Strategies for navigating the COVID-19 finance options and other stimulus provisions




On the night of Thursday, April 2, 2020, just hours before applications were supposed to be received, the Treasury issued regulations on the Paycheck Protection Program (PPP). Ironically titled “interim final rules” which has created significant confusion and left lenders scrambling to implement these new guidelines.

On Friday, April 3, 2020, the Small Business Administration (SBA) opened the Paycheck Protection Program (PPP). While employers can begin applying for PPP loans immediately, it is our understanding independent contractors will not be able to apply before April 10, 2020. Additional guidance is expected from the SBA and the Treasury Department on independent contractors looking to use the loan program.

Key takeaways from the new regulations:

  • Payroll costs do not include:
    • compensation for employees outside the U.S.;
    • the compensation of an employee in excess of $100,000, prorated as necessary
      • We believe the cap pertains to all compensation, not just wages)
    • imposed or withheld individual federal employment taxes between Feb. 15, 2020, and June 30, 2020, including the employee’s and the employer’s share of FICA and Railroad Retirement Act taxes, and income taxes required to be withheld from employees; and
      • This appears to contrast with the initial legislation passed but the new regulations are more advantageous
    • qualified sick and family leave wages for which a Families First Coronavirus Response Act (FFCRA) credit is allowed. 
  • Independent contractor payments do not count as payroll costs for the employer as they are eligible for their own PPP. 
  • Borrowers who received a loan from the SBA Economic Injury Disaster Loan Program (EIDL) earlier in 2020 can use the proceeds of the PPP loan to refinance the EIDL loan. If the previous EIDL loan was used for payroll costs, a new PPP loan must be used to refinance your EIDL loan. 
  • The SBA intends to promptly issue additional guidance with regard to the applicability of affiliation rules to PPP loans. 
  • At least 75% of the loan proceeds must be attributable to payroll costs and not more than 25% of any loan forgiveness amount may be attributable to nonpayroll costs. 

Strategies for moving forward

  • Contact a SBA approved lender
    • If you have not already done so, contact your bank to get the PPP process moving forward.
    • Submit your application and supporting documentation
    • Everyone is still working out the details, but the process should move quickly. 
  • Apply for EIDL
    • If you have not already done so, go to SBA.gov and complete an application for a loan under this program.
    • Request for an advance which is a $10,000 “grant” 
  • Develop a rolling 13 week cash flow projection
    • We recommend developing a detailed cash flow forecast showing inflows and outflows to manage the business cash needs
    • Open discussions with your vendors, landlords and bankers to come to agreements of payment terms during this time of crisis 
  • Plan if you get the PPP and EIDL Loans
    • If your business is not in operations, view this as a loan and do not focus on the forgiveness provisions. You will need the capital once your business is fully operational. 
  • Payroll Tax Credits
    • The CARE Act provided relief through the form of payroll tax credits to help businesses manage cash during this time.
    • If you do not get the PPP loan, you are eligible for the Employee Retention Payroll Tax Credit which is 50% of wages paid while partially or completely shut down due to COVID-19.
    • The employer portion of social security tax is not payable for the rest of the year until the end of 2021 (50%) and the remainder at the end of 2022.
    • There are payroll tax credits for wages paid for sick and family leave under the Families First Act
    • See details by clicking here

In these uncertain times, we are continually evolving to ensure that we do what is in the best interest of our clients, staff 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 encourage you to leverage our expertise during these trying times. We have a deep understand and broad view of the economic climate which can add significant value during these uncertain times. We are committed to assisting you in successfully managing through this rapidly changing economic environment.

Thank you for your continued support and stay safe!


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COVID-19 Resource Center





As the events of the COVID-19 pandemic evolve, we are continuing to adapt to the changing tax landscape and world events. We are continually evolving to ensure that we do what is in the best interest of our clients, staff and community.

In order to keep our clients informed of the rapidly changing tax and business landscape we have developed a COVID-19 Resource Center to communicate important information, timely and accurately.

