Please check here for updates as they become available, we have also added a COVID-19 resource portal, click the COVID-19 tab at the top of the page.
PPP Loan Update
The President just signed the Paycheck Protection Program Flexibility Act (PPPFA) into law this morning. There are a number of provisions that will be very helpful for borrowers looking to maximize their loan forgiveness:
Here are a few highlights of the changes:
- The 8-week period for qualified use of the loan funds can be extended as long as 24 weeks. New PPP borrowers will be subject to the 24-week period, but this must end no later than December 31, 2020. The extra time should be very beneficial to borrowers, especially those whose businesses are still awaiting the green light to re-open.
- The percentage required to be spent on payroll costs has decreased to 60% (from 75% in the original provisions). The caveat is that this new requirement is a “cliff” – if a borrower does not meet this requirement, then NONE of the loan will be forgiven. There may be some further technical correction coming to restore a “sliding scale” of forgiveness if the 60% mark is not met.
- Borrowers now have a 24-week period to return workforce levels and wages to the pre-COVID-19 pandemic amounts. The original provisions required this to occur before June 30th; the new requirement date is December 31st.
- The original rules allowed some leeway for restoring employees. If an employer made a good faith offer of rehire to an employee for the same wages and hours as before, and the employee refused the offer, these employees would not be considered in the reduction of workforce calculation. The new law allows for two more exceptions – the inability of a borrower to find qualified employees and/or those businesses which are not able to return to the earlier level of business operations (based on February 15, 2020 levels) because new operating restrictions do not allow for that level of staffing.
- New PPP borrowers now have a five-year repayment term (instead of two years), and previous borrowers may negotiate a repayment period with their lenders up to five years. The interest rate of 1% remains unchanged.
- The CARES Act provision which allows employers to defer a portion of their payroll taxes is now applicable for PPP borrowers, even those participating in the loan forgiveness program.
Please let us know if you have further questions. There may be a few technical corrections to come at a later date – we will keep you posted.
PPP Loans – Eligibility and Forgiveness Issues
When applying for the PPP loan, all borrowers had to make a good faith certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant”. That statement gave a number of you pause, as the question of how can one properly assess the current uncertainty and its impact on your ongoing business, was on everyone’s mind. Recently, the SBA and Department of the Treasury conferred and determined that any PPP borrowers whose original principal amounts were less than $2 million would have been deemed to have made a good faith certification when applying for the loan. In other words, there is a “safe harbor” assumption for all borrowers with loans under the $2 million mark, which comes as good news for those of you concerned about needing to somehow prove the necessity of the loans you requested. Borrowers with loans over $2 million will most likely be subject to review by the SBA and closer scrutiny that they met all requirements. The SBA has yet again extended the deadline, to return PPP funds for borrowers that don’t qualify for the loans they have received, to May 29th or 10 days after the loan disbursement or cancellation, whichever is later. Also, please note PPP funds are still available if you haven’t yet applied.
The SBA issued the Paycheck Protection Program Loan Forgiveness Application on May 15th. Here is a link: https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf.
We know many of you have already seen this document. A few highlights include the following:
- The eight-week period starts on the date you received the PPP funds and extends for exactly eight weeks (56 days), so watch your calendar dates closely.
- You may use an “Alternative Payroll Covered Period”. If your payroll is biweekly, or more frequent, it may be difficult to line your existing payroll periods up exactly with the eight-week loan forgiveness period that begins on the date you received the funds. Instead, you may elect to consider eligible payroll costs using the first pay period that starts after the initial PPP date. For example, if your loan funded on April 20th, and the first date of the next pay period is April 26th, you could have an Alternative Payroll Period that runs from April 26th to June 20th (rather than the original covered period of April 20th to June 14th). Please watch the terminology carefully in the forgiveness document – sometimes the reference is only to the “Covered Period” (the original eight week period) and sometimes to “the Covered Period OR the Alternative Payroll Covered Period” (and if you have elected to use the alternate period, you MUST use those figures when this reference is made). The alternative dates apply only to the eligible payroll costs.
- Compensation in excess of $15,385 (which is an annual salary of $100,000, pro-rated for eight weeks) is not counted. You may want to consider funding bonuses (as long as these don’t exceed the $15,385 cap per employee) and retirement contributions during the eight-week period. The eligible payroll costs are meant to be 75% or more of the qualified expenditures in order to qualify for full forgiveness.
- Based on the initial guidance, it appears that costs must be paid or incurred during the eight-week period. Thus, you could pay costs that were incurred before your PPP period began, and you could include costs that were incurred during the eight weeks but paid after the covered period (as long as it is on or before the next regular payroll or billing date). More details may be forthcoming on this issue.
- The loan forgiveness is reduced if your Full-Time Equivalent (FTE) employee count decreases, or if the compensation of certain employees decreases more than 25% during the covered period, when compared to Q1 of 2020. This document clarifies that a FTE is based on a 40-hour work week, and that each employee’s average number of hours per week should be divided by 40 and rounded to the nearest tenth (not to exceed 1.0). For example, an employee working an average of 24 hours would be considered a 0.60 equivalent FTE. A simplified method is available in which all FTEs working 40 hours are counted as 1.0 and all others working less are counted as a 0.50 FTE. Several safe harbors and reduction exemptions are available to meet the FTE test; please call us to discuss your particular situation.
