BUSINESS AND TAX HELP FOR THOSE AFFECTED BY CORONA VIRUS (COVID-19)

Coronavirus Alert Update: The CARES Act – What You Need To Know

On Friday, March 27, 2020, President Trump signed the Coronavirus Aid Relief and Economic Security Act (“Cares Act”), into law. It provides significant relief for small business and expanded unemployment benefits for individuals. Below are some highlights.

Payroll Tax Relief

The CARES Act includes nine business tax provisions, including a credit to retain workers during COVID-19 related closures, deferral of payroll tax payments for two years, a change to the tax treatment of business losses and some technical corrections to the Tax Cuts and Jobs Act. Below are some key points on the payroll tax credit and payroll deferments.

Tax Credit:

• This provision provides eligible employers with a refundable tax credit against the employer’s share of payroll taxes for applicable employment taxes. For each calendar quarter during the applicable period, the employer can receive a credit in an amount equal to 50% of qualified wages (inclusive of health insurance) up to $10,000 per employee per quarter ending on December 31, 2020. The credit is treated as a refund if it exceeds the employer’s applicable employment taxes for a given quarter.
• A business is eligible for this tax credit in two ways: (i) If operations were partially or fully suspended due to a mandatory government shut-down related to COVID-19; or (ii) if the business remained opened during any quarter in 2020 but gross receipts for that quarter were less than 50% of what they were for the same quarter in 2019. The business will then be entitled to a credit for each quarter, until the business has a quarter where gross receipts exceed 80% of what they were for the same quarter in the previous year.
• Eligible employers. Employers with greater than 100 employees are eligible to receive the credit if they continue to pay employees that are not providing services. Employers with fewer than 100 employees may receive the credit if they continue to pay employees whether they are or are not providing services.
• For purposes of this credit, qualified wages do not include wages paid under the Families First Coronavirus Response Act for sick leave or family medical leave, which are already subject to certain tax credits.
• If an employer takes out a payroll protection loan under Section 7(a) of the Small Business Act as amended by this Act, no employee retention credit will be available.

Tax Deferral of Payroll Tax:

• The CARES Act allows a 50% deferral of the employer’s share of the 6.2% Social Security tax that would otherwise be due from the date of the CARES Act’s enactment through December 31, 2020.
• A payment of 50% of the deferred payroll taxes would be due on December 31, 2021 and the remaining amount by December 31, 2022 (50%).
• A taxpayer who is self-employed can defer paying 50% of his or her self-employment tax that would be due from the date of the CARES Act’s enactment through the end of 2020 until the end of 2021 (25%) and 2022 (25%).
• Under this provision, an employer can defer payment of payroll taxes for two years and still take immediate advantage of the new payroll tax credits described above, as well as credits for payment of emergency sick and family leave under the Families First Coronavirus Response Act, if applicable.
• If an employer takes out a payroll protection loan under Section 7(a) of the Small Business Act as amended by this Act, no payroll tax deferral will be available.

Individual Payments

The CARES Act will provide direct payments to individuals depending on income.

• $1,200 per single individual who earns up to $75,000 in adjusted gross income;
• $2,400 for married couples who earn up to $150,000; and
• An additional payment of $500 per child under the age of 17.

The payment would scale down by income, phasing out entirely at $99,000 for singles and $198,000 for couples without children. Qualifying income levels will be based on 2019 federal tax returns, if already filed, and otherwise on 2018 returns. (Treasury Secretary Steven Mnuchin earlier this month delayed the filing deadline until July 15.) Payments should be received in three weeks.

UNDERSTANDING HOW THE STIMULUS PACKAGE AFFECTS YOU

It is important for companies to understand how the CARES Act may benefit your business. This can be an overwhelming process. Contact us today to see how we can assist you in navigating available benefits, applications for these programs and weighing your particular eligibility for them. If you have questions, please contact Michael C. Allen & Co., CPA’s PLLC.

Key Notes:

• Under the new emergency economic relief legislation, small businesses (500 or fewer employees) may be eligible for significant government-backed loans for payroll and other short-term operating expenses.
• If borrowers maintain certain employment and wage figures through June 30, they may be entitled to significant or total forgiveness of the loan amount (without recognizing taxable gains).

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) signed into law on March 27, 2020, by President Trump provides a substantial temporary revamp of small business loans under Section 7(a) of the Small Business Act. The CARES Act’s “Paycheck Protection Program” (PPP) expands the scope of businesses eligible for Section 7(a) loans, alters the maximum loan amounts and permitted uses of loan proceeds, and affords repayment relief and loan forgiveness to borrowers. PPP loans are those made between February 15, 2020, and June 30, 2020 (“Covered Period”).

The PPP expands the scope of eligible businesses.

