The CARES Act provides additional funding to the Small Business Administration (SBA) for its 7(a)-loan program. These funds are anticipated to be available to small businesses by the end of next week, though there is not currently a way to apply for these loans on the SBA website.

We encourage you to contact your bank for information they may have on applying for loans. We believe that many of our small business clients should strongly consider applying for these loans.

Some details of the the CARES Act provisions are as follows:

Eligibility: Business, non-profit or veterans organizations that employs 500 or fewer employees measured per physical location or, if applicable and larger, the employee size standard established for the industry. Sole proprietors, independent contractors, and eligible self-employed individuals (as defined in Congress’s last COVID-19 bill, the Families First Coronavirus Response Act (Families First Act)) are eligible for loan recipients, subject to some documentation requirements to substantiate eligibility. There are also special provisions for the restaurant and hotel industries (NAICS codes beginning with 72, Accommodation and Food Services sector).

Loan Amounts: lesser of 2.5 times average monthly payroll costs (defined below) based upon the year immediately preceding the date of loan or $10 million.

Payroll costs: Salary, wage, commissions, tips or similar compensation payments to the extent that it would not exceed an annualized amount of $100,000 to the individual employee. Payroll costs for this purpose include paid vacation, parental, family, medical or sick leave (other than payments for which credit allowed under FFCRA), payments for provision of group health benefits, including premiums, and retirement benefits, and state and local taxes assessed on compensation of employees.

Allowable use of loan proceeds: Payroll costs, continuation group health benefits during periods of leave, interest portion of mortgage payments, rent, utilities and interest on other obligations entered into before February 15, 2020.

Amount of loan that is forgivable tax free: All payments made during the period for payroll costs, interest on covered mortgage, covered rent and covered utilities. The amount forgiven is reduced for decreases in full-time equivalent employees and decreases of more than 25% in compensation to employees making less than $100,000 on annualized basis. Reductions in FTE’s or compensation occurring between February 15, 2020 and 30 days after enactment of the Act are not taken into consideration if restored by June 30, 2020.

The maximum repayment term for the loan amounts not forgiven is 10 years.

Below is an initial summary of provisions of the stimulus package bill that should be of interest to our clients.  Please note the final bill has not been voted on by the Senate or House.  Even the fine print on this bill has fine print, so if it becomes law it will take days to fully digest.  Some or all of the below may not be part of the final bill.  We will provide full details upon enactment. 

Small businesses will be eligible to receive emergency loans if they keep their workers

The bill provides federally guaranteed loans available at community banks to small businesses that pledge not to lay off their workers. The loans would be available during an emergency period ending June 30 and would be forgiven if the employer continued to pay workers for the duration of the crisis. Small businesses will be able to take out loans of up to $10 million, and employers could use the money to pay employees making up to $100,000 a year.  Loans taken for this purpose are forgiven if the business does not lay off its employees (forgiveness is scaled down as layoffs rise). In order to be eligible for a loan, a firm must maintain an average monthly number of employees during the covered period that is no less than the number it had before the crisis began. What businesses are eligible or how these loans will be administered is not known at this time.

Business payroll tax relief

Employer-side Social Security payroll tax payments may be delayed until January 1, 2021, with 50 percent owed on Dec. 31, 2021 and the other half owed on Dec. 31, 2022.

Direct payments to taxpayers

The bill would provide a $1,200 refundable tax credit for individuals ($2,400 for joint taxpayers). This “credit” will entail a check based on your most recently filed tax return (2018 or 2019 tax return) direct-deposited to your bank account on file or sent via mail.  If you haven’t filed a tax return, the bill allows Treasury to use the information on your 2019 Form SSA-1099, Social Security Benefit Statement, Form RRB-1099, Social Security Equivalent Benefit Statement.

The rebate phases out at $75,000 for singles, $112,500 for heads of household, and $150,000 for joint taxpayers at 5 percent per dollar of qualified income, or $50 per $1,000 earned. It phases out entirely at $99,000 for single taxpayers and $198,000 for joint taxpayers. Additionally, taxpayers with children will receive a flat $500 for each child.

Other business provisions

The bill includes technical corrections to the depreciation treatment of qualified improvement property (QIP).

