ECONOMIC IMPACT PAYMENTS - IRS LAUNCHES NEW ONLINE RESOURCES

Click Here for the IRS News Release.

The IRS has created a new online resource to enable taxpayers to track the status of their Economic Impact Payments (stimulus payments) as well as enabling the entry of direct deposit information if account information is not on file yet with the IRS. Click Here for the Get My Payment system.

The IRS has also created another online resource to enable taxpayers to create a simple tax return if a 2018 or 2019 tax return has not yet been filed. Click Here for the Non-Filer Economic Impact Payment system.

CARES ACT - TAX LAW CHANGES

TEMPORARY WAIVER OF REQUIRED MINIMUM DISTRIBUTIONS (RMD)

A retirement plan or IRA owner must take a required minimum distribution (RMD) annually once the owner reaches age 72. However, for calendar year 2020, the CARES Act waives the required minimum distribution rules for certain defined contribution plans. The wavier applies to all required minimum distributions that would have been required in 2020. This includes the first RMD, which individuals may have delayed from 2019 until April 1, 2020.

This does not mean you cannot take a distribution, it only means you are not required to take a distribution in 2020.

WAIVER OF 10% EARLY WITHDRAWAL PENALTY FOR CORONAVIRUS-RELATED DISTRIBUTION

The CARES Act waives the 10% penalty for distributions of up to $100,000 from qualified retirement accounts for coronavirus-related purposes made during 2020. To qualify, the distribution must be made to an individual who:

• is diagnosed with COVID-19

• whose spouse or dependent is diagnosed with COVID-19

• who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned and operated by the individual due to COVID-19, or other factors as determined by the Treasury

Repayments can be made at any time during the 3-year period beginning on the day after the date of distribution. It can be repaid in one payment or in multiple payments. These repayments will be treated as rollovers made within a 60-day period, even though you have 3-years to make the repayment. You don’t have to repay the distributions, but you can if you want to.

RETIREMENT PLAN LOAN LIMIT INCREASED

The loan limit for loans from an employer retirement plan has been raised from $50,000 to $100,000 for a 180-day period beginning on March 27th, 2020.

RETIREMENT PLAN LOAN PAYMENTS CAN BE DELAYED

Any retirement plan loan that is due between March 27th, 2020 and December 31, 2020 can be delayed for one year.

$300 CHARITABLE DEDUCTION ALLOWED IF TAKING THE STANDARD DEDUCTION

For taxpayers who do not itemize deductions, there will be a $300 deduction available for donations to charities in addition to the standard deduction amount.

EMPLOYEE RETENTION PAYROLL TAX CREDIT

The CARES Act allows eligible employers to receive a 50% payroll tax credit up to $5,000 ($10,000 x 50%) per employee for qualified wages paid after March 12, 2020 and before January 1, 2021. If the credit amount exceeds the employer’s liability, the excess is refundable via a new IRS Form 7200.

Employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings are eligible for the credit. In addition, eligible employers include those who have experienced more than a 50% reduction in quarterly revenue compared to the same period in the prior year.

Wages include health benefits and are capped at the first $10,000 in wages paid by the employer to an eligible employee. For employers with an average number of full-time employees in 2019 of 100 or fewer, all employee wages (including wages of those furloughed) are eligible. For employers with a larger average number of full-time employees in 2019, only the wages of furloughed or reduced hour employees would count.

EMPLOYER PAYROLL TAX DELAY

Under the CARES Act, businesses are allowed to defer paying the 6.2% employer share of the Social Security tax (but not the 1.45% employer share of the Medicare tax) through the end of 2020. The tax would be payable over the following two years with half paid by December 31, 2021 and the other half by December 31, 2022.

CARES ACT - EFFECT ON SMALL BUSINESSES

The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) is now law after being passed in both the House and Senate and signed by President Trump on March 27, 2020. It provides welcome relief for many small businesses who have closed or are considering closing their businesses. Those businesses are also dealing with questions on how to proceed with continuing to pay employees or lay them off, as well as what programs are now available to assist them through this difficult time.

