to $1,200 for singles, $1,200 for heads of households and $2,400 for married couples filing jointly — plus $500 per qualifying child — subject to income-based phaseouts starting at $75,000, $122,500 and $150,000, respectively
- Expansion of unemployment benefits, including for self-employed and gig-economy workers
- Waiver of the 10% penalty on COVID-19-related early distributions from IRAs, 401(k)s and certain other retirement plans
- Waiver of required minimum distribution rules for IRAs, 401(k)s and certain other retirement plans
- Expansion of charitable contribution tax deductions
- Exclusion for certain employer payments of student loans
Businesses and other employers
- Retention tax credit for eligible employers that continue to pay employee wages while their operations are fully or partially suspended as a result of certain COVID-19-related government orders
- Deferral of the employer portion of payments of certain payroll taxes
- Modification of net operating loss (NOL) and limitation on losses rules
- Modification of the deduction limitation on business interest
- Qualified improvement property technical correction, allowing qualifying interior improvements of buildings to be immediately expensed rather than depreciated over 15 years
- Expansion of the ways the Small Business Administration (SBA) can help small businesses
More Details to Come
This is just a brief overview of the CARES Act. We will share additional details on the provisions that are likely most relevant to you or your business in the coming days.
In the meantime, we have been receiving frequent questions about the SBA Economic Injury Disaster Loan Program and wanted to share some of those details below.
SBA Economic Injury Disaster Loan Program
- For Profit and Not-for-Profit organizations are eligible
- Up to 30 years amortization
- Less than $25,000 with no collateral to up to $2 Million
- 2.75% for Not-for-Profits and 3.75% for For Profits
- Must be in business 1 full year and located in a disaster area
- It takes a few months for approval
- For more information, please go to the SBA.gov site located here.
Members of our COVID team presented on the following topics:
• Managing Cash Flow
• Tax Due Dates
• Government Incentive Programs
• Human Resource Issues
• Managing Staff Remotely
A link to the power point presentation can be found here.
A link to the recorded Go To Meeting presentation can be found here.
A link to the SBA Economic Injury Disaster Loan Program may be found here.
Every company has faced unprecedented challenges in adjusting to life following the widespread outbreak of the coronavirus (COVID-19). Small businesses face particular difficulties in that, by definition, their resources — human, capital and otherwise — are limited. If this describes your company, one place you can look to for some assistance is the Small Business Administration (SBA).
New Loan, Relaxed Criteria
The agency has announced that it’s offering Economic Injury Disaster Loans under the Coronavirus Preparedness and Response Supplemental Appropriations Act, which was recently signed into law.
Here’s how it works: The governor of a state or territory must first submit a request for Economic Injury Disaster Loan assistance to the SBA. The agency’s Office of Disaster Assistance then works with the governor to approve the request. Upon completion of this process, affected small businesses within the state gain access to information on how to apply for loan assistance.
To speed the process, the SBA has relaxed its usual disaster-loan criteria. A state or territory now needs to certify that at least five small businesses have suffered substantial economic injury anywhere in the state.
Previously, at least one of the companies had to be in each of the disaster-declared counties or parishes.
Along similar lines, once the submission process is completed, Economic Injury Disaster Loans will be available across the state. Under previous criteria, only businesses in counties identified as disaster areas could obtain financial assistance. Given the expected widespread and economically drastic effect of the coronavirus, most states will have likely garnered approval by the time you read this.
Amount, Interest and Terms
Economic Injury Disaster Loans offer up to $2 million in financial assistance to help small businesses mitigate their revenue losses. You could use the money to pay overhead costs such as utilities and rent, keep up with accounts payable and cover payroll.
For qualifying small businesses, the interest rate is 3.75%. Some nonprofits may also be eligible for this assistance. For them, the interest rate is 2.75%. The specific loan terms will vary according to each borrower’s ability to pay. The agency does say that it “offers loans with long-term repayments in order to keep payments affordable.”
Mitigate and Manage
Bear in mind that these loans are just one form of assistance offered by the SBA. Your small business may qualify for other loans, and there might be training programs that benefit your company. Our firm can help you assess your financial situation in light of the coronavirus crisis and formulate a strategy for mitigating and managing your risks going forward.
Taxpayers now have more time to file their tax returns and pay any tax owed because of the coronavirus (COVID-19) pandemic. The Treasury Department and IRS announced that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020.
Taxpayers can also defer making federal income tax payments, which are due on April 15, 2020, until July 15, 2020, without penalties and interest, regardless of the amount they owe. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax. They can also defer their initial quarterly estimated federal income tax payments for the 2020 tax year (including any self-employment tax) from the normal April 15 deadline until July 15.
