Cares Act Fixes TCJA Glitch on QIP, Requires Action

Congress made an error in the Tax Cuts and Jobs Act (TCJA) that limited your ability to fully expense your qualified improvement property (QIP).

The CARES Act fixed the issue retroactively to tax year 2018.

If you have such property in your prior filed 2018 or 2019 tax returns, you likely have no choice but to correct those returns. But the bright side is that the corrected law gives you options that enable you to pick the best tax result.

What Is QIP?

QIP is any improvement made by the taxpayer to the interior portion of a building that is non-residential real property (think office buildings, retail stores, and shopping centers) if you place the improvement in service after the date you place the building in service.

The CARES Act correction added the “made by the taxpayer” requirement to the definition.

QIP does not include any improvement for which the expenditure is attributable to

• the enlargement of the building,
• any elevator or escalator, or
• the internal structural framework of the building.

QIP Problem

Due to a TCJA drafting error in the law, Congress made QIP 39-year property for depreciation purposes and ineligible for bonus depreciation.

Unusual twist. This drafting error did not affect expensing under Section 179. Under the TCJA, you could have elected to expense some or all of your QIP with Section 179.

But now you have to revisit your previously filed 2018 and 2019 tax returns and consider 100 percent bonus depreciation, 15-year depreciation, and Section 179 expensing.

QIP Solution

The CARES Act made QIP 15-year property and made it eligible for bonus depreciation retroactively as if Congress had included it in the TCJA when it originally became law.

This change requires you to take a one-time, lump-sum bonus depreciation deduction for the entire cost of your QIP in the tax year during which you place the QIP in service, unless you elect out.

If the QIP lump-sum deduction creates a net operating loss (NOL), you can carry back that loss to get almost immediate cash.

If you have QIP on a 2018 or 2019 tax return and think it could produce a net loss for that tax year, call us to discuss your options. We can consider whether to start filing for a quick refund of your taxes paid in 2013 (for a 2018 carryback) or 2014 (for a 2019 carryback).

What do I do now that I have applied for or been approved for the Paycheck Protection Program “PPP” Loan?
If you have applied and been approved for a PPP loan, you should get the funding from your bank within 10 days.  Once the funds are disbursed to you, you will have eight weeks from the date you receive the loan to spend the funds on payroll, utilities, and rent. At the end of the eight weeks, you will have to document and prove your expenditures to the lender to have them process and approve the forgiven amount with the SBA.

The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rents, and utilities (at least 75% of the forgiven amount must have been used for payroll). The term “Payroll Costs” includes salaries, wages, tips, and commissions (reported on W-2), up to $100k per employee per year (for eight weeks, a maximum of $15,385 per individual.) Also added to payroll costs are sick pay, group health insurance, retirement benefits, and state or local taxes on employee compensation.  Utilities are business expenses comprised of rent, electric, gas, telephone, internet, and water.  Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease over the eight-week covered period.  For example, you received a loan of $100,000, you must spend at least $75,000 on payroll costs over the eight weeks following the loan disbursement, with the remaining 25% being used for the other previously mentioned overhead expenses and/or to get your employee headcount up to the same as the previous year.

YOU NEED A GOOD PAYROLL AND ACCOUNTING SYSTEM
We highly recommend engaging a professional payroll processor, such as Paychex, ADP, Gusto, Paysoft (QuickPay).  Just trying to save a couple of dollars is not a good reason for not using a professional payroll processor.  You don’t want to jeopardize the loan forgiveness, something that cannot be undone.  Our office can assist with payroll processing or provide direct contacts to some of the leading payroll processors in your area.
While it may seem easier to open a separate checking account to track the allowed expenditures, it is not required.  Should you choose to keep your existing accounts, we recommend utilizing the special reporting features of your accounting software.  QuickBooks does a great job of allowing you to add classes.  A special class, such as “COVID-19,” can be set up to track specific expenses over the eight weeks.  A special report can then be printed and used as a guide to gathering any additional supporting documents your bank will ask for.

DOCUMENT ALL OF YOUR DISBURSEMENTS
Payroll costs should document the dollar amount and the payment date with actual copies of the payroll checks or electronic payment receipts. This is where having a professional payroll processor will save you a lot of time and effort in gathering the documentation of payroll costs.  You will also need to collect all invoices paid for group health along with the corresponding canceled checks.  Same for the retirement benefits paid, you will need to obtain reports/statements from the pension administrator or trustee showing the retirement benefits going into the plan.
For overhead costs like rents, interest on mortgages and loans, and utility services, use the actual checks or electronic payment receipts to document the amounts and dates of payments. Then, collect copies of the actual rental lease, mortgage or bank loan agreements, and utility service contracts. The legal agreements for the rent, mortgages, loans, or utility services need to have been in effect before February 15, 2020.  Note, that only the interest on a mortgage or business loan qualifies for forgiveness. As a result, you will want to have a monthly statement or bill from the lender that breaks the payment into interest and principal.
Please let us know if have any questions or need any assistance with getting on the right path in this process.