We strongly encourage you to leverage our expertise during these trying times. We have a deep understand and broad view of the economic climate which can add significant value during these uncertain times. We are committed to assisting you in successfully managing through the rapidly changing economic environment.

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Paycheck Protection Program Update




The following is an update of recent developments of the Paycheck Protection Program (PPP) offered through SBA approved lenders.

As you are aware, Congress laid out the framework of the new PPP under the CARES Act on March 27, 2020. Please see our overview of the program by clicking here. Since then we have been receiving further guidance on the specific parameters of these loans and how they will operate.

Here is what we have learned since the initial passage of the bill:

  • The SBA released an application to apply for the loan which provides insight into the information needed to obtain for the loan.
  • “Average Monthly Payroll” is average monthly payroll for 2019, See below for included payroll.
    • Season businesses may elect to use average monthly costs for the period between February 15, 2019 and June 20, 2019
    • New businesses may use the period from January 1, 2020 to February 29, 2020

OPINION! We believe head count on the application is the average monthly headcount based on the method used above. We anticipate further guidance.

  • Each trade or business will separately file an application outlining covered wages.

OPINION! We believe that each business that reports wages under its employer identification number (EIN) would separately file

  • The Department of Treasury issued an information sheet for borrowers which provides more details. Here are the major highlights of the specifics details that were clarified:
    • Small businesses and sole proprietorships can apply and receive loans starting April 3rd
    • Independent contractors and self-employed individuals can apply and receive loans starting April 10th
    • Payroll documentation will need to be provided to the lender
      • We are waiting on further guidance regrading documentation requirements

OPINION! We assume this will be W-2s, proof of insurance payments, proof of employer retirement funding, etc.

  • What counts as payroll costs?
    • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
    • Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal;
    • payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
    • State and local taxes assessed on compensation; and
    • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

OPINION! Our original interpretation of the law was that this would allow a business to include payments made to independent contractors and reported on 1099-MISC. This appears to have been dropped from the guidance.

We believe all payroll costs as outlined above are limited to $100,000 annualized per employee. We interpret this to mean that an employee earning over this amount in wages would be precluded from adding additional benefits such as health and retirement benefits.

We are unclear if this includes payments to staffing agencies and PEOs

  • It is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
  • The loans term will be 2 years at an interest rate of .5%

We will continue to monitor important developments through this crisis and communicate accurate and timely information when available. We strongly encourage you to leverage our expertise during these trying times. We have a deep understand and broad view of the economic climate which can add significant value during these uncertain times. We are committed to assisting you in successfully managing through the rapidly changing economic environment.

 


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Payroll Protection Program & Loan Forgiveness Provisions




The Paycheck Protection Program authorized by the CARES Act makes loans of up to $10 million available to certain qualified small businesses. These loans are intended to be forgivable if the borrower maintains employees and otherwise complies with the CARES Act. Congress has appropriated $349 billion for this program.

A qualified small business is a business that:

  • Does not have more than 500 employees or the maximum number of employees specified in the current SBA size standards, whichever is greater; or
  • If the business has more than one location and has more than 500 employees, does not have more than 500 employees at any one location andthe business’ primary NAICS code starts with “72” (Accommodation and Food Service); or
  • Is a franchisee holding a franchise listed on the SBA’s registry of approved franchise agreements; or
  • Has received financing from a Small Business Investment Corporation.

 NOTE: Sole proprietorships and self-employed individuals may qualify under this program. Additionally, the CARES Act makes certain nonprofit organizations (must be tax-exempt under Section 501(c)(3) of the Internal Revenue Code), qualified veterans’ organizations and certain Tribal business concerns eligible.

The maximum amount of the loan is set by formula (average monthly payroll prior to the COVID-19 pandemic times 2.5 plus the amount of any other debt approved for refinancing, including any debt incurred as a result of COVID-19 under the EIDL Program), subject to a maximum of $10 million.

The term “payroll costs”:

  • includes salaries, wages, cash, tips, paid leave, severance, group healthcare benefits (including insurance premiums), retirement benefits, state or local payroll taxes, and compensation paid to independent contractors.
  • excludes compensation paid in excess of $100,000.
  • excludes federal taxes; compensation paid employees who principally reside outside of the United States; and sick leave and family leave wages for which the employer received a payroll tax credit pursuant to the Families First Coronavirus Response Act.