- For the compensation portion of the calculation, you will use the average annual salary for the Q1 of 2020 (or the average hourly rate) and compare it to the average annual salary (or hourly wage) for the Covered Period or the Alternative Payroll Covered Period, to determine if there was a decrease of 25% or more, which would then impact the amount of your loan forgiveness reduction.
Please note that many changes are still afoot in this arena – there are many proposals being considered that would move or expand the repayment period, change the allocations of the use of the funds, etc. We’ll keep you informed as this all unfolds.
Tuition Paid from 529 Plan Must be Re-Contributed if Refunded
Your empty nest may have gotten much more full recently if your college-aged students returned from their closed campuses. A number of colleges and universities refunded tuition, housing and/or meal plans due to the abrupt end to the on-campus program. If you had used Section 529 plan distributions to pay for those costs, you are not allowed to keep the funds without a related tax ramification. Instead, you need to re-contribute the refunded amounts back into the Section 529 plan within 60 days of the refund date. The good news is that if that 60-day period ends on or after April 1, 2020 and before July 15, 2020, you have until July 15th to take care of the re-contribution of the funds. If the 60-day period ends after July 15th, then you’ll need to adhere to the 60-day time frame.
Economic Impact Payments
If you have questions about this program, the IRS has set up a special phone number 1-800-919-9835, which includes automated responses to frequently asked questions, as well as an option to speak to a live representative. The IRS has added 3,500 telephone operators to accommodate calls regarding this program.
Also, please note that if you receive a payment on behalf of a deceased taxpayer, that payment needs to be returned to the IRS. FAQ #54 on the IRS website explains how to return a payment. www.irs.gov/coronavirus/economic-impact-payment-information-center
Consider Converting to a Roth IRA
The stock market has certainly been volatile during the COVID-19 pandemic. If your traditional IRA account has lost value, now may be a good time to convert some (or even all) of the funds to a Roth IRA. Rolling money from a regular to a Roth IRA does accelerate the tax on the amount converted, so you’ll need to look carefully at your income tax rates and your available cash outside of the IRA to pay the tax bill. The benefit is that you are paying tax on a reduced investment value, and once the funds are in a Roth IRA, they continue to grow tax free, and withdrawals (including earnings) are not taxed as long as you are over 59 1/2 in age and the Roth IRA account has been open for at least five years. You also are not subject to the Required Minimum Distribution rules for Roth IRA accounts, which is another attractive feature of Roth IRAs. The conversion strategy tends to make the most sense for those still at least a few years from retirement, but we’d be glad to discuss your particular situation and help you crunch the numbers to see if this is a good option for you.
In closing, we are here to answer your questions and to be a trusted advisor during these uncertain times. Congress has been discussing new legislation as well, but much remains up in the air. The legislators return to work on June 1st, and we anticipate additional measures to be passed at some point in the near future. As you keep up with the news and consider how these new laws may impact you personally, please reach out as needed, and we will help you navigate your financial and tax concerns.
We hope you and your loved ones remain healthy and well.
Need assistance with your COVID-19 questions…Contact us…
I’ve received my PPP funds…now what?
- What are the qualified expenses?
- What are the different tests to make sure I maximize the amount forgiven?
- What happens if I can’t meet all the tests?
I have a net operating loss in 2018 or 2019
- Can I carry it back to 2013 thru 2017 years?
- Will I benefit from the loss carryback? What was my tax rate?
- If I had R&D credits, should I still carry back my NOL?
I had qualified leasehold improvement property (QIP) in 2018 or 2019
- The law required depreciating over 39 years and has now changed to 15
- Should I amend, as 15-year property so can take bonus depreciation?
- How will this affect the rest of my tax return?
- Will it create an NOL that should be carried back?
- Did you elect out of 163(j) interest limitations provisions and therefore, were not eligible for the bonus depreciation on QIP?
Should I take my RMD this year or skip this year?
- Should I take the funds and convert to a Roth?
- If I need funds, am I eligible to take an early distribution from an IRA without penalty?
PPP loan forgiveness update
Legislation was introduced in the Senate on May 6th which would overrule the IRS notice 2020-32 and clarify that ordinary expenses funded by the PPP loans are deductible by taxpayers; stay tuned.
PPP loan “need” safe-harbor period extended to May 14
The PPP Borrower Application Form requires that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA guidance and regulations provide that any borrower who applied for a PPP loan prior to April 24, 2020 and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. The SBA has now extended the repayment date for this safe-harbor to May 14, 2020.
Individual tax strategies during the COVID-19 pandemic
Here are some tax strategies to think about during the COVID-19 pandemic.
- Look into Roth rollovers
- Consider removing a dependent
- Capture capital losses, then reinvest
- Time to buy or sell real property?
