LUTZ BUSINESS INSIGHTS

 

CARES ACT OVERVIEW

Congress has officially passed the Coronavirus Aid, Relief, and Economic Security Act, otherwise known as the CARES Act. The mission of this bill is to provide emergency and health care assistance to individuals, families, and businesses affected by the 2020 coronavirus (COVID-19) pandemicBelow is a summary of resources regarding the CARES Act for both businesses and individuals. We will update information as it becomes available:

FOR BUSINESSES & SELF-EMPLOYED INDIVIDUALS 

FOR INDIVIDUALS 

As every business situation is different, it’s important to be sure you are applying for the correct loan(s). For more information please reach out to your Lutz representative or call us at 866.577.0780. 

EMERGENCY INJURY DISASTER ADVANCE AND LOANS (EIDL)

EIDL EMERGENCY ADVANCE 

An emergency grant can provide an advance of up to $10,000 to small businesses and non-profits harmed by COVID-19 within three to five days of applying for a COVID-19 Economic Injury Disaster Loan (EIDL). The advance does not need to be repaid and may be used to keep employees on payroll, pay for sick leave, meet increased production costs due to supply chain disruptions or pay general business obligations. 

A business must have been in business as of January 31, 2020 in order to receive the emergency grant. The amount of emergency grant received (up to $10,000) is at the discretion of the Small Business Administration (SBA). 

Provided below is an overview of an SBA EIDL. The emergency grant request is part of the COVID-19 EIDL application. If you are denied the EIDL, you are not required to repay the emergency grant received. If you apply for an EIDL and the emergency grant, you can still apply for the Paycheck Protection Program (PPP) loan. However, the amount of PPP loan forgiven will be reduced by the emergency grant received.  

To apply for the COVID-19 EIDL, go to https://covid19relief.sba.gov/#/ 

INFORMATION ON EIDLS 

Economic Injury Disaster Loans are working capital loans intended to help small businesses of all sizes meet their ordinary and necessary financial obligations that cannot be met as a direct result of the disaster. These loans are intended to assist through the disaster recovery period. 

EIDLs may be used to pay fixed debts, payroll, accounts payable and other bills that cannot be paid because of the disasters impact. However, if the COVID-19 EIDL proceeds are used for payroll, PPP loan proceeds cannot also be used for the same payroll. 

LOAN AMOUNT, TERMS, & INTEREST RATE 

  • Loan amount: The SBA determines the loan amount, not the applicant. The law limits EIDL up to $2 million. The loan amount is limited to the economic injury determined by the SBA, less business interruption insurance and other recoveries. If a business is a major source of employment, SBA has the authority to waive the $2 million limit. 
  • Loan terms: Determined on a case-by-case basis, based upon the borrower’s ability to repay. SBA will determine an appropriate installment payment based on the financial condition of each borrower, which in turn will determine the loan term (max of 30 years). 
  • Interest rate: Maximum annual rate of 3.75%.

Updated 3/31/2020 at 11:00 AM

PAYROLL CONSIDERATIONS OF COVID-19 LEGISLATION

In the past couple weeks, two pieces of legislation have impacted payroll by introducing potential tax credits and extending employee leave for those impacted by COVID‐19. Please note, every business has a different fact pattern, and some payroll provisions have an impact on eligibility for the Paycheck Protection Program and its related debt forgiveness potential.

FAMILIES FIRST CORONAVIRUS RESPONSE ACT (FFCRA)  

The first piece of legislation, the Families First Coronavirus Response Act (FFCRA), was signed by President Trump on March 18, 2020. There are two main provisions noted below, each effective April 1, 2020 through December 31, 2020. Employers with less than 500 employees are subject to its requirements, while employers with less than 50 employees may qualify for an exemption (see DOL Q&A for further guidance). 