Other key provisions:

  • Maximum interest rate of 4 percent per annum.
  • Loans are made by SBA-approved lenders that have delegated authority to make the loans without approval from the SBA (no SBA Authorization required for each individual loan). This should help expedite the application and closing process.
  • In reviewing the application, a lender has to evaluate whether the borrower was in business on February 15, 2020 and had employees and paid salaries and taxes or had independent contractors and filed 1099-MISC for them.
  • Guarantee fees are waived (these are typically 2 percent-3.75 percent of the loan amount, depending on the size of the loan, and would otherwise be paid by the borrower).
  • Loans are non-recourse to the borrower. In addition to waiving any guaranty that might otherwise be required by the Small Business Act, the CARES Act specifically provides each loan is nonrecourse to the shareholders, members and partners of the borrower.
  • No “credit elsewhere test.” That is, the borrower does not have to demonstrate it was unable to secure financing elsewhere before qualifying for SBA financing.
  • No collateral requirement.
  • No prepayment penalties.
  • Payments are deferred for six to 12 months.
  • The applicant is required to certify:
    • Current uncertain economic times make the loan request necessary to support ongoing operations; and
    • Funds will be used to keep workers and make payroll, mortgage payments, lease payments and utility payments; and
    • Applicant does not already have an application pending for other payroll assistance under the CARES Act.

NOTE: A loan under the Paycheck Protection Program makes the borrower ineligible for the Employee Retention Tax Credit made available under the CARES Act. This only applies to the Employee Retention Tax Credit in the CARES Act and does not apply to any credits available under the FFCRA (such as the paid sick leave tax credit) or other credits available under the CARES Act.

Loan Forgiveness Provisions

Under the CARES Act, small business loan borrowers will be eligible for loan forgiveness, both for new loans under the Paycheck Protection Program and for existing 7(a) loans.

For borrowers under the Paycheck Protection Program, the loan forgiveness will equal the amount spent by the borrower in the eight-week period after the loan origination date on the following items (not to exceed the original principal amount of the loan):

  • payroll costs (not to exceed $100,000 of annualized compensation per employee); and
  • payments of interest on any mortgage loan incurred prior to February 15, 2020; and
  • payment of rent on any lease in force prior to February 15, 2020; and
  • payment on any utility for which service began before February 15, 2020.

The amount forgiven is not considered taxable income to the borrower.

The amount forgiven will be reduced proportionally by any reduction in the number of employees retained as compared to the prior year. The proportional reduction in loan forgiveness also applies to reductions in the pay of any employee where the pay reduction exceeds 25 percent of the employee’s prior year compensation. A borrower will not be penalized by a reduction in the amount forgiven for termination of an employee made between February 15, 2020 and April 26, 2020, as long as the employee is rehired by June 30, 2020.

Any amount outstanding after considering the amount forgiven will be repayable over a term not to exceed 10 years.

NOTE: The borrower must apply to the lender for loan forgiveness with supporting documentation.

For borrowers with existing 7(a) or microloan program loans, the SBA will pay principal, interest, and any associated loan fees for a six-month period starting on the loan’s next payment due date. Payment on loans that are on deferment will begin with the first payment after the deferment period. Please note that this relief will not include loans made under the Paycheck Protection Program.

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.


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Economic Injury Disaster Loan Program




The CARES Act made several changes to the Economic Injury Disaster Loan (EIDL) Program under Section 7(b) of the Small Business Act

