Posts on this page reflect tax law change alerts & updates for new provisions passed by Congress that may impact you. We also periodically post reminders & updates that may impact our clients. While we try to be as detailed as possible, we ask that clients contact their BenderCPA advisor with any questions before taking action based on a post to ensure your intended outcome is achieved.
As you may have heard, Congress recently passed the Setting Every Community Up for Retirement Enhancement 2.0 Act of 2022 (SECURE 2.0 Act) as part of a large omnibus funding bill. This act contains a number of provisions that impact retirement plans and distributions that may impact you. Some changes are immediate; others are deferred to 2024 or later years. If you’re a business owner, some changes require amendments to your retirement plan to be effective. The following is a summary of the major provisions of the law for your consideration:
Tax-free rollovers from 529 accounts to Roth IRAs. After 2023, the Act permits beneficiaries of 529 college savings accounts to make up to $35,000 of direct trustee-to-trustee rollovers from a 529 account to their Roth IRA without tax or penalty. The 529 account must have been open for more than 15 years, and the rollover is limited to the amount contributed to the 529 account (and its earnings) more than five years earlier. Rollovers are subject to the Roth IRA annual contribution limits (currently $6,000 per individual) but are not limited based on the taxpayer's AGI.
Age increased for required distributions. Under the Act, the age for required distribution increases, in two stages, from the current age of 72 to age 73 for those who turn age 72 after 2022, and to age 75 for those who attain age 74 in 2032.
Bigger catch-up contributions permitted. Starting in 2025, the Act increases the current elective deferral catch-up contribution limit for older employees from $7,500 for 2023 ($3,500 for SIMPLE plans) to the greater of $10,000 ($5,000 for SIMPLE plans), or 50% more than the regular catch-up amount in 2024 (2025 for SIMPLE plans) for individuals who attain ages 60-63. The dollar amounts are inflation-indexed after 2025.
More penalty-free withdrawals permitted. The Act adds an exception after 2023 to the 10% early withdrawal penalty tax for one distribution per year of up to $1,000 used for emergency expenses to meet unforeseeable or immediate financial needs relating to personal or family emergencies. The taxpayer has the option to repay the distribution within three years. No other emergency distributions are permissible during the three-year period unless repayment occurs.
Similarly, plans may permit participants that self-certify having experienced domestic abuse to withdraw the lesser of $10,000, indexed for inflation, or 50% of their account free from the 10% tax on early distributions. The participant has the opportunity to repay the withdrawn money from the retirement plan over three years and get a refund of income taxes on money that is repaid. Also, the additional 10% early distribution tax no longer applies to distributions to terminally ill individuals.
Beginning December 29, 2025, retirement plans may make penalty-free distributions of up to $2,500 per year for payment of premiums for high quality coverage under certain long term care insurance contracts.
Also, retroactive for disasters after January 25, 2021, penalty free distributions of up to $22,000 may be made from employer retirement plans or IRAs for affected individuals. Distributed amounts are included in gross taxable income over three years. Distributions can be repaid to a tax preferred retirement account. Additionally, amounts distributed prior to the disaster to purchase a home can be recontributed, and an employer may provide for a larger amount to be borrowed from a plan by affected individuals and for additional time for repayment of plan loans owed by affected individuals.
The Act also contains an emergency savings provision that allows employers to offer non-highly compensated employees emergency savings accounts linked to individual account plans that automatically opt employees into these accounts at no more than 3% of their salary, capped at a maximum of $2,500. Employees can withdraw up to $1,000 once per year for personal or family emergencies without certain tax consequences.
Reduced penalty tax on failure to take RMDs. For tax years beginning after December 29, 2022, the Act reduces the penalty for failure to take required minimum distributions from qualified retirement plans, including IRAs, or deferred compensation plans under Code Sec. 457(b) from the current 50% to 25% of the amount by which the distribution falls short of the required amount. It reduces the penalty to 10% if the failure to take the RMD is corrected in a timely manner.
Tax-exempt disability retirement payouts for first responders. The Act allows law enforcement officers, fire fighters, paramedics, and emergency medical technicians to exclude from gross income certain service-related disability pension or annuity payments (from a 401(a), 403(a), governmental 457(b), or 403(b) plan) after they reach retirement age. The exclusion applies to amounts received for post-2026 tax years.