FINAL THOUGHTS
Timing may be key here, so verify your payroll runs with check dates within the 8 weeks to ensure that you are getting the maximum payroll credited for loan forgiveness.  If you have furloughed or laid off any employees, you will need to hire them back.  If they don’t come back, you will have to hire additional workers to satisfy the same employee headcount by June 30. Loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019. You will submit the loan forgiveness request with the lender that supplied you with the loan. You will need to include documentation that verifies the number of full-time (or full-time equivalent) employees and pay rates, and payments on an eligible mortgage, lease, and utilities. The lender must decide on forgiveness within 60 days.
For any portion of the loan that is not forgiven the terms are 1% interest, up to 2-year repayment, 6 months no payments.
Keep checking the SBA and Treasury website as the program and requirements are changing frequently. There are sure to be adjustments to the program that might affect your planning. You can read all of the documents on the CARES Act provided on the Treasury’s COVID-19 loans web page here.

Financial update on coronavirus (COVID-19)

Dear valued Clients and Friends,

As the coronavirus (COVID-19) continues to affect local communities and global economies, you may have concerns about your financial well-being. Or you may be wondering about how recently passed legislation impacts you. We’re providing a high-level summary of some of the key provisions impacting individuals and recommend discussing your particular circumstances with us in more detail.

Relief available
There are several recently enacted tax changes and new or expanded benefits that might be helpful to you.

Income tax provisions:

• The IRS has provided broad relief and extended the filing and payment deadlines to July 15, 2020. However, we continue to work on filing returns as soon as possible.
• Estimated tax payments due on or after April 1, 2020 and before July 15, 2020 can wait until July 15 to make the payment without penalty.
• Most States are following the Federal guidelines. You’ll find information on state tax filing guidance at State Relief Guide (this will open up as a downloadable PDF file.)

Recovery rebates:

• Payments to individuals of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child have started  Check the status at the IRS Website Click Here for IRS Website
• The recovery rebate begins to phase out for taxpayers with adjusted gross income (AGI) above $150,000 for joint filers, $112,500 for heads of households and $75,000 for other individuals. If you’d like to estimate the amount you’ll receive, visit the AARP CARES Act stimulus calculator at AARP Stimulus Payment Calculator.
• The payment is not taxable.

Insights:
Individuals between the ages of 17 and 24 are ineligible to be claimed as a qualifying child and may be unable to claim their own independent rebate if they are eligible dependents on their parents’ tax return. Eligible dependents include children under the age of 19 or full-time students under the age of 24 who do not provide more than half of their own support and who live with the taxpayer for more than half the year.

Retirement accounts:

• Through the end of the year, individuals who are under 59 ½ years old can take up to $100,000 in coronavirus-related distributions from retirement plans without the usual 10% penalty for early distributions. The distributions may be repaid within three years and any resulting income inclusion can be taken over three years.
• If you were over 70 ½  at Dec. 31, 2019 you won’t have to take required minimum distributions (RMD) in 2020. If your retirement assets have taken a hit, not having to take an RMD may allow those assets to recover some value before you liquidate them. RMDs that have already been taken in 2020 may be rolled over within 60 days of the distribution.

Insights:
Waived RMDs do not need to be taken in subsequent years. However, any forgone RMD in 2020 will affect the account balance used to calculate the RMD in 2021 and future years. It is not known whether additional relief will be offered for individuals who took their RMD early in 2020 and are already outside the 60-day rollover window. RMDs were last waived in 2009. At that time, the IRS issued a notice stating that the 60-day rollover deadline would be satisfied if completed by a given date that year. It is possible that similar guidance will be issued this year.

Student loans:
If you have a federally-held student loan, your payments will be suspended through Sept. 30, 2020 and interest won’t accrue during this period. Note that this relief does not apply to private student loans.

Modification of Limitations on Charitable Contributions During 2020

• The CARES Act suspends the AGI limitation (was 60% of AGI) for qualifying cash contributions and instead permits individual taxpayers to take a charitable contribution deduction for qualifying cash contributions made in 2020 to the extent such contributions do not exceed the taxpayer’s AGI.
• Any excess is still carried forward as a charitable contribution in each of the succeeding five years.

Insights:
This provision benefits taxpayers who elect to itemize their deductions in 2020 and make cash contributions to certain public charities. Contributions to non-operating private foundations or donor advised funds are not eligible for the 100% AGI limitation.

Other benefits:

• Other benefits are available including expanded unemployment, emergency paid sick and family leave benefits (with some limitations and exceptions). Unemployment benefits are extended to self-employed and part-time workers.

Business Tax Incentives
Employee retention and payroll tax credits (available if haven’t taken the PPP Loan)

• A refundable tax credit has been created to assist employers in retaining employees. The credit is computed at 50% of qualified wages paid by eligible employers for up to $10,000 paid to each employee between March 13, 2020 and Dec. 31, 2020.
• Subject to limitations and exceptions, employers of less than 500 employees are required to provide mandatory sick time and paid family leave but are eligible for payroll tax credits to offset the costs. Eligible self-employed individuals also qualify for the credits. Healthcare providers and emergency responders are excluded; employers with fewer than 50 employees can be exempted.
• Employers (including self-employed individuals) will be able to postpone the employer’s share of Social Security taxes through the end of this year. The delayed payments are due in two equal payments, one due Dec. 31, 2021 and the second due Dec. 31, 2022.