EMERGENCY FMLA LEAVE  

  • Extends coverage under the Family and Medical Leave Act to employees unable to work because of need to care for child under 18 years whose school or care facility is closed due to COVID‐19.
  • Employee must have been employed for 30 days to qualify.
  • Employee benefit is 2/3 of normal pay not to exceed $200/day and $10,000 in aggregate.
  • Employer may qualify for a payroll tax credit for the qualified leave wages, any qualified health plan expenses (employee pretax portion and employer portion) allocable to the qualified leave wages and the employer’s share of Medicare taxes (1.45%) on the qualified leave wages.
  • Employee can receive up to 12 weeks of leave; the first two weeks are unpaid; however, PTO or paid sick leave can be used during this time, but the employer cannot mandate their use.
  • Leave payments are subject to employee FICA, income tax withholding, Medicare taxes and employer Medicare taxes; they are exempt from employer 6.2% FICA taxes.
  • Employers may be eligible to file Form 7200 for advance payment of employer tax credits OR may be eligible to retain the federal employment tax that would otherwise be deposited, including federal income tax withheld, and both the employee’s and employer’s share of social security and Medicare taxes.

EMERGENCY PAID SICK LEAVE  

  • Provides coverage for employee unable to work because of direct or indirect effects of COVID‐19, including being subject to quarantine, self‐quarantine, or caring for child(ren) under age 18 years.
  • There is no minimum employment period to qualify.
  • Full‐time employees receive 80 hours maximum, while part‐time employees receive the number of hours normally worked in a two‐week period.
  • Employer may qualify for a payroll tax credit for the qualified sick leave wages and the employer’s share of Medicare taxes (1.45%) on the qualified sick leave wages.
  • An employer is not required to pay more than $511 per day or $5,110 in aggregate per employee personally affected by COVID‐19 or $200 per day or $2,000 in aggregate per employee with family members affected. The employer may receive a tax credit up to these amounts.
  • Paid sick leave payments are subject to employee FICA, income tax withholding, Medicare taxes and employer Medicare taxes; they are exempt from an employer’s 6.2% FICA taxes.
  • Employers may be eligible to file Form 7200 for advance payment of employer tax credits OR may be eligible to retain the federal employment tax that would otherwise be deposited, including federal income tax withheld, and both the employee’s and employer’s share of social security and Medicare taxes.

CORONAVIRUS AID, RELIEF, AND ECONOMIC SECURITY (CARES) ACT

The second piece of legislation, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, was signed by President Trump on March 27, 2020. There are three important provisions relating to payroll.

TEMPORARY PANDEMIC UNEMPLOYMENT ASSISTANCE PROGRAM  

  • Expands unemployment insurance to those typically not covered, including self‐employed, independent contractors, and employees with limited work history.
  • Provides up to $600 per week in addition to state unemployment benefits.
  • Provides an additional 13 weeks of coverage to 39 weeks total, up from 26 weeks.
  • States may waive the first week waiting period for benefits; Nebraska and Iowa have waived this
    requirement. 
     

EMPLOYEE RETENTION CREDIT  

  • Not available for employers that participate in the Paycheck Protection Program (PPP) loan.
  • Applies to wages March 13, 2020 through December 31, 2020.
  • Qualified wages are reduced by employer payments made for Emergency FMLA Leave and Emergency Paid Sick Leave.
  • Qualified employers include those:
    • Who have been fully or partially suspended due to order from a government authority OR
    • Have a greater than 50 percent decrease in gross receipts compared to the same calendar quarter in the prior year.
  • For employers with less than 100 average employees as defined in Sec. 4980H, qualified wages include wages paid during a time of shutdown or decline in business.
  • For employers with more than 100 average employees as defined in Sec. 4980H, qualified wages generally include wages to employees who are not currently providing services or working.
  • The employer credit is 50 percent of qualified wages paid not to exceed $10,000 of wages per employee. Thus, the maximum credit is $5,000 per employee for the effective period.
  • Employers may be eligible to file Form 7200 for advance payment of employer tax credits OR may be eligible to retain the federal employment tax that would otherwise be deposited, including federal income tax withheld, and both the employee’s and employer’s share of social security and Medicare taxes.

