Congress has authorized an employee retention credit. Employers eligible for this credit are generally those whose trade or business was curtailed as a result of the COVID-19 outbreak. Employers whose gross receipts have declined by 50% or more compared to the prior year as a result of the outbreak also qualify.
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As of Tuesday, April 21st, the Senate has passed the Paycheck Protection Program and Health Care Enhancement Act (PPP & HCE Act), a $484 billion package which will now go to the House of Representatives for consideration. It is anticipated that this bill could pass the House as early as Thursday, and President Trump is expected to sign it into law soon after. PPP & The CARES Act Following the passage of the $2.2 trillion CARES Act stimulus package at the end of March, one of the most talked about provisions was the Paycheck Protection Program (PPP). The CARES Act had earmarked $349 billion for PPP, which was designed to help small businesses cover their payroll, benefits, utilities, and rent and mortgage payments. However, it came as no surprise that these loans – forgivable if certain requirements were met – ran out extremely quickly, as small businesses flocked to banks to apply for relief. On paper, $349 billion sounded like a lot of money – but it was ‘destined to be oversubscribed from the start.’ The public demand for more funding allocated to the PPP was a major factor in driving the creation of the latest bill. What’s in the PPP & HCE Act?

$310 billion for the SBA’s Paycheck Protection Program
$60 billion for the SBA’s economic injury disaster loans and grants, including:
○ $50 billion for economic injury disaster loans – each loan can be up to $2 million with interest rates not to exceed 4% and long-term repayment periods of up to 30 years; ○ and $10 billion for grants of up to $10,000 that do not have to be repaid.

Additional funds are provided for the SBA to administer these programs.
$100 billion in emergency supplemental appropriations, $75 billion of which is designated for hospitals and health care providers and $25 billion of which is designated to ramp up COVID-19 testing.

It’s important to note that banking industry groups have said that the money set aside to ‘replenish the emergency loan program for small businesses impacted by the coronavirus pandemic is likely already all spoken for.’ Due to the volume of applications already sent to the Small Business Administration, it’s likely that ‘much, if not all, the new money will go to those already in the queue.’ We expect to have more updates on this legislation soon, although remember that it has not yet been signed into law. Please stay tuned and contact our office if you have any questions.

Article Highlights:

Pandemic Unemployment Assistance
Benefit Extensions
Self-employed Coverage
Taxability
Withholding – Estimated Payments

The CARES Act includes Pandemic Unemployment Assistance (PUA) provisions that extend and supplement state-provided unemployment insurance and are intended to lessen the financial burdens on individuals who have lost their jobs because of the COVID-19 emergency by allowing states to extend unemployment benefits up to 13 weeks and waiving the normal one-week waiting period. The provisions also extend the benefits to individuals who are self-employed, seeking part-time employment, or otherwise ineligible for regular unemployment compensation. To qualify for PUA benefits, you must not be eligible for regular (unrelated to the COVID-19 crisis) unemployment benefits and should be unemployed, partially unemployed, or unable or unavailable to work because of certain health or economic consequences of the COVID-19 pandemic. The PUA program provides up to 39 weeks of benefits, which are available retroactively starting with weeks of unemployment beginning on or after January 27, 2020, and ending on or before December 31, 2020. The amount of benefits paid out will vary by state and are calculated based on the weekly benefit amounts (WBAs) provided under a state’s unemployment insurance laws. Under the CARES Act, the WBA may be supplemented by the additional $600 in unemployment assistance provided per week under the Cares Act. The unemployment benefits are administered by the individual states, and benefits must be applied for through each individual state.
NOTE: At the time this article was prepared, many states were struggling to implement the provisions of the PUA program, making it difficult for individuals to quickly access these benefits.
It is also important to understand that unemployment benefits are taxable income for federal tax purposes and also taxable by most states. However, there are exceptions, and these states do not tax unemployment benefits. Alabama Alaska* California Florida* Montana Nevada* New Hampshire** New Jersey Pennsylvania South Dakota* Tennessee** Texas* Virginia Washington* Wyoming* *These states do not have a state income tax. ** These states do not have a state income tax but do tax interest and dividend income. It may be appropriate for certain individuals to have federal taxes withheld from their unemployment compensation. This can be accomplished using Form W-4V. Wherever the unemployment is taxable by a state, the state’s estimated taxes can be paid. Not prepaying taxes on unemployment benefits can lead to unpleasant surprises for some individuals when they file their 2020 tax returns. If you have questions related to how unemployment income will impact your 2020 taxes and whether you should have income tax withheld, please call this office.