In addition to “small business concerns” already covered by the Small Business Act, the following are eligible:

• businesses, nonprofit organizations, and veterans’ organizations that employ no more than the greater of either 500 employees or the size standard established by the Small Business Administration (SBA) for particular industries;
• sole proprietors, independent contractors and “eligible self-employed individuals” as defined in the Families First Coronavirus Response Act
  • an “eligible self-employed individual” is an individual who regularly carries on any trade or business and would be entitled to receive paid leave if the individual were an employee of an employer; and
• certain businesses with more than one physical location that are Food and Accommodations businesses, as classified in the NAICS with a code beginning with 72, and employ no more than 500 employees per physical location.

The PPP waives SBA affiliate rules regarding aggregated employee count for certain applicants. If a borrower has an “affiliate” as defined in the SBA rules, the relevant calculation of full-time employees (FTEs) – which cannot exceed 500 to qualify under the Small Business Act – is aggregated across all of the relevant affiliates’ companies. But there is a waiver from affiliate status under the PPP. It applies only to NAICS code 72 businesses, franchises identified as such by the SBA, and businesses that receive financial assistance from a licensed Small Business Investment Company. All other businesses, including nonprofit organizations, will need to determine their eligibility based on a fact-intensive analysis under SBA rules and regulations that includes assessing common control by virtue of entities controlled by significant equity stakeholders and overlapping board membership, among other factors. This may have significant implications for joint ventures, private equity-backed businesses and family office-backed businesses.

A business does not need to be physically located in a designated disaster area. But an applicant business must certify that:

• the uncertain economic conditions make the loan necessary to support its operations;
• the proceeds will be used to retain workers and maintain payroll or make mortgage, lease and utility payments;
• the applicant does not have an application pending for another loan under Section 7(a) for the same purposes; and
• the applicant has not received loan proceeds from another loan under Section 7(a) during the period February 15, 2020, to December 31, 2020, for the same purposes.

The PPP eliminates personal guarantees, collateral and other common SBA loan conditions.

Lenders are not permitted to require personal guarantees from business owners, nor will a business need to provide collateral to secure a PPP loan. Additionally, a business will not need to demonstrate that it is unable to obtain credit elsewhere. Rather, lenders may only consider whether an applicant was in operation on February 15, 2020, and had employees for whom the applicant paid salaries and payroll taxes.

The SBA must guarantee 100% of PPP loans and may not charge lender or borrower fees in connection with loan applications. The SBA may not seek recourse against any individual, shareholder, member or partner of a borrower for nonpayment of a PPP loan, except to recover proceeds used for unauthorized purposes.

The PPP offers low maximum interest rates, guaranteed deferment periods and no prepayment penalties. Interest rates are capped at 4%. Applicants who previously received an SBA Economic Injury Disaster Loan (EIDL) between January 31, 2020, and the date PPP loans are first available may refinance the EIDL into a PPP loan.

In addition, the SBA is instructed to require that all lenders provide impacted borrowers with complete payment deferment for a period of at least six months and not more than one year. An “impacted borrower” is any borrower that was in business on February 15, 2020, and has an application for a loan approved or pending approval at the time the CARES Act is enacted. The SBA must consider all PPP loan recipients to be impacted borrowers. Lenders are not permitted to charge prepayment penalties.

PPP loans are available up to $10 million. Applicants may obtain PPP loans up to the lesser of:

• 2.5 times average monthly payroll costs in the 12 months prior to the date of loan origination (and the outstanding amount of any EIDL that is being refinanced, if applicable)
  • applicants that were not in business between February 15, 2019, and June 30, 2019, may request to use average monthly payroll costs during the period January 1, 2020, through February 29, 2020; or
• $10 million.

“Payroll costs” include:

• salary, wages, commissions or similar compensation;
• payment of cash tips or an equivalent;
• payment for vacation, parental, family or sick leave;
• allowances for dismissal or separation;
• payments for group health care benefits, including insurance premiums;
• payment of retirement benefits;
• payment of state and local taxes assessed on employee compensation; and
• payments to sole proprietors or independent contractors that are compensation of not more than $100,000 in one year, prorated for the Covered Period.

Payroll costs do not include:

• compensation of an individual employee in excess of an annual salary of $100,000, prorated for the Covered Period;
• Internal Revenue Code Chapters 21, 22 and 24 taxes paid or withheld during the Covered Period;
• compensation of an employee whose principal place of residence is outside the United States; and
• qualified sick or family leave wages for which a credit is available under the Families First Coronavirus Response Act.

PPP loans may be used for payroll costs, interest payments, rent and utilities. In addition to the various permitted uses under the Small Business Act, a PPP loan may be applied to pay any of the above payroll costs, interest on any mortgage obligation, interest on any other debt obligation incurred before the Covered Period, rent and utilities.