Most businesses can now defer their 2020 payroll taxes
All businesses other than those that receive loan forgiveness under the Paycheck Protection Program (PPP) may defer payment of the employer’s 6.2% share of Social Security taxes for the period March 27, 2020, through December 31, 2020. Rather than paying the tax on the monthly or semiweekly basis, the business may pay these deferred taxes 50% due on December 31, 2021; and 50% due on December 31, 2022.
Which COVID-19 changes does California conform to?
Economic impact payments are excluded from income
Early withdrawal penalty eliminated for IRA distributions up to $100,000
Income spread over three years for IRA distributions up to $100,000
Re-contribution to an IRA within three years of distribution
CA does not conform to new federal limits for loans from qualified retirement accounts, including 401(k)
RMD waiver for calendar year 2020 applies
CA does not conform to allowance of partial above the line charitable cash charity contributions
CA does not conform to increase in limits for cash contributions
CA does not conform to exclusion for employer payments of student loans
Cancellation of debt income will be taxable by CA
Five-year NOL carrybacks are not available for CA
CA does not allow retroactive suspension of the excess business loss limitation for non-corporate taxpayers
As CA does not limit business interest deductions they do not retroactively modify the interest limitations
CA does not allow QIP to be treated as 15-year property or to take bonus depreciation
CA does not allow acceleration of a refundable prior-year minimum tax credit of corporations
CA does not conform to inclusion of certain over-the-counter medications for FSAs or HRAs
Today is April 15th and traditionally this is the day when all of America files their tax returns, pays their remaining tax liabilities or files an extension. This is generally when we feel a sense of relief and satisfaction that we have complied with our duties as a citizen of this great country. However, this April 15th is unlike any other that we have experienced. Most of us are quarantined, complying with the shelter-in-place orders or on the front lines of the COVID-19 fight. Like you, our business and our staff have also been impacted by the recent events, and we would like to thank you for your continued support, patience and gratitude that we have received as we navigate this new world together.
The April 15th deadline has been moved to July 15th and we are continuing our work to help you with compliance while at the same time making sure you are taking advantage of any tax benefits available to you. If you have any questions or concerns, please don’t hesitate to reach out to us; there are many new laws affecting both businesses and individuals that have arisen in the past month. These are just the changes in the past week.
Additional Changes in Due Dates: Notice 2022-66
The federal second quarter estimated tax due date has been moved from June 15th to July 15th. Now both 1st and 2nd quarters for federal and California have the July 15th payment deadline. Many states follow federal, but not all, so beware of your state filing requirements.
The due date change now affects all taxpayers, individuals and businesses with federal income tax (returns and payments) with original or extended due dates anytime between April 1st to July 15th. A few of these affected changes include: US taxpayers living abroad, corporations with estimated tax payments or fiscal year filers with tax return due dates of April 15th, May 15th or June 15th, and nonprofits with original filing dates of May 15th, are all due July 15th. Also, those who never filed 2016 returns may now file tax returns by July 15th for refunds.
Additionally, taxpayers with 1031 like-kind exchanges in progress, if the 45-day identification period or the 180-day exchange period expires between April 1 and July 15, 2020, they now have until July 15, 2020 to complete the identification or the exchange.
This extension relief also extends to the completion of a rollover or distribution from an eligible retirement plan, if the 60-day deadline to complete the rollover falls between April 1, and July 15, 2020. This could provide welcome relief to taxpayers who took a required minimum distribution from their IRA in February, before the CARES Act suspended the RMD requirement for 2020. These taxpayers now have until July 15, 2020, to re-contribute their withdrawals and treat them as a rollover.
Net Operating Loss Guidance Under the CARES Act: Notice 2020-67
As mentioned in our 3/31/2020 announcement, NOLs for tax years 2018, 2019 and 2020 may now be carried back 5 years and application of the 80% of taxable income limitation has been delayed through tax years beginning before 2021. Even if your NOL is not particularly large, it may provide more tax benefit than you realize if you consider the difference in tax rate; possibly 34% then vs. 21% now.
Be careful on the required timing for filing an amended return for 2018 and 2019. If you already made an election to waive your right to a carryback, the Act allows you to revoke your election. However, if you are filing an 1120X you must file the amended return by the due date of the first taxable year ending after the date of the enactment of the CARES Act. If you are filing a form 1139 the IRS notice recently extended the time to file from 12 months from the corporate year end, to 18 months.
Generally, an amended return must be filed as a paper copy; as the IRS is not processing paper returns right now, they have provided fax numbers just for this purpose only.
IRS Has Limited Resources: Notice 2020-68
The IRS is not currently able to process individual paper tax returns. Paper returns will be processed once processing centers are able to reopen.
Certain IRS services such as live assistance on telephones and responding to correspondence are extremely limited or suspended until further notice. All Taxpayer Assistance Centers remain temporarily closed. IRS phone lines supported by customer service representatives for both taxpayers and tax professionals are not staffed at this time.
While the IRS is receiving and storing some mail, correspondence sent to IRS offices may be returned to the taxpayer if that office is closed and no one is available to accept them.
