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***** Corona Virus Updates *****
Paycheck Proterction Program Loans - Forgivable ***Updated 3/30/2020
Paycheck Protection Program Loans The cornerstone of the CARES Act Title I is $349 billion for the Paycheck Protection Program loans administered by the SBA. These 100% federally-guaranteed loans are available under a new subsection 36 of Section 7(a) of the Small Business Act. The central goals of this program are to a) help employers retain their employees and b) help business cover their near-term operating expenses during the COVID-19 crisis for the period between February 15, 2020 and June 30, 2020.
Who is eligible? • A small business with fewer than 500 employees (includes all employees full-time, part-time, and any other status) • A small business that otherwise meets the SBA’s size standard • A 501(c)(3) with fewer than 500 employees • An individual who operates as a sole proprietor • An individual who operates as an independent contractor • An individual who is self-employed who regularly carries on a trade or business • A Tribal business concern that meets the SBA size standard • A 501(c)(19) Veterans Organization that meets the SBA size standard Special eligibility may apply if: • If you are in the accommodation and food services sector (NAICS 72), the 500- employee rule is applied on a per physical location basis • If you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company the normal affiliation rules do not apply In evaluating eligibility of borrowers, a lender must consider whether the borrower was operating on February 15, 2020 and had employees or independent contractors for whom the borrower paid. Additionally, unlike other SBA loans, you are not required to prove you cannot receive credit elsewhere in order to receive funds provided under this program. What can the loans can be used for? • Payroll costs: Includes: compensation to employees, such as salary, wage, commissions, cash, etc.; paid leave; severance payments; payment for group health benefits, including insurance premiums; retirement benefits; state and local payroll taxes; and compensation to sole proprietors or independent contractors (including commission-based compensation) who earn up to $100,000 in 1 year, prorated for the covered period; Excludes: individual employee compensation above $100,000 per year, prorated for the covered period; certain federal taxes; compensation to employees whose principal place of residence is outside of the US; and sick and family leave wages for which credit is allowed under the Families First Act; • Group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums; • Payments of interest on mortgage obligations; • Rent/lease agreement payments; • Utilities; and • Interest on any other debt obligations incurred before the covered period.
In evaluating eligibility of borrowers, a lender must consider whether the borrower was operating on February 15, 2020 and had employees or independent contractors for whom the borrower paid. How much of a loan can I receive? • Loans are designed to cover two-and-a-half months of payroll, using a calculation of the average monthly payments during the last year period before the loan is issued. For example, if your annual payroll payment was $1.2 million, you can request a loan of up to $250,000 ($1,200,000/12 = $100,000, $100,000 X 2.5 = $250,000). • No loans may be larger than $10 million. Note: A. Allowable payroll costs for employers are the sum of payments of any compensation with respect to employees that is a: salary, wage, commission, or similar compensation; payment of cash tip or equivalent; payment for vacation, parental, family, medical, or sick leave; allowance for dismissal or separation; payment required for the provisions of group health care benefits including insurance premiums; payment of any retirement benefit; and payment of state or local tax assessed on the compensation of the employee. B. Allowable payroll costs for sole proprietors, independent contractors, and self-employed individuals are the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in one year, as pro-rated for the covered period. Are there loan fees? There are no borrower or lender fees for participation. What are the loan Terms? • Up to one year deferral of principal and interest payments. • Loans are available for up to a 10-year term (amortized) at an interest rate not to exceed 4 percent. • Some traditional SBA requirements are waived for this loan program. Specifically, these loans are available with: No personal guaranties of shareholders, members or partners No collateral No proving recipient cannot obtain funds elsewhere No SBA fees (may still have to pay lender processing fee)
Is there loan forgiveness? Borrowers must apply for forgiveness with the lender servicing the loan. Lenders have 60 days to review and make a determination. Any portion of the loan that is forgiven will be excluded from gross income. Section 1106 of Title I outlines forgiveness of loans obtained under the CARES Act. Specifically: • The forgiven amount will be equal to the amount actually paid for payroll costs, salaries, benefits, rent, utilities and mortgage interest during the eight weeks following disbursement of the loan. Additional wages paid to tipped employees under Section 3(m)(2)(A) of the Fair Labor Standard Acts may also be forgiven. • The forgiveness amount is subject to reduction if there is a workforce reduction or a reduction in the salary or wages of an employee. • The loan forgiveness Incentivizes companies to retain employees by reducing the amount forgiven proportionally by any reduction in employees retained compared to the prior year. • To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period. • Reductions in workforce, salaries and wages that occur from February 15, 2020 to April 26, 2020 will be disregarded for purposes of reducing the forgiveness amount so long as the reductions are eliminated by June 30, 2020. • The forgiven amounts are not taxable as income to the borrower.
