2020 has been a year of unprecedented challenges. As businesses continue to manage the impacts of COVID-19, many are also looking ahead to 2021, with uncertainty surrounding the public health crisis, a new administration taking office, and potential changes in tax policy.

Regardless of your business’s stage of recovery, now is the time to evaluate year-end strategies that may reduce tax liability and strengthen your position moving into the new year.

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Strategic Considerations Based on Income Projections

Scenario 1: Income or Tax Rates Are Expected to Remain Constant or Decrease in 2021

• Defer Income

  • Cash-basis taxpayers can delay billing into 2021.

  • Accrual-basis taxpayers may take advantage of the Tax Cuts and Jobs Act (TCJA) provision allowing deferral of advance payments for up to one year if aligned with financial reporting.

• Accelerate Deductions

  • Cash-basis businesses can pay 2020 expenses now.

  • Accrual-basis businesses can leverage accounting strategies to recognize deductions in 2020.

• Expense Capital Assets

  • Place eligible assets in service before year-end to take advantage of 100% bonus depreciation.

• Close on Taxable Acquisitions

  • Closing deals in 2020 may allow for immediate expensing of tangible property included in the purchase.

Scenario 2: Income or Tax Rates Are Expected to Increase in 2021

• Accelerate Income

  • Cash-basis businesses recognize income upon receipt; accrual-basis businesses can complete work and bill clients now.

• Defer Expenses

  • Delay asset purchases or expense recognition into 2021 when tax rates may be higher.

• Delay Business Acquisitions

  • Consider waiting to finalize acquisitions until 2021 to maximize related deductions under higher anticipated rates.

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Additional Year-End Tax Planning Opportunities

Research & Development (R&D) Credit

• Consider accelerating R&D efforts before 2022, when amortization rules will begin to limit immediate deductions.

Section 199A Deduction

• Pass-through entities should evaluate W-2 wages and income thresholds to optimize the 20% qualified business income deduction.

Bonus Planning

• Accrual-basis corporations may deduct bonuses paid by March 15, 2021, if properly accrued in 2020 and employees do not own more than 50% of the company.

S Corporation Planning

• Shareholders may contribute capital or make loans to the business to increase basis and deduct current year losses.

Partnership Loss Deductions

• Basis can be increased by additional contributions or assuming partnership liabilities. Carefully manage liability allocations.

Distributions of Appreciated Property

• Delaying distributions until 2021 can defer capital gains tax recognition.

Business Interest Deduction

• The CARES Act increased the limitation from 30% to 50% of adjusted taxable income for 2019 and 2020. Consider how this may impact interest deductibility.

Section 382 Studies

• Certain restructuring techniques can increase net operating loss (NOL) usage limitations.

Entity Simplification or Restructuring

• May create loss deductions or enhance interest deductibility by combining closely held businesses or restructuring corporate groups.

Transaction Cost Analysis

• Evaluate capitalized deal costs for potential deduction or reclassification.

Qualified Small Business Stock (QSBS)

• Taxpayers may exclude gains on QSBS held for more than five years if the corporation and stock qualify under Section 1202.

IRS Account and Interest Recovery Services

• Identify IRS processing errors and recover interest to reduce year-end tax obligations.

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Conclusion

While each business’s circumstances are unique, these strategies may help reduce tax liability and position you for a stronger financial year ahead. Consult with your tax advisor to determine which actions are best suited to your goals.

For personalized planning assistance, contact our office to schedule a year-end review.

As 2020 comes to a close, employers should be aware that this year’s payroll and compensation reporting brings significant differences compared to prior years. The following summary highlights key year-end updates that employers need to consider.

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New Form for Reporting Non-Employee Compensation

Form 1099-NEC replaces Form 1099-MISC for reporting 2020 non-employee compensation. Businesses that paid independent contractors during 2020 must:

• Provide recipients with Form 1099-NEC

• File with the IRS by January 31, 2021

Form 1099-MISC is still used for royalties, rents, prizes, and other non-employee income, but its layout has been revised.

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W-2 Reporting of FFCRA Sick and Family Leave Wages

Employers must report qualified paid leave wages under the Families First Coronavirus Response Act (FFCRA) either:

• In Box 14 of Form W-2, or

• On a separate statement

See IRS Notice 2020-54 for detailed instructions.