The CARES Act is focused on employees who have been laid-off and businesses that have closed or are considering closing. The Families First Coronavirus Response Act (FFCRA) passed March 18, 2020 focuses on businesses that continue to operate and employees that need to take time off work to care for themselves or for family members affected by COVID-19.

Below are the relevant pieces of the CARES Act that small businesses will want to consider as they work through issues of keeping the bills paid, dealing with retaining or terminating employees and when to reopen their businesses.

EXPANSION OF UNEMPLOYMENT INSURANCE

There will be federal funding directed to the state unemployment agencies to provide additional benefits to workers, up to $600 per week. These benefits are paid in addition to the standard state unemployment benefits and attempt to allow most workers to receive 100% of their usual pay during the time in which they cannot work.

Businesses who are no longer producing revenue due to closure or lack of business should lay-off their workers so they can access these benefits. This program will last until July 31, 2020 and will allow businesses to proceed with obtaining emergency loans if needed to keep their bills paid while their workers receive unemployment benefits during the closure. Once the business is able to reopen, they can then bring back their workers and continue operations. Workers should apply with the Employment Security Department as soon as they are laid-off.

ECONOMIC INJURY DISASTER LOANS

Following the declaration of a national emergency related to COVID-19, the Small Business Administration created the Economic Injury Disaster Loan (EIDL) program for small business owners in all U.S. states. EIDL applications are now being accepted. There is a provision for an emergency grant that allows small businesses to receive an advance on the EIDL of $10,000 and must be paid to the applicant within 3 days. This money must be used for COVID-19-related sick pay, mortgage or rent and other overhead expenses. Applicants would not have to repay this $10,000 advance and it is available on a first-come, first-served basis.

These loans are funded directly by the SBA. You do not have to accept the EIDL if you are approved. You do not have to repay the $10,000 advance if you choose not to accept this loan.

The EIDL does NOT contain a loan forgiveness program.

Details are as follows:

• Maximum loan size is $2 million

• Annual interest rates are 3.75% for businesses, 2.75% for non-profits

• Loan terms of up to 30 years depending on ability to repay

• First loan payment will be due 1 year after origination with interest accruing during this time

• Loan proceeds can be used for financial obligations and operating expenses that could have been met had the disaster not occurred

• The SBA will place a UCC lien against the assets of the business

• A personal guarantee will be required for owners with 20%+ ownership interest in the business

• 2019 taxes do not have to be completed yet

• Application processing is stated to be 2-3 weeks plus an additional 5 days for funding

• You have 60 days to accept the offer of financing, but it can be extended if needed

• Businesses with less than 500 employees and $35 million in revenue may apply

PAYCHECK PROTECTION PROGRAM LOANS

The CARES Act has authorized federally guaranteed loans to qualifying small businesses in all U.S. states. These Paycheck Protection Program (PPP) loans are provided by banks who offer SBA 7(a) loans and are underwritten by the SBA. You will need to apply in-person at a bank that offers these loans. As of this writing, these loans are not yet available but we suggest you check with your banker to see when they will be made available.

There is a loan forgiveness program associated with PPP loans. A PPP loan is the only type of loan created by the CARES Act that contains a loan forgiveness program. This fact alone makes this loan program the better choice when compared with an EIDL.

You cannot obtain both EIDL and PPP loans at the same time. If you qualify and accept the EIDL and you subsequently qualify for the PPP loan, you can refinance the EIDL with the PPP, OR you can apply for both loans and decide with one to take if you qualify for both.

Details are as follows:

• Maximum loan size is $10 million, which is based on 2.5 x average monthly payroll costs over the 12 months preceding the loan origination date. If you obtain an EIDL and want to refinance that into a PPP loan, you will add the outstanding loan amount to the calculated payroll amount. Payroll costs specifically exclude employees who are compensated at $100,000 or greater.