IRS Economic Impact Payment Update; Portals Tools are Open: Notice 2020-69 and Notice 2020-72
The IRS began sending the Economic Impact Payments out this week. On April 10th, the Treasury and IRS launched a new tool, the Non-Filers tool (click here to be connected), to help non-filers register so they can receive their Economic Impact Payment. A second new tool became available for use today, April 15th, entitled Get My Payment (click here to be connected). This tool provides the stimulus payment status. An additional feature allows taxpayers to provide their bank account information so they can receive their payment as a direct deposit rather than waiting for a paper check.
Watch for an IRS Letter. For security reasons, the IRS also plans to mail a letter about the Economic Impact Payment to a recipient’s last known address within 15 days after the payment is paid. The letter will provide information on how the payment was made and how to report any failure to receive the payment.
Scheduling or Rescheduling Electronic Tax Payments: Notice 2020-70
The IRS notice reminds taxpayers there are several ways to make payments electronically. Some systems allow you to schedule payments up to 365 days in advance, others only 30 days. Some are free and some require third party processor fees. If you wan to reschedule your payment, possibly to delay Q2 to July 15th, you can call the IRS e-file Payment Services automated line at 888-353-4537 to cancel your payment no later than 11:59pm Eastern time two business days prior to the scheduled payment date.
IRS Security Summit Warns About Scams: Notice 2020-71
Cybercriminals try to take advantage of every opportunity and create new scams surrounding COVID-19 and the Economic Impact Payments. The IRS Commissioner said of identity thieves – “They are using every trick of their criminal trade to con people as well as steal valuable personal and financial information to help enable tax-related identity theft.” Please be careful out there, watch for internet and phone scams. Please also know that we take security very seriously at SYA. We have IT experts who are very knowledgeable about the CPA profession working with us and monitoring our systems.
Insurance Premium Refunds Mandated
Monday, April 13th the California Insurance Commissioner ordered insurance companies to return premiums to customers and businesses affected by the novel coronavirus pandemic for March, April and May. The six categories of premiums covered by the order are: private passenger automobile, commercial automobile, workers’ compensation, commercial multi-peril, commercial liability, medical malpractice and “any other insurance line where the risk of loss has fallen substantially as a result of the COVID-19 pandemic.”
EIDL Grants Update from the SBA
On March 29, 2020, following the passage of the CARES Act, the SBA provided small business owners and non-profits impacted by COVID-19 with the opportunity to obtain up to a $10,000 Advance on their Economic Injury Disaster Loan (EIDL). The SBA is now notifying applicants “To ensure that the greatest number of applicants can receive assistance during this challenging time, the amount of your Advance will be determined by the number of your pre-disaster (i.e., as of January 31, 2020) employees. The Advance will provide $1,000 per employee, up to a maximum of $10,000.”
401(k) Loan Updates
Qualifying taxpayers affected by COVID-19 may take increased loans from their 401(k)s up to the lesser of $100,000 (usually only $50,000) or their fully vested amounts. Loans must be taken by September 22, 2020. Check with your employer though, as some plans will have limitations regarding the number of loans, etc. Existing loans may be granted an automatic one-year delay for making payments after the CARES Act enactment date through December 31, 2020.
. . . . . . . . . . . . . . . . . . . . . . . .
Another day, another set of tax changes… we’re here to keep you abreast of what changes may affect you or your business. Yesterday, April 9th, the IRS provided three additional tax notices. Of most significance are the following points:
- all taxpayers with federal income taxes originally due any time April 1st to July 15th are all extended to July 15th – returns and payments
- this means federal 2nd quarter 2020 estimated tax payments are now extended to July 15th; this will also affect many states’ Q2 estimated tax payment due dates as well. CA was already extended to July 15th;
- For US taxpayers living abroad, returns usually due June 15th also now extended to July 15th
- procedures are available for claiming 2018 net operating loss carrybacks previously waived;
- six-month extension available to file form 1045 or form 1139, for carryback of net operating losses beginning during calendar year 2018 and ending on or before June 30, 2019;
- amended partnership returns now allowed pursuant to Rev Proc 2020-23;
- IRS is not processing paper returns; taxpayer assistance centers remain closed; and phone services are extremely limited until further notice.
. . . . . . . . . . . . . . . . . . . . . . . . .
Paycheck Protection Program (PPP) Loans
Many of our business clients are in process with these loan applications. it is anticipated that the funds will be allocated quickly, and at least one major bank, Wells Fargo, has already reached its capacity. We recommend that you take action quickly if you are interested in this type of loan. As of today, the Treasury is looking to raise additional funds with 50-year bonds, and Congress will be looking into adding much needed funds for this program. Hopefully we’ll see some good news later this week. For your reference, here is a link to the PPP Loan Frequently Asked Questions, as published by the SBA. www.sba.gov/sites/default/files/2020-04/Final%20PPP%20FAQs.pdf
Economic Injury Disaster Loans (EIDL)
Many clients have applied for the EIDL program as well. As part of this process, there was an option to request an emergency advance grant of $10,000, to be funded in 72 hours. Please be aware that this funding seems to be delayed, as we are not aware of anyone yet receiving funds, even those who applied a week or more ago. In addition, the SBA is now wording this as “up to” $10,000, and we have read (from a non-SBA source) that this may potentially be interpreted as $1,000 per employee, with a cap of $10,000 for applicants with ten or more employees. The SBA website has not released any official updates on this program. We’ll continue to monitor the situation and will advise you of any authoritative announcements.