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Discriminatory Flexible Spending Accounts (FSAs)

COVID-19 may have caused disparities in FSA usage between highly compensated employees (HCEs) and other employees. If HCEs disproportionately used FSA funds (e.g., for child care), nondiscrimination testing may fail, resulting in taxable income reported on the HCE’s W-2.

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Treatment of Unused Nonrefundable Airline Tickets

If an employee receives a nontransferable airline credit originally purchased for a business trip, the value of that credit may be considered taxable compensation under IRC Section 83. Employers should consult a tax advisor to determine the proper treatment based on the facts.

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Qualified Disaster Payments (IRC Section 139)

COVID-19 was declared a national emergency on March 13, 2020, which allows employers to make tax-free, tax-deductible payments for qualified expenses. These can include:

• Health supplies (e.g., hand sanitizer)

• Remote work costs (e.g., internet upgrades, office equipment)

• Childcare or tutoring expenses

• Uninsured medical or transportation costs

No W-2 or 1099 reporting is required for qualified payments.

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Leave Donation and Charitable PTO Conversions

Employees who donated unused paid time off (PTO) to other employees or charities may avoid taxation if IRS rules are followed. Under Notice 2020-46, employer-paid contributions to COVID-19 relief charities in exchange for forfeited PTO are not taxable to the employee and are not included on their W-2.

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Company Vehicles and Imputed Income

Employees with access to employer-provided vehicles may see increased imputed income for 2020. If a vehicle was parked at home during the pandemic, the IRS considers that personal use. Employers must:

• Withhold FICA on the value

• Report imputed income on W-2s

• Provide timely employee notification by January 31

No current IRS relief has been issued for pandemic-related use changes.

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Employer-Paid Student Loan Repayment

The CARES Act allows employers to pay up to $5,250 toward an employee’s student loans on a tax-free basis. This is only valid if offered through a non-discriminatory written plan under IRC Section 127.

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Employee Benefit Plan Elections

Employees should review their benefit elections carefully for 2021, particularly for:

• Health FSAs

• Dependent care FSAs (subject to “use it or lose it”)

• Commuter benefit plans under IRC Section 132(f)

Though transit elections can be updated monthly, year-end is a good opportunity to review overall elections.

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Payroll Tax Deferrals

Two deferral programs affect 2020 payroll taxes:

1. Employer Share of FICA (CARES Act)

   • Deferral period: March 27 to December 31, 2020

   • Repayment:

     • 50% due by December 31, 2021

     • Remaining 50% due by December 31, 2022

2. Employee Share of FICA (Presidential Memorandum)

   • Deferral period: September 1 to December 31, 2020

   • Repayment: January 1 to April 30, 2021

Normal withholding resumes for wages earned January 1, 2021, and beyond.

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If you have questions or need assistance with year-end reporting, compliance, or planning for 2021, contact our office for a consultation.

As 2020 concludes, employers should carefully review the treatment and reporting of fringe benefits, particularly for employees and 2% S corporation shareholders. Due to changes under the CARES Act and COVID-19 relief efforts, several new rules and exceptions apply.

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Key Year-End Reminders for Employers

Fringe Benefit Basics

Fringe benefits are generally taxable unless specifically excluded by law. The value of these benefits must be determined before December 31 to ensure proper payroll tax withholding and reporting on Form W-2 or 1099 by January 31, 2021.

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Common Employee Fringe Benefits

Group-Term Life Insurance

• First $50,000 in coverage is tax-free.

• Excess coverage is taxable and must be reported in Boxes 1, 3, 5, and 12 (Code C) on Form W-2.

Business Expense Reimbursements

• Non-accountable plan reimbursements are taxable.

• Accountable plan reimbursements (with adequate substantiation or per diem rates) are tax-free.

COVID-19 Qualified Disaster Payments (Section 139)

• Tax-free payments for unreimbursed COVID-related expenses.

• Examples: remote work supplies, child care due to school closures, and additional health costs.

• No W-2 or 1099 reporting required.

Employer-Paid Student Loan Assistance (CARES Act)

• Up to $5,250 is excludable if provided under a compliant Section 127 educational assistance plan.

PTO Leave Donation

• Properly structured leave-sharing plans allow employees to donate unused PTO without tax consequences to the donor.

