CARES ACT changes retirement plan and charitable contribution rules

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.

Far beyond

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.

© 2020


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Coronavirus (COVID-19): Tax relief for small businesses

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. 

New law
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).

Contact us

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.

© 2020


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The new COVID-19 law provides businesses with more relief

On March 27, President Trump signed into law another coronavirus (COVID-19) law, which provides extensive relief for businesses and employers. Here are some of the tax-related provisions in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). 

Employee retention credit

The new law provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis.

Employer eligibility. The credit is available to employers with operations that have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also provided to employers that have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.

The credit isn’t available to employers receiving Small Business Interruption Loans under the new law.

Wage eligibility. For employers with an average of 100 or fewer full-time employees in 2019, all employee wages are eligible, regardless of whether an employee is furloughed. For employers with more than 100 full-time employees last year, only the wages of furloughed employees or those with reduced hours as a result of closure or reduced gross receipts are eligible for the credit.

No credit is available with respect to an employee for whom the employer claims a Work Opportunity Tax Credit.

The term “wages” includes health benefits and is capped at the first $10,000 paid by an employer to an eligible employee. The credit applies to wages paid after March 12, 2020 and before January 1, 2021.

The IRS has authority to advance payments to eligible employers and to waive penalties for employers who don’t deposit applicable payroll taxes in anticipation of receiving the credit.

Payroll and self-employment tax payment delay

Employers must withhold Social Security taxes from wages paid to employees. Self-employed individuals are subject to self-employment tax.

The CARES Act allows eligible taxpayers to defer paying the employer portion of Social Security taxes through December 31, 2020. Instead, employers can pay 50% of the amounts by December 31, 2021 and the remaining 50% by December 31, 2022.

Self-employed people receive similar relief under the law.

Temporary repeal of taxable income limit for NOLs

Currently, the net operating loss (NOL) deduction is equal to the lesser of 1) the aggregate of the NOL carryovers and NOL carrybacks, or 2) 80% of taxable income computed without regard to the deduction allowed. In other words, NOLs are generally subject to a taxable-income limit and can’t fully offset income.

The CARES Act temporarily removes the taxable income limit to allow an NOL to fully offset income. The new law also modifies the rules related to NOL carrybacks.

Interest expense deduction temporarily increased

The Tax Cuts and Jobs Act (TCJA) generally limited the amount of business interest allowed as a deduction to 30% of adjusted taxable income.

The CARES Act temporarily and retroactively increases the limit on the deductibility of interest expense from 30% to 50% for tax years beginning in 2019 and 2020. There are special rules for partnerships.

Bonus depreciation for qualified improvement property

The TCJA amended the tax code to allow 100% additional first-year bonus depreciation deductions for certain qualified property. The TCJA eliminated definitions for 1) qualified leasehold improvement property, 2) qualified restaurant property, and 3) qualified retail improvement property. It replaced them with one category called qualified improvement property (QIP). A general 15-year recovery period was intended to have been provided for QIP. However, that period failed to be reflected in the language of the TCJA. Therefore, under the TCJA, QIP falls into the 39-year recovery period for nonresidential rental property, making it ineligible for 100% bonus depreciation.

The CARES Act provides a technical correction to the TCJA, and specifically designates QIP as 15-year property for depreciation purposes. This makes QIP eligible for 100% bonus depreciation. The provision is effective for property placed in service after December 31, 2017.

Careful planning required

This article only explains some of the relief available to businesses. Additional relief is provided to individuals. Be aware that other rules and limits may apply to the tax breaks described here. Contact us if you have questions about your situation.

© 2020


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Answers to questions about the CARES Act employee retention tax credit

The recently enacted Coronavirus Aid, Relief, and Economic Security (CARES) Act provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 pandemic. The employee retention credit is available to employers, including nonprofit organizations, with operations that have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings.

The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.

IRS issues FAQs  

The IRS has now released FAQs about the credit. Here are some highlights.

How is the credit calculated? The credit is 50% of qualifying wages paid up to $10,000 in total. So the maximum credit for an eligible employer for qualified wages paid to any employee is $5,000.

Wages paid after March 12, 2020, and before Jan. 1, 2021, are eligible for the credit. Therefore, an employer may be able to claim it for qualified wages paid as early as March 13, 2020. Wages aren’t limited to cash payments, but also include part of the cost of employer-provided health care.

When is the operation of a business “partially suspended” for the purposes of the credit?The operation of a business is partially suspended if a government authority imposes restrictions by limiting commerce, travel or group meetings due to COVID-19 so that the business still continues but operates below its normal capacity.

Example: A state governor issues an executive order closing all restaurants and similar establishments to reduce the spread of COVID-19. However, the order allows establishments to provide food or beverages through carry-out, drive-through or delivery. This results in a partial suspension of businesses that provided sit-down service or other on-site eating facilities for customers prior to the executive order.