As Americans and global citizens, we are living in unprecedented times with the onset of coronavirus (COVID-19) around the world. As we work together to move through these difficult times together, the IRS has provided some tax relief provisions for affected taxpayers. Let’s take a look at what’s being offered. Extended Due Date to File and Pay Taxes The regular due date for filing your Federal tax return is April 15th of any given tax year. Taxpayers, however, are generally allowed to file an extension of time to file their returns to October 15th of the same year. However, this is not typically considered an extension of time to pay any taxes owed. The IRS has extended the tax deadline for this tax season (tax year 2019) to July 15, 2020. It is important to note that this is an extension to both file and pay any taxes owed. This includes both taxes owed for the 2019 tax filing year and 2020 Federal tax estimated payments. Economic Impact Payments for Individuals and Families Congress recently passed legislation that allows for direct payments to U.S. individuals and their families. Most payments will be based on 2019 tax information, or the 2018 tax return if 2019 has not yet been filed. For those who are not required to file a tax return or for which the IRS does not have bank account information, the IRS has a portal where bank account information can be provided. (Note: Non-filers can enter their information in the “Non-Filers: Enter Payment Info” form, available here.) Those who receive social security, disability or railroad retirement benefits are not required to provide this information as it is already on file. Payments will be made for direct deposit for those with information on file and via check for anyone without readily available banking information. The amount of payment received depends on filing status and adjusted gross income.

Single taxpayers or those who are married and file separate returns with gross incomes of less than $75,000 receive $1,200. This amount is reduced by $5 for every $100 which income exceeds $75,000, phasing out completely at $99,000.
Married taxpayers with gross incomes of less than $150,000 receive $2,400. This amount is reduced by $5 for every $100 which income exceeds $150,000, phasing out completely at $198,000.
Head of household taxpayers with gross income of less than $112,5000 receive $1,200. This amount is reduced by $5 for every $100 which income exceeds $112,500, phasing out completely at $136,500.
Those with children under the age of 17 will receive an additional payment of $500 per child.

Please note that for individuals who receive social security, disability or retirement benefits with children under 17, the online portal should be utilized to make the IRS aware of each dependent. The payments are scheduled to begin in the middle of April 2020. Recipients should receive a letter from the IRS regarding their economic impact payment within 15 days of payment being made. Sick Leave for Individuals and Families Affected by COVID-19 – Families First Coronavirus Response Act The Families First Coronavirus Response Act provides that individuals who are required to miss work due to Coronavirus-related illness or childcare leave may request up to 80 hours of paid leave from their employers. Employers will be completely reimbursed for the cost of the leave by the government. For employees who are forced to miss work due to children’s schools being closed may in some instances be eligible for an additional ten weeks of pay at the same 2/3 of total pay in compliance with the expanded Family and Medical Leave Act. Sick leave relief applies for employees who work for companies with fewer than 500 employees. For businesses with less than 50 workers, if the viability of the business would be threatened due to allowing leave for a child’s school closing and/or childcare is unavailable, the employer may qualify for an exemption to providing related childcare leave. Full information on who qualifies for family and medical leave, as well as information on the employer effects of this legislation, can be seen here. Unemployment Benefits Another benefit being provided as a result of the COVID-19 outbreak is an expansion of unemployment benefits. Here’s a quick summary of some of the changes: Eligibility for the program has now been extended to include:

People who are unable to work because their employer has temporarily halted operations due to the outbreak
People who have had to quit their jobs in order to care for vulnerable family members who are susceptible to the virus
People who have had to quit their jobs because they are at risk of being exposed to the virus and infecting vulnerable family members
People who have had to go into quarantine but are fully expecting to return to work after the quarantine period is over.
Self-Employed people
Independent Contractors
Gig Workers
People with a limited work history

Unemployed workers will receive an additional $600 per week in benefits for up to six months. This is an increase on what would normally have been received – the average at present is around $300 a week. In these difficult times, it is important to understand the relief options that are available to you and your family. If you have any questions about coronavirus-related tax relief, please feel free to reach out to us for more information. Stay healthy and safe!