• IRS Notice 2020-46 allows cash donations to COVID-19 charities through PTO conversion to be tax-free to the employee.

Personal Use of Company Vehicles

• Taxable as imputed income.

• Use special valuation methods and notify employees by January 31.

• FICA withholding required, FIT optional.

• COVID-related business travel changes may have increased personal use percentages.

Personal Use of Company Aircraft

• Value is based on the Standard Industry Fare Level (SIFL) formula.

• Imputed income is subject to FICA, FUTA, FITW, and SITW.

• Non-business entertainment use may also generate nondeductible expenses for the employer.

De Minimis Fringe Benefits

• Small, infrequent benefits can be excluded.

• Cash, gift cards, and event tickets are never de minimis.

• Frequent or lavish meals may be challenged by the IRS.

Employee Gifts and Awards

• Tangible personal property gifts may be excluded if they qualify under length-of-service or safety award rules.

• Limits: $400 for nonqualified plans, $1,600 for qualified plans.

• Non-cash gifts exceeding $25 are generally taxable.

Moving Expenses

• Taxable to employees unless for active-duty military under PCS orders.

• Employers may still deduct the expense.

Qualified Transportation Benefits

• Monthly tax-free limits for 2020: $270 for parking, $270 for transit/vanpool.

• Amounts exceeding these are taxable.

• Employer deduction disallowed under current law.

Noncompensatory Cell Phones

• Business use of employer-provided devices is tax-free.

• Must be provided for business reasons, not as a benefit or bonus.

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Special Fringe Benefit Rules for 2% S Corporation Shareholders

Certain fringe benefits that are excludable for regular employees must be included in taxable income for 2% S corporation shareholders. Failure to report them on Form W-2 disallows the corporation’s deduction.

Benefits Included in Wages:

• Health, dental, vision, and LTC insurance

• Section 127 tuition reimbursement

• Health savings account contributions

• Disability insurance premiums

• Group-term life insurance (entire premium)

• Transportation and adoption assistance

• Personal use of company assets and meals/lodging

Ineligible for:

• Participation in cafeteria plans

• Pre-tax reimbursements for health premiums

Fringe Benefits Not Taxable to 2% Shareholders:

• Qualified retirement plan contributions

• Educational assistance (limited by ownership rules)

• Dependent care assistance (with nondiscrimination limits)

• Retirement planning services

• No-additional-cost services

• Qualified employee discounts

• Working condition and de minimis fringe benefits

• On-site athletic facilities

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Final Thoughts

Year-end fringe benefit reporting and compliance require careful planning and documentation. Be sure to:

• Review all benefits provided to employees and shareholders.

• Ensure taxable benefits are included in W-2 reporting.

• Document and comply with the requirements for any exclusions.

If you have questions about the reporting of fringe benefits, proper treatment for S corporation shareholders, or CARES Act provisions, contact your tax advisor to ensure compliance and avoid missed deductions or penalties.

As year-end approaches, individuals, business owners, and family offices should evaluate tax planning strategies in light of provisions from the CARES and SECURE Acts, and ongoing tax reform discussions. This guide outlines planning areas and 2021 inflationary adjustments based on available projections as of October 15, 2020. Please consult your advisor for updated guidance and personalized recommendations.

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Election-Year Policy Considerations

Although no formal plans were published during the campaign, then-candidate Joe Biden spoke in favor of:

• Increasing the top individual income tax rate to 39.6%

• Raising the capital gains tax rate to 39.6% for those earning more than $1 million

• Eliminating step-up in basis at death

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Federal Income Tax Rate Brackets

2020 & Projected 2021 Brackets:

Social Security and Medicare Taxes

• OASDI wage base:
  • $137,700 (2020)
  • $142,800 (2021)
• FICA rates:
  • 6.2% (employer) + 6.2% (employee)
• Medicare tax:
  • 1.45% each (no wage cap)
  • Additional 0.9% Medicare tax on earned income above $200,000 (single), $250,000 (joint), or $125,000 (MFS)

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Long-Term Care Insurance Deduction Limits

Age	2020	Projected 2021
≤40	$430	$450
41–50	$810	$850
51–60	$1,630	$1,690
61–70	$4,350	$4,520
>70	$5,430	$5,650

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Retirement Plan Contribution Limits