Economic Impact Payments
The Treasury Department and the Internal Revenue Service have announced that the distribution of economic payments will begin in the next three weeks. These payments are to be distributed automatically, with no action required for most people. The IRS will calculate and send the payment to those who are eligible, based on the 2019 return if filed, or 2018 if 2019 has not yet been filed. The funds will be deposited into the same banking account reflected on the return filed. If the IRS does not have your banking information, there is a web-based portal in development for individuals to provide their banking information to the IRS. This portal is not expected for several weeks, however. The economic payments will be available through the rest of 2020. Per the California Franchise Tax Board, these payments will not be subject to California income tax.
The income eligibility requirements and rebate amounts can be referenced in the 3/31/2020 Recovery Rebates section of this page below.
Reminder – Tax Deadline is Now July 15th
- Federal and California income tax returns ordinarily due by April 15th are now due July 15th
- Extensions, if needed, are due by July 15th to extend to October 15th
- IRA, HSA ans SEP contributions for 2019 may also be deferred to July 15th, SEP contributions may be extended to October 15th with an extension
- 1st quarter federal and California estimate payments are also due by July 15th
- 2nd quarter federal estimated payments are still due June 15th, whereas California 2nd quarter payments are deferred to July 15th
Please contact us to discuss filing deadlines for states other than California, if that is applicable to you.
Link to the IRS Frequently Asked Questions related to the updated due dates:
Update on Retirement Fund Relief
As per our update on 3/31/2020, the IRS is waiving the 10% penalty on early withdrawals of up to $100,000 from qualified retirement accounts for coronavirus-related purposes (after January 1, 2020). The California Franchise Tax Board has announced that it will also waive the early withdrawal penalty.
In addition to the waiver of the Required Minimum Distribution (RMD) rules for calendar year 2020 for certain defined contribution plans and IRAs, the waiver also applies to the RMDs from inherited IRAs.
California EDD Q1 Payroll Tax Returns Can Be Deferred Upon Request
Per the EDD website, if your business is directly affected by COVID-19, you can request up to a 60-day extension to file your state payroll reports and deposit state payroll taxes without penalty or interest. Include the impact of COVID-19 in your written request for the extension. Your request must be received within 60 days from the original past-due date of the payment or return. For more information, including the address for submitting your request, please refer to this link: www.edd.ca.gov/pdf_pub_ctr/de231sed.pdf
California Sales Tax Returns
Per Executive Order N-40-20 issued on March 30, 2020, the Governor will allow for the sales tax returns and payments to be deferred for up to three months, until July 31, 2020, without the need to request an extension. This provision is for individuals or businesses filing a return for less than $1,000,000 in tax. This extension provision also applies to other types of tax administered by the CDTFA, here is a full listing: www.cdtfa.ca.gov/services/extensions-to-file.htm
Employee Retention Credit Update
As per our update on 3/31/2020, the CARES Act included a credit of up to $5,000 per employee for eligible employers whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings, or who have experienced a greater than 50% reduction in quarterly receipts. New guidance provides that employers will report qualified wages for the credit for the first quarter and second quarter together, on their second quarter form 941. Please also note that the Employee Retention Credit cannot be claimed in addition to the Paycheck Protection Program (PPP), it is either or, so weigh your choices carefully. For more details, visit the IRS FAQs: Employee Retention Credit Under the CARES Act webpage at: www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act
Program for Displaced Workers
The State of California, in conjunction with Bitwise Industries and the Kapor Center have launched a new web-based platform to help connect displaced California workers with more than 70,000 job opportunities in critical industries. Here is the link, in case this is of interest to your or to your family members and friends: https://onwardca.org/
A Few More Helpful Links
Paycheck Protection Program Fact Sheet
Unemployment Insurance Relief Related to COVID-19
Families First Cornoavirus Response Act: Employee Paid Leave Rights and FAQs
Please contact us if you would like to see how any of these provisions may apply to your specific circumstances. We are here for you and would be glad to be of assistance. Take care, and stay well!
. . . . . . . . . . . . . . . . . . . . . . . . .
Watch out for schemes tied to economic impact payments. Click the below link to the IRS notification for additional information.
. . . . . . . . . . . . . . . . . . . . . . . . .
Employee Retention Credit for Employers Subject to Closure Due to COVID-19
The provision provides a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis. The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19 related shut down order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.
The credit is based on qualified wages paid to the employee. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19 related circumstances described above. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut down order. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wags paid or incurred from March 13, 2020 through December 31, 2020.
Delay of Payment of Employer Payroll Taxes
The provision allows employers and self-employed individuals to defer payment, from date of enactment through December 31, 2020, of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. Employers generally are responsible for paying a 6.2-percent Social Security tax on employee wages. The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022. The Social Security Trust Funds will be held harmless under this provision.