  • EIDL Loans are available to small businesses in a declared disaster area (all 50 states, Puerto Rico, Guam and the North Mariana Islands have all been declared disaster areas for purposes of the EIDL Program effective January 31, 2020) to cover economic injury resulting from the disaster (e.g., loss of revenue).
  • EIDL Loans are processed directly through the SBA, although the SBA may determine to enlist the assistance of lenders for the processing and making of loans.
  • EIDL Loans are available in a maximum amount of $2 million, carry an interest rate of 3.75 percent and have a maximum term of 30 years.
  • Loans over $200,000 must be guaranteed by any owner having a 20 percent or greater interest in the applicant (the CARES Act removed the requirement for personal guarantees on loans under $200,000).
  • The CARES Act removed standard EIDL Program requirements that the borrower not be able to secure credit elsewhere or that the borrower have been in business for at least one year, as long as it was in operation on January 31, 2020.
  • Proceeds of the loans may be used to pay existing fixed debt, employee payroll, accounts payable and other expenses of operation
  • Applicant may request an expedited disbursement that is to be paid within three days of the request. The advance may not exceed $10,000 and must be used for authorized costs but is otherwise not repayable if the EIDL Loan is not approved.

 NOTE: An applicant may receive an EIDL Loan and loans under other programs (such as the Paycheck Protection Program described below) as long as the basis for the loans/costs being paid with each are different (no “double-dipping”).

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.


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General Business Tax Provisions of CARES Act




The following are the relevant general business tax provisions under the Coronavirus Aid, Relief and Economic Security Act.

Please see a detailed overview of these provisions.

TCJA revisions

Several provisions from the TCJA are altered, including:

  • Net operating losses: Net operating losses can now offset 100% of taxable income for 2018, 2019 and 2020, rather than the 80% under the TCJA. Net operating losses incurred in these years can now be carried back to the previous five years for a refund.
  • Loss limitations for noncorporate taxpayers: Internal Revenue Code section 461(l) regarding the limitations of “excess business losses” incurred by noncorporate taxpayers is deferred until 2021.
  • Section 163(j) interest limitation: A taxpayer’s adjusted taxable income limit increased to 50% from 30% for the 2019 and 2020 tax years.
  • Qualified improvement property: Fixing the “retail glitch,” qualified improvement property is now 15-year property, eligible for bonus depreciation, and is retroactive to 2018.
  • Refundable tax credits: Unused minimum tax credits (MTC) are allowed to be refunded in 2018 and 2019.

Employee retention credit

Quarterly credits are available to employers that have experienced a full or partial suspension in their operations due to COVID-19 against certain employer payroll taxes, subject to certain restrictions.

Payroll tax deferral

Payment of the employer (not employee) portion of the FICA 6.2% payroll tax liability is deferred with half coming due in 2021 and remaining half due in 2022. The deferral applies to 50% of self-employment tax liability as well.

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.


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Individual Tax Provisions of CARES Act




The following is a summary of the relevant individual tax provisions of the Coronavirus Aid, Relief and Economic Security Act.

Please see the detailed overview of these individual tax provisions.

Individual tax rebates

Rebate checks of $1,200 per taxpayer plus an additional $500 per dependent child will be distributed to certain taxpayers depending on the earned income, Social Security benefits and retirement income of the taxpayer as based on 2019 returns (or 2018, if a 2019 return has not yet been filed). Rebates do not extend to nonresidents, trusts, estates or anyone who can be claimed as a dependent on someone else’s return.

Early withdrawals from retirement plans and participant loans

Taxpayers affected by COVID-19 can withdraw up to $100,000 from a qualified retirement plan before the end of the year, without being subject to the 10% early withdrawal penalty. In addition, a taxpayer can take a participant loan from certain retirement plans for coronavirus-related relief up to the lesser of $100,000 or $100% of the account balance.

Temporary waiver of required minimum distributions

For 2020, the required minimum distributions retirees must take from retirement plans and IRAs are suspended.

Required minimum distributions

For 2020, the required minimum distributions retirees must take from 401(k) plans and IRAs are suspended.

Individual charitable contributions

Taxpayers taking the standard deduction on their personal returns are now eligible to deduct $300 in charitable contributions for cash payments made in 2020 to authorized charitable organizations. This is considered an above-the-line deduction and is available only to taxpayers who do not itemize their deductions.

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.


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Families First Coronavirus Response Act




The Families First Coronavirus Response Act provided a variety of provisions to help keep people healthy during this crisis. In addition, the bill provides assistance for individuals and their families while trying to not overburden employers.