Net Operating Losses

• Previously, NOLs generated beginning in 2018 were limited to 80% of taxable income computed without regard to any NOL deduction. Any unused NOL was not able to be carried back but could be carried forward indefinitely.
• The CARES Act permits individuals with NOLs generated in taxable years beginning after December 31, 2017, and before January 1, 2021, to carry back such NOLs five taxable years. Such NOLs not carried back may continue to be carried forward indefinitely. The CARES Act also eliminates the 80% taxable income limitation imposed by the TCJA for taxable years beginning before January 1, 2021.

Insights:
Taxpayers with NOLs generated in 2018 and 2019 may find it advantageous to amend returns prior to those years to carryback NOLs to years with taxable income subject to a 39.6% tax rate.

Excess Business Loss Limitations

• Beginning in 2018, net business losses in excess of $500,000 for joint filers ($250,000 for all other taxpayers) were not allowed as a current deduction against other income. These threshold amounts were indexed for inflation and, in 2020, were scheduled to be $518,000 for joint filers ($259,000 for all other taxpayers). The disallowed business losses became a net operating loss applied to subsequent taxable years.
• The CARES Act suspends the application of this excess business loss rule for 2020, and retroactively suspends the excess business loss limitation rule for 2018 and 2019. Thus, taxpayers will be allowed to offset their business losses against other income for 2020.

Insights:
Taxpayers will need to address with their tax advisors the impact of the retroactive removal of the excess business loss limitation rule for 2018 and 2019.  Many taxpayers have not yet filed for 2019 and the removal of the loss limitation rule should be considered in the preparation of the 2019 return. If a taxpayer was subject to the excess business loss rule in his or her 2018 tax return, the taxpayer should amend his or her 2018 return to take advantage of the elimination of the rule for 2018.  Taxpayers may have a refund opportunity for 2018 if their net business losses were limited and may also find their 2019 tax liabilities either increased or decreased, depending on whether their business losses were being carried forward to 2019 or were sustained in 2019 but were limited.

Small Business Administration (SBA) loans (Employee retention credit not available if PPP Loan was taken)

• Small businesses may also apply for a loan through the Payroll Protection Program. This program is designed to help provide capital to cover the cost of retaining employees. If certain criteria are met, the loan can be forgiven.  The funds for this program have been exhausted and there is pending legislation to extend the funding.
• Other SBA programs are also available. For more guidance, see SBA’s Coronavirus Small Business Guidance and Loan Resources.

Other business provisions

• Interest expense deduction limitations are more taxpayer favorable. Under prior legislation, net interest expense was limited to 30% of adjusted taxable income. This limitation has been increased to 50% for tax years 2019 and 2020.
• Depreciation modifications were made in connection with qualified improvement property to allow for a faster write-off of these assets. Under prior legislation, this type of property was required to be depreciated over 39 years. Under the recent legislation, this depreciation period has been reduced to 15 years, and these assets will now be eligible for bonus depreciation which will allow for an immediate deduction of the entire cost of the property.

Protecting our clients and staff
There are limitations on our physical work environment due to COVID-19; however, we’re working to minimize disruptions and impacts to you so that we can still offer the same level of superior service and support you have come to expect from our team.  Currently, we are still working with all staff available.

We have implemented procedures to protect the health and safety of our staff, clients and community including: restricting/limiting access to our office(s), restricting/reducing travel, providing health education and guidelines to keep our staff well, limiting the size of meetings, providing remote working solutions, implementing the use of remote assistance for our clients, adding virtual communication channels to stay connected, implementing continuity plans, other measures.

Our firm is open to serve you
Our firm remains open and available to serve you with our regular business hours.  However, currently only drop off or pick up is available at the front counters.  We are not able to have in office meetings currently.

Our commitment to you
Whether you have tax or financial planning questions or need advice on ways to navigate the expanded benefits outlined above, we’re here for you. If you have any questions or concerns, please don’t hesitate to contact us at 561-995-0064 or you may email us at info@vcpa.com.

During this unpredictable and challenging time, it’s more important than ever to stay connected. We’re in this together and our thoughts go out to all that have been impacted by this unprecedented situation.

Rest assured, we’re here to help with your questions.

Victor Lerro
Managing Partner

Recovery Stimulus Rebates

A number of our clients are already seeing their stimulus payment appear in their bank account.   If you would like to inquire as to the status of your stimulus payment or if you want to add Direct Deposit information, we highly recommend you head over to the IRS website to check or add your banking information.  The website can be accessed at: https://www.irs.gov/coronavirus/get-my-payment.   Click on “Get My Payment.”  You will be redirected to a waiting screen which puts you in line to check your payment status.  Do not refresh this page, it will refresh automatically once there is a spot available.  You will need some information from your 2019 return (if already filed) or your 2018 return if 2019 has not yet been filed.