Is an employer required to pay qualified wages to its employees? No. The CARES Act doesn’t require employers to pay qualified wages.

Is a government employer or self-employed person eligible?No.Government employers aren’t eligible for the employee retention credit. Self-employed individuals also aren’t eligible for the credit for self-employment services or earnings.

Can an employer receive both the tax credits for the qualified leave wages under the Families First Coronavirus Response Act (FFCRA) and the employee retention credit under the CARES Act? Yes, but not for the same wages. The amount of qualified wages for which an employer can claim the employee retention credit doesn’t include the amount of qualified sick and family leave wages for which the employer received tax credits under the FFCRA.

Can an eligible employer receive both the employee retention credit and a loan under the Paycheck Protection Program? No. An employer can’t receive the employee retention credit if it receives a Small Business Interruption Loan under the Paycheck Protection Program, which is authorized under the CARES Act. So an employer that receives a Paycheck Protection loan shouldn’t claim the employee retention credit.

For more information

Here’s a link to more questions: https://bit.ly/2R8syZx . Contact us if you need assistance with tax or financial issues due to COVID-19.

© 2020


Attachment

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COVID-19 Update for the Week Ended April 11, 2020




5 Things You Should Know from the Week Ended April 11, 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 5 most important things you should know from last week. 

1.  More filing due date changes 

On April 9, 2020 the IRS issued Notice 2020-23. This notice basically cleans up the original notice which postponed only selective tax returns and payments due on April 15th until July 15th.  This notice expands and simplifies these rules. 

The new rules make every federal tax return and payment which is due between April 1, 2020 and July 15, 2020 now due on July 15, 2020. This includes the second quarter individual estimated taxes originally due on June 15th. This change only applies to federal taxes. Each state is adopting their own rules which may be different. We anticipate that most states will conform to the new IRS guidelines. We will continue to monitor this progress. 

Strategy & Advise! If you are due a refund, you should go ahead and file your 2019 tax return as soon as possible. Also, keep in mind any impact this might have on the individual stimulus payments” outlined below. Filing your 2019 tax return may impact the amount of your rebate. Lastly, our general advice during this time of uncertainty, is to suspend all federal estimated payments for 2020. We anticipate at this time that your 2020 tax liability will be less than your 2019 liability. If not, the exposure for underpayment this year will be under 1% of the unpaid tax. Due to the uncertainty of the economy, we believe preserving cash is key, particularly at these rates. However, due to the rate of state penalties, you may want to consider paying the state estimates.  

2.  Paycheck Protection Program (PPP) 

There is a lot of talk and frustration over the PPP loan program, as well as the SBA’s EIDL. We have begun seeing a small number of clients receive PPP approval and funds. PPP was also opened to self-employed individuals last week.  It appears as if the PPP will be oversubscribed and many small businesses will not receive funds unless Congress expands funding. Senate Democrats shot down a proposal last week to expand the funding, but talks will resume this week. EIDL appears to be fully funded and combined with an overwhelmed SBA, there has been no movement that we have seen. Due to the challenges of these programs, it is advisable to have plans for both getting and not getting federal assistance. 

What to do If you have gotten PPP funds or anticipate getting funds?  

We advise that when you get these funds that you develop a 13-week cash flow projection. If you are not in operation (or operating on a very limited basis), we advise that you do not focus on the forgiveness piece of the loan. Instead focus on longer term business recovery. There is some talk about providing relief for the hospitality industry hardest hit by the pandemic. We need to plan for the worst and hope for the best. A comprehensive strategy for the use of funds needs to be developed before spending any proceeds. 

What if you do not get PPP funds? 

There are two payroll tax programs available that are directly tied to the PPP loan. First, there is the Employee Retention Payroll Tax Credit. This refundable credit is available only if you do not get a PPP loan. The refundable credit is generally 50% of wages paid up to $10,000 per employee. Additionally, there is a Payroll Tax Deferral which postpones the payment of the employer portion of social security tax until December 31, 2021 and December 31, 2022. This deferral is only available if you do not have any funds forgiven from the PPP. We strongly suggest 13-week cash flow projections to manage cash and provide a basis for negotiating with landlords and vendors as needed. 

3.  Tap Retirement Funds 

The CARES Act eased retirement fund rules which give us access to these long-standing protected assets. Under these new rules, we can take up to $100,000 per person from retirement plans, including IRAs, for COVID related impact. The definition for impacted by COVID is broad and should be easy to qualify. Under these new rules, the funds are not subject to the 10% penalty, are taxed over a three-year period, and can be rolled back into the plans within the three-year period to avoid the tax. These rules apply for distributions through the end of the year. 

