There have been several new announcements made by both the Internal Revenue Service (IRS) and the Treasury Department in recent days in response to the COVID-19 outbreak. To help keep our clients updated on the latest developments, we are creating a special COVID-19 section for our website, which should be live early next week. This section will provide you with the most recent updates, video and other information regarding the IRS and Treasury Department responses to COVID-19 as this information becomes available. For INDIVIDUAL taxpayers, the Treasury Department and the Internal Revenue Service announced on March 30, 2020 that distribution of economic impact payments will begin in the next three weeks and will be distributed automatically, with no action required for most people. Who is eligible for the economic impact payment? Tax filers with adjusted gross income up to $75,000 for individuals and up to $150,000 for married couples filing joint returns will receive the full payment. For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds. Single filers with income exceeding $99,000 and $198,000 for joint filers with no children are not eligible. Eligible taxpayers who filed tax returns for either 2019 or 2018 will automatically receive an economic impact payment of up to $1,200 for individuals or $2,400 for married couples. Parents also receive $500 for each qualifying child. US Citizens living outside of the United States and Green Card holders are also eligible to receive the economic impact payment. How will the IRS know where to send my payment? Most people do not need to take any action. The IRS will calculate and automatically send the economic impact payment to those eligible. For people who have already filed their 2019 tax returns, the IRS will use this information to calculate the payment amount. For those who have not yet filed their return for 2019, the IRS will use information from their 2018 tax filing to calculate the payment. The economic impact payment will be deposited directly into the same banking account reflected on the return filed. The IRS does not have my direct deposit information. What can I do? In the coming weeks, Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online, so that individuals can receive payments immediately as opposed to checks in the mail. Please be aware that there may be some fraudulent sites asking taxpayers to enter their personal information. Be sure to verify any site prior to entering personal information to ensure security of the site. I need to file a tax return. How long are the economic impact payments available? For those concerned about visiting a tax professional or local community organization in person to get help with a tax return, these economic impact payments will be available throughout the rest of 2020. Where can I get more information? The IRS will post all key information on IRS.gov/coronavirus as soon as it becomes available. Additionally, we will be posting regular updates in the COVID-19 section of our website. A number of other tax provisions were also put into place for individuals with the signing of the CARES act:
Required minimum distributions (RMDs) for 2020 are suspended for certain defined contribution plans and IRAs to help retirement accounts try to recover from stock market losses. This includes the first RMD, which individuals may have delayed from 2019 until April 1, 2020.
Waiver of the 10% penalty on COVID-19-related early distributions of up to $100,000 from IRAs, 401(k)s and specific other retirement plans. The individual can elect to pay the federal income tax on the distribution over 3 years or has the option to repay the distribution within a 3-year period to an eligible retirement plan. Loan repayments for affected participants in workplace retirement plans may be delayed for one year.
Starting in 2020, the CARES Act allows for a $300 above-the-line deduction for cash charitable contributions made to 501(c)(3) organizations for taxpayers who take the standard deduction or itemize. The act also relaxes the limit on charitable contributions for taxpayers who itemize, increasing the amount that can be deducted from 60% of adjusted gross income to 100% of gross income.
Unemployment insurance provisions now include an additional $600 per week payment to each recipient for up to four months, and extend unemployment insurance benefits to self-employed workers, independent contractors, and those with limited work history. The federal government will provide temporary full funding of the first week of regular unemployment for states with no waiting period and extend unemployment insurance benefits for an additional 13 weeks through December 31, 2020 after state benefits end.
Recent legislation includes several provisions aimed at helping student loan borrowers and students who receive financial aid.
For SMALL BUSINESS owners, on March 27th, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a stimulus bill that includes a loan program to keep small businesses afloat during mandated COVID-19-related closures. The CARES Act includes a Paycheck Protection Program (PPP) which authorizes up to $349 billion of federally guaranteed loans to qualifying small businesses. Favorable SBA Loan Program under the Paycheck Protection Program (“PPP”) Who is Eligible?
Businesses, nonprofits, veterans’ organizations and tribunal concerns with less than 500 employees
Certain businesses (food services and accommodation) with more than 500 employees are eligible if they have no more than 500 employees at each physical location
The loan program is even available to sole proprietors, independent contractors, and self-employed individuals.
What amount of PPP loan is my business eligible for?
The loan is capped at the lesser of $10 million OR 2.5 times the average monthly payroll costs incurred in the one-year period before the date of the loan.
Payroll costs include salary/wages/tips, sick/family leave/PTO, severance payments, group health benefits (including insurance premiums), retirement benefits, and state or local taxes assessed on employee compensation.
For any employee who is paid more than $100,000 salary, only the amount up to $100,000 (prorated for the covered period) is calculated into the number.
What are the terms of the loan?
An eligible borrower may receive one covered loan, and such proceeds may be used for: payroll costs; continuation of group health care benefits during periods of paid sick, medical, or family leave, or insurance premiums; salaries or commissions or similar compensation; interest on mortgage obligations; rent; utilities; and interest on other outstanding debt. The terms of the amount of any portion of the loan that is not forgiven will be for a term not to exceed 10 years and at an interest rate of no more than 4%.
Can the loan be forgiven?