Firms may take net operating losses (NOLs) earned in 2018, 2019, or 2020 and carry back those losses five years. The NOL limit of 80 percent of taxable income is also suspended, so firms may use NOLs they have to fully offset their taxable income.

The net interest deduction limitation, which currently limits businesses’ ability to deduct interest paid on their tax returns to 30 percent of earnings before interest, tax, depreciation, and amortization (EBITDA), has been expanded to 50 percent of EBITDA for 2019 and 2020.

The bill also provides $562 million to ensure the Small Business Administration can cover Economic Injury Disaster Loans to businesses.

Retirement Plans

The bill waives the 10 percent early withdrawal penalty on retirement account distributions for taxpayers facing virus-related economic challenges. Withdrawn amounts are taxable over three years, but taxpayers can recontribute the withdrawn funds into their retirement accounts for three years without affecting retirement account caps. The bill also waives required minimum distribution rules for certain retirement plans in calendar year 2020.

Students with federal loans can suspend payments until Sept. 30, interest-free. Students who must drop out of school because of the virus also don’t have to pay loans for that time.

Unemployment benefits

Lawmakers agreed to an expansion of unemployment benefits that would extend jobless insurance by 13 weeks and include a four-month enhancement of benefits. The program was broadened to include freelancers, furloughed employees and gig workers.  Most people who lost their jobs can already file for state unemployment insurance, and millions have tried to do that already, overwhelming state systems. This Senate bill will give an extra $600 per week for up to four months to people already receiving their states’ unemployment insurance.  The bill also temporarily expands unemployment insurance to people who would like to work but can’t because they are sick or are caring for a family member who is, including people who are self-employed or who don’t have an extensive work history.

The Families First Coronavirus Response Act (the Act) was signed into law last week to further combat the economic impact of the COVID-19 outbreak. Some key provisions of the Act are provided below.

Affected employers must be prepared to implement the Act’s leave programs “not later than 15 days after the date of enactment” of March 18th, 2020. Thus, the effective date would be April 2, 2020, with the Act remaining in effect until December 31, 2020.

The new law grants two weeks of paid sick leave and up to 12 weeks of paid family and medical leave.

Under the Act part-time employees also get paid sick leave equivalent to the number of hours they typically work during a two-week period. For example, if a person usually works 20 hours a week they are eligible for up to 40 hours of pay.

Sick leave is to be paid at the usual pay rate capped at $511 per day (or $200 per day at only 2/3 of pay if it is due to childcare and not quarantine/symptoms).

Family leave is to be paid at two-thirds of the usual pay rate capped at $200 per day. Paid family and medical leave would compensate employees earning up to about $75,000 a year for the three-month period.

Emergency Paid Sick Leave

Under the Act, full-time employees will immediately become entitled to up to 80 hours of emergency paid leave only for the following circumstances:

To self-quarantine after a diagnosis of COVID-19 (in which case the paid leave must be equal to the employee’s regular rate of pay);

To obtain a medical diagnosis or care if the employee is experiencing symptoms of COVID-19 (in which case the paid leave must be equal to the employee’s regular rate of pay);

To comply with orders from public health officials or healthcare professionals not to report to work due to the employee being exposed to COVID-19 or experiencing COVID-19 symptoms (in which case the paid leave must be equal to the employee’s regular rate of pay);

To care for a family member who is self-quarantined, obtaining a medical diagnosis or care after experiencing COVID-19 symptoms, and/or complying with an order from a public health official or healthcare professional (in which case the paid leave must be equal to 2/3 of the employee’s regular rate of pay); or

To care for a child whose school or childcare provider is closed due to COVID-19 (in which case the paid leave must be equal to 2/3 of the employee’s regular rate of pay).

The Act provides that this emergency paid sick leave will be in addition to any other paid leave options that the employer provides (including paid sick leave) to employees, the employer will not be able to require an employee to first exhaust other paid leave, and an employer will not be permitted to change other leave policies in light of the Act.

The Act also includes anti-retaliation protections for employees who use the paid sick leave and/or complain of violations of the same.

Emergency Paid Family and Medical Leave

Under the Act, employees will be entitled to job-protected paid family and medical leave if they are unable to work (or telework) and have to care for a child (under age 18) whose school or child care provider is closed due to COVID-19.

Unlike traditional FMLA which applies only to employees who, among other things, have been employed for 12 months, the only prerequisite for leave under the Act is that the employee has been employed for 30 calendar days.