Additional rules have been added which increase the amount of funds you can borrow from these plans, defer payments on plan loans due currently, and suspend the minimum required distributions for this year. All of these should be considered during this time to provide necessary funds. 

Strategy & Advice! We advise everyone to look at these rules and how they might be used during this time to provide additional cash or tax advantage. For the cash strapped business or individual, this will provide access to funds that will have minimal short-term tax impact. When business recovers, we can consider roll overs to restore much needed retirement benefits. For those less impacted by the pandemic, we should contemplate using this opportunity to convert to Roth IRAs. Specific planning and projections should be developed before implementing these strategies. 

4.  Unemployment 

The federal enhanced unemployment benefits started last week. This expansion adds $600 per week to each recipient’s unemployment benefits through July 31, 2020. In order to be eligible, you must be receiving at least $1 of state unemployment benefits. The new rules also extend unemployment benefits for up to an additional 13 weeks. 

Pandemic Unemployment Assistance (PUA) was also expanded to include these federal benefits to self employed individuals (including independent contractors) not otherwise covered by state unemployment. The state unemployment offices will administer this expanded benefit. The State of Georgia will begin taking these applications on Monday April 13th. Check your specific states department of labor for their implementation date. We expect significant delays in the benefits to self-employed individuals since the state unemployment departments have significant new challenges and manual processes for verifying self-employed income. We expect payment of benefits to be delayed for 3-4 weeks. 

Strategy & Advice! We need to fully leverage these available programs to provide for our employees who have been affected to derive the maximum benefit, until we are able to hire them back. We do not advise a business to hire employees until there is adequate work and profit to sustain their jobs. We believe it would be financially disadvantageous for them to re-enter unemployment after PPP funds are used while not operational. In developing your 13-week cash projection plan for your business, we recommend that you estimate the unemployment benefits your employees will receive under these programs in order to find a balance between business and employee needs. 

5.  Stimulus checks 

Stimulus checks began being sent to individuals this weekend (April 11th) and will continue over the next several months. The stimulus payment is $1,200 per person plus $500 per dependent child. These benefits begin to phase out for single individuals once adjusted gross income (AGI) exceeds $75,000 or $150,000 for married couples. The phase out is $5 per $100 over the AGI limit until completely phased out. 

The benefits are disbursed based on your 2019 tax return if filed. If your 2019 return is not filed, then they will look at your 2018 tax return. There is no action that needs to be taken to get this payment. However, unfortunately at this time there is no mechanism in place to request payments that have not been received. We expect additional guidance on this program now that funds have started to be dispensed.  

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.  


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Look closely at your company’s concentration risks

The word “concentration” is usually associated with a strong ability to pay attention. Business owners are urged to concentrate when attempting to resolve the many challenges facing them. But the word has an alternate meaning in a business context as well — and a distinctly negative one at that.

Common problem

A common problem among many companies is customer concentration. This is when a business relies on only a few customers to generate most of its revenue.

The dilemma is more prevalent in some industries than others. For example, a retail business will likely market itself to a broad range of buyers and generally not face too much risk of concentration. A commercial construction company, however, may serve only a limited number of clients that build, renovate or maintain offices or facilities.

How do you know whether you’re at risk? One rule of thumb says that if your biggest five customers make up 25% or more of your revenue, your customer concentration is high. Another simple measure says that, if any one customer represents 10% or more of revenue, you’re at risk of elevated customer concentration.

In an increasingly specialized world, many types of businesses focus only on certain market segments. If yours is one of them, you may not be able to do much about customer concentration. In fact, the very strength of your company could be its knowledge and attentiveness to a limited number of buyers.

Nonetheless, know your risk and explore strategic planning concepts that might enable you to lower it. And if diversifying your customer base just isn’t an option, be sure to maintain the highest levels of customer service.

Other forms

There are other forms of concentration. For instance, vendor concentration is when a company relies on only a handful of suppliers. If any one of them goes out of business or substantially raises its prices, the company relying on it could find itself unable to operate or, at the very least, face a severe rise in expenses.

You may also encounter geographic concentration. This can take a couple forms. First, if your customer base is concentrated in one area, a dip in the regional economy or a disruptive competitor could severely affect profitability. Small local businesses are, by definition, dependent on geographic concentration. But they can still monitor the risk and look for ways to mitigate it (such as online sales).

Second, there’s geographic concentration in the global sense. Say your company relies on a foreign supplier for iron, steel or another essential component. Tariffs can have an enormous impact on cost and availability. Geopolitical and environmental factors might also come into play.

Major risk

Yes, concentration is a good thing when it comes to mental acuity. But the other kind of concentration is a risk factor to learn about and address as the year rolls along. We can assist you in measuring your susceptibility and developing strategies for moderating it.

© 2020


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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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