DELAY OF EMPLOYER PAYROLL TAXES  

  1. All employers may defer the deposit and payment of the employer’s share of social security tax, except as noted in 2.
  2. Employers that receive a Paycheck Protection Program Loan (PPP), may not defer the deposit and payment of the employer’s share of social security tax due on or after the date that the employer receives a decision from its lender that the PPP loan is forgiven. The amounts deferred during the eligible period before forgiveness are due according to the schedule below.
  3. Applicable taxes are ONLY employer FICA taxes (6.2%) and are deferred to the following dates:
    • 50% until December 31, 2021 AND
    • 50% until December 31, 2022

Helpful Links & Frequently Asked Questions (FAQ):
Department of Labor – COVID‐19 and the American Workplace
Internal Revenue Service – Related Tax Credits Provided by Small and Midsize Businesses

IRS GUIDELINES FOR CLAIMING PAYROLL TAX CREDITS

The Internal Revenue Service (IRS) has released additional guidance for employers who receive payroll tax credits under the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Failure‐to‐deposit penalties WAIVED during pandemic

The IRS is providing employers temporary relief from failure‐to deposit penalties imposed by Section 6656 of the Internal Revenue Code if:
(1) an employer pays qualified leave wages or qualified retention wages in the calendar quarter before the required deposit;
(2) the amount of federal employment taxes the employer does not timely deposit is less than or equal to the employer’s anticipated credits for qualified leave wages; and
(3) the employer did not seek advance payment of the credit by filing Form 7200 for the same wages.

FORM 7200

Form 7200, Advance Payment of Employer Credits Due to COVID‐19, has been released and is available for wages beginning April 1, 2020. This can be filed by employers that report wages on quarterly Form(s) 941, 943, or 944 and qualify for any of the following payroll tax credits: Emergency FMLA Leave Credit, Emergency Paid Sick Leave Credit, or Employee Retention Credit.
Although self‐employed individuals may qualify for credits, they may NOT file Form 7200 to receive them.
Employment taxes that are available for the credits include withheld federal income tax, and both the employee and employer share of social security and Medicare taxes with respect to all employees.
When should an employer file Form 7200? See below for two examples.

EXAMPLE 1

An employer is entitled to a credit of $5,000 for qualified paid sick leave and its normal payroll tax deposit would be $8,000. The employer can reduce its payroll tax deposit immediately by $5,000 and only remit $3,000. No Form 7200 is needed since the credit has been claimed in full.

EXAMPLE 2

An employer is entitled to a credit of $10,000 for qualified paid sick leave and its normal payroll tax deposit would be $8,000. The employer can reduce its payroll tax deposit immediately by $8,000 and not remit any payment. Form 7200 can then be filed to claim the additional $2,000 credit, resulting in faster access to the funds versus waiting to file the related employment tax return.

Updated 4/15/2020 at 3:30 PM

TAX-RELATED PROVISIONS FOR BUSINESSES

The CARES Act introduced several retroactive business tax changes. A highlight of thmodifications include the following: 

  •  Qualified improvement property is now 15-year property instead of 39-year property effective 1/1/2018. 
    • The modification corrects an oversight from the TCJA (Tax Cuts and Jobs Act) affecting certain restaurant and retail businesses property.  Now, this property once again qualifies for bonus depreciation.   
  • Net operating losses (NOLs) for years starting in 2018-2020, can be carried back 5 years. 
    • The NOL 80% limitation has been suspended until tax years starting in 2021.   
    • In other words, the taxable income limitation on the use of the NOL will be temporarily removed to allow the NOL to fully offset income back to 2013 at the earliest. 
  • Excess business losses removed until 2021.   
    • The limit on deducting businesses losses in excess of $250,000 (single) or $500,000 (joint) will be temporarily repealed backdated to 2018, not taking effect until 2021. 
  • Business Interest Limitation Adjustments  
    • 163(j) business interest expense limitation is now 50% (instead of 30%) for tax years beginning in 2019 (except partnerships) and 2020.   
    • 163(j) business interest limitation adjustments for 2019 partnerships are made at the partner level partially in 2019 and partially in 2020 subject to special elections. 
  • Full recovery of corporate AMT credits for tax years beginning in 2019. 
    • AMT was repealed as part of the TCJA (Tax Cuts and Jobs Act). Corporate AMT credits were to be available as refundable credits over several years ending in 2021.