Modifications for Net Operating Losses
The provision relaxes the limitations on a company’s use of losses. Net operating losses (NOL) are currently subject to a taxable-income limitation, and cannot be carried back to reduce income in a prior tax year. The provision provides that an NOL arising in a tax year beginning in 2018, 2019, or 2020 may be carried back five years. The provision also temporarily removes the taxable income limitation to allow an NOL to fully offset income. These changes will allow companies to utilize losses and amend prior year returns, which will provide critical cash flow and liquidity during the COVID-19 emergency.
Modification of Limitation on Losses for Non-corporate Taxpayers
The provision modifies the loss limitation applicable to pass-through businesses and sole proprietors, so they can utilize excess business losses and access critical cash flow to maintain operations and payroll for their employees.
Technical Amendment Regarding Qualified Improvement Property
The provision enables businesses, especially in the hospitality industry, to write off immediately, costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of the building. This covers qualified improvement property acquired after September 28, 2017 and before January 1, 2023. The provision, which corrects an error in the Tax Cuts and Jobs Act, not only increases companies’ access to cash flow by allowing them to amend a prior year return, but also incentivizes them to continue to invest in improvements as the country recovers from the COVID-19 emergency.
The CARES Act creates a temporary Pandemic Unemployment Assistance program through December 31, 2020 to provide payment to those not traditionally eligible for Unemployment benefits (self-employed, independent contractors, those with limited work history, and others) who are unable to work as a direct result of the coronavirus public health emergency.
An emergency increase in unemployment compensation benefits provides an additional $600 per week payment to each recipient of unemployment insurance or Pandemic Unemployment Assistance for up to four months.
All U.S. residents with adjusted gross income up to $75,000 ($150,000 married filing joint), who are not a dependent of another taxpayer and have a work eligible Social Security number, are eligible for the full $1,200 ($2,400 married filing joint) rebate. In addition, they are eligible for an additional rebate of $500 per child under the age of 17. This is true even for those who have no income, as well as those whose income comes entirely from non-taxable means-tested benefit programs, such as SSI benefits.
For the vast majority of Americans, no action on their part will be required in order to receive a rebate check as the IRS will use a taxpayer’s 2019 tax return if filed, or in the alternative their 2018 return. This includes many low-income individuals who file a tax return in order to take advantage of the refundable Earned Income Tax Credit and Child Tax Credit. The rebate amount is reduced by $5 for each $100 that a taxpayer’s income exceeds the phase-out threshold. The amount is completely phased-out for incomes exceeding $99,000 for single filers, $146,500 for head of household filers with one child, and $198,000 for joint filers with no children.
Special Rules for Use of Retirement Funds
Consistent with previous disaster-related relief, the provision waives the 10-percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after January 1, 2020. In addition, income attributable to such distributions are subject to tax over three years, and the taxpayer may instead re-contribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions. Further, the provision provides flexibility for loans from certain retirement plans for coronavirus-related relief.
Temporary Waiver of Required Minimum Distribution Rules
The provision waives the required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020. This provision provides relief to individuals who would otherwise be required to withdraw funds from such retirement accounts during the economic slowdown due to COVID-19.
Charitable Deduction Liberalizations
The CARES Act makes four significant liberalizations to the rules governing charitable deductions:
- Individuals will be able to claim a $300 above-the-line deduction for cash contributions made, generally, to public charities in 2020. This rule effectively allows a limited charitable deduction to taxpayers claiming the standard deduction.
- The limitation 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 (qualifying contributions). Instead, an individual’s qualifying contributions, reduced by other contributions, can be as much as 100% of the contribution base. No connection between the contributions and COVID-19 activities is required.
- For contributions of food inventory made in 2020, the deduction limitation increases from 15% to 25% of taxable income for C corporations and, for other taxpayers, from 15% to 25% of the net aggregate income from all businesses from which the contributions were made.
Exclusion for Employer Payments of Student Loans
An employee currently may exclude $5,250 from income for benefits from an employer sponsored educational assistance program. The CARES Act expands the definition of expenses qualifying for the exclusion to include employer payments of student loan debt made before January 1, 2021.
. . . . . . . . . . . . . . . . . . . . . . . . .
The Paycheck Protection Program (PPP Loan), authorizes the Administrator of the U.S. Small Business Administration (SBA) to make loans.
Eligible Recipient: Any business considered a small business, nonprofit organizations, veteran’s organization, or Tribal business concern described in section 31(b) (2) (C) of the small business Act (SBA).
Employee Business Limitation: The business employs not more than the greater of 500 employees; or, if applicable, the size standard in number of employees established by the Administration for the industry. This law covers sole proprietors, independent contractors, and eligible self-employed individuals also.
Covered Loan Period: The period beginning on February 15, 2020 and ending on June 30, 2020.
Maximum Covered Loan Amount: During the covered period, the maximum loan amount under this Act to each entity is computed under a formula relating to the entity as follows: 2.5 times the average total monthly payroll costs incurred during the 1-year period before the date on which the loan is made + outstanding amount of borrower’s EIDL loan (see below for more information). There are provisions for seasonal employer payments as well. This is not to exceed $10,000,000, and salaries above $100,000 per employee are excluded.