• Payments to individuals of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child are currently being delivered.
• The recovery rebate begins to phase out for taxpayers with adjusted gross income (AGI) above $150,000 for joint filers, $112,500 for heads of households and $75,000 for other individuals. If you’d like to estimate the amount you’ll receive, visit the AARP CARES Act stimulus calculator at Stimulus Payment Calculator
• The payment is not taxable.

Update April 5, 2020:  SBA Guidance
As expected, a program roll out like this was bound for some procedural problems.  Some of the bigger banks were not ready to start processing, there was no single set of guidelines, and banks were only working with their current existing relationships.  This would obviously leave some business owners with nowhere to go. Although, I do think that this program will get smoothed out in the coming weeks and those seeking participating banks will be able to find them. It is also my feeling that Congress will likely appropriate more funds to cover those unfortunate circumstances caused by any delays.

The SBA, late Thursday night, issued guidance that seems contradictory to what was stated in paragraph bb Section 1102 (See here)  of H.R. 748 – CARES Act.  Where the law indicates that an employer would be able to add independent contractors (1099-MISC) to their payroll costs, the Interim Final Rule (click here PDF) – see page 11. Said this: Amounts paid to independent contractors do not count for the Paycheck Protection Program payroll because these independent contractors can apply for their own PPP Loans.

Additionally, independent contractors don’t count for PPP loan forgiveness purposes.
Reading  paragraph bb and the main section above it, you might start to realize that this paragraph is defining the payroll costs of recipient of the payments, not the business paying the independent contractor. The SBA also clarified this in their instructions in the PPP application form it says: “For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.”

There was also widespread confusion on the actual computation.  Some payroll companies offered to provide a detailed computation of the average payroll costs.  I did not see one computation that was consistently applied across the board.  One payroll company took Gross Pay and deducted federal withholding and social security withholding tax to arrive at total payroll costs.

Quite simply, we believe that the calculation should be as follows:

Take the sum of:

• Gross wages and salary paid to employees — independent contractors NOT included — for all of 2019. This is the only step, we believe, where the $100,000 cap per employee should pertain to;
• payment of cash tips 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 benefits like matching 401K; and
• payment of State or local tax assessed on the compensation of employees.

Deduct from this sum any amount paid to any employee whose principal place of residence is outside the U.S. Take this net amount, divide it by 12, and multiply it by 2.5.

Should any of you require assistance with this computation or just want someone to check the banks calculation, please give us a call.

First stimulus payments expected to go out week of April 13

The Treasury Department and IRS officials have told the House Ways and Means Committee that the initial wave of payments will go out the week of April 13. The payments will automatically be deposited into the same bank account reflected on the 2019 or 2018 return filed. In the coming weeks, the Treasury plans to develop a web-based portal that will allow individuals who have not recently submitted banking information to the IRS to do so, enabling them to receive payments immediately as opposed to waiting for a check to arrive in the mail.  So, if you want direct deposit, keep checking the IRS.GOV website.

Economic Injury Disaster Loans

The SBA is making available disaster loans of up to $2 million to pay for fixed debts, payroll, accounts payable, and other bills.  The interest rate is fixed at 3.75% for small businesses and 2.75% for non-profits. These loans can be paid over a period of up to 30 years.

Additionally, due to COVID-19, the SBA is providing advances of up to $10,000 on EIDLs for businesses experiencing a temporary loss of revenue. Funds are available within three days after applying, and the loan advance does not have to be repaid.

Due to COVID-19, the SBA is providing advances of up to $10,000 on EIDLs for businesses experiencing a temporary loss of revenue. Funds are available within three days after applying, and the loan advance does not have to be repaid.

Small business owners can apply for an EIDL and advance here: Economic Injury Loan.  This is a very simple process to get the initial process started for the SBA to grant an economic injury loan.  The SBA is making an advance of $10,000 which is supposed to be paid in 3 banking days of the application. Make sure you check the box that states you would like a $10,000 advance on the last screen, have your banking information available, routing number and account number.

Paycheck Protection Program-Forgiveness Loan

We have been discussing this program for the last couple of weeks, See complete description below.

As of this writing 4/2/2020, the SBA and some major banks have not agreed upon certain terms of the lenders responsibilities with respect to offering these loans.  Although, the SBA announced that applications would start tomorrow, 4/3/2020, we still don’t know if they will be processed or await further guidance and agreement with the banks.

As of 4/2/2020, the SBA is still finalizing its rules and guidance.  This guidance has shifted numerous times over the past few days.

Below are two recent articles that outline the challenges ALL banks are facing on properly rolling out this program.  It needs to be done correctly to avoid disaster. Please take the time to read both articles and I think you will have a better understanding around the problems rolling this out.

Reuters 4-1-2020 Article

Politico 4-2-2020 Article

New Paycheck Protection Program-Forgiveness Loan

The Paycheck Protection Program (PPP) is an expansion of the existing 7(a) loan program, authorized by the recently passed Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

Who is eligible? You are covered if your business was in operation as of February 15, 2020, and you had either (a) employees for whom you paid salaries and payroll taxes or (b) 1099-MISC independent contractors. Small businesses that employ 500 or fewer employees, including sole proprietors, independent contractors, certain non-profits, veterans’ organizations, tribal businesses, and self-employed workers, are all eligible for PPP relief.