Return of excess contributions. The Act specifies that earnings attributable to excess IRA contributions that are returned by the taxpayer's tax return due date (including extensions) are exempt from the 10% early withdrawal tax. The taxpayer must not claim a deduction for the distributed excess contribution. This applies to any determination of, or affecting, liability for taxes, interest, or penalties made on or after December 29, 2022.
Bigger tax credit for start-up retirement plans. The SECURE Act improves the small employer pension plan start-up cost credit in three ways for tax years starting after 2022.
First, it makes the credit equal to the full amount of creditable plan start-up costs for employers with 50 or fewer employees (up to an annual cap). Previously only 50% of costs were allowed (which still applies to employers with 51 to 100 employees).
The Act also retroactively fixed a technical glitch that prevented employers who joined multi-employer plans in existence for more than three years from claiming the start-up cost credit. Employers that joined a pre-existing multi-employer plan in 2000 or 2001 should contact us about filing amended returns claiming the credit.
Perhaps the biggest change is that certain employer contributions for a plan's first five years now may qualify for the credit. The credit is increased by a percentage of employer contributions, up to a per-employee cap of $1,000: It is 100% in the plan's first and second tax years, 75% in the third year, 50% in the fourth, and 25% in the fifth. For employers with between 51 and 100 employees, the contribution portion of the credit is reduced by 2% times the number of employees above 50.
In addition, no employer contribution credit is allowed for contributions for employees who make more than $100,000 (adjusted for inflation after 2023). The credit for employer contributions also is not available for elective deferrals or contributions to a defined benefit pension plan.
Automatic salary deferral enrollment. For plan years beginning after 2024, the Act provides that a plan that permits salary deferrals generally will not be treated as a qualified cash or deferred arrangement or annuity contract unless it includes an automatic contribution arrangement (EACA) that satisfies these requirements:
<![if !supportLists]>1. <![endif]>it must allow permissible withdrawals within 90 days after the first elective contribution;
<![if !supportLists]>2. <![endif]>automatic contributions must be 3% to 10% during a participant's first participation year, unless the participant elects out, automatically increasing by one percentage point each year to between 10% and 15% (but no more than 10% for plan years ending before 2025 for any non-"safe harbor" plan; and
<![if !supportLists]>3. <![endif]>if the participant makes no investment election, automatically contributed amounts must be invested in accordance with DOL default investment rules.
Exceptions: Automatic enrollment is not required for SIMPLE 401(k) plans, plans established before December 29, 2022, governmental or church plans, plans maintained by an employer in existence for less than three years or with fewer than 11 employees.
New "starter 401(k) plans. The Act establishes two new kinds of retirement plan designs for plan years beginning after 2023, which smaller employers may be inclined to offer to employees due to their eased costs and administrative burdens:
<![endif]>a new type of section 401(k) plan called a
starter 401(k) deferral-only arrangement, which is a cash or deferred
arrangement maintained by an eligible employer that automatically satisfies the
actual deferral percentage (ADP) nondiscrimination test. An employer can generally offer this type of
plan only if it maintains no other plan in that year. All employees who meet the plan's age and
service requirements must be eligible to participate.
The contribution percentage must be from 3% to 15%, applied uniformly. Employees may elect out or choose to contribute at a different level. No matching or nonelective contributions are permitted. Employee elective contributions for a calendar year may not exceed $6,000, adjusted for inflation, but catch-up contributions of up to $1,000, inflation indexed, are permitted for employees age 50 or over.
<![if !supportLists]>· <![endif]>a new type of 403(b) plan called a safe harbor deferral-only plan, for which requirements similar to those described for starter 401(k) deferral-only arrangements apply.
Matching or nonelective Roth contribution option. Before the Act, employers were not permitted to make matching or nonelective contributions on a Roth basis. For contributions made after December 29, 2022, however, a Code Sec. 401(a) qualified plan, a Code Sec. 403(b) plan, or a governmental Code Sec. 457(b) plan may permit a participant to designate some or all employer matching contributions and nonelective contributions as designated Roth contributions. This applies only to the extent that a participant is fully vested in these contributions.