No Personal Guarantees or Collateral Required: Loans are considered non-recourse, except to the extent that such shareholder, member, or partner uses the covered loan proceeds for a purpose not authorized.
Deferred Payments: Payments of principal, interest, and fees will be deferred for at least 6 months, but not more than 1-year. The SBA will not collect any yearly or guarantee fees for the loan, and prepayment penalties are waived. Maximum interest rate for covered loans is 4%.
Borrower Requirements: An eligible recipient shall make a good faith certification defining the reasons for the necessity of the covered loan, due to uncertainty of economic conditions. It must also be acknowledged by the borrower that the funds will be used to retain workers and maintain payroll, mortgage payments, lease and utility payments. The eligible recipient must acknowledge there is not a duplicative application pending for a loan for the same purpose, and that they have not received duplicative amounts under a covered loan.
Allowable Uses of Covered Loans:
- Payroll costs (limitation applied)
- Costs related to the continuation of group health care benefits during periods of paid sick leave, medical, or family leave and insurance premiums
- Employee salaries, commissions, or similar compensations
- Payment of interest on any mortgage obligation or debt obligation (no principal payments)
- Rent including rent under a lease agreement
- Interest on any other debt obligation incurred before the covered period
Loan Forgiveness: The expected forgiveness amount means the amount of principal that a lender reasonably expects a borrower to expend during the covered period on the sum of any:
- Payroll costs (limitations applied)
- Payment of interest on any covered mortgage obligation incurred prior to February 15, 2020 (no principal payments)
- Covered payment on any covered rent obligation; and
- Covered utility payments for which service began prior to February 15, 2020
The amounts forgiven may not exceed the principal amount of the loan.
Covered period means the 8-week period beginning on the date of the origination of a covered loan. Borrowers must apply for loan forgiveness to their lenders by submitting required documentation and will receive a decision within 60 days. Please call us for more details on what documentation may be required.
Limits on Loan Forgiveness: There are two formulas which may result in a reduction in the loan forgiveness amount. Limits on the amount of forgiveness are based upon a formula of full time equivalent employees per month employed during the covered period by one of two divisors selected by the loan recipient. The amount forgiven will also be reduced by the reduction in pay of any employees beyond 25 percent as compared to the most recent full quarter prior to the covered period.
Tax Ramifications: Cancelled indebtedness will not be included in the borrower’s income for federal tax purposes.
Emergency Economic Injury Disaster Loan (EIDL) Grant
Businesses seeking a more immediate influx of cash can receive a $10,000 emergency advance within 3 days of applying for an EIDL grant. If ultimately the application is denied, there is no requirement to repay the $10,000 advanced. Emergency funds can be used for payroll costs, increased material costs, rent or mortgage payments, or repaying obligations that cannot be met as a result of revenue losses.
The EIDL grant is in addition to the loan under the PPP, but cannot be used for same costs. You can apply for the EIDL grant online through www.SBA.gov.
. . . . . . . . . . . . . . . . . . . . . . . . .
The Secretary of Treasury has officially announced that both the filing and payment deadlines, originally set for April 15th, have been moved to July 15th, and they are giving all individual taxpayers this automatic 90-day extension. This payment relief applies to the 2019 tax returns and 1st quarter 2020 estimated tax payments combined.
For business taxpayers, mainly C-Corporations, the 90 day extension also applies to all taxpayers.
The State of California, Franchise Tax Board, has extended both the filing and the payment due dates to match that of the IRS by 90 days, or until July 15th. This relief includes all individuals and business entities for 2019 tax returns, 2019 tax return payments, 2020 1st and 2nd quarter estimated tax payments, 2020 LLC taxes and fees and 2020 non-wage withholding payments.
SYA Office and Procedures During Shelter in Place
As a reminder, our office location is currently closed and our staff is working remotely. The phone calls are being routed as well. It looks as though the statewide shelter in place order mandated Thursday may be for eight weeks or more. We will continue to provide services to you during this time and will update you as soon as we know when our office location will re-open.
We are continuing to prepare your tax returns on a first come first served basis. We expect to be able to complete all the tax returns within the extended timeframe of July 15th. There is nothing additional required at this time to qualify for the extended due date, and we will not be providing you with extensions nor extension payment amounts as those are not due until July 15, 2020. If you have an urgent need for your tax return, please contact our office as soon as possible.
If you have not submitted your tax information to us yet, we encourage you to submit it as soon as possible via email or our secure ShareFile portal (click here). If you are unable to send us your documents through email, you can still mail your documents to our office through regular mail (USPS) and through United Parcel Service (UPS). We cannot accept FedEx packages at this time.
AICPA State Filing Guidance for the Coronavirus Pandemic
Resources and Additional Information for Business Owners
We want to inform you that the U.S. Small Business Administration (SBA) has declared COVID-19 a disaster in Alameda County. For those that would like to begin the process to apply for financial relief, to get more information, and to start an application online, please visit https://disasterloan.sba.gov/ela/.