“Self-employed” workers are who you would think they are, the sole proprietors who file Schedule C with their Form 1040. IRC Section 1402 identifies them as those who regularly carry on a trade or business within the meaning of tax code Section 1402.

How will my Loan be calculated? Small businesses can borrow 250 percent of their average monthly payroll expenses during the one-year period before the loan is taken, up to $10 million.

For example, if your monthly payroll average is $100,000, you can borrow $250,000 ($100,000 x 250 percent).  At $1 million payroll average per month, you can borrow $2.5 million.

The law defines “payroll costs” very broadly as:

• employee salaries, wages, commissions, or “similar compensation,” up to a per-worker ceiling of $100,000 per year;
• cash tips or the equivalent;
• payment for vacations and parental, family, medical, or sick leave;
• allowance for dismissal or separation;
• payment for group health benefits, including insurance premiums;
• payment of any retirement benefit; or
• state or local tax assessed on employee compensation.

What’s specifically not included in payroll costs:

• Annual compensation over $100,000 to any individual employee
• Compensation for employees who live outside the U.S.
• Sick leave or family leave wages for which a credit is already provided by the Families First Coronavirus Response Act (P.L. 116-127)

How Much of the Loan Is Forgiven? Principal amounts used for payroll, mortgage, rent, and utility payments during an eight-week period (starting with the loan origination date) between February 15, 2020, and June 30, 2020, will be forgiven.

If the full principal is forgiven, you are not liable for the interest accrued over that eight-week period—and, as an added bonus, the canceled amounts are not considered taxable income.

Warning: Payroll Cuts Affect Loan Forgiveness 

Because the whole point of the PPP is to help keep workers employed at their current level of pay, the loan forgiveness amount decreases if you lay folks off or reduce their wages.

• If you keep all your workers at their current rates of pay, you are eligible for 100 percent loan forgiveness.
• If you reduce your workforce, your loan forgiveness will be reduced by the percentage decrease in employees.

Example: Last year, you had 10 workers. This year, you have eight. Your loan forgiveness will be reduced by 20 percent.

You can compare your average number of full-time equivalent employees employed during the covered period (February 15, 2020, to June 30, 2020) to the number employed during your choice of

• February 15, 2019, to June 30, 2019, or
• January 1, 2020, to February 29, 2020.
• If you reduce by more than 25 percent (as compared to the most recent full quarter before the covered period) the pay of a worker making less than $100,000 annually, your loan forgiveness decreases by the amount in excess of 25 percent.

Example: Last quarter, Jim was earning $75,000 on an annual basis. You still have Jim on the payroll but have reduced his salary to $54,750 annually. Jim’s pay has decreased by 27 percent, so the amount of your PPP loan forgiven is reduced by the excess 2 percent.

Here is some good news: If you have already laid workers off or made pay cuts, it’s not too late to set things right. If you hire back laid-off workers by June 30, 2020, or rescind pay cuts by that date, you remain eligible for full loan forgiveness.

When Are Payments Due? Any non-forgiven amounts are subject to the terms negotiated by you and the lender, but the maximum terms of the loan are capped at 10 years and 4 percent interest.  Also, payments are deferred for at least six months and up to one year from the loan origination date.

What If You Already Applied for an EIDL for Coronavirus-Related Reasons? No problem—if you took out an EIDL on or after January 30, 2020, you can refinance the EIDL into the PPP for loan forgiveness purposes, but you can’t double-dip and use the loans for the same purposes.

Any remaining EIDL funds used for reasons other than the stated reasons above are a regular (albeit low-interest) loan that needs to be repaid.

How to Apply for a PPP Unlike EIDLs, which run directly through the SBA, PPP loans go through approved third-party lenders. Talk to your bank.

There’s no fee to apply, and your burden for demonstrating need is low. In addition to the appropriate documentation regarding your finances, you should only need make a good-faith showing that:

• the loan is necessary to support your ongoing business operations in the current economic climate;
• the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments; and
• you do not have a duplicate loan already pending or completed.

Business relief provisions include:

• Paycheck Protection Program-READ BELOW
• Employee retention credit (not available if SBA loan is taken)
• Deferral of employer share of 2020 payroll tax. (not available if SBA loan is taken)
• Five-year carryback and 100% for NOL’s in 2018, 2019, and 2020
• An increase in the business interest expense limitation-50% of adjusted taxable income for 2019 and 2020, not 30%. Partnerships are 50% for 2020 only.
• Employer credit for Paid Sick Pay Leave (10 days.)