Contribution changes for SIMPLE plans. Employers with SIMPLE plans currently must either make contributions for employees of 2% of compensation or match employee elective deferral contributions up to 3%. For tax years beginning after 2023, the Act permits an employer to make additional contributions to each employee of the plan in a uniform manner, of up to the lesser of up to 10% of compensation or $5,000 (indexed).
The Act also increases the SIMPLE annual deferral limit and the catch-up contribution at age 50 by 10%, compared to the limit that would otherwise apply in the first year this change is effective (tax years after 2023) for employers with no more than 25 employees. Employers with 26 to 100 employees could provide for higher deferral limits, but only if they either provide a 4% match or a 3% employer contribution. Similar changes to the contribution limits also apply for SIMPLE 401(k) plans.
Restriction for pass-throughs. The Act disallows a charitable deduction for an otherwise-qualified conservation easement contribution made by a partnership, S corporation, or other pass-through entity, if the amount contributed exceeds 2.5 times the sum of each partner/member's basis in the contributing entity. Exceptions apply where the contribution meets (1) a three-year holding period test, (2) substantially all of the contributing entity is owned by members of a family, or (3) the contribution relates to a certified historic structure (for which there is a new reporting requirement).
Correcting easement deeds. The Act allows taxpayers to correct easement deed language for extinguishment clauses and boundary line adjustments, substituting safe-harbor language to be issued by IRS-but not for easements involving tax shelters, contributions to which the above pass-through disallowance applies, docketed Tax Court cases, or where penalties have been finalized. The provision applies to contributions made after December 29, 2022.
We know that this amount of information is overwhelming, but there is much here that may affect you or your business. While many of these changes will be items to review with your investment advisor or plan administrator, your BenderCPAs advisor can assist with how these changes may impact your tax picture for 2023 and beyond. Please feel free to reach out if you wish to discuss further.
As many of you have heard, the IRS extended the 2020 tax filing deadline to May 17, 2021 (IRS Release: IR-2021-59). This change is for the deadline to file your tax return as well as pay any Federal balances due for the 2020 tax year. No extra forms or filings are required to obtain the extra four weeks to file or pay.
Unfortunately, the IRS did not change the deadline for 1st quarter 2021 estimated tax payments. Those payments, if required, must still be postmarked by April 15th to be considered timely paid.
Separate from the Federal filing due date, many state returns are also due April 15th. Some states will automatically move their due date to May 17th to follow the Federal due date, but many states will need to issue specific guidance or have their legislatures authorize a change in the filing or payment due dates. At this time, we have not seen any specific guidance from Missouri or Illinois as to how the Federal change will impact the state filings.
For returns that we have already finished where you have not yet paid your balance due, you now have until May 17th to make your Federal payment. Vouchers do not need to be re-issued to reflect the new date (just send the payment per the instructions you were previously provided). Any 1st quarter 2021 estimated tax payments, however, should still be mailed by April 15th to avoid penalties.
For returns still in process in our office, we are continuing to work diligently to get returns completed in the order we received them. Some 2020 returns with unemployment income, however, cannot be filed until we receive guidance from the IRS on recent law changes (the American Rescue Plan Act of 2021 was signed by President Biden on March 11, 2021). Once the IRS issues that guidance and our tax software provider implements the updates in our software, we can get those returns finalized.
Despite the Federal due date change to May 17th, returns in our office may still require extensions past the May 17th deadline. We continue to work to complete as many returns as possible; however, depending on when our software is able to handle non-taxable unemployment income, whether state deadlines are adjusted, and our available workload over the next 5-6 weeks, not every return will be ready to file before May 17th. As necessary, we will contact you to discuss action items for Federal and/or state extensions. In connection with filing these extensions, we will also incorporate a planned overpayment of your 2020 return to cover your 1st quarter 2021 estimated payment requirements (as applicable).
Thank you in advance for your understanding as we work through this busy time of year. If you have any questions about how the deadline change impacts your specific situation, please feel free to reach out to your BenderCPA tax advisor.
Congress established SBA’s Economic Injury Disaster Loan (“EIDL”) program as an early financial relief for businesses impacted by the COVID pandemic. While the initial $10,000 advance had few requirements to obtain, businesses who went on to get the actual loan needed to certify that the loan was required and agree to only spend the funds on certain categories of expenses.
Beyond those original certifications, however, the EIDL loan documents also included a laundry list of other activities that cannot occur while the EIDL is outstanding. Since many of the EIDL loans have a 30‑year term, some of these restrictions may be burdensome for business owners once the impact of the pandemic has subsided.