The following programs can help lessen the financial impact of your business and might be worth considering. These are complex issues, and you should talk this over with a professional before deciding on your course of action. We are here to help.
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Article Highlights:

Emergency Sick and Family Leave Benefits
Employer Paid
Reimbursed by the Government
Mandatory

Due the COVID-19 outbreak and all of the government’s efforts to curtal its spread and to prop up the economy, we have been in information overload for just about a month now. One of the government’s efforts was to pass the Families First Coronavirus Response Act which, at the government’s expense, requires employers to pay emergency sick leave and family medical leave benefits to employees affected by the COVID-19 crisis. It appears that many employers are unaware the provisions of the Families First Coronavirus Response Act are mandatory. The provision took effect April 2, and the Department of Labor has indicated they would use the first 30 days after the effective date to help employers comply with this new law before implementing enforcement actions. There is no cost to employers to make these payments, other than administrative, since the government allows employers to reimburse themselves by withholding payroll taxes, and if that is not enough, to request an expedited refund. The details of the Act can be viewed here: Families First Coronavirus Response ActIf you have any questions, please give the office a call.

Article Highlights:

Retroactive Net Operating Loss Carrybacks
Retroactive 100% Bonus Deprecation for Leasehold, Restaurant and Retail Improvements
Limitation on Losses Relaxed
Limitation on Deductible Business Interest Relaxed

As part of the stimulus package to help offset the financial damage inflicted on businesses as a result of the COVID-19 crisis, Congress restored the ability of businesses that suffer a loss to carry those losses back and recover taxes paid in prior years. The limitation on business interest deductions has also been relaxed, as has the business loss limitation for larger businesses. The legislative package also made a long-awaited beneficial retroactive correction to treatment of qualified improvement property. These changes allow affected taxpayers to recover taxes paid in earlier years, thus providing badly needed cash during these trying times.

Net Operating Loss (NOL) – An NOL occurs when a business or individual with a business activity has more allowable tax deductions than it has taxable income, resulting in negative income or a net operating loss. Prior to the tax reform that mostly became effective with 2018 returns (the Tax Cuts and Jobs Act – TCJA), NOLs generally could be carried back to the second prior year; that year’s income was reduced to zero, and as a result, the income tax for that year was also reduced to zero, which allowed the taxpayer to claim a refund of the tax originally paid. If all the loss was not used, the remainder of the loss was carried to the next succeeding year and forward until used up, but for only 20 years after the year of the original loss. The TCJA revised the law to eliminate the carryback of NOLs arising after 2017 and said that generally, NOLs were to be carried forward only, and removed the 20-year carryforward limitation but allowed an NOL to offset no more than 80% of the carryforward year’s taxable income. Now, the recently enacted Coronavirus Aid, Relief, and Economic Security Act, shortened to the CARES Act, has restored NOL carrybacks for losses incurred in years 2018, 2019 and 2020 and extended the carryback period. For these years, NOLs can be carried back five years, and the loss is not subject to the 80% limitation. Since the carryback provisions are retroactive to 2018, a taxpayer who incurred an NOL in 2018 should carry the loss back to 2013 by amending the 2013 return to recover tax paid in that year, then carry any excess loss forward to 2014. If there’s still loss remaining after amending the 2014 return, carry the remaining loss forward to 2015 and amend the 2015 return, and so on. If a loss was incurred in 2019, then the 2019 NOL gets carried back to 2014. If a 2018 loss was already carried forward to the 2019 return and the 2019 return has already been filed, it would need to be amended to carry the loss back to and amend the 2013 return. When the loss year is 2019, the carryback and amending process starts with the 2014 return. This whole process can become a bit complicated depending on the prior years’ situations but needs to be done in preparation for any losses incurred in 2020 as a result of business restrictions or shutdown as a result of the crisis. Qualified Improvement Property – The term “qualified improvement property” refers to leasehold, restaurant and retail improvements. An unintended provision of the 2018 tax reform established the recovery (depreciation) period for qualified improvement property to be 39 years, which made it ineligible for the 100% bonus depreciation deduction that only applies to business property with a recovery period of 20 years or less. The CARES Act makes a technical correction to the original 2018 tax reform legislation by designating qualified improvement property as 15-year recovery property, thus qualifying for 100% bonus depreciation or, if preferred, a 15-year depreciable life. This can be a big benefit for businesses that have been adversely impacted by the crisis, especially restaurants and retail stores that have lost so much business due to the epidemic’s economic fallout and are struggling to survive. A taxpayer who made improvements to their eligible business property in 2018 can take advantage of this change by amending their 2018 return. This correction applies to all future years, so if the business made eligible improvements in 2019 and the 2019 return has already been filed, it can also be amended.
Limitation on Losses – The 2018 tax reform imposed business loss limitations on taxpayers except corporations. The CARES Act has made the loss limitation inoperable for businesses (including farming) through December 2020. Thus, this change is retroactive to 2018 and allows taxpayers who were affected by the limitation to amend their 2018 returns. This also applies to 2019 and 2020, so if the 2019 return has already been filed, it can also be amended.
Limitation on Deductible Business Interest – Also as part of the 2018 tax reform, large businesses with incomes of $25 million ($26 million in 2019) or more were only allowed a business interest deduction of up to 30% of their adjusted taxable income. That limit has been changed to 50% for 2019 and 2020. Because income is expected to be lower in 2020, a special provision allows the 2019 adjusted taxable income to be used in figuring the 2020 interest deduction limit.