The following is a summary of the key provisions of the Act. Please see our detailed overview of the bill by clicking here.

  • Require employers to provide two weeks (10 days) of paid sick leave for COVID-19-related leave (for a quarantined employee or for the employee to care for a sick person), regardless of how long the employee has been employed.
  • Sick leave compensation for a sick employee is capped at $511 per day, while sick leave compensation for an employee to care for someone else is capped at $200 per day
  • Provide a payroll tax credits to employers in an amount equal to 100 percent of the two-week sick leave wages paid for COVID-19-related leave. This credit is refundable to the extent the amount paid exceeds the quarterly payroll taxes.
  • Provide a refundable tax credit to eligible self-employed individuals who take two weeks (10 days) sick leave in the amount equal to the lesser of:
    • $511 per day or 100% of the average daily self-employment income of the individual for sick individuals; and
    • $200 per day or 67% of the average daily self-employment income of the individual taking care or someone else.
  • Provide for paid family leave for 10 weeks (in addition to the two weeks of sick leave) for employees with minor children who are unable to work due to COVID-19-related school or daycare closure
  • Provide a payroll tax credit, capped at $200 per employee per day and $10,000 total, equal to the amount of qualified family leave wages paid. This credit is refundable to the extent the amount paid exceeds the quarterly payroll taxes.

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.

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April 15th Due Date Changed to July 15th




 

We hope you are well and safe! 

As the events of the COVID-19 pandemic evolve, we are continuing to adapt to the changing tax landscape and world events. Our focus is on what is most important, our families, our staff and you, our clients. During this rapidly changing environment, we are committed to bringing you the most up to date information as quickly as possible.  

On March 20, 2020 the Secretary of Treasury announced an extension of the April 15, 2020 tax filing date until July 15, 2020. IRS subsequently issued Notice 2020-18 outlining the parameters of the extension. 


What it is
 

The Department of Treasury and the IRS originally extended the time to pay federal income taxes due between April 15, 2020 and July 15, 2020 until July 15, 2020 under Notice 2020-17. However, this original action did not extend the time to file tax returns due on April 15th. This most recent action extends that time to file your tax returns until July 15, 2020 and replaces the original notice. 


What that means
 to you 

  • Your tax return that was due on April 15, 2020 is now due on July 15, 2020. 
  • We do not have to take any action (such as filing an extension) to be eligible for this due date. 
  • Anyone or any business with a tax return due on April 15, 2020 is eligible for this relief. 
  • Any federal income tax payments due on April 15, 2020 are now due on July 15, 2020.  
  • This does not include estimated tax payments which are normally due on June 15th or any other payments. 


Impact on 
State Returns 

These changes are related to federal income tax filings and payments only. Each state will independently decide how their income tax filings and payments will be handled, which may be different than the federal requirements. We are continuing to monitor each state’s requirements and how they affect your specific situation. We will advise you of any additional actions you may need to take to conform to your state’s requirements. 


What you can do
 

Please get your tax information to us as soon as possible to provide extra time to manage the changing environment. We appreciate your willingness to be flexible as we manage through this rapidly changing environment.  Our goal is to ensure everyone remains safe while addressing your matters timely and accurately. 

We strongly encourage you to leverage our expertise and deep understanding of the economic climate which can add significant value during times of uncertainty.  We are always committed to assisting you in successfully managing through difficult times.  


Our Commitment
 

In these uncertain times, we are continually evolving to ensure that we do what is in the best interest of our clients, our team members and community. 

We will operate as close to “business as usual” as possible. We will continue to closely monitor the legislative changes effecting you and communicate important information timely and accurately. We are always available by phone or email to address your specific questions and concerns. We are here to help and will walk through this together. 

Thank you for your continued support and stay safe!  


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Georgia & South Carolina Extend Tax Filing Due Date





Georgia & South Carolina, among many other states, have adopted legislation to conform to the new federal income tax filing and payment date of July 15, 2020.

We expect all states to conform to the new filing dates.

If you have any questions or want to know the status of specific states, please do not hesitate to contact us.

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