Forbes recently released an article (Link: https://tinyurl.com/y6bx4szd) outlining potential pitfalls that EIDL borrowers may not even be aware of. While we recommend EIDL borrowers read the full article, the conclusion was that many borrowers may potentially be in violation of both civil and criminal statutes, in addition to their loan documents, due to the following:
<![if !supportLists]>1. <![endif]>Their business did not face a “Substantial Injury” as required by the law when they applied for the loan originally. This is a much higher threshold than the “uncertainty” required for the PPP loan.
<![if !supportLists]>2. <![endif]>They spent the money on prohibited business expenses including purchasing fixed assets, some repairs, refinancing or paying-down existing debts beyond normal payments, any penalty, or relocation costs.
<![if !supportLists]>3. <![endif]>They made prohibited owner distributions, including dividends, owner draw, personal expenses for owners, or paid down owner loans. Borrowers with EIDLs are 100% prohibited from making ANY owner distributions while the loan is in place.
While careful direct tracing of EIDL funds is possible to avoid some of these issues, many borrowers may not be as diligent with the EIDL funds as they should be. Especially if EIDL funds were not placed in a separate bank account, there is a risk that the SBA could contest tracing of a borrower’s use of the loan from co-mingled EIDL and operating funds.
We recommend that any clients with EIDL loans re-visit their initial certifications and document the “Substantial Injury” that qualified them for the loan. In addition, clients should keep a detailed log of how EIDL funds were spent (with supporting documentation). BenderCPA advisors are available to help with tracing documentation, if requested.
Borrowers who have concerns about whether they meet the requirements for the EIDL should pay back their loan as soon as possible to mitigate their risk if their loan is reviewed. Paying the loan back early will also release the business from the burdensome restrictions of the EIDL going forward. Borrowers should consult their attorney as to the potential legal ramifications of violating the EIDL requirements in their specific circumstances.
In summary, while the EIDL program provided much needed cash-flow for some businesses impacted by the pandemic, the restrictions it places on borrowers make it a less attractive long-term relief option. We recommend borrowers take a close look at their situation and consider paying-off the EIDL as soon as possible to avoid its risks and restrictions.
The Bender & Company CPA offices will be re-opening to clients beginning Monday, June 15th for normal business hours (M-F, 8:30am - 5pm). However, in light of the ongoing pandemic, we will have some safety-related limitations for both the safety of our clients and staff.
For those who would prefer an alternative to meeting in-person, we are happy to meet by phone or video conference. If you would like to meet by phone or video, please contact us and we’ll explain how.
General office guidelines:
<![if !supportLists]>1. <![endif]>If you or anyone else in your household are feeling sick, please schedule a phone or video conference meeting instead of visiting our office. Likewise, our staff will not be working in the office if they are feeling sick.
<![if !supportLists]>2. <![endif]>Clients are welcome to come to the office to pick-up or drop-off information or to pay a bill. When visiting our office for a pick-up/drop-off, masks are strongly encouraged, but not required.
<![if !supportLists]>3. <![endif]>If you need to have a sit-down meeting with a staff member, we are requiring appointments to allow proper time for sanitizing between meetings. To schedule an appointment, please contact your BenderCPA advisor to get on their calendar. Masks are required for sit-down meetings. Clients are encouraged to bring their own masks, but we will provide if needed.
<![if !supportLists]>4. <![endif]>Remember, as an alternative to visiting our office, you can upload/download documents securely via your secure client portal. Invoices can also be paid via credit card over the phone or by mailing us a check.
<![if !supportLists]>5. <![endif]>We require that everyone follow social distancing rules while in our office. We will not shake hands or make physical contact.
<![if !supportLists]>6. <![endif]>For the time being, our restrooms will be restricted to staff only except in case of emergencies.
If you have any questions or concerns, please call our main office at 314-525-7125 and we will be happy to assist you.
As promised, we have kept a close watch on new legislation that affects the Paycheck Protection Program (PPP) and have an important update for you.