The Act provides that the first 10 days of the leave will be unpaid (unless the employee chooses to use other paid leave, such as emergency paid sick leave available under the Act, during the 10-day period). For the remainder of the leave, the employee must be paid 2/3 of his or her regular rate of pay. Unlike regular FMLA leave, the employer will not be permitted to require the substitution of paid leave.

Family leave is to be paid at two-thirds of the usual pay rate capped at $200 per day.

Under the Act, employees will still only be entitled to a combined 12 weeks of leave (paid and unpaid) during any 12-month period for FMLA-covered reasons.

Payroll tax credit for required paid family leave

Subject to certain limitations, the bill provides an employer payroll tax credit that equals 100% of the qualified family leave wages paid by the employer under the portion of the bill known as the Emergency Family and Medical Leave Expansion Act (Division C of the bill). The Emergency Family and Medical Leave Expansion Act requires employers with fewer than 500 employees to provide public health emergency leave under the Family and Medical Leave Act (FMLA), P.L. 103-3, when an employee is unable to work or telework due to a need for leave to care for a son or daughter under age 18 because the school or place of care has been closed, or the child care provider is unavailable, due to a public health emergency related to COVID-19. (Employers with fewer than 50 employees can be exempted from the requirement.)

The credit is available for eligible wages paid during a period that begins on a date starting on a date within 15 days of enactment (to be designated by Treasury) and through Dec. 31, 2020. The credit would apply against the employer portion of Sec. 3111(a) old age, survivors, and disability insurance (OASDI) taxes or Sec. 3221(a) Tier 1 Railroad Retirement Act excise taxes. The credit is generally available for up to $200 in wages for each day an employee receives qualified family leave wages. A maximum of $10,000 in wages per employee would be eligible for the credit. The amount of the credit is increased by the amount of the Sec. 3111(b) Medicare tax imposed on the qualified family leave wages for which credit is allowed.

If an employer claims the credit, the employer’s gross income will be increased by the amount of the credit (meaning the credit is not taken into account for purposes of determining any amount allowable as a payroll tax deduction, deduction for qualified family leave wages, or deduction for health plan expenses), and no credit will be allowed for wages for which a Sec. 45S family and medical leave credit is claimed. The credit would not apply to the federal government, the government of any state or any subdivision of a state, or any agencies or instrumentalities of these entities. Employers also could elect not to apply the new provision for any calendar quarter.

The credit would not apply to the U.S. government, the government of any state or any subdivision of a state, or any agencies or instrumentalities of the foregoing. Employers can elect not to apply the new provision for any calendar quarter.

The credit can be increased by certain qualified health plan expenses of the employer that are allocable to qualified family leave wages for which the credit is allowed.

Payroll tax credit for required paid sick leave

Subject to certain limitations, the bill provides an employer payroll tax credit that equals 100% of the qualified sick leave wages paid by the employer under the portion of the bill known as the Emergency Paid Sick Leave Act (Division E of the bill). The Emergency Paid Sick Leave Act requires employers with fewer than 500 employees to provide up to 80 hours of paid sick time through the end of this year if the employee is unable to work due to being quarantined or self-quarantined or having COVID-19 or because the employee is caring for someone who is quarantined or self-quarantined or has COVID-19 or if the employee is caring for children whose school has been closed because of COVID-19 precautions. (Employers with fewer than 50 employees can be exempted from the requirement.)

The credit is effective for sick leave wages paid starting on a date within 15 days of enactment (to be designated by Treasury) and through Dec. 31, 2020. The credit will apply against Sec. 3111(a) OASDI taxes or Sec. 3221(a) Tier 1 Railroad Retirement Act excise taxes. The credit is generally available for up to $511 in wages (for workers who are quarantined or self-quarantined or who have COVID-19) and wages of up to $200 for other workers for each day an employee receives qualified sick leave pay. The credit would be available for up to 10 days per calendar quarter. The amount of the credit is increased by the amount of the Sec. 3111(b) Medicare tax imposed on the qualified sick leave wages for which credit is allowed.