Individual relief provisions include:

• Advance Rebates for individual taxpayers-The rebate amounts are advance refunds of credits against 2020 taxes, and equal to $1,200 for individuals, or $2,400 for joint filers, with a $500 amount for each child. There is a phase-out provision based upon 2018 or 2019, if filed, adjusted gross income (AGI).
• A waiver of the early distribution penalty from retirement plans for coronavirus-related distributions.
• A waiver of 2020 required minimum distribution (RMD) from pension plans.
• An above-the-line charitable contribution deduction of $300 for 2020, and
• An exclusion from income for employers’ repayments of employees’ student loans

Expanded discussion of some of the Business relief provisions

Paycheck Protection Program-SBA Loan Forgiveness-Employers can receive a loan from the bank (working under SBA guidelines) of an amount equal to 2.5 times their average monthly payroll costs.  Included in the calculation are W-2 wages (up to 100k per employee), 1099-MISC, health insurance benefits, retirement plan costs, and employer taxes.  These loans also feature a loan forgiveness aspect. If the business retains its employees over an eight-week period after the date of the loan origination, the repayment of the loan can be forgiven, which essentially turns the loans into a grant program.  The business would only be responsible for interest during the loan period at a maximum of 4% annually. Employer must maintain employee count during 8-week period following loan or may incur a proportional reduction in amount forgiven or if an employee’s pay is reduced by more than 25% as of the last calendar quarter.  No personal guarantee or collateral required for these loans. Borrowers must apply for loan forgiveness to their lenders by submitting required documentation (See below for “Documents required by lender to offer borrower loan forgiveness”) and should receive a decision within 60 days. If a balance remains after the borrower receives loan forgiveness, the outstanding loan will have a maximum maturity date of 10 years after the application for loan forgiveness.

How does a business apply for a loan under the Paycheck Protection Program? We expect additional guidance from the SBA regarding how to apply for Program loans, including additional resources on the SBA website about how to find a qualified lender. Borrowers who have outstanding SBA loans may also want to contact their existing lenders to inquire about applying for loans under the Program.

50% Employee retention credit-another option for businesses clients is to opt for the employee retention credit.  This is a refundable payroll tax credit for 50% of wages paid by an employer whose operations have been affected by a COVID-19 suspension order, or whose gross receipts have declined by more than 50% compared with the same quarter the previous year. For employers with 100 or fewer employees, all employee wages qualify for the credit. For employers with more than 100 employees, qualified wages include those paid to employees who are not working because of COVID-19-related circumstances. The credit is available to be claimed on a quarterly basis, but the amount of wages, including health benefits, for which the credit can be claimed, is limited to $10,000 in aggregate per employee for all quarters. The credit applies to wages paid after March 12, 2020, and before January 1, 2021.

Employers that claim the Employee retention credits are not eligible for SBA loans.  So, choosing between the SBA loan and the retention credit will have to be considered.  If an employer cannot maintain their employee count in a significant manner, then maybe the retention credit would yield a better result.

A third option for businesses is the deferral of employer share of 2020 payroll tax, employer payroll tax holiday that lets employers defer the employer share of 2020 payroll tax (Employer FICA), paying it back in 2021 and 2022. Clients who receive forgiven SBA loans through the CARES Act are not eligible for this deferral.

Documents required by lender to offer borrower loan forgiveness

Loan forgiveness is available for 8 weeks of payroll costs, mortgage interest or rent payments, and utility payments. To be eligible to receive loan forgiveness, a borrower must submit a complete application to the lender containing the following required documents:

• Documentation verifying the number of full-time equivalent employees on payroll and pay rates for pre- and post-covered periods, including payroll tax filings reported to the IRS and state income, payroll, and unemployment insurance filings;
• Documentation such as cancelled checks verifying mortgage interest, lease, and utility payments;
• Certification from a representative of the recipient that (a) the documentation presented is true and correct, and (b) the amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation or make covered utility payments; and
• Any other documentation the SBA deems necessary.

Net Operating Losses-Any NOL arising in a tax year beginning after December 31, 2017, and before January 1, 2021, may be carried back five years unless the carryback period is waived. For NOLs that arose in tax years beginning in 2018 or 2019, the time for making the waiver election is extended to the due date (including extensions) for filing the taxpayer’s return for the first tax year ending after the date of enactment of the new law. Normally, the election is required by the due date (including extensions) of the return for the tax year in which the NOL arose. The carryforward period for NOLs remains unlimited. However, the twenty-year carryforward period for NOLs arising in tax years beginning before 2018 is unchanged. The rule limiting an NOL deduction that arises in a tax year beginning after December 31, 2017, to 80 percent of taxable income in a carryback or carryforward year is suspended in a tax year beginning after December 31, 2017, and before January 1, 2021.

The limitation on the deduction of excess business losses for noncorporate taxpayers will not apply for tax years beginning in 2018, 2019, and 2020. The deduction limitation will apply for tax years beginning after December 31, 2020.

Employer Credit for Paid Sick Leave- For the employer credit for required paid sick leave, qualified sick leave wages are wages and compensation required to be paid by the Emergency Paid Sick Leave Act. Under this Act, employers with fewer than 500 employees must provide an employee with paid sick time if the employee cannot work or telework due to a need for leave for the reasons described below. The per-day amount of qualified sick leave wages considered for each employee for the credit is limited based on the reason for the leave. The credit allowed for required paid sick leave cannot be more than the Social Security tax imposed on the employer. If the credit amount is more than the FICA tax on the employer, the excess is treated as a refundable overpayment.