• 401(k)/403(b): $19,500 + $6,500 catch-up (age 50+)
• IRA Contributions: No age cap for traditional IRA contributions under the SECURE Act
• RMDs begin at age 72 for those born on or after July 1, 1949

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SECURE Act Highlights

• Penalty-free withdrawals up to $5,000 for birth/adoption expenses
• 10-year distribution rule for most non-spouse inherited IRAs
• Eliminates age cap on traditional IRA contributions
• Five-year payout rule retained for non-see-through accumulation trusts

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CARES Act Highlights

• Waives 10% early withdrawal penalty for up to $100,000 COVID-related distributions
• Amount can be taxed over three years or repaid within three years
• RMDs suspended for 2020

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Other Key Planning Considerations

• Foreign Earned Income Exclusion:
  • $107,600 (2020)
  • $108,700 (projected 2021)
• Alternative Minimum Tax (AMT) Exemption Amounts:

Filing Status	2020	Projected 2021
Single/HOH	$72,900	$73,600
MFJ	$113,400	$114,600
MFS	$56,700	$57,300

• Kiddie Tax:
  Reverts to being based on parents’ tax rate (retroactively applicable to 2018 and 2019 with amended returns)

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Charitable Contributions

• CARES Act allows 100% AGI deduction for 2020 cash contributions to public charities
• Excludes donor-advised funds and private foundations
• Excess contributions can be carried forward 5 years

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Estate and Gift Tax Exemption

• $11,580,000 (2020)
• Projected $11,700,000 (2021)
• Gift exclusion for non-citizen spouse: $157,000 (2020) / $159,000 (projected 2021)

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Simplified Employee Pension (SEP) Plans

• Contribution limit: $57,000 (2020) / $58,000 (projected 2021)
• SEP contributions due by employer’s tax return filing deadline (including extensions)

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Net Operating Loss (NOL) and Excess Business Loss Provisions

• CARES Act: Allows NOL carrybacks for 2018–2020 (five years) and suspends 80% limitation
• Excess Business Loss (Section 461(l)): Suspended for 2018–2020; projected reinstatement in 2021 with thresholds of:
  • $262,000 (single)
  • $524,000 (joint)

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For full details and planning strategies, download the PDF:

Click here to download the full PDF – 2020 Year-End Tax Planning for Individuals

We encourage you to work with your tax advisor to evaluate the impact of these changes on your personal tax situation.

QR Codes will now show up on some IRS documents for the first time! The IRS has included this barcode technology to new notices going out to millions of taxpayers. CP14 and CP14 IA balance-due notices that inform taxpayers that they owe money on unpaid taxes and their payment options are now equipped with QR barcodes to assist in navigating to IRS.gov.

Simply use your smartphone to scan a QR code in the CP14 or CP14 IA to go directly to IRS.gov and securely access your account, set up a payment plan or contact the Taxpayer Advocate Service. Scanning the QR code on the CP14 or CP14 IA will give the taxpayer direct access to the information they need on IRS.gov to resolve their account balance online without the need to call or interact with the IRS directly.

“These codes will give taxpayers immediate access to the most important information for them to pay their balances, set up payment agreements or reach out for help,” said Darren Guillot, the IRS Small Business/Self-Employed deputy commissioner for collection and operations support, in a statement. “We understand there’s a lot of information on the web, and we want to give taxpayers more secure tools that can more easily help them resolve their tax situations.” Generally sends more than 8 million CP14 notices to taxpayers annually. These are the first legal notice alerting taxpayers that they have a balance due. “This will help make the entire process easier for taxpayers,” Guillot said.
Stay tuned, the IRS is assessing the possibility of adding QR codes to other balance-due notices in the future.

As we move through the final months of this very uncertain year, you may be considering some year-end charitable giving. It might be a good idea for a refresher on charitable tax law, seeing how these laws have had an overhaul of new changes over the last 3 years.

The 2017 Tax Cuts and Jobs Act: 2017 Tax Cuts and Jobs Act increased the deductibility of cash contributions. Before the TCJA, cash gifts were deductible only to the extent of 50% of the donor’s adjusted gross income. TCJA increased that to 60%.
This 60% contribution obviously makes cash gifts more appealing for individual donors. However, it also can act to reduce the unrelated business income tax that certain charities pay. Charities in trust form can take a 60% deduction for cash contributions as well, which may significantly mitigate the UBIT they incur from donated assets like S-corps, debt-encumbered real estate, and certain pass-through interests (think LLCs and partnerships).