The Paycheck Protection Flexibility Act of 2020 or HR7010 (https://www.congress.gov/bill/116th-congress/house-bill/7010/text) was signed into law by the President last week and offers adjustments to PPP loans—particularly regarding forgiveness calculations. Key changes are as follows:
<![if !supportLists]>· <![endif]>Covered time period extended—The period of time to use loan money has been extended from 8 to 24 weeks. This means that you have more time to apply funds to qualified expenses that maximize loan forgiveness.
<![if !supportLists]>· <![endif]>Payroll tax payments deferred—Originally under the Cares Act, employers who received the PPP Loan could not also defer employer social security payroll tax payments. HR7010 adjusted this to allow any employer with social security payroll tax payments due between March 27, 2020 and December 31, 2020 to pay half of the amount due by the end of 2021 and the remainder by the end of 2022.
<![if !supportLists]>· <![endif]>Payroll threshold adjusted—Originally, the Department of Treasury and the SBA determined that 75 percent of a PPP loan had to be used for payroll in order for the loan to be forgiven. The 75 percent threshold has been adjusted to 60 percent with the new law. Full loan forgiveness will only be granted if at least 60 percent of funds are used for payroll costs.
<![if !supportLists]>· <![endif]>Safe harbor date extended—The original Cares Act included safe harbor exceptions to restore or attempt to restore employee positions and any pay reductions by June 30, 2020. These exceptions still exist, but the date to restore has been adjusted to December 31, 2020.
<![if !supportLists]>· <![endif]>Loan payment deferral and loan term extended—The original 6-month deferral for repayment of PPP loans has been extended to 10 months. Payments are only required on the amount of the loan that is not forgiven. In addition, PPP loans can now have up to a five-year term under HR7010. It’s unclear at this point how banks will accommodate these changes into existing promissory notes. As such, any businesses who do not expect to have complete forgiveness should work with their banks to amend loan documents as needed.
We hope this update helps. Again, we will continue to closely monitor new legislation and inform you on the key changes that may affect your PPP loan.
Nearly 6 weeks after the program began, the SBA finally issued guidance on May 15th on how businesses calculate and claim forgiveness for Payroll Protection Program (PPP) loans. The guidance came as forms and instructions borrowers will provide to their lender to request forgiveness. The 11 pages, which can be found on the SBA website (link: https://tinyurl.com/yb9m5uxj) provide much-needed definitions and calculation worksheets businesses have been asking for.
All guidance from the SBA, including a series of Interim Final Rule releases can be found at the SBA’s PPP website (link: https://tinyurl.com/yajrumvz).
We’ve received a laundry list of questions from clients over the past several weeks related to the PPP. Here are some of the bigger ones, including updates from last week’s forgiveness guidance:
Q: I’ve read that businesses who did not return their PPP by May 18th could be in trouble if they had other funds available when they made the PPP application. Am I going to jail?
A: No. In response to large companies who received PPP loans in the initial tranche, the SBA clarified that large borrowers who had access to other capital may not be able to make a representation on the application in good faith and could be subject to prosecution. To allow these businesses to remedy their situation, the SBA created a good-faith safe harbor for those companies if they returned their PPP funds by May 18th.
Small businesses who received less than $2 million in PPP loans, however, were specifically exempted. Any business (plus its affiliates) who receives less than $2 million is automatically deemed to have made the required certification in good faith and does not need to demonstrate that it did not have access to other funds within the company. See SBA Q&A #46.
Q: What is included in “qualified spending” for purposes of calculating PPP loan forgiveness?
A: PPP borrowers have 8 weeks (56 days) from the date your PPP loan proceeds are received to make qualified payroll and non-payroll expenditures for loan forgiveness. The 5/15 SBA guidance clarified that the date you receive your loan counts as day 1.
For payroll-related costs, the SBA clarified that amounts paid OR incurred within the 8-week Covered Period (CP) described above are included in the forgiveness calculation. The “or incurred” would include pay period dates that occur before the end of the 56 day period, even if those days are actually paid on a paycheck that’s processed after the end of the Covered Period. This could allow 9-10 weeks of payroll to be in the calculation, depending on your pay cycle.
The SBA also created a second, optional method for determining payroll cost for businesses who pay bi‑weekly or more frequently. This Alternative Payroll Covered Period (APCP) begins at the start of the first full pay period after the loan is received and continues for 8-weeks (i.e. 4 bi-weekly or 8 weekly payrolls). This applies for payroll costs only (i.e. non-payroll costs like rent and utilities must be paid within the 56-day CP). If the borrower elects the APCP, that method must be used for all payroll-related calculations (FTE hours, wage/salary reduction, non-cash payroll costs, etc.)