Important Small Business Owner Update 3/26/2020:
Coronavirus Aid, Relief, and Economic Security CARES Act- the bill includes $377 billion in financial assistance for small businesses and to help ensure employees do not lose their jobs due to COVID-19. The main provision will be 8 weeks of cash-flow assistance through 100 percent federally backed loans to small employers who maintain their payroll during this time of uncertainty. Eligible employers have 500 or less employees, self-employed individuals, gig-economy businesses, nonprofits and veterans organizations. The loans will equal 250% of an employer’s average monthly payroll and will be capped at $10 million. The portion of the loan that is used to cover payroll costs, interest on mortgage obligations, rent, and utilities will be forgiven if the employer maintains their payroll. You will be able to access these loans through a network of small business lenders including community banks and credit unions.
The Bill has passed the Senate and awaits a vote in the House, Expected on Friday, March 27, 2020.
To all our Clients and Friends,
Due to the recent state-mandated shutdown, our front lobby will be closed to walk-in traffic until further notice. However, we will continue to be in the office to prepare your taxes, payroll, and answer any questions you may have. Documents can be dropped off through our slot in the door, mailed to 55 Chase Drive Hurricane, WV 25526, faxed to 304-757-2275 or emailed to firstname.lastname@example.org
Please feel free to call us at 304-757-5777
We appreciate your patience and understanding during this time and apologize for any inconvenience.
We will continue to add and update resources as they become available.
Resources for FAQs
- The IRS and WV have delayed filing and payment of taxes until July 15, 2020. **** Updated 3/26/2020
- What's going on with the economy? The "bazooka" to boost the economy. Feds create new programs to help U.S. finances.
- IRS - Filing and Payment Deadlines FAQ: https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers
- West Virginia has delayed the tax filing and paying deadline to match the IRS: July 15, 2020. For Income taxes (2019) and Estimated Income Taxes (2020) *** Updated 3/26/2020
- Workforce WV Covid-19 and Unemployment Updates: https://workforcewv.org/covid19
- To file for West Virginia Unemployment, start here: https://uc.workforcewv.org/consumer/?lang=en
Right now, your highest priority is the health of those you love and yourself. But if you have time to read about some non-medical but important matters related to the health crisis, here is a summary of IRS action already taken and federal tax legislation already enacted to ease tax compliance burdens and economic pain caused by COVID-19 (commonly referred to as Coronavirus).
We’ll be sending you summaries of additional developments as they take place.
Filing and payment deadlines deferred. After briefly offering more limited relief, the IRS almost immediately pivoted to a policy that provides the following to all taxpayers—meaning all individuals, trusts, estates, partnerships, associations, companies or corporations regardless of whether or how much they are affected by COVID-19:
- 1. For a taxpayer with a Federal income tax return or a Federal income tax payment due on April 15, 2020, the due date for filing and paying is automatically postponed to July 15, 2020, regardless of the size of the payment owed.
- 2. The taxpayer doesn’t have to file Form 4686 (automatic extensions for individuals) or Form 7004 (certain other automatic extensions) to get the extension.
- 3. The relief is for
- Federal income tax payments (including tax payments on self-employment income) and Federal income tax returns due on April 15, 2020 for the person’s 2019 tax year, and
- Federal estimated income tax payments (including tax payments on self-employment income) due on April 15, 2020 for the person’s 2020 tax year.
- 4. No extension is provided for the payment or deposit of any other type of Federal tax (e.g. estate or gift taxes) or the filing of any Federal information return.
- 5. As a result of the return filing and tax payment postponement from April 15, 2020, to July 15, 2020, that period is disregarded in the calculation of any interest, penalty, or addition to tax for failure to file the postponed income tax returns or pay the postponed income taxes. Interest, penalties and additions to tax will begin to accrue again on July 16, 2020.
Favorable treatment for COVID-19 payments from Health Savings Accounts . Health savings accounts (HSAs) have both advantages and disadvantages relative to Flexible Spending Accounts when paying for health expenses with untaxed dollars. One disadvantage is that a qualifying HSA may not reimburse an account beneficiary for medical expenses until those expenses exceed the required deductible levels. But IRS has announced that payments from an HSA that are made to test for or treat COVID-19 don’t affect the status of the account as an HSA (and don’t cause a tax for the account holder) even if the HSA deductible hasn’t been met. Vaccinations continue to be treated as preventative measures that can be paid for without regard to the deductible amount.
Tax credits and a tax exemption to lessen burden of COVID-19 business mandates. On March 18, President Trump signed into law the Families First Coronavirus Response Act (the Act, PL 116-127), which eased the compliance burden on businesses. The Act includes the four tax credits and one tax exemption discussed below.