The standard deduction increased by the TCJA to $12,200 (for 2019) for individual taxpayers and $24,400 for married couples filing jointly. This has the effect of making itemized deductions less common, including for charitable contributions – current estimates suggest only 13.7 percent of taxpayers will itemize their 2019 taxes. One approach many taxpayers have taken is donation “bunching” where they contribute a large amount in a single year to ensure that they can take the itemized deduction, instead of smaller amounts that would not allow itemizing.

Estate Tax Exclusion: This tax excluding increased up to $11 million for a single individual, and $22 million for a married couple. Which means fewer estates will be subject to tax, and many large life insurance policies intended to provide tax-free cash to heirs now do not serve their original purpose. These policies can now be repurposed by designating other tax-challenged assets to charity (e.g., IRAs, commercial annuities or qualified retirement plans) and then “replace” those assets to beneficiaries in a tax-wise way.

The Qualified IRA Charitable Contribution (QCD) was reinstituted prior to the TCJA. A QCD is a direct contribution to charity from an IRA for individuals over 70.5, which counts towards the IRA holder’s required minimum distribution. The maximum donation each year is $100,000. The increased standard deduction means that taxpayers should consider charitable giving through use of a QCD. This contribution avoids increasing their income (because the distribution goes directly to charity) while also allowing the donor to still take the standard deduction.

The SECURE Act was passed in late 2019 attracting less attention than the TCJA. Financial planners noted one key change to IRAs. Previously IRA account holders were able to designate non-spousal beneficiaries on the accounts, and on death, that beneficiary would be able to “stretch” the required IRA withdrawals over their lifetimes. This allowed young family members to receive the IRAs, take small distributions initially, and grow the accounts over many decades. The SECURE Act instead made such beneficiaries complete the withdrawals in 10 years.

A charitable workaround for the IRA change is to designate a lifetime-income charitable vehicle as the beneficiary. This usually means either a charitable remainder trust or a charitable gift annuity. These vehicles can be funded with the IRA account proceeds, and the account holder can designate a beneficiary to receive income over that beneficiary’s lifetime. On death, the remaining amounts are distributed to a charity the original IRA account holder designates during life. This gift structure can also work with life insurance policies.

The CARES Act: In 2020, to provide relief to the pandemic the CARES Act was passed. Among its many other provisions, it increases the 60% limit for cash donations during 2020 only to 100% in some circumstances. This deduction is available only for cash gifts to charities that are not donor advised funds or supporting organizations. Nonetheless, it provides a considerable benefit for certain cash-rich donors. It may also benefit trust-form charities accepting S-corporation stock, since the significant tax bill incurred by the sale of those assets may be counteracted by a corresponding (and deductible) grant to a qualifying charity.
These new laws can provide new ways for many donors to give. With a bit of additional planning, they can even provide enhanced benefits, like lifetime income for a family member or increased charitable dollars.

As always we are here to answer any of your questions. Feel free to fill out the form below or contact us directly for a free consultation at (561) 995-0064

Meals and Entertainment Expenses regulations were released this week by the IRS (T.D. 9925). The law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97 – that implements provisions that disallow a business deduction for most entertainment expenses.

The standard of business deductions for food and beverages remain deductible, generally limited to 50% of qualifying expenditures, and how taxpayers may distinguish those expenditures from entertainment.

The final regulations provide a number of clarifications in response to comments, proposed regulations issued in February 2020 (REG-100814-19; see also “Proposed Regs. Issued on Meal and Entertainment Expense Deductions,” JofA, Feb. 24, 2020). The proposed regulations were based, in turn, on Notice 2018-76, published in October 2018.

Sec. 274(a)(1)(A) generally do not allow a deduction for any activity of a type generally considered entertainment, amusement, or recreation. Before their deletion by the TCJA, effective for amounts paid or incurred after Dec. 31, 2017, the subsection allowed several exceptions, including for entertainment that was preceded or followed by substantial and bona fide business discussions. The TCJA did not repeal other exceptions under Secs. 274(e)(1) through (9), including, for example, certain recreational activities for the benefit of employees, reimbursed expenses, and entertainment treated as compensation to an employee or includible in gross income of a nonemployee as compensation for services or as a prize or award (and reported by the taxpayer as such).