All this may seem a bit overwhelming, but if any of these provisions apply to you, they can be very financially beneficial and should be taken care of to get your returns squared away in preparation for your 2020 tax return. Please call if you have questions or would like a telephonic appointment.

According to Treasury Secretary Steven Mnuchin, “Treasury and the IRS are extending tax deadlines for fiscal year businesses, tax-exempt organizations and more than 270 other tax-related deadlines” in an effort to relieve taxpayers during the challenging times of COVID-19.

Last month, the IRS announced that taxpayers generally have until July 15, 2020, to file and pay federal income taxes originally due on April 15 without interest or penalties for late-filing or late-payment.

Today’s notice expands this relief, and the extensions “generally now apply to all taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020.”

“Individuals, trusts, estates, corporations and other non-corporate tax filers qualify for the extra time. This means that anyone, including Americans who live and work abroad, can now wait until July 15 to file their 2019 federal income tax return and pay any tax due,” according to the news release.

Some additional details: 

Relief for tax-exempt organizations and fiscal year businesses

Tax returns and payments for tax-exempt organizations and fiscal year businesses due between April and June are postponed until July 15, 2020.

Estate taxes

Tax return and payment deadlines for estate taxes and associated gift taxes, typically due within nine months from the date of death, are postponed to July 15, 2020.

Administrative deadlines

For all taxpayers, Treasury and the IRS are extending an additional 270 administrative deadlines to July 15, 2020.

For the full notice, click here and please contact this office with any questions.

On April 9, 2020, the IRS issued Notice 2020-23 which has expanded the postponement of filing and payment obligations to include those due on or after April 1, 2020 and before July 15, 2020. This notice expands on Notices 2020-18 and 2020-20.