Regardless of which method is elected, “payroll costs” include gross wages paid on payroll (limited to $15,385 per employee) plus the employer’s portion of health insurance premiums, retirement plan contributions, and employer state/local payroll taxes (ex. state unemployment). SBA has not clarified whether bonus compensation is eligible for forgiveness; however, we recommend that only business-necessary bonuses be paid to avoid potentially abusing the program. Necessary bonuses may include: signing bonuses, “stay” bonuses, contractually required bonuses, etc.
Non-payroll costs, which can only represent 25% of the loan forgiveness, include:
<![if !supportLists]>· <![endif]>Business interest paid on ‘mortgage’ obligations on real or personal property incurred before 2/15/2020. The SBA does not define what specifically constitutes a ‘mortgage obligation’, however the general definition includes a loan secured by real or personal property. It is still unclear if the loan must have been used to acquire the underlying collateral or if any secured debt would qualify.
<![if !supportLists]>· <![endif]>Business rent or lease payments for real or personal property paid under a lease in force before 2/15/2020. As an update from prior guidance, the new instructions include lease payments for personal property in qualified payments (leased vehicles, leased office equipment, etc.).
<![if !supportLists]>· <![endif]>Business utilities, including electric, gas, water, telephone, cell phone, internet service, and transportation. SBA has not clarified what is included in a “transportation” utility. However, previous guidance related to self-employed individuals suggests this could include fuel for business vehicles or standard mileage reimbursements.
Q: I’m a business owner or general partner or self-employed. How are my earnings treated for Payroll Cost purposes?
A: Business owners who are on payroll (corporations or S-corporations) are treated like any other employee, except that their qualified wages are limited to the lesser of: (1) CP/APCP 2020 compensation, (2) 8-weeks of average 2019 gross compensation, or (3) $15,385. Likewise, general partners carry the same limitation, but with respect to their guaranteed payments and partnership self-employment income (K-1 Box 14).
Self-employed individuals include a “compensation replacement” amount based on 8-weeks of average 2019 Schedule C earnings (limited to $15,385). This amount does not need to be actually paid to you as the owner, but it may be taken as draw during the CP/APCP.
Q: I’ve had to furlough/lay-off employees or have reduced hours/wages because of the pandemic. Will that impact my ability to claim forgiveness?
A: Maybe. The PPP forgiveness is potentially limited if you reduce employee wages more than 25% over pre-pandemic levels (Wage/Salary Reduction) or if your Full-Time Equivalents (FTEs) during the Covered Period or Alternative Payroll Covered Period decrease from a reference period (FTE Adjustment). The recent guidance provided some much-needed safe harbors and clarifications for both tests.
If an employee’s pay rate is decreased more than 25% as compared to that employee’s wages during Q1 2020 (Jan 1 – Mar 31) that employee’s gross pay eligible for loan forgiveness will be limited. This reduction is applied on an employee-by-employee basis. However, this test does not apply to any employee who received a paycheck in 2019 that would be more than $100,000 if annualized. For example, if an employee received a single bi-weekly paycheck in 2019 with gross wages of more than $3,846.15 ($100,000 / 52 weeks x 2 weeks), then that employee is automatically excluded from the Wage/Salary Reduction. Common examples of when this may apply would be employees who have salaries of more than $100,000 or who receive bonuses or commission payments that increase their pay over the $100,000 annualized mark.
When calculating FTEs, the SBA has clarified that an employee who works more than 40 hours per week on average counts as one (1) FTE. For any employee who works less than 40 hours per week on average a business can use the “Regular Method” and calculate a fractional FTE (rounded to one decimal) or can use a “Simplified Method” and calculate any <40 hour employee as a half-FTE (0.50). Electing the Regular or Simplified method must be done for all FTE calculations.
To avoid a reduction in loan forgiveness, the business’ FTEs during the Covered Period or Alternative Payroll Covered Period, discussed above, must be equal to or greater than the FTEs during a Reference Period. The Reference Period is either 2/15/2019 – 6/30/2019 or 1/1/2020 – 2/29/2020. Our expectation is that a business would run the FTEs for both reference periods and would elect the lower of the two.