The TCJA similarly removed a reference to entertainment in Sec. 274(n)(1) with respect to the 50% limitation of deductibility of food or beverages, but it left that provision otherwise intact. Also remaining with respect to food or beverage expenses are the Sec. 274(k) general requirements that they not be lavish or extravagant under the circumstances and that the taxpayer or an employee of the taxpayer is present when food or beverages are served. Food and beverages must also be an ordinary and necessary business expense under Sec. 162(a).

The TCJA also applied the 50% limitation on food or beverages to de minimis fringe employee benefits under Sec. 132(e) (unless another exception under Sec. 274(e) applies), that previously was not subject to it. Therefore, business taxpayers are required a separate deductible meal expenses from nondeductible entertainment expenses, and the regulations address how this is done in a variety of circumstances.

It basically states that food or beverages are not included for “entertainment” purposes of Sec. 274(a), unless they are provided at or during an entertainment activity and their costs are not separately stated from the entertainment costs.

The regulations that were finalized state that food or beverages must be provided to a “person with whom the taxpayer could reasonably expect to engage or deal in the active conduct of the taxpayer’s trade or business such as the taxpayer’s customer, client, supplier, employee, agent, partner, or professional adviser, whether established or prospective.” Accordingly, the final regulations apply this definition to employer-provided food or beverage expenses by considering employees as a type of business associate, as well as to the deduction for expenses for meals provided by a taxpayer to both employees and non-employee business associates at the same event.

The final regulations added several new examples to the proposed regulations and slightly modified others in response to comments asking for clarification. The final regulations are effective upon their publication in the Federal Register. Taxpayers may also rely upon the proposed regulations for expenses paid or incurred after Dec. 31, 2017.

Approximately 50,000 “catch-up” economic impact payments will be made to individuals whose portion of the stimulus payment was diverted by the federal government to pay their spouse’s past-due child support by the IRS.

These funds are expected to be sent in early to mid-September and will mailed as checks to any eligible spouse who filed a Form 8379, Injured Spouse Allocation, along with their 2019 federal income tax return, or in some cases, their 2018 return. The IRS will automatically issue the portion of the EIP that was applied to the other spouse’s debt. These individuals do not need to take any further action to receive the extra economic impact payment money.

Under the CARES Act, the IRS deposited or mailed stimulus payments known as economic impact payments of $1,200 to eligible taxpayers, along with an extra $500 per child. However, in some cases the IRS subtracted money from the payments for those who owed child support to their former spouses. The IRS plans to send the money to 50,000 individuals who were owed child support.

The IRS has noted that it is aware that some individuals did not file a Form 8379, Injured Spouse Allocation, and therefore did not receive their part of the EIP for the same reason. The IRS doesn’t yet have a timeframe but plans to automatically issue the part of the EIP that was applied to the other spouse’s debt at a later time. If you are effected by this, you can check the status of their EIP by using the Get My Payment tool, available only on IRS.gov.

The Small Business Administration (SBA), in consultation with the Department of the Treasury released a set of “Frequently Asked Questions” (FAQs) addressing loan forgiveness issues under the Paycheck Protection Program (PPP) as administered by the Small Business Administration (SBA).

Borrowers and lenders may rely on the guidance provided in this document as SBA’s interpretation, in consultation with the Department of the Treasury, of the CARES Act, the Flexibility Act, and the Paycheck Protection Program Interim Final Rules (“PPP Interim Final Rules”)

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Newly Released SBA FAQ Sections & Highlights

General Loan Forgiveness FAQs:

This section contains three FAQs. The first one clarifies that sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form automatically qualify to use the PPP Loan Forgiveness Application Form 3508EZ.

Loan Forgiveness Payroll Costs FAQs:

This section contains eight FAQs here are some highlights from this section.

Question No. 4 explains that the gross amount before deductions for taxes, employee benefits payments, and similar payments, or the net amount paid to employees should be used when calculating cash compensation.

Question No. 5 gives more detail on Payroll costs covered by the loan forgiveness, which include all forms of cash compensation paid to employees, including tips, commissions, bonuses, and hazard pay. Note that forgivable cash compensation per employee is limited to $100,000 on an annualized basis.