• Annual interest rate is 1%

• Loan terms are 2 years

• First loan payment will be 6 months after origination, with interest accruing during this time.

• Loan proceeds can be used for payroll costs, group healthcare benefits, insurance premiums, interest on mortgages or other debt incurred prior to February 15, 2020, rent on any lease in force prior to February 15, 2020, and utility payments.

• You cannot use the same qualifying expenses used for the EIDL as you do for PPP loans

• No collateral is required from either the business or its owners

• No personal guarantee is required

• Loan forgiveness is calculated as the amount spent by the borrower during an 8-week period after the origination date of the above mentioned allowable expenses. We recommend creating a separate bank account to receive the loan proceeds and to pay the associated allowed expenses to make it clear exactly what these funds were used for.

• Loan forgiveness will be reduced by any amount of the $10,000 grant forgiven with the EIDL advance payment if the same eligible expenses are used

• Loan forgiveness will be reduced for failure to maintain the average number of employees versus periods from February 15, 2019 - June 30, 2019 or from January 1, 2020 - February 29, 2020, as selected by the borrower.

• Loan forgiveness will also be reduced if compensation to any individual making less than $100,000 is reduced by more than 25% measured against the most recent full quarter.

• Forgiven amounts will not be taxable for federal tax purposes

• 2019 taxes may or may not have to be filed. It depends on the lender’s requirements.

• Businesses must have been in operation on February 15, 2020 and must have 500 or fewer employees.

• Self-employed individuals (sole proprietors and independent contractors) may apply

CARES ACT - STIMULUS PAYMENT DETAILS

The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) is now law after being passed in both the House and Senate and signed by President Trump on March 27, 2020.

TIMING AND METHOD OF PAYMENT

There is doubt that the IRS will be able to issue these payments quickly. In 2008, it took the IRS many months to issue these payments, so getting them out within 3 weeks seems like a lofty goal. We will see. If you used direct deposit for your refund, the IRS should deposit the money directly into your bank account of record and this should be a faster process than paper checks. If you owed or did not use direct deposit, you will receive a physical check in the mail.

INCOME PHASEOUT

Taxpayers who earn under the income phaseout will receive $1,200 each and $500 per child. The income phaseout will be based on Adjusted Gross Income, which means your income before your standard, itemized or qualified business income deductions.

Single: $75,000
Joint: $150,000
Head of Household: $112,500

The stimulus payment is reduced by 5% of the amount of Adjusted Gross Income above these limits. This means if you are $10,000 above these limits, your stimulus payment will be $500 lower than the full payment.

REFUNDABLE CREDIT

The stimulus payment is actually a refundable credit for the 2020 tax return. A refundable credit is a credit that is paid to a taxpayer whether or not they have any tax due. It can be refunded even with zero tax assessed.

Since the 2020 tax returns are not due yet, the IRS will base the stimulus payment on your 2019 tax return. If your 2019 tax return is not filed yet, they will use data from 2018 to determine your payment.

However, the stimulus payment will ultimately be based on your Adjusted Gross Income on your 2020 tax return. If you do not qualify for the credit based on your 2018 or 2019 tax returns but your income in 2020 will be low enough to receive the payment, you will receive it as an additional refund or reduction of tax due on your 2020 tax return.

We don’t know yet if you will have to repay the credit if your income is above the limits on your 2020 tax return. Sources are conflicted on this point. We will need to wait for official IRS guidance before we know for sure.

IF YOUR INCOME IS BELOW THE LIMIT FOR 2018 AND 2019

There is no rush to file a 2019 tax return to get the credit. Your income for 2018 will allow you to receive the maximum payment.

IF YOUR INCOME WAS BELOW THE LIMIT IN 2018, BUT ABOVE THE LIMIT IN 2019

You may want to consider delaying sending your tax return in until the payments are issued. Since we don’t know yet if you will have to repay the credit in 2020, it may benefit you to wait. We can still prepare your tax return for 2019, but can hold off on transmitting to the IRS until you receive your stimulus payment.