Filing Due Date Postponement

All returns and payments due during the period April 1 through July 15, 2020 are now postponed and due on July 15, 2020. This includes:

• Individual 1040 series tax returns
• 2016 1040 Series returns – the statute for refunds has been extended
• Corporation Returns (1120 series, including 1120-S)

• Association returns (Forms1120-C and 1120-H)
  • Partnership Returns (Form 1065)
  • Estate and trust income tax returns (1041 series)
  • Estimated Tax Payments (1040-ES, 1041-ES, 1120-W)
  • Estate and generation-skipping transfer tax returns (706 series)
  • Gift and generation-skipping transfer tax returns (709 series)
  • Exempt Organization returns (990-T)
  • Excise Tax Payment Filings (990-PF and 4720)
• Net investment income tax (8960)
• Tax on Base Erosion Payments of Taxpayers with Substantial Gross Receipts (8991)
  • REMIC (1065)
  • Info Regarding Beneficiaries Acquiring Property from a Decedent (8971)

• Estate tax payments (principal or interest) due as a result of extensions of time to pay estate taxes under Sections 6161, 6163, or 6166, and annual certification requirements under Sec 6166

The due date for these returns is automatically postponed to July 15, 2020, and there is no need to file an extension. Interest and penalties will be disregarded for the postponement period.

CAUTION: This postponement does not include FBAR filings.  However, FBARs have an automatic extension to October 15 which effectively makes October 15, 2020 the FBAR due date.

Payment Due Date Postponement

• Any payments that would have been due April 1, 2020 and before July 15, 2020 for the returns listed above are also postponed to July 15, 2020. This includes self-employment tax.
• There is no limit on the amount of the payment that can be postponed. Previous guidance in Notice 2020-17 included limits. But Notice 2020-18 supersedes that notice and there are no limits.
• A Section 965 installment payment due on April 15, 2020 is also postponed to July 15, 2020 where it is associated with a 2019 tax return that is postponed to July 15, 2020. (Reference IRS COVID-19 Webpage Q&A #8)
• The payment postponement also applies to any retirement plan or IRA early withdrawal penalties incurred in 2019. (Reference IRS COVID-19 Webpage Q&A #18)

Additional Guidance

Extensions

Affected taxpayers do not have to file Forms 4868, 8892 or 7004 to extend to the July 15 due date.  If more time is required after that, the 4868, 8892 or 7004 extensions can be used to extend the due date until October 15, 2020. The request must be filed by July 15, 2020. To avoid interest and penalties when filing after July 15, 2020, the anticipated tax due must be paid with the extension request. (Reference IRS COVID-19 Webpage Q&A #12).

Late Filing and Late Payment Penalties

No late filing or late payment penalties will apply during the 3-month filing and payment postponement period. Unless further relief is provided, these penalties will resume after July 15, 2020.

Required Minimum Distributions

RMDs are waived for 2020.

2019 IRA Contributions

Normally the last day to make an IRA contribution for 2019 is the unextended due date of the 2019 tax return, i.e. April 15, 2020. Since that date has been extended to July 15, 2020, the IRA contribution deadline is extended as well. (Reference IRS COVID-19 Webpage Q&A #17)

Distributions of Excess Retirement Plan Contributions

Excess elective deferrals made to retirement plans in 2019, if withdrawn by April 15, 2020, will not be included in income. This deadline has not been extended. (Reference IRS COVID-19 Webpage Q&A #19)

2019 HSA & Archer MSA Contributions

Like the IRA contribution due date, the due date for 2019 HSAs and Archer MSA contributions has been extended to July 15, 2020. (Reference IRS COVID-19 Webpage Q&A #21)

Elections

Elections that are made or required to be made on a timely filed specified form (or attachment to a specified form) will be considered to have been made timely if the specified form or attachment is filed by July 15, 2020. (Notice 2020-23)

Cancelling Direct Withdrawals

If you have already filed a return that included direct withdrawals for the tax payment, and the withdrawal date has not yet passed, the direct withdrawal can be cancelled by the taxpayer calling the IRS e-file Payment Services 24/7 at 1-888-353-4537. But wait 7-10 days after the return was accepted before calling.  Cancellation requests must be received no later than 11:59 p.m. ET two business days prior to the scheduled payment date.

CAUTION: Due to circumstances where taxpayers are not able to contact e-file payment services by phone, the IRS is recommending taxpayers put a stop payment on the check at their bank.

• New Scheduled Payment – A new automatic withdrawal will need to be made or a check sent for payment no later than the July 15 due date. If sending a check, it is wise to obtain a proof of mailing from the P.O. or mail the check a couple weeks ahead of the July 15 due date. The check should be accompanied by a filled-out Form 1040-V, Payment Voucher.