No Forms to File
Taxpayers don’t need to file any additional forms to qualify for the automatic federal tax filing and payment relief to July 15. However, individual taxpayers who need additional time to file beyond the July 15 deadline, can request a filing extension by filing Form 4868. Businesses who need additional time must file Form 7004. Contact us if you need assistance filing these forms.
If You Expect a Refund
Of course, not everybody will owe the IRS when they file their 2019 tax returns. If you’re due a refund, you should file as soon as possible. The IRS has stated that despite the COVID-19 outbreak, most tax refunds are still being issued within 21 days.
New Law Passes, Another on the Way
On March 18, 2020, President Trump signed the “Families First Coronavirus Response Act,” which provides a wide variety of relief related to COVID-19. It includes free testing, waivers and modifications of Federal nutrition programs, employment-related protections and benefits, health programs and insurance coverage requirements, and related employer tax credits and tax exemptions.
If you’re an employee, you may be eligible for paid sick leave for COVID-19 related reasons. Here are the specifics, according to the IRS:
- An employee who is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or whose child care provider is unavailable, and/or the employee is experiencing substantially similar conditions as specified by the U.S. Department of Health and Human Services can receive two weeks (up to 80 hours) of paid sick leave at 2/3 the employee’s pay.
- An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional ten weeks of expanded paid family and medical leave at 2/3 the employee’s pay.
As of this writing, Congress was working on passing another bill that would provide additional relief, including checks that would be sent to Americans under certain income thresholds. We will keep you updated about any developments. In the meantime, please contact us with any questions or concerns about your tax or financial situation.
Businesses across the country are being affected by the coronavirus (COVID-19). Fortunately, Congress recently passed a law that provides at least some relief. In a separate development, the IRS has issued guidance allowing taxpayers to defer any amount of federal income tax payments due on April 15, 2020, until July 15, 2020, without penalties or interest.
On March 18, the Senate passed the House’s coronavirus bill, the Families First Coronavirus Response Act. President Trump signed the bill that day. It includes:
• Paid leave benefits to employees,
• Tax credits for employers and self-employed taxpayers, and
• FICA tax relief for employers.
Tax Filing and Payment Extension
In Notice 2020-18, the IRS provides relief for taxpayers with a federal income tax payment due April 15, 2020. The due date for making federal income tax payments usually due April 15, 2020 is postponed to July 15, 2020.
Important: The IRS announced that the 2019 income tax filing deadline will be moved to July 15, 2020 from April 15, 2020, because of COVID-19.
Treasury Department Secretary Steven Mnuchin announced on Twitter, “we are moving Tax Day from April 15 to July 15. All taxpayers and businesses will have this additional time to file and make payments without interest or penalties.”
Previously, the U.S. Treasury Department and the IRS had announced that taxpayers could defer making income tax payments for 2019 and estimated income tax payments for 2020 due April 15 (up to certain amounts) until July 15, 2020. Later, the federal government stated that you also don’t have to file a return by April 15.
Of course, if you’re due a tax refund, you probably want to file as soon as possible so you can receive the refund money. And you can still get an automatic filing extension, to October 15, by filing IRS Form 4868. Contact us with any questions you have about filing your return.
Any Amount Can Be Deferred
In Notice 2020-18, the IRS stated: “There is no limitation on the amount of the payment that may be postponed.” (Previously, the IRS had announced dollar limits on the tax deferrals but then made a new announcement on March 21 that taxpayers can postpone payments “regardless of the amount owed.”)
In Notice 2020-18, the due date is postponed only for federal income tax payments for 2019 normally due on April 15, 2020 and federal estimated income tax payments (including estimated payments on self-employment income) due on April 15, 2020 for the 2020 tax year.
As of this writing, the IRS hasn’t provided a payment extension for the payment or deposit of other types of federal tax (including payroll taxes and excise taxes).
This only outlines the basics of the federal tax relief available at the time this was written. New details are coming out daily. Be aware that many states have also announced tax relief related to COVID-19. And Congress is working on more legislation that will provide additional relief, including sending checks to people under a certain income threshold and providing relief to various industries and small businesses.
We’ll keep you updated. In the meantime, contact us with any questions you have about your situation.
President Trump has signed into law the Families First Coronavirus Response Act. Among other things, the new law temporarily requires certain employers to provide expanded paid sick and family leave for employees affected by the coronavirus (COVID-19) pandemic.
Employers’ increased costs will be offset by new tax credits, which also may be available to self-employed individuals.