IF YOUR INCOME WAS ABOVE THE LIMIT IN 2018, BUT BELOW THE LIMIT IN 2019

We suggest you file your 2019 tax return sooner rather than later so you can receive your stimulus payment. From what we understand, you will receive your payment once the IRS processes the return and determines your income for 2019 will qualify you for a payment.

OTHER DETAILS

These payments will be nontaxable income. The IRS will not use these payments to offset past due tax debt or installment payments, but they may be reduced to offset past due child support.

CARES ACT - SUMMARY

The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) is now law after being passed in both the House and Senate and signed by President Trump on March 27, 2020.

There are 6 main groups that receive benefits under this legislation: individuals, small businesses, large businesses, hospitals and public health, federal safety nets, state and local governments and education.

INDIVIDUALS

• Cash Payments (stimulus checks)

• Additional Unemployment Payments

• Self-Employed Unemployment Benefits (Pandemic Unemployment Assistance)

• Extension of Tax Return Deadline to July 15, 2020

• Employer Paid Tax Free Student Loan Repayments - up to $5,250

• Insurance Coverage for COVID-19 Treatments, Vaccines and Tests

SMALL BUSINESSES

• Emergency Grants - up to $10,000 for immediate operating costs

• Forgivable Loans - up to $10 million per business

• Existing Loan Payment Assistance - covers 6 months of payments for existing SBA loans

• Refundable Tax Credit - 50% of payroll on the first $10,000 of compensation for each employee

LARGE BUSINESSES

These businesses will have to repay the government for any benefits received.

• Loans and Other Assistance

• Assistance to Help Airlines Stay Open

• Restriction on Using Funds for Buyback of Stock

• Public Disclosure Requirements

• Oversight Committee

• Members of Congress and Executive Branch Excluded from Receiving Benefits

• Refundable Tax Credit - if business is closed or distressed

PUBLIC HEALTH

• Hospitals & Community Health Centers - additional funding

• Drug Access - expand research and prioritize and expedite approval of new drugs

• CDC - additional funding

• Veterans Healthcare - additional funding

• Telehealth - additional funding

• Medicine & Supplies - for Strategic National Stockpile and for hiring to speed development of vaccines

SAFETY NETS

• Child Nutrition - meals for students via schools

• Food Stamps - helps cover cost of new applications

• Food Banks - additional funding

STATE AND LOCAL GOVERNMENTS

• COVID-19 Response Efforts - additional funding

• Schools and Child Care Centers - additional funding

EDUCATION

• Student Loan Relief - loan and interest payments deferred through September 30 for federally owed loans

• Relief for Students Forced to Drop Out - time away won’t be deducted from subsidized loan eligibility

FAMILIES FIRST CORONAVIRUS RESPONSE ACT

On March 16th, the House passed an amended version of this bill, which then passed the Senate by a vote of 90-8. President Trump then signed the Families First Coronavirus Response Act (FFCRA) into law on March 18th. This bill is effective April 2, 2020, however the Department of Labor is implementing it as of April 1, 2020.

Department of Labor’s Description: “FFCRA will help the United States combat and defeat COVID-19 by giving all American businesses with fewer than 500 employees funds to provide employees with paid leave, either for the employee’s own health needs or to care for family members. The legislation will ensure that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus while at the same time reimbursing businesses.”

This legislation is focused on employees who remain employed at businesses that continue to operate. The CARES Act passed March 27, 2020 focuses on businesses that have closed and/or have laid-off workers.

Division C & E of the bill require employers to provide paid leave and expands the Family Medical Leave Act to many more employees than were previously covered under the act.

Division G of the bill provides tax credits to the employers to cover the cost of providing the paid leave.