Estimated Tax Payments – (Reference IRS COVID-19 Webpage Q&A #16)

• April 15 Estimate – The due date for the April 15 estimate has been extended to July 15, 2020.
• June 15 Estimate – Due date was extended by Notice 2020-23 and is also July 15, 2020.   

Of course, one can continue to make estimated tax payments in the usual manner and according to the usual schedule.

Underpayment Penalties

No relief from the penalty for underpayment of 2019 taxes is provided. The only relief is via Form 2210 for individuals and Form 2220 for corporations. (Reference IRS COVID-19 Webpage Q&A #24)

Payroll Reporting

Payroll reporting must continue, but certain portions of the deposit can be deferred (Act Sec 2301), and certain payroll deposits can be retained by the employer to reimburse the employer for sick and family leave payments the employer has made and the employee retention credit.

If you have any questions about this information, please contact our office.

On April 9, 2020, the Federal Reserve announced it would be taking additional steps to support the US economy by providing up to $2.3 trillion in loans, including through the creation of a Main Street Lending Program. This program will support main street businesses by providing financing to lenders that make direct loans to these small to medium-sized companies.

As part of the response to the COVID-19 emergency, this lending facility is meant to support those SMBs who were in good financial standing prior to the pandemic, and who might not have access to broader capital markets or who don’t qualify for the SBA’s Paycheck Protection Program (PPP).

Treasury Secretary Steven Mnuchin says that 40,000 mid-sized companies who employ approximately 35 million Americans stand to benefit from the Main Street Lending Program.

Eligibility

Eligible borrowers are businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues. The business must be created or organized in the U.S. or under the laws of the U.S. with significant operations in and a majority of its employees based in the U.S.

The announcement did not provide guidance on how businesses must count their employees or whether affiliation rules may apply to the eligibility requirements listed above.

Loan Amounts

To qualify, loans must have originated on or after April 8, 2020. Loans will be available at a minimum of $1 million up to a certain maximum amount, which is the lesser of:

1. $25 million, or
2. an amount that, when added to the applicant’s existing outstanding and committed but undrawn debt, does not exceed four times 2019 EBITDA.

For upsizing existing loans (those which originated before April 8, 2020), the maximum total amount is equal to the lesser of:

1. $150 million;
2. 30 percent of the applicant’s existing outstanding and committed but undrawn bank debt; and
3. an amount that, when added to the applicant’s existing outstanding and committed but undrawn debt, does not exceed six times 2019 EBITDA.

A few important things to note:

1. These leverage conditions could prevent highly-leveraged businesses from participating in the program.
2. Small businesses participating in the SBA’s Paycheck Protection Program are also allowed to take advantage of the Main Street Program. The two programs are not mutually exclusive for those businesses that would qualify for both.

Additional Requirements

Below are the additional requirements that apply to Main Street Program loans:

• Proceeds from the loan cannot be used to repay or refinance pre-existing loans or lines of credit of the borrower.
• The borrower may not repay any debt of equal or lower priority while the Main Street loan remains outstanding. The only exception is mandatory principal payments.
• The lender must attest that it will not cancel or reduce any existing lines of credit to the borrower, and the borrower must attest it will not seek to cancel or reduce any of its outstanding lines of credit with any lender (including the participating lender).
• The borrower must attest that it requires financing due to the pandemic, and that it will make reasonable efforts to maintain its payroll and retain its employees during the term of the loan.
• The borrower must attest that it meets the EBITDA leverage condition stated above.
• The borrower must attest that it will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act.
• Eligible lenders and borrowers will be required to certify they are eligible to participate, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act.

Application Fees and Process

Applicants must pay an origination fee of 100 basis points of the principal amount of the loan to be sold to the Main Street Program. Participating lenders must also pay a facility fee of 100 basis points of the principal amount, and lenders are authorized to charge this fee to the applicant.

Unless extended by the Treasury and Federal Reserve, the Main Street Program will cease participation on September 30, 2020.

Further details on the Main Street Program have not yet been released. For assistance and further information, please contact our office.