A recipient of an EIDL that was obtained between January 31, 2020, and the date PPP loans are first available is not precluded from receiving a PPP loan so long as the EIDL was obtained for purposes of paying costs other than payroll costs and the above obligations.

PPP loans may be eligible for total or partial forgiveness with no federal tax consequences. PPP loans may be forgiven up to the amount of payroll costs and certain mortgage, rent and utility payments paid during the eight-week period beginning on the date of the loan’s origination. The amount forgiven will not be considered gross income for federal tax purposes.

• Included mortgage payments must be for interest on a mortgage on real or personal property that was incurred before February 15, 2020, and is a liability of the borrower.
• Included rent payments must be under a lease agreement in force before February 15, 2020.
• Included utility payments must be for services beginning before February 15, 2020, for electric, gas, water, transportation, telephone and/or internet access.

The amount forgiven may not exceed the loan’s principal. The forgiveness amount is not automatic, it is tied to employment and salary figures. The total loan forgiveness amount is reduced in proportion to any reduction in the average number of FTEs compared to a prior period and/or in an amount equal to any reduction of an employee’s compensation in excess of 25% of the individual employee’s compensation measured by their compensation in the prior full quarter.

To encourage rehiring, the amount forgiven will not be reduced if a borrower rehires FTEs, so that its employment level exceeds the average monthly FTE figure as calculated on June 30, 2020. Similarly, the compensation-based reduction will not be considered if a borrower eliminates a 25% decrease in the total compensation figures by June 30, 2020.

Borrowers must submit an application for forgiveness to their lender that includes a certification and documentation demonstrating the relevant FTE figures, as well as their payroll costs, mortgage payments, rent payments and utilities payments. Forgiveness will not be given without sufficient documentation, so borrowers are encouraged to develop and implement comprehensive recordkeeping practices. Lenders are required to render a decision on an application no later than 60 days after it is submitted.

Any loan amount not forgiven remains subject to the same terms and conditions, including a 100% SBA guaranty, maximum interest of 4%, and no prepayment penalties. The loan matures no more than 10 years after the date of the application for forgiveness.

The SBA is instructed to provide guidance related to PPP loans within 30 days of enactment (or before).

Treasury, IRS and Labor announce plan to implement Coronavirus-related paid leave for workers and tax credits for small and midsize businesses to swiftly recover the cost of providing Coronavirus-related leave

WASHINGTON — The U.S. Treasury Department, Internal Revenue Service (IRS), and the U.S. Department of Labor (Labor) announced that small and midsize employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees. This relief to employees and small and midsize businesses is provided under the Families First Coronavirus Response Act (Act), signed by President Trump on March 18, 2020.

The Act will help the United States combat and defeat COVID-19 by giving all American businesses with fewer than 500 employees funds to provide employees with paid leave, either for the employee’s own health needs or to care for family members. The legislation will enable employers to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus.

Key Takeaways

• Paid Sick Leave for Workers. For COVID-19 related reasons, employees receive up to 80 hours of paid sick leave and expanded paid child care leave when employees’ children’s schools are closed or child care providers are unavailable.
• Complete Coverage. Employers receive 100% reimbursement for paid leave pursuant to the Act.
  • Health insurance costs are also included in the credit.
  • Employers face no payroll tax liability.
  • Self-employed individuals receive an equivalent credit.
  • Fast Funds
• Reimbursement will be quick and easy to obtain.
  • An immediate dollar-for-dollar tax offset against payroll taxes will be provided
  • Where a refund is owed, the IRS will send the refund as quickly as possible.
• Small Business Protection. Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed, or child care is unavailable in cases where the viability of the business is threatened.
• Easing Compliance. Requirements subject to 30-day non-enforcement period for good faith compliance efforts.

To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week.

Tax Day now July 15: Treasury, IRS extend filing deadline and federal tax payments regardless of amount owed

WASHINGTON — The Treasury Department and Internal Revenue Service announced that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020.

Taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed. 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.

Taxpayers do not need to file any additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the July 15 deadline, can request a filing extension by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Businesses who need additional time must file Form 7004.

The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds are still being issued within 21 days.

“Even with the filing deadline extended, we urge taxpayers who are owed refunds to file as soon as possible and file electronically,” said IRS Commissioner Chuck Rettig. “Filing electronically with direct deposit is the quickest way to get refunds. Although we are curtailing some operations during this period, the IRS is continuing with mission-critical operations to support the nation, and that includes accepting tax returns and sending refunds. As a federal agency vital to the overall operations of our country, we ask for your personal support, your understanding – and your patience. I’m incredibly proud of our employees as we navigate through numerous different challenges in this very rapidly changing environment.”