On March 18, 2020, the President signed the Families First Coronavirus Response Act (H.R. 6201) to provide immediate relief to individuals and employers. Below is a summary of the key employer paid sick leave and employer paid family leave benefits, as well as the employer tax credits for these benefits. The provisions will take effect on April 2nd and expire on December 31, 2020.
Emergency Sick Leave
(The major provisions are highlighted here, contact us for more specific information on how the Act may apply in your circumstances)
The Act provides that employers with fewer than 500 employees (including government employees) must provide employees who cannot work or telework with paid sick time off if the employee meets certain criteria, one of which is an employee subject to a coronavirus quarantine or isolation order.
Full-time employees are to receive 80 hours of sick leave, and part-time workers are granted leave equivalent to their average hours worked in a two-week period, with the sick leave in either instance being available for immediate use regardless of th employee’s tenure at the employer.
Sick leave is capped at $511 per day for certain categories such as an isolation order or $200 per day for some other categories.
Wages paid under the emergency sick leave provisions will not be subject to the 6.2% social security payroll tax.
Employers with existing sick leave policies will be required to provide workers with the sick leave under this emergency program and cannot require a worker to use any other available paid leave before using the sick time.
Paid Family Leave
(The major provisions are highlighted here, contact us for more specific information on how the Act may apply in your circumstances)
The Act also provides that employers with fever than 500 employees (including government employees) must provide up to 12 weeks of employer paid family leave for any employee who has worked more than 30 days for that employer.
An employee only qualifies if he or she is unable to work (or telework) because he or she needs to take care of his or her child, under 18 years of age, due to school or child care closures related to a COVID-19 emergency declared by a governmental authority.
The first 10 days can be unpaid and subsequent days are paid at least two-thirds their normal pay rate. The paid leave is capped at $200 per day and $10,000 in the aggregate.
Wages paid under the family leave provisions will not be subject to the 6.2% social security payroll tax.
The state of California offers a paid family leave program. We are looking into how this will work along with the federal requirement.
Credits for Employers and the Self-Employed
Employers paying paid sick leave, or paid family leave benefits, may claim a refundable credit against their FICA taxes for the gross amount of paid sick leave benefits and paid family leave benefits discussed above. The credit will be taken on the quarter return, Form 941, Employer’s Quarterly Federal Tax Return.
A similar credit is also available for self-employed individuals against their self employment tax. This is basic information regarding the law signed on Wednesday, March 18th. There are a lot of remaining questions, and we will update you with any clarifications as they come in. The two big questions are how these benefits will work in conjunction with California’s disability and Paid Family Leave programs and whether small businesses with fewer than 50 employees may be exempt.
The federal and state governments will most likely be putting over a Trillion dollars into the economy to help individual taxpayers as well as small and large businesses over the coming months. We’ll have more information in the days and weeks ahead as this national emergency progresses.
. . . . . . . . . . . . . . . . . . . . . . . . .
Everyone at Sallmann, Yang & Alameda is taking the shelter in place order seriously and we will be closed effective this afternoon. We will have limited staff working remotely over a secure network to assist you.
During the past several weeks, we have closely monitored updates on COVID-19 provided by the Centers for Disease Control (CDC), the World Health Organization (WHO), and local public health agencies and government officials. In light of today’s recommendations from public health officials to shelter in place for all 6 bay area counties, Sallmann, Yang & Alameda (SYA) has decided that in the best interest of health and for the safety of our families and community, we will CLOSE our physical office location starting Tuesday, March 17, 2020 and move to providing you uninterrupted service through working remotely. No one at SYA has contracted or been in contact with anyone with COVID-19 and at this moment we do not have any knowledge of any of our clients having contracted COVID-19 either.
Although we will begin working remotely, at this time, we do not anticipate a complete closure of our services during these unprecedented times and we are here to support you and your business. We are anticipating a slower response rate and turnaround time, particularly in the first few days as we adjust to our new remote working environments.
We will continue to actively monitor this situation and provide important information regarding the impact of COVID-19 on our services. Our plan to re-open our doors is set for Monday, April 7, 2020. This date is subject to change depending on any new developments in COVID-19 but we will contact you if there are any updates.
Please note as of today, the state of California filing deadline has been extended by 60 days, until June 15, 2020. You will not incur any late filing/payment penalties if you have been affected by COVID-19, which includes the closure of your tax preparer’s office, as long as you file your return and pay any liabilities by June 15, 2020. Please feel free to check the Franchise Tax Board website for the most current information as they respond.
We have heard that the Internal Revenue Service is anticipating a similar extension of the filing deadline. Based on what we know we are expecting the Treasury to make an announcement of an extension of up to 90 days for filing and paying, however, there has been no official news as of the time of this email. Please feel free to check the Internal Revenue Service website, they have a dedicated section to Coronavirus Tax Relief.
We understand that these are difficult and turbulent times and we want you to know that we are here for you. Please do not hesitate to email or call us with any questions. We will continue working on your tax returns to ensure that you continue to be in compliance with all government authorities.
We appreciate your patience and understand as we all navigate through these uncertain times.