Regardless of the FTEs during the CP/APCP as compared to the reference period, the SBA has provided a Safe Harbor test to avoid the FTE Adjustment all together. To qualify for the FTE Safe Harbor, the business’ average FTEs between 2/15/2020 and 4/26/2020 must be less than the FTEs as of 2/15/2020 AND the business restores its FTE count to the same level as 2/15/2020 on or before 6/30/2020 (irrespective of the 8-week CP/APCP).
When computing all FTE tests, the SBA has provided exceptions for individual employees in certain circumstances, including:
<![if !supportLists]>· <![endif]>Employer has made a good-faith, written offer to rehire during the CP/APCP but the employee rejected, or
<![if !supportLists]>· <![endif]>Employee was fired for cause, voluntarily resigned, or voluntary requested & received a reduction in hours
The exceptions apply UNLESS the employee’s position was filled by a new employee during the CP/APCP. If you have an eligible exception for the FTE calculation, it is important to document that in writing in your files to ensure proper compliance with the PPP requirements.
Q: What records should I be keeping supporting my qualified expenses and what info will I need to provide to my bank for loan forgiveness?
A: Page 10 of the PPP Forgiveness application includes a listing of the information that is required to be submitted to your bank for PPP forgiveness. The list is quite extensive, but the following basic documents need to be provided:
<![if !supportLists]>· <![endif]>Payroll reports documenting cash compensation paid to employees.
<![if !supportLists]>· <![endif]>IRS & State tax forms that overlap the CP/APCP (Form 941, state unemployment, etc.)
<![if !supportLists]>· <![endif]>Payment receipts, canceled checks, or account statements showing payments for employer health insurance and retirement plan contributions
<![if !supportLists]>· <![endif]>Lender account statements from February 2020 and all months included in the Covered Period showing eligible business interest payments.
<![if !supportLists]>· <![endif]>Copy of current lease agreement for rent or lease payments (must have been in force as of 2/15/2020 to qualify).
<![if !supportLists]>· <![endif]>Copy of canceled checks or payment receipts for rent / lease payments.
<![if !supportLists]>· <![endif]>Copy of invoices from February 2020 and for all payments during the Covered Period for business utilities.
While not required to be submitted to the bank, each business must also retain the detailed records used to perform Salary/Wage Reduction and FTE Adjustment calculations and documentation for any employees excluded from the FTE test due to job offerings & refusal, firings for cause, voluntary resignations, and written requests by employee to reduce hours.
All documentation related to your PPP application should be retained for a minimum of 6-years and be made available to an SBA auditor if requested.
BenderCPAs is preparing a detailed calculation worksheet for our clients to both complete the necessary FTE and wage calculations, but also to satisfy the documentation requirements above. Our objective is to provide clients who have engaged us to assist with a PPP forgiveness calculation with a single package to provide to their bank with all required information included.
If you have additional questions about the SBA’s PPP program or if you would like to engage us to assist in your loan forgiveness calculations, please contact your BenderCPA advisor or call our office at 314-525-7125 to be connected with one of our principals.
This week, the IRS announced that it plans to start sending out the Economic Impact Payments authorized by the CARES Act (also known as “Recovery Checks”) beginning this week. This alert includes FAQs about the program based on what we know today.
Q: Who is eligible?
A: U.S. residents will receive the Economic Impact Payment of $1,200 per individual plus $500 per dependent claimed on a tax return if their Adjusted Gross Income (AGI) is up to:
· $75,000 for individuals
· $112,500 for head of household filers and
· $150,000 for married couples filing joint returns
Taxpayers will receive a reduced payment if their AGI is between:
· $75,000 and $99,000 if their filing status was single or married filing separately
· 112,500 and $136,500 for head of household
· $150,000 and $198,000 if their filing status was married filing jointly
The amount of the reduced payment will be based upon the taxpayers specific adjusted gross income. Taxpayers with income above these ranges are not eligible for a payment.
The IRS will use your 2018 or 2019 tax returns (whichever is most recently filed) to determine your AGI. With your 2020 return, you will calculate your maximum credit based on 2020 AGI and will receive an additional credit if your initial recovery check was too small. You will not owe any excess back if your recovery check was larger than your 2020 income allows.
Q: Where will the payment be sent?