Question No. 8 explains how is the amount of owner compensation that is eligible for loan forgiveness determined. The answer explains that the amount of compensation of owners who work at their business that is eligible for forgiveness depends on the business type and whether the borrower is using an eight-week or 24-week Covered Period. It also provides examples for owners of C and S corporations, self-employed Schedule C (or Schedule F) filers, general partners, and LLC owners. An owner-employee is defined as someone who is both an owner and an employee of a C corporation. The term was previously referred to in the PPP loan forgiveness application but not defined. Also addressed are partial pay periods, group health care benefits, and two questions related to payroll costs that were incurred or paid outside of the eight-week or 24-week covered periods.

Loan Forgiveness Nonpayroll Costs FAQs:

This section includes seven FAQs which address rent, lease, and mortgage payments, utilities, and transportation.

Question No. 6 provides that payments of transportation utility fees assessed by state and local governments are eligible for loan forgiveness. Also answered are two questions related to nonpayroll costs that were incurred or paid outside of the eight-week or 24-week covered periods and whether the Alternative Payroll Covered Period for payroll costs also applies to nonpayroll costs (it doesn’t).

Loan Forgiveness Reductions FAQs:

This section includes five FAQs which give more clarity on FTE employees, seasonal employers, and alternative payroll.

Question No. 4 addresses how calculations should be made by borrowers for the reduction in their loan forgiveness amount arising from reductions in employee salary or hourly wage. Three examples of the salary/hourly wage reduction are included which provide more insight.

Download the Full FAQ’s Document Click Here

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The AICPA will provide more analysis and insights into the FAQs on Thursday, August 6th during its next PPP town hall, which will start at 3 p.m. ET.

“The FAQs have addressed a number of the outstanding questions, but there are still some gray areas,” said Lisa Simpson, CPA, CGMA, director–Firm Services for the Association of International Certified Professional Accountants. “In addition, there are still remaining open items such as how will FTE reductions work if applying for forgiveness before the end of the covered period. We will discuss all of this in greater detail on Thursday’s town hall.”

Through July 31, the PPP has funded nearly 5.1 million forgivable loans totaling more than $521 billion to help small businesses and other eligible entities impacted by the recession sparked by the COVID-19 pandemic. More than $130 billion is still available in the PPP, which has an Aug. 8 deadline for applications to be approved by SBA. Congress is currently considering a follow-up to PPP that would provide more targeted assistance to small businesses.

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Quick Summary of the Paycheck Protection Program

The Paycheck Protection Program (PPP) is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. Created by Congress as part of a $2 trillion dollar Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. The PPP provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits. These funds can also be used to pay interest on mortgages, rent, and utilities.

The Paycheck Protection Program prioritizes millions of Americans employed by small businesses by authorizing up to $659 billion toward job retention and certain other expenses. Small businesses and eligible nonprofit organizations, Veterans organizations, and Tribal businesses described in the Small Business Act, as well as individuals who are self-employed or are independent contractors, are eligible if they also meet program size standards.

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The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) contains a business relief provision known as the employee retention credit, a refundable payroll tax credit for “qualified wages” paid to retained employees between March 13 and December 31, 2020.1

As a reminder, employers whose business has been financially impacted by COVID-19 can take advantage of the Employee Retention Credit, a refundable tax credit designed to encourage businesses to keep employees on their payroll. The credit is worth 50 percent of up to $10,000 in wages paid by an employer. Employers that are eligible for the credit for the first and second quarters of 2020, can apply for the credit when they file their second-quarter filing of Form 941, Employer’s Quarterly Federal Tax Return, which is due July 31st.

Available to all employers regardless of size, including tax-exempt organizations with only two exceptions: State and local governments and small businesses that make small business loans. Qualifying wages are based on the average number of a business’s employees in 2019 and are divided into employers with fewer than 100 employees and employers with more than 100 employees.

When employers report their qualified wages on Form 941, they can reduce their required deposits of payroll taxes withheld from employees’ wages by the amount of the credit. Eligible employers also may use the employee retention credit with other relief including payroll tax deferral and can also request an advance of the employee retention credit by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19. Please call our (561) 995-0064 office with any questions.