What You Should Know from the Week Ended April 25, 2020
The tax and financial impacts of COVID-19 continue to unfold rapidly. To help keep you up to date on these rapidly evolving changes, we have put together the most important things you should know from last week.
1. PPP & EIDL Gets More Money
On Friday, April 24th President Trump signed the Paycheck Protection Program and Health Enhancement Act into law. The bill provides $484 billion in additional funding to replenish and supplement key programs under the CARES Act, including the Paycheck Protection Program (PPP), small business disaster loans and grants (EIDL), hospitals and health care providers and testing.
Paycheck Protection Program (PPP): Appropriates an additional $321 billion in funding, with $60 billion set aside for small, midsize and community lenders (including minority lenders).
Disaster Loans Program: Appropriates an additional $50 billion for the Disaster Loans Program and an additional $10 billion for Emergency Economic Injury Disaster Loan (EIDL) Grants.
The Small Business Administration (SBA) will resume receiving PPP loan applications on Monday, April 27, 2020 at 10:30am EDT. We anticipate this additional funding to be exhausted quickly,
New applications for EIDL are not being taken at this time. We expect the SBA to begin processing the applications already received until the funding is exhausted. The SBA also changed the $10,000 grant to be $1,000 per employee up to $10,000. This will allow more businesses to obtain the grant. However, we believe the funds will run out quickly based on the number of applications already received by the SBA.
Strategy & Advice! If you missed out on the first round of funding, there is limited time to try to obtain a PPP loan. We believe that the big banks are ready to flood the SBA when the process opens, so we expect a lot of delays. We also think that the $250B will get exhausted quickly. Consequently, if you are with a big bank, where you are in their queue will determine your probability. Due to the $60B, smaller banks should continue to do well during this round of funding because they can personally handle the applications and loan amounts are generally lower. Once the dust settles from this round of funding, we will conduct separate webinars for those that were funded and those that were not.
2. Renewed Interest in Section 139 Tax-Free Payments to Employees
This is not new law but under the current circumstances it is worth addressing.
In 2002, in the wake of the September 11th attacks, Congress enacted Code Section 139 which allows employers to make “qualified disaster relief payments” to employees. These payments are tax-free to the employee and fully deductible by the employer. Since COVID-19 is a “federally declared disaster” payments for expenses brought about by the pandemic are eligible.
This allows us to pay employees for expenses such as:
- The costs associated with enabling an employee to work from home throughout the pandemic, including the cost of a computer, cell phone, printer, supplies, and even increased utility costs of the employee.
- We are not certain if some of these costs would be eligible for forgiveness under a PPP loan. However, our interpretation is that they would not be eligible.
- The cost of an employee’s childcare or tutoring for family members that are not permitted to attend school throughout the pandemic.
- Medical expenses of the employee that are not compensated for by insurance (for example, the employee’s deductible and out-of-pocket expenses).
- The cost of over-the-counter medications and hand sanitizer.
This is not intended to be an exhaustive list, but you get the general idea of types of expenses that would be allowed. It does not include items that would otherwise be recognized as income such as compensated sick leave.
Additionally, since the law was developed to address needs during a period of crisis, there is no requirement for a written plan, documentation or reporting. However, we advise you maintain records of the transaction and purpose in case a question arises.
Since, we have not seen a national emergency since 9-11, there is some uncertainty associated with future regulation. Until then you should use the law as written to help you, your business and your employees manage through this crisis.
Strategy & Advice! Since we able to provide funds to our employees to help them manage through this crisis while still receiving a tax deduction, we should seriously consider the use of these provisions. This is a great tool which should be part of our strategy as you continue to manage through this crisis.
3. IRS Operations During COVID-19
The IRS has basically closed all service centers and only mission-critical functions are operating on a limited basis.
The IRS issued an update to its operations earlier this week, reminding taxpayers that it is not processing any paper returns or correspondences. The IRS has implemented special provisions for levies and liens to help alleviate some taxpayer hardships.
During this time, we will have limited access to IRS staff and resolution. If you do not have an active matter which has been assigned a Revenue Officer, your case will be suspended until the IRS reopens. We anticipate significant delays in IRS responses and tax matter resolutions as the IRS begins the opening process. Currently, there are no published dates as to when some of these services will be reinstituted.
4. Stimulus checks
The IRS continues to distribute stimulus payments under the CARES Act. This week the IRS has answered some questions regarding its “Get My Payment” functionality.
Tax filers with adjusted gross income up to $75,000 for individuals and up to $150,000 for married couples filing joint returns will receive the full payment. For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds.
Eligible taxpayers who filed tax returns for either 2019 or 2018 will automatically receive an economic impact payment of up to $1,200 for individuals or $2,400 for married couples. Parents also receive $500 for each qualifying child under the age of 17 as of the end of 2020.
The IRS has set up the Get My Payment website/tool that:
- Shows taxpayers either their EIP amount and the scheduled delivery date of the EIP by direct deposit or paper check, or that a payment has not been scheduled; and
- Allows taxpayers who did not use direct deposit on their last filed tax return to provide their direct deposit information which will speed their receipt of their EIP.
The IRS, on its website, has also provided information regarding Get My Payment, including:
- If you filed your 2018 or 2019 tax return and it has been processed, you can check the Get My Payment website for the status of your economic impact payment.
- The status of a payment is either:
- That it has been processed;
- A payment date is available;
- Payment is to be sent either by direct deposit or mail; or
- You are eligible for an EIP, but a payment has not been processed and a payment date is not available.
- If spouses filed jointly, either spouse can use Get My Payment by providing his or her own information for the security questions used to verify identity.
- Depending on your specific circumstances, it may not be possible for you to access Get My Payment. If you usually do not file a tax return, or if your identity cannot be verified when answering the required security questions, you will not be able to use Get My Payment.
- If your bank account/direct deposit information has changed since you last filed an income tax return, you might be able to use Get My Payment to update it. Get My Payment cannot update direct deposit bank account information after an economic impact payment has been scheduled for delivery. To help protect against potential fraud, Get My Payment also does not allow people to change direct deposit bank account information already on file with the IRS. However, people who did not use direct deposit on their last tax return to receive a non-EIP-related refund, or if their direct deposit information was inaccurate and resulted in a non-EIP-related refund check being mailed, will be able to provide direct deposit information via Get My Payment.
- If you elected to split your EIP between several accounts, you cannot use Get My Payment to designate which account to have your payment deposited in. The IRS will deposit the payment to the first bank account that you listed on Form 8888, Allocation of Refund.
- If your direct deposit is rejected, your EIP will be mailed to the address that the IRS has on file for you.
Due to IRS shutdowns, this tool is the only transparency into these payments. Unfortunately, there is no other mechanism in place to find out the status of these payments or to correct errors.
In these uncertain times, we are continually evolving to ensure that we do what is in the best interest of our clients, team and community.
We will continue to closely monitor the economic and tax changes and communicate important information to you timely and accurately. We are always available by phone or email to address your questions and concerns.
We strongly encourage you to leverage our expertise during these trying times. We have a deep understanding and broad view of the economic climate, which can add significant value during times of uncertainty. We are committed to assisting you in successfully managing through the rapidly changing economic environment.