A: If your 2018 or 2019 tax return included direct deposit bank information for your refund, that’s where the IRS will send the payment. If you did not provide bank information or did not have a refund, the IRS will mail the check via US Mail to your address of record with the IRS (typically the address on your last tax return).
Q: What if I don’t have direct deposit info on my return, my bank info has changed, or I have moved?
A: The IRS has setup a page on its website (https://www.irs.gov/coronavirus/get-my-payment) to allow you to provide your bank information if you did not have any on file. We strongly recommend anyone who did not have refunds in 2018 or 2019 to use this link to provide bank information. This will accelerate your recovery payment. IRS has indicated that mailing of paper checks could continue as late as September in some cases. Direct deposit payments are expected to be completed well before then.
If your bank information has changed, try updating on the IRS website (link above). We’re unsure at this time if you’re able to update your information if you haven’t already received your payment. If your payment is returned because an account is closed, it is our understanding that the IRS will send your payment by check in the mail.
If you plan to receive your check by mail and you have moved, you should contact the US Postal Service to ensure you have an active mail forwarding request in place so the IRS check will be forwarded to your new address.
Q: When will I get my payment?
A: No action is needed by you to initiate the recovery checks. IRS will automatically process the payments over the upcoming days and weeks. For security reasons, the IRS plans to mail a letter about the economic impact payment to the taxpayer’s last known address within 15 days after the payment is paid. The letter will provide information on how the payment was made and how to report any failure to receive the payment. If a taxpayer is unsure they’re receiving a legitimate letter, the IRS urges taxpayers to visit IRS.gov first to protect against scam artists. Regardless, taxpayers can use the IRS “Get My Payment” system to check on status of their payment.
Q: What If I did not file a 2018 or 2019 tax return?
A: If you have not filed a tax return for 2018 or 2019, but do have a requirement to file, the IRS has not clarified whether they will use 1099s, W-2s, etc. as reported to them to determine your eligibility. Our recommendation is you file 2018 and/or 2019 as soon as possible to ensure you get your benefit.
If you do not have a requirement to file a return, the IRS will automatically issue the resulting recovery check based on the income they have on-file. These taxpayers can use a separate portal on the IRS website (https://www.irs.gov/coronavirus/non-filers-enter-payment-info-here) to provide bank information to accelerate the recovery payment. Among others, this includes those who have no income, as well as those whose income comes entirely from certain benefit programs, such as Supplemental Security Income benefits.
Q: I received an additional $500 in 2020 for my qualifying child. However, he just turned 17. Will I have to pay back the $500 next year when I file my 2020 tax return?
A: No, there is no provision in the law requiring repayment of an Economic Impact Payment. When you file next year, you can claim additional credits on your 2020 tax return if you are able to eligible for them, for example if your child is born in 2020. But you won’t be required to repay any Payment when filing your 2020 tax return even if your qualifying child turns 17 in 2020 or your adjusted gross income increases in 2020 above the thresholds listed above.
Q: I got a phone call from “the IRS” asking for my bank information. Is this legitimate?
A: NO. The IRS urges taxpayers to be on the lookout for scam artists trying to use the economic impact payments as cover for schemes to steal personal information and money. Remember, the IRS will not call you, text you, email you, or contact you on social media asking for personal or bank account information – even related to the economic impact payments. Also, watch out for emails with attachments or links claiming to have special information about economic impact payments or refunds. The only way the IRS will contact you is by US Mail to inform you when your payment has been made.
With the flurry of changes that have been announced over the past few days and weeks, we wanted to provide an update to clarify relief questions we’ve been getting as well as provide information on a few other programs that have been announced.
INDIVIDUAL RELIEF UPDATES
<![if !supportLists]>1. <![endif]>Recovery Check Distribution. IRS has clarified a few details about the Recovery Check program:
<![if !supportLists]>a. <![endif]>Recovery Check payments will begin sometime next week (week of 4/12/2020). No action is required to receive your payment, the IRS will process automatically.
<![if !supportLists]>b. <![endif]>The payment will be sent to the bank account you used on your most recent tax return for refund direct deposit. If the IRS is unable to process a payment to that account or you didn’t have direct deposit with a recent return, the IRS will mail a check to your address of record.
<![if !supportLists]>c. <![endif]>If you have not filed in