Updated 4/2/2020 at 12:00 PM 

DID YOU RECEIVE APPROVAL FOR YOUR PAYCHECK PROTECTION PROGRAM LOAN? WHAT NOW?

Once you receive the good news that your loan was approved, you may begin to question, “what are the next steps?” Below are suggestions and considerations to utilize your loan effectively.  

DEPOSIT THE FUNDS INTO A SEPARATE CHECKING ACCOUNT DEDICATED TO THE PPP LOAN PROCEEDS. 

  • This will aid in tracking the funds used for the specified purposes. 
  • If a copy of the bank activity is requested, you now have a separate account versus having to share all operating bank activity. 

MAINTAIN A “JOURNAL” OF THE EFFECTS COVID HAS HAD ON YOUR BUSINESS. 

  • Loan certification required an assertion that COVID-19 impacted the business. 
  • The diary/journal could be electronic or written. 
  • The entries could be weekly or as needed. 
  • This log can provide information and specific examples of how your business was affected from employees to customers, vendors and more! 

PLANNING AHEAD WILL FACILITATE THE MAXIMUM OPPORTUNITY FOR LOAN FORGIVENESS FOR THE PERIOD OF EIGHT WEEKS AFTER THE DATE OF YOUR LOAN. 

ARE YOUR OPERATIONS CURRENTLY SHUT DOWN? 

  • If you have staff furloughs, when should you have the employees return? 
  • If you are currently paying staff while operations are shut down – what are my options? 
  • Modeling various scenarios may aid in your decision-making process. 

MAINTAIN ADEQUATE RECORDS FOR SUPPORT OF PAYROLL COSTS. 

  • Prepare the data for submission related to each payroll including:  
    • Wages – please note, commodity wages may receive different treatment. 
    • Health Care Costs using a reasonable allocation method. 
    • Retirement Plan Employer Contributions 
  • Ensure you are not “double-dipping” which would sacrifice loan forgiveness opportunities.  
    • If paying employees under the Families First Coronavirus Response Act for Emergency Sick Pay or Emergency FMLA, maintain adequate records as these amounts will be adjustments to your Payroll Costs. 
    • You cannot participate in the following CARES act benefits:  
      • Employee Retention Credit 
      • Delay of Employer Tax Payments 
  • Keep a separate file with invoices paid for the following:  
    • Rent 
    • Utilities 
    • Mortgage Interest 

Updated 4/8/2020 at 4:00 PM 

CARES ACT OVERVIEW FOR INDIVIDUALS

RECOVERY REBATE FOR INDIVIDUALS 

You can think of the recovery rebate as an advance payment of a 2020 tax credit you would typically receive. U.S. residents will receive a full $1,200 rebate ($2,400 married filing jointly) if: They have an adjusted gross income that is not more than $75,000 ($150,000 married filing jointly)a Social Security number, AND cannot be claimed as dependents on another taxpayer’s return.  

Eligible individuals will receive up to $500 per child. For many, no action will be required in order to receive their rebate check. The IRS will be using 2019 tax returns, if filed, or 2018 tax returns, if 2019 is not yet filed. If an individual does not typically file a tax return, the social security benefits Form 1099-SSA may be used instead.  Otherwise, you may need to file a simple tax return to receive the rebate. 