The limit is $511 per day if:

• The employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19; or
• The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19; or
• the employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis.
• The limit is $200 per day if:
• the employee is caring for an individual who is subject to a federal, state, or local quarantine or isolation order related to COVID-19, or
• has been advised by a health care provider to self-quarantine due to concerns related to COVID-19; or
• the employee is caring for his or her son or daughter if the child’s school or place of care has been closed, or the child care provider is unavailable, due to COVID-19 precautions; or
• the employee is experiencing a substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Treasury and Labor Secretaries

The Paycheck Protection Program (“PPP”) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for everyone.

The loan amounts will be forgiven as long as:

• The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and
• Employee and compensation levels are maintained.

Payroll costs are capped at $100,000 on an annualized basis for each employee. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.

Loan payments will be deferred for 6 months.

When can I apply?

• Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
• Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
• Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.

Where can I apply? You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. Visit www.sba.gov for a list of SBA lenders.

Who can apply? All businesses – including nonprofits, veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees can apply. Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries (click HERE for additional detail).

For this program, the SBA’s affiliation standards are waived for small businesses (1) in the hotel and food services industries (click HERE for NAICS code 72 to confirm); or (2) that are franchises in the SBA’s Franchise Directory (click HERE to check); or (3) that receive financial assistance from small business investment companies licensed by the SBA. Additional guidance may be released as appropriate.

What do I need to apply? You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process your application by June 30, 2020. Click HERE for the application.

What other documents will I need to include in my application? You will need to provide your lender with payroll documentation.
Do I need to first look for other funds before applying to this program? No. We are waiving the usual SBA requirement that you try to obtain some or all of the loan funds from other sources (i.e., we are waiving the Credit Elsewhere requirement).

How long will this program last? Although the program is open until June 30, 2020, we encourage you to apply as quickly as you can because there is a funding cap and lenders need time to process your loan.

How many loans can I take out under this program? Only one.

What can I use these loans for? You should use the proceeds from these loans on your:

•  Payroll costs, including benefits;
• Interest on mortgage obligations, incurred before February 15, 2020;
• Rent, under lease agreements in force before February 15, 2020; and
• Utilities, for which service began before February 15, 2020.

What counts as payroll costs? Payroll costs include:

• Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
• Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
• State and local taxes assessed on compensation; and
• For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

How large can my loan be? Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs will be capped at $100,000 annualized for each employee.

How much of my loan will be forgiven? You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.

You will also owe money if you do not maintain your staff and payroll.

• Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
• Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
• Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

How can I request loan forgiveness? You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.

What is my interest rate? 0.50% fixed rate.
When do I need to start paying interest on my loan? All payments are deferred for 6 months; however, interest will continue to accrue over this period.

When is my loan due? In 2 years.

Can I pay my loan earlier than 2 years? Yes. There are no prepayment penalties or fees.

Do I need to pledge any collateral for these loans? No. No collateral is required.

Do I need to personally guarantee this loan? No. There is no personal guarantee requirement. ***However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.***

What do I need to certify? As part of your application, you need to certify in good faith that:

• Current economic uncertainty makes the loan necessary to support your ongoing operations.
• The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
• You have not and will not receive another loan under this program.
• You will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.
• Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
• All the information you provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.
• You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS. And you also understand, acknowledge, and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

We can assist with the preparation and data gathering for our clients at no additional fee. Contact us for details.

Coronavirus Aid Relief and Economic Security (CARES) Act

Business relief provisions include:

• Paycheck Protection Program-READ BELOW
• Employee retention credit (not available if SBA loan is taken)
• Deferral of employer share of 2020 payroll tax. (not available if SBA loan is taken)
• Five-year carryback and 100% for NOL’s in 2018, 2019, and 2020
• An increase in the business interest expense limitation-50% of adjusted taxable income for 2019 and 2020, not 30%. Partnerships are 50% for 2020 only.
• Employer credit for Paid Sick Pay Leave (10 days.)

Individual relief provisions include:

• Advance Rebates for individual taxpayers-The rebate amounts are advance refunds of credits against 2020 taxes, and equal to $1,200 for individuals, or $2,400 for joint filers, with a $500 amount for each child. There is a phase-out provision based upon 2018 or 2019, if filed, adjusted gross income (AGI).
• A waiver of the early distribution penalty from retirement plans for coronavirus-related distributions.
• A waiver of 2020 required minimum distribution (RMD) from pension plans.
• An above-the-line charitable contribution deduction of $300 for 2020, and
• An exclusion from income for employers’ repayments of employees’ student loans

Expanded discussion of some of the Business relief provisions

Paycheck Protection Program-SBA Loan Forgiveness-Employers can receive a loan from the bank (working under SBA guidelines) of an amount equal to 2.5 times their average monthly payroll costs.  Included in the calculation are W-2 wages (up to 100k per employee), 1099-MISC, health insurance benefits, retirement plan costs, and employer taxes.  These loans also feature a loan forgiveness aspect. If the business retains its employees over an eight-week period after the date of the loan origination, the repayment of the loan can be forgiven, which essentially turns the loans into a grant program.  The business would only be responsible for interest during the loan period at a maximum of 4% annually. Employer must maintain employee count during 8-week period following loan or may incur a proportional reduction in amount forgiven or if an employee’s pay is reduced by more than 25% as of the last calendar quarter.  No personal guarantee or collateral required for these loans. Borrowers must apply for loan forgiveness to their lenders by submitting required documentation (See below for “Documents required by lender to offer borrower loan forgiveness”) and should receive a decision within 60 days. If a balance remains after the borrower receives loan forgiveness, the outstanding loan will have a maximum maturity date of 10 years after the application for loan forgiveness.