RESOURCES

Workplace Poster
Paid Leave Requirements
Department of Labor’s FFCRA Q&A

EMERGENCY FAMILY AND MEDICAL LEAVE EXPANSION ACT (Division C)

The Emergency Family and Medical Leave Expansion Act (Expansion Act) will temporarily expand the number of employers who are subject to the Family Medical Leave Act (FMLA). Employers with 500 or fewer employees are covered under this Expansion Act. Any employee can claim this leave who has been employed for at least 30 calendar days and who is unable to work (or telework) due to a need for leave to care for the son or daughter under 18 years of age if the school or place of care has been closed, or the child care provider is unavailable due to a public health emergency.

If these conditions are met, the employer must provide paid leave to the employee. The employer is required to pay no less than 2/3 the employee’s regular rate of pay but no more than $200/day and $10,000 total.

If the employer has fewer than 25 employees, the employee is not guaranteed to be able to return to their job if economic or operating conditions change due to the public health emergency during the period of leave.

EMERGENCY PAID SICK LEAVE ACT (Division E)

The Emergency Paid Sick Leave Act (Emergency Leave Act) will require employers to provide paid sick leave coverage to all employees who are unable to work (or telework) based on the reasons detailed in the Employee Paid Leave Rights poster. Employers with 500 or fewer employees are covered under this Emergency Leave Act.

If these conditions are met, all full-time employees are entitled to 80 hours of paid sick time, and all part-time employees are entitled to paid sick time equal to the number of hours the employee works, on average, over a two-week period.

An employer may not require the employee to search for or find a replacement to cover the hours during which the employee is using paid sick time and may not require an employee to use other paid leave provided by the employer to the employee before the employee uses the paid sick time.

Emergency paid sick leave related to an employee’s own condition is calculated based on the employee’s regular rate or minimum wage, whichever is greater, but is limited to $511/day and $5,110 total.

Emergency paid sick leave relating to situations where the employee is acting as a caregiver is based on 2/3 of the employee’s regular rate or applicable minimum wage, whichever is greater, and is limited to $200/day or $2,000 total.

TAX CREDITS FOR PAID SICK AND PAID FAMILY AND MEDICAL LEAVE (Division G)

Division G of the FFCRA provides for payroll tax credits for employers in order to assist with the cost of providing Coronavirus-related leave to their employees. Employers can claim a refundable tax credit against the employer’s payroll tax deposit. The tax credits are equal to 100% of the amount an employer pays under the leave claimed in Division C & E above.

All tax credits under FFCRA are refundable. That means if an employer’s payroll tax deposit is less than the total FFCRA tax credits, the employer would be eligible to file a request for an accelerated credit for the amount above the employer’s payroll tax deposit. The credit can be used to offset all federal income tax withholding from all employees (including those still working) and both the employer and employee portions of Social Security and Medicare taxes for all employees.

Employers or their payroll providers will reduce the required payment for payroll taxes of each payroll run by the amount of the credits. The quarterly payroll forms will likely be adjusted soon to accommodate the reporting of these credits.

The request form to claim an accelerated credit for credits above an employers required deposit amount is still in development and has not been released at this time.

EXTENSION OF TIME TO FILE AND PAY

EXTENSION OF TIME TO PAY
 
Due to the COVID-19 pandemic, the IRS has recently announced an extension of time to pay if you owe tax on your 2019 federal income tax return.  The extension of time moves the payment due date from April 15 to July 15th. All individual taxpayers are granted this relief.
 

• For those of you who normally make a payment with your extension, you will not need to make an extension payment unless you have not filed by July 15th.
   

• For those of you who have filed your return already but have not yet paid your 2019 tax due, you can wait until July 15th or earlier to make your payment.
   

• For those of you who are scheduled to make your first 2020 quarterly estimated payment by April 15th, you can wait until July 15th or earlier to make your payment.

 
 
EXTENSION OF TIME TO FILE

The official filing deadline has been moved to July 15th from April 15th.  There is no need to file an extension or make an extension payment by April 15th.  Don't worry if your tax return is not prepared and submitted by April 15th because this deadline no longer exists for the 2019 tax filing season.  You can view the official IRS announcement here:

Tax Day Now July 15