The amount of the loan that is forgivable is the sum of the payroll costs, mortgage interest payment, rent, and utilities incurred or paid by the borrower during the 8-week period beginning on the loan origination date.
Any portion of the loan that is forgiven is excluded from taxable income.
If the recipient of the loan laid off employees or reduced wages/salaries of its workforce in the period between February 15, 2020 and June 30, 2020, the amount of forgiveness is reduced proportionally by (i) any reduction in employees retained compared to historical levels, and (ii) the decrease in pay of any employee beyond 25% of their historical compensation.
Notably, furloughs would necessarily impact this loan forgiveness analysis as well.
To encourage workforce stabilization, the CARES Act takes into account that many businesses might already have or are planning to lay off personnel or cut salaries. If those changes were made between February 15, 2020 and April 26, 2020, those changes are not counted if the business rehires the number of personnel or returns the adjusted salary, as applicable, by June 30, 2020.
How do I apply for a PPP loan? Applications should be made to SBA-approved lenders. Your local bank should be able to provide you with additional information on SBA-approved lenders. Small Business Association (SBA) Economic Injury Disaster Loans (“EIDL”). The CARES Act also expands the Economic Injury Disaster Loans (EIDL) program and has created a new grant program under the SBA’s Office of Disaster Assistance to provide quick relief for applications awaiting processing of SBA Economic Injury Disaster Loans Who is eligible for the EIDL loan?
The CARES Act expanded EIDL eligibility for the period between January 31, 2020 and December 31, 2020, to include any business with not more than 500 employees, any individual operating under a sole proprietorship or as an independent contractor, and any cooperative, ESOP or tribal small business concern with not more than 500 employees.
To qualify for an EIDL under the CARES Act, the applicant must have suffered “substantial economic injury” from COVID-19.
What amount of EIDL loan is my business eligible for?
EIDL loans under the CARES Act are based on a company’s actual economic injury determined by the SBA (less any recoveries such as insurance proceeds) up to $2 million.
What are the terms of the loan?
The interest rate on EIDL loans is 3.75% fixed for small businesses and 2.75% for nonprofits.
The EIDL loans have up to a 30-year term and amortization (determined on a case-by-case basis).
EIDL loans may be used for payroll and other costs as well as to cover increased costs due to supply chain interruption, to pay obligations that cannot be met due to revenue loss and for other uses.
Under the ACT, EIDL loans smaller than $200,000 do not require personal guarantees
Unless changed by the SBA, it appears that the requirement for collateral on EIDL loans over $25,000 would still apply, and, in processing a borrower’s application, the SBA must decide that the applicant has the ability to repay the loan.
Can the loan be forgiven?
No loan forgiveness is available for EIDL loans
How do I apply for an EIDL loan?
Applications should be made directly to the SBA
Under the CARES Act, EIDL loan applicants can get up to $10,000 to cover immediate payroll, mortgage, rent, and other specified expenses to be paid within 3 days of the SBA accepting the application. This grant does not have to be repaid. Please note that businesses cannot get both EIDL and PPP loans at the same time. You can apply for the EIDL loan now and the PPP loan when it becomes available. If you qualify and accept the EIDL loan, and you subsequently qualify for the PPP loan, you can re-finance the EIDL loan with the PPP loan, OR you can apply for both loans and decide which one you take if you qualify for both. Loans are limited to one per Taxpayer Identification Number. A number of other tax provisions were also put into place for small business owners with the signing of the CARES act:
Provides an employee retention credit against applicable employment taxes of 50% of wages for employers subject to closure due to COVID-19. Such credit is limited to $10,000 of wages paid per employee. Not available to taxpayers benefiting from the SBA Loan Program
Extends the time for paying employer payroll taxes.
Temporarily repeals the taxable income limitation for net operating losses and allows a five-year carryback for losses incurred after 2017 and before 2021. This applies to C Corporation with net operation losses after 2017.
Eliminates the limitation on excess farm losses for years after 2017 and before 2026. This only applies to taxpayers with a farming business.
Modifies the credit for prior year minimum tax liability of corporations by reducing the limitation on the amount of the credit that is refundable. This applies to C Corporations that had AMT tax credit carryovers after 2017.
Modifies the limitation on deductions for business interest by increasing the amount of taxable income which limits the deduction from 30% to 50%. This applies to entities with average yearly gross receipts of more than 25 million.
Fixes the technical glitch in the Tax Cuts and Jobs Act which prevented qualified improvement property from qualifying as 15-year depreciation property and bonus depreciation property. This applies to taxpayers that made leasehold improvements after 2018.
Provides a temporary exception from excise taxes for alcohol used to produce hand sanitizer.
In terms of benefits to small businesses, the biggest incentives available under the CARES Act are the payroll based loans or the payroll based tax credits. Since an employer can only elect one of the two, it is critical that the employer evaluate which program will provide it with the greatest assistance and financial support. This will vary based upon a multitude of factors. This information is a broad summary of what the CARES Act provides. No definitive action should be taken by a client until the various benefits and programs have an ability to be “sorted out” and become clearer in their scope, benefits and burdens. Information is constantly changing as this unprecedented situation continues to evolve. Please feel free to reach out to myself or my staff with any questions you may have on this information and how it pertains to your specific situation.