How does a business apply for a loan under the Paycheck Protection Program? We expect additional guidance from the SBA regarding how to apply for Program loans, including additional resources on the SBA website about how to find a qualified lender. Borrowers who have outstanding SBA loans may also want to contact their existing lenders to inquire about applying for loans under the Program.

50% Employee retention credit-another option for businesses clients is to opt for the employee retention credit.  This is a refundable payroll tax credit for 50% of wages paid by an employer whose operations have been affected by a COVID-19 suspension order, or whose gross receipts have declined by more than 50% compared with the same quarter the previous year. For employers with 100 or fewer employees, all employee wages qualify for the credit. For employers with more than 100 employees, qualified wages include those paid to employees who are not working because of COVID-19-related circumstances. The credit is available to be claimed on a quarterly basis, but the amount of wages, including health benefits, for which the credit can be claimed, is limited to $10,000 in aggregate per employee for all quarters. The credit applies to wages paid after March 12, 2020, and before January 1, 2021.

Employers that claim the Employee retention credits are not eligible for SBA loans.  So, choosing between the SBA loan and the retention credit will have to be considered.  If an employer cannot maintain their employee count in a significant manner, then maybe the retention credit would yield a better result.

A third option for businesses is the deferral of employer share of 2020 payroll tax, employer payroll tax holiday that lets employers defer the employer share of 2020 payroll tax (Employer FICA), paying it back in 2021 and 2022. Clients who receive forgiven SBA loans through the CARES Act are not eligible for this deferral.

Documents required by lender to offer borrower loan forgiveness

Loan forgiveness is available for 8 weeks of payroll costs, mortgage interest or rent payments, and utility payments. To be eligible to receive loan forgiveness, a borrower must submit a complete application to the lender containing the following required documents:

• Documentation verifying the number of full-time equivalent employees on payroll and pay rates for pre- and post-covered periods, including payroll tax filings reported to the IRS and state income, payroll, and unemployment insurance filings;
• Documentation such as cancelled checks verifying mortgage interest, lease, and utility payments;
• Certification from a representative of the recipient that (a) the documentation presented is true and correct, and (b) the amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation or make covered utility payments; and
• Any other documentation the SBA deems necessary.

Net Operating Losses-Any NOL arising in a tax year beginning after December 31, 2017, and before January 1, 2021, may be carried back five years unless the carryback period is waived. For NOLs that arose in tax years beginning in 2018 or 2019, the time for making the waiver election is extended to the due date (including extensions) for filing the taxpayer’s return for the first tax year ending after the date of enactment of the new law. Normally, the election is required by the due date (including extensions) of the return for the tax year in which the NOL arose. The carryforward period for NOLs remains unlimited. However, the twenty-year carryforward period for NOLs arising in tax years beginning before 2018 is unchanged. The rule limiting an NOL deduction that arises in a tax year beginning after December 31, 2017, to 80 percent of taxable income in a carryback or carryforward year is suspended in a tax year beginning after December 31, 2017, and before January 1, 2021.

The limitation on the deduction of excess business losses for noncorporate taxpayers will not apply for tax years beginning in 2018, 2019, and 2020. The deduction limitation will apply for tax years beginning after December 31, 2020.

Employer Credit for Paid Sick Leave– For the employer credit for required paid sick leave, qualified sick leave wages are wages and compensation required to be paid by the Emergency Paid Sick Leave Act. Under this Act, employers with fewer than 500 employees must provide an employee with paid sick time if the employee cannot work or telework due to a need for leave for the reasons described below. The per-day amount of qualified sick leave wages considered for each employee for the credit is limited based on the reason for the leave. The credit allowed for required paid sick leave cannot be more than the Social Security tax imposed on the employer. If the credit amount is more than the FICA tax on the employer, the excess is treated as a refundable overpayment.

The limit is $511 per day if:

• The employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19; or
• The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19; or
• the employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis.
• The limit is $200 per day if:
• the employee is caring for an individual who is subject to a federal, state, or local quarantine or isolation order related to COVID-19, or
• has been advised by a health care provider to self-quarantine due to concerns related to COVID-19; or
• the employee is caring for his or her son or daughter if the child’s school or place of care has been closed, or the child care provider is unavailable, due to COVID-19 precautions; or
• the employee is experiencing a substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Treasury and Labor Secretaries

Disaster Loan Assistance

Florida Small Business Emergency Bridge Loan Program

New York Small Business Administration Disaster Loan