Expanded Family and Medical Leave
The new law amends the federal Family and Medical Leave Act (FMLA) for employers with fewer than 500 employees. Those employers generally must provide employees who’ve been on the job for at least 30 calendar days (including those who work under a multiemployer collective agreement and whose employers pay into a multiemployer plan) with up to 12 weeks of job-protected leave, part of it paid.
The new law generally allows the leave in circumstances where an employee is unable to work (or “telework”) due to a need to care for a minor child whose school or paid place of childcare has been closed or is unavailable due to COVID-19.
The FMLA generally requires only job-protected leave, not paid leave. For leave under the new law, only the first 10 days of leave may be unpaid. (Those 10 days might, however, qualify for paid sick leave; see below.)
After 10 days, covered employers must provide paid leave at two-thirds of an employee’s usual rate. The pay requirement is limited, however, to $200 per day and $10,000 total per employee.
Be aware that certain exemptions and special rules may apply regarding expanded family and medical leave.
Paid Sick Leave
Under the new law, employers with fewer than 500 employees must provide 80 hours of paid sick leave for full-time employees in certain situations. Part-time employees are entitled to this paid sick leave for the average number of hours worked over a two-week period.
Employees are eligible regardless of how long they’ve worked with the employer, and employers can’t require an employee to use other paid leave before the paid sick time.
An employee qualifies for the leave when he or she is unable to work (or telework) because the employee:
- Is subject to a COVID-19-related quarantine or isolation order,
- Has been advised by a health care provider to self-quarantine,
- Is experiencing COVID-19 symptoms and seeking a medical diagnosis,
- Is caring for an individual subject to a COVID-19-related quarantine or isolation order,
- Is caring for a son or daughter whose school or place of care has been closed, or whose childcare provider is unavailable, due to COVID-19 precautions, or
- Is experiencing substantially similar conditions specified by the U.S. Secretary of Health and Human Services Alex Azar.
When leave is taken for an employee’s own illness or quarantine (reasons 1 through 3 above), the leave is required to be paid at the employee’s regular rate, but no higher than $511 per day ($5,110 total). For leave taken for reasons 4 through 6 above, the leave is required to be paid at two-thirds of the regular rate, capped at $200 per day ($2,000 total).
Note that certain exemptions and special rules may apply regarding paid sick leave.
Tax Credits for Employers and the Self-Employed
Covered employers generally can take a federal payroll tax credit for 100% of the qualified family and sick leave wages they pay each quarter. The credits generally are available only to employers required to provide benefits by the new law.
The amount of wages taken into account for the paid family leave for each employee is capped at $200 per day and $10,000 for all calendar quarters. The amount of wages taken into account for paid sick leave is limited to $511 per day for leave taken for the employee’s own illness or quarantine and $200 for leaves taken to care for others.
Wages taken into account when computing the credit amount won’t be taken into account when computing the existing Section 45S business tax credit for paid family and medical leave.
Note that tax credits may also be available to certain self-employed individuals.
The new law provides that the paid leave provisions must take effect no later than 15 days after enacted. They expire on December 31, 2020. More relief affecting employees and businesses is sure to follow this legislation. Turn to us to for the latest developments.
The U.S. Small Business Administration has provided a low-interest disaster loans to help businesses and homeowners recover from declared disasters. For more information please follow this link: https://www.sba.gov/funding-programs/disaster-assistance
U.S. Treasury Department Secretary Steven Mnuchin announced that the 2019 income tax filing deadline will be moved to July 15, 2020 from April 15, 2020, because of the coronavirus (COVID-19) outbreak.
At President Trump’s direction, Mnuchin announced on Twitter, “we are moving Tax Day from April 15 to July 15. All taxpayers and businesses will have this additional time to file and make payments without interest or penalties.”
Previously, the U.S. Treasury Department and the IRS had announced that taxpayers could defer making income tax payments for 2019 and estimated income tax payments for 2020 due April 15 (up to certain amounts) until July 15, 2020. Now, the federal government is stating that you don’t have to file a return by April 15.
Of course, if you’re due a tax refund, you probably want to file as soon as possible so you can receive the refund money. Contact us with any questions you have about filing your return.
After U.S. Treasury Secretary Steven Mnuchin’s announcement that the deadline for paying federal income taxes would be extended, the IRS released guidance on March 18 outlining the details. IRS Notice 2020-17 follows up on President Trump’s Emergency Declaration that, among other things, instructed Mnuchin to provide relief from tax deadlines for taxpayers adversely affected by the coronavirus (COVID-19) pandemic.