To prevent double benefits, employers’ gross income will be increased by the amount of the credit (meaning the credit is not taken into account for purposes of determining any amount allowable as a payroll tax deduction, deduction for qualified sick leave wages, or deduction for health plan expenses), and no credit will be allowed for wages for which a Sec. 45S family and medical leave credit is claimed. The credit would not apply to the federal government, the government of any state or any subdivision of a state, or any agencies or instrumentalities of these entities. Employers also could elect not to apply the new provision for any calendar quarter.

The credit can be increased by certain qualified health plan expenses of the employer that are allocable to qualified sick leave wages for which the credit is allowed.

Comparable tax credits for self-employed individuals

If you are a self-employed individual who is affected by the coronavirus emergency, the Act allows you to claim a refundable credit against your federal income-tax bill, including the self-employment tax. If the credit exceeds your bill, the government will issue you a payment for the excess.

The credit equals: 1) 100% of the self-employed person’s sick-leave equivalent amount plus 2) 67% of the sick-leave equivalent amount for taking care of a sick family member or taking care of your child following the closing of the child’s school.

The sick-leave equivalent amount equals the lesser of: 1) your average daily self-employment (SE) income or 2) $511 per day for up to 10 days (up to $5,110 in total) to care for yourself due to the coronavirus or $200 per day for up to 10 days (up to $2,000 in total) to care for a sick family member or your child following the closing of the child’s school due to the coronavirus.

In addition, you can claim a coronavirus emergency family-leave credit for up to 50 days. The credit amount would equal the number of qualified family-leave days multiplied by the lesser of 1) $200 or 2) your average daily SE income. The maximum total family-leave credit would be $10,000 (50 days times $200 per day).

These credits for self-employed individuals are only allowed for days during the period beginning on a date specified by the Secretary of the Treasury and ending on Dec. 31, 2020. The beginning date will be within 15 days of the March 18 date the Act became law.

Warning: To properly claim the credits, self-employed individuals must maintain whatever documentation the IRS requires in future guidance. Your tax professional can help with that.

We will provide additional information as it becomes available. View additional firm updates and resources related to COVID-19 anytime at https://www.kwccpa.com.

Treasury Secretary Steven Mnuchin announced on Friday that tax returns normally due on April 15 will not be due until July 15 this year. The news came in a tweet, and the IRS has not yet issued official guidance on the move.

The Treasury secretary’s tweet read, “At [President Donald Trump’s] direction, we are moving Tax Day from April 15 to July 15. All taxpayers and businesses will have this additional time to file and make payments without interest or penalties.”

On Wednesday, the IRS had announced in Notice 2020-17 that it was pushing back the deadline for federal tax payments due on 2019 and first quarter 2020 taxes (up to $1 million for individuals and up to $10 million for corporations) that were due on April 15 to July 15, but it did not at that time postpone any filing deadlines.

It is important to note that state tax filing deadlines do not necessarily comply with IRS. For example Maryland has delayed its filing and payment deadlines until July 15th, while Virginia and DC have not as of yet.

At KWC CPAs we will continue to work as diligently as possible under the circumstances to complete your tax return as soon as possible. Even if April 15th is not a hard deadline, we encourage you to not use the extended deadline to delay providing us your tax information.

The safety and well-being of our clients and staff are the highest priority. Our thoughts remain with everyone affected by the COVID-19 crisis.

UPDATED MARCH 18, 2020

On Tuesday, Treasury Secretary Mnuchin announced that the White House economic stimulus plan included a 90-day penalty and interest free delay for payment of tax due. The tax due which may be deferred is limited to $1 million for individuals and $10 million for corporations.

It is important to note that the Treasury Secretary did not announce a change to the filing deadline of April 15. This may differ from what is being reported by some news outlets where articles may be written by non-tax professionals who are unaware of the difference in filing deadlines and payment deadlines. There was also no guidance on whether first quarter 2020 estimated tax payments will be delayed. We are awaiting official written guidance from the IRS. State income tax filing delays are in flux with limited official information available.

The American Institute of CPAs has reached out to the IRS to gain additional clarity on both the payment delays and the expectation for the filing deadline.

At KWC offices we have implemented social distancing and many of us are working remotely. The offices are open to receive mail and deliveries, we are available by phone or e-mail and you may use our client portal to send us information electronically. We are strongly discouraging any in person meetings with clients at this time.

The safety and well-being of our clients and staff are the highest priority. Our thoughts remain with everyone affected by the COVID-19 crisis.

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