The rebate will be reduced by $5 for every $100 of an eligible individual’s adjusted gross income thresholds. Individuals are not eligible for the rebate if their income exceeds: 

  • $99,500 for single 
  • OR 146, 500 for head of household filers with one child 
  • OR $198,000 for joint filers with no children 

You will receive the payment directly into the bank account useon your 2019 or 2018 return. If direct deposit information is unavailable, the IRS will be releasing information instructing taxpayers what they need to provide to receive payment.  

Additional Notes: 

  • If the actual rebate was less than the credit calculated on the 2020 return, the taxpayer will be able to claim the balance of the credit when filing the 2020 return.  
  • However, if the advance rebate received was greater than the credit to which the taxpayer is entitled, the taxpayer won’t have to pay back the excess. That is because the 2020 credit cannot be reduced below zero (as of right now).  
  • IRS will prescribe regulations and other guidance as necessary to carry out the purposes of the credit provision.

Updated 4/2/2020 at 12:00 PM

WAIVERS RELATED TO RETIREMENT PLANS & FUNDS 

For distributions up to $100,000 made on or after January 1, 2020 until December 31, 2020 (from qualified retirement accounts for COVID-19 purposes), the 10% early withdrawal penalty may be waived. Items to note: 

  • A distribution from a qualified retirement plan is normally subject to a 10% additional tax unless the distribution meets an exception.  
  • COVID-19 related distribution (defined below) is not subject to the 10% penalty up to $100,000. Income inclusion can happen over 3 years and the amount can be contributed back into the plan within 3 years.  
  • The individual, spouse, or dependent must meet one of the below requirements: 
  • Be diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention (CDC). 
  • Experience adverse financial consequences as a result of being quarantined, being furloughed, or laid off. 
  • Have work hours reduced due to such virus or disease. 
  • Is unable to work due to lack of childcare due to such virus or disease. 
  • Closure or reduced hours of a business owned or operated by the individual due. 

Updated 4/2/2020 at 12:00 PM

CHARITABLE DEDUCTIONS 

Whether you will be itemizing or taking the standard deduction this yearall individuals are now able to receive certain deductions to their charitable contributions. The deductions available include: 

  • Deduct up to $300 of charitable cash contributions. (No itemization required)  
  • The normal 60% adjusted gross income (AGI) limitation on “qualifying contributions is suspended for taxpayers who itemize. Qualifying contributions require:  
    • (1) cash contribution to a qualifying organization (501(c)(3)), and  
    • (2) election by the taxpayer to suspend the limitation.  
  • However, a qualifying contribution does not include contributions to a donor advised fund or 509(a)(3) supporting organizations.  
  • Partners in partnerships and shareholders in s-corporations make the required election at the individual levelnot the entity level.  
  • For C-corporations, qualifying contributions go from the 10% taxable income limit to a 25% taxable income limit. 
  • Any contribution in excess of the contribution base (which is usually AGI) will be treated as a carryover.  

Updated 4/2/2020 at 12:00 PM

REQUIRED MINIMUM DISTRIBUTIONS (RMD)S WAIVED FOR 2020

RMD requirements do not apply for calendar year 2020. This includes distributions with a required beginning date occurring in calendar year 2020 and such distribution not having been made before January 1, 2020.

Updated 4/2/2020 at 12:00 PM

EMPLOYER STUDENT LOAN REPAYMENT EXCLUSION 

Normally, an employee’s gross income doesn’t include up to $5,250 per year of employer payments, in cash or kind, made under an educational assistance program for the employee’s education under IRC 127.   This new temporary provision now allows employers to pay up to $5,250 of an employee’s student loan debt on a tax-free basis.   Employer payments can be for the loan’s interest or principal.    

Please note there is no double benefit, these employer payments may limit the employee’s student loan interest deduction. 

Updated 4/2/2020 at 12:00 PM

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