According to the notice, Mnuchin has determined that any person with a federal income tax payment due April 15, 2020, is affected by COVID-19 for purposes of the relief. The notice doesn’t extend the federal tax return filing deadline, only the deadline for making payments. Bear in mind, too, that states aren’t necessarily following suit regarding state income tax payments (although many states have announced their own COVID-19 tax relief).
Under the notice, the due date for making federal income tax payments up to applicable limits is postponed to July 15, 2020. The limit for each consolidated group or corporation that doesn’t file a consolidated return is $10 million. For all other taxpayers, the applicable limit is $1 million, regardless of filing status. In other words, the $1 million tax limit applies equally to a single individual and to married individuals filing a joint return.
The relief is limited to federal income tax payments due on April 15 for the 2019 tax year and federal estimated income tax payments for the 2020 tax year that are due on April 15. It includes tax payments on self-employed income.
Penalties and interest
The notice also provides that no interest, penalty or additions to tax for failure to pay will be calculated on the postponed taxes for the period from April 15, 2020 to July 15, 2020. They will, however, begin to accrue on April 15 for payments in excess of the applicable limit ($10 million or $1 million) that aren’t paid by April 15.
Taxpayers who find themselves subject to such penalties or additions can seek reasonable cause relief for a failure to pay tax. They also can seek a waiver to the penalty for a failure to pay estimated income tax (the latter relief generally is limited to individuals and certain trusts or estates; it’s not available for corporations or nonprofits).
Turn to us with questions
Federal measures to mitigate the economic effects of the COVID-19 pandemic continue to roll out. We can help you stay on top of these developments and chart the best course forward.
The IRS has confirmed the April 15th individual income tax and information return filing deadline is not being extended therefore taxpayers and their accountants are still required to file by the deadline or request an extension using Form 4868. More information may be found on the IRS website here: https://www.irs.gov/pub/irs-drop/n-20-17.pdf
Please note, developments are continually occurring.
Treasury Secretary Steven Mnuchin announced the IRS would waive penalties and interest on tax payments for 90 days however the due date for filing 2019 tax returns would not be postponed. The waiver only applies to:
• individual taxpayers owing up to $1 million in taxes, and
• corporations owing up to $10 million in taxes
The IRS is still processing returns therefore taxpayers are being encouraged to file timely. Considering the current crisis, many taxpayers may receive refunds which could be beneficial.
Several arms of the federal government have taken, or are weighing, significant steps to help the country deal with the spread of the coronavirus (COVID-19) and the implications for individuals and businesses.
On March 14, the U.S. House of Representatives overwhelmingly passed a bipartisan 110-page bill that has received support from President Trump and, as of this writing, is expected to be taken up by the Senate this week. The Families First Coronavirus Response Act includes a wide range of provisions, including some addressing insurance coverage and reimbursement of diagnostic testing costs and others expanding safeguards for economically disadvantaged individuals. It also includes two significant groups of measures that will affect certain employers and workers through December 31, 2020.
Expanded Family and Medical Leave
The act amends the Family and Medical Leave Act (FMLA) for employees who 1) work for employers with fewer than 500 employees, and 2) have been on the job at least 30 days. Under the bill, these employees (including those who work under a multiemployer collective agreement and whose employers pay into a multiemployer plan) will have the right to take up to 12 weeks of job-protected leave to:
- Comply with a requirement or recommendation to quarantine due to exposure or symptoms of COVID-19,
- Care for an at-risk family member who’s quarantined due to exposure or symptoms of COVID-19, and
- Care for their children if the children’s school or place of care has been closed, or the childcare provider is unavailable, because of COVID-19.
Although the FMLA generally requires only job-protected leave — not paid leave — the bill mandates paid leave after 14 days at two-thirds of the employee’s usual rate. (The first 14 days are covered under the paid sick leave provisions discussed below).
Note, though, that the bill gives the U.S. Secretary of Labor the power to issue regulations that exempt small businesses with fewer than 50 employees from this expansion if it would jeopardize the viability of the business. Because of this potential exemption and the fact that these provisions don’t apply to employers with 500 or more employees, many American workers won’t be protected by them.
The act will help employers subject to the provisions by allowing them to take a tax credit against their share of Social Security taxes for 100% of the qualified family leave wages they pay each quarter. The amount of wages taken into account for each employee is capped at $200 per day and $10,000 for all calendar quarters. Any excess credit over its Social Security tax liability is refundable to the employer.
No deduction is allowed for the amount of the credit, and no credit is allowed for wages that are subject to the existing Section 45S business tax credit for paid family and medical leave. Employers can elect to not have the credit apply.
The 100% refundable family leave credit also is available for certain self-employed individuals, applicable against income taxes. Self-employed people who would be entitled to paid leave under the expanded FMLA if they were employees of a business are eligible. The qualified leave amount is capped at the lesser of $200 per day or the average daily self-employment income for the taxable year per day.