Payroll tax credit for required paid sick leave (the payroll sick leave credit). The Emergency Paid Sick Leave Act (EPSLA) division of the Act generally requires private employers with fewer than 500 employees to provide 80 hours of paid sick time to employees who are unable to work for virus-related reasons (with an administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy). The pay is up to $511 per day with a $5,110 overall limit for an employee directly affected by the virus and up to $200 per day with a $2,000 overall limit for an employee that is a caregiver.
The tax credit corresponding with the EPSLA mandate is a credit against the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax). The credit amount generally tracks the $511/$5,110 and $200/$2,000 per-employee limits described above. The credit can be increased by
- The amount of certain expenses in connection with a qualified health plan if the expenses are excludible from employee income and
- The employer’s share of the payroll Medicare hospital tax imposed on any payments required under the EPSLA.
Credit amounts earned in excess of the employer’s 6.2% Social Security (OASDI) tax (or in excess of the Railroad Retirement tax) are refundable. The credit is electable and includes provisions that prevent double tax benefits (for example, using the same wages to get the benefit of the credit and of the current law employer credit for paid family and medical leave). The credit applies to wages paid in a period
- Beginning on a date determined by IRS that is no later than April 2, 2020 and
- Ending on December 31, 2020.
Income tax sick leave credit for the self-employed (self-employed sick leave credit). The Act provides a refundable income tax credit (including against the taxes on self-employment income and net investment income) for sick leave to a self-employed person by treating the self-employed person both as an employer and an employee for credit purposes. Thus, with some limits, the self-employed person is eligible for a sick leave credit to the extent that an employer would earn the payroll sick leave credit if the self-employed person were an employee.
Accordingly, the self-employed person can receive an income tax credit with a maximum value of $5,110 or $2,000 per the payroll sick leave credit. However, those amounts are decreased to the extent that the self-employed person has insufficient self-employment income determined under a formula or to the extent that the self-employed person has received paid sick leave from an employer under the Act. The credit applies to a period
- Beginning on a date determined by the IRS that is no later than April 2, 2020 and
- Ending on December 31, 2020.
Payroll tax credit for required paid family leave (the payroll family leave credit). The Emergency Family and Medical Leave Expansion Act (EFMLEA) division of the Act requires employers with fewer than 500 employees to provide both paid and unpaid leave (with an administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy). The leave generally is available when an employee must take off to care for the employee’s child under age 18 because of a COVID-19 emergency declared by a federal, state, or local authority that either
- Closes a school or childcare place or
- Makes a childcare provider unavailable.
Generally, the first 10 days of leave can be unpaid and then paid leave is required, pegged to the employee’s pay rate and pay hours. However, the paid leave can’t exceed $200 per day and $10,000 in the aggregate per employee.
The tax credit corresponding with the EFMLEA mandate is a credit against the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax). The credit generally tracks the $200/$10,000 per employee limits described above. The other important rules for the credit, including its effective period, are the same as those described above for the payroll sick leave credit.
Income tax family leave credit for the self-employed (self-employed family leave credit). The Act provides to the self-employed a refundable income tax credit (including against the taxes on self-employment income and net investment income) for family leave similar to the self-employed sick leave credit discussed above. Thus, a self-employed person is treated as both an employer and an employee for purposes of the credit and is eligible for the credit to the extent that an employer would earn the payroll family leave credit if the self-employed person were an employee.
Accordingly, the self-employed person can receive an income tax credit with a maximum value of $10,000 as per the payroll family leave credit. However, under rules similar to those for the self-employed sick leave credit, that amount is decreased to the extent that the self-employed person has insufficient self-employment income determined under a formula or to the extent that the self-employed person has received paid family leave from an employer under the Act. The credit applies to a period
- Beginning on a date determined by IRS that is no later than April 2, 2020 and
- Ending on December 31, 2020.
Exemption for employer’s portion of any Social Security (OASDI) payroll tax or railroad retirement tax arising from required payments. Wages paid as required sick leave payments because of EPSLA or as required family leave payments under EFMLEA aren’t considered wages for purposes of the employer’s 6.2% portion of the Social Security (OASDI) payroll tax or for purposes of the Railroad Retirement tax.
IRS information site. Ongoing information on the IRS and tax legislation response to COVID- 19 can be found here .
Cooper & Associates will be pleased to hear from you at any time with questions about the above information or any other matters, related to COVID-19 or not. We wish all of you the very best in a difficult time.
References: For discussion of the postponed tax payment and filing deadlines in place because of COVID-19, see FTC 2d/FIN ¶S-8501.07; United States Tax Reporter ¶75,08A4.
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