These individuals can count only those days they’re unable to work for reasons covered by the expanded FMLA. The Treasury Department will establish documentation requirements.
Paid Sick Leave
The act requires employers with fewer than 500 employees to provide two weeks of paid sick leave, at the employee’s regular rate, to quarantine or seek a diagnosis or preventive care for COVID-19. If the employee must take leave to care for a family member for such purposes, or to care for a child whose school has closed or childcare provider isn’t available, these employees must provide leave paid at two-thirds of the employee’s regular rate. Full-time employees are entitled to 80 hours of paid sick leave, and part-time employees are entitled to the typical number of hours that they work in a typical two-week period.
As with expanded family leave, covered employers can claim an elective refundable 100% tax credit for qualified paid sick leave wages, also against Social Security taxes. But the bill makes a distinction between those wages paid for employee who must self-isolate or obtain a diagnosis and those paid for to employees caring for a family member or child. For the former, the amount of wages taken into account per employee is capped at $511 per day; for the latter, it’s capped at $200 per day. The total number of days taken into account per employee can’t exceed the excess of 10 over the total number of days taken into account for all preceding calendar quarters.
Again, any excess credit over their Social Security tax liability is refundable, no deduction is allowed for the amount of the credit and no credit is allowed for wages that are subject to the Section 45S business tax credit.
The self-employed are similarly eligible for the refundable credit at differing amounts — 100% for their personal needs and 67% to care for a family member or child. The amount of wages is capped at $511 per day or the average daily self-employment income for the taxable year per day.
Extended Tax Filing Deadline
The U.S. Department of Treasury has announced an extension on the traditional April 15 federal income tax return filing deadline for certain individuals and small businesses. Not only will eligible taxpayers be permitted to file their returns later, they also need not worry about incurring penalties or interest if they don’t pay by the April 15 deadline.
According to Treasury Secretary Steven Mnuchin, “virtually all Americans, other than the super rich,” can take advantage of the delay. Taxpayers already generally can obtain extensions that push out their filing deadlines six months. But without the relief, those taxpayers still are required to pay any tax liability by the April deadline. That liability incurs penalties and interest until paid.
At this writing, we don’t have information about when the new filing deadline will be.
Some states have announced tax relief related to COVID-19. Check with us for more information.
On March 13 as part of the national emergency declaration, President Trump waived interest payments on federal student loans “until further notice.” This allows borrowers to pause their payments without penalty.
It remains to be seen whether any relief will be provided regarding the quarterly estimated tax payments made by businesses and self-employed individuals. And, as of this writing, no further information, such as the new deadline, has been provided. An extension isn’t included in the Families First Coronavirus Response Act.
The IRS has published new guidance making clear that high-deductible health plans (HDHPs) can pay for COVID-19-related testing and treatment without putting their status at risk. That means individuals with HDHPs that provide such coverage can continue to contribute to their health savings accounts (HSAs) and deduct the contributions on their 2020 tax returns (or make pre-tax contributions their employer-sponsored HSAs).
Health insurance plans generally must satisfy several requirements to qualify as an HDHP. For example, providing nonpreventive health care coverage without a deductible, or with a deductible below the requisite minimum, would forfeit HDHP status. (Vaccinations are considered preventive care.) The IRS is temporarily suspending this rule to avoid administrative delays or other financial disincentives that could impede testing and treating for COVID-19.
Congress and the Trump administration are weighing other actions to increase access to health care, as well as stabilize and stimulate the economy. We’ll keep you updated as new relief becomes available. Contact us for help to determine how best to minimize the financial impact.
The White House, as well as the Treasury Department, has indicated they intend to postpone the tax return filing deadline for the 2019 tax year. At the time of publication, the IRS has not yet issued an official notice of a postponement, or any guidance on the issue. The Internal Revenue Code grants the IRS authority to postpone deadlines by reason of a federally declared disaster under the Stafford Act. Since President Trump invoked the Stafford Act to declare a national emergency rather than a national disaster, it is unclear whether the IRS has authority to postpone the filing deadline. Unless action is taken soon by the IRS, Forms 1065 and 1120-S for the 2019 tax year are due Monday, March 16, 2020 and Forms 1040 and 1120 are due April 15, 2020.
The America Institute of CPAs’ (AICPA) called for the Treasury Department and the IRS to provide relief to all taxpayers in light of the uncertainty and challenges caused by the spread of the Coronavirus (COVID-19) pandemic. They requested Treasury and the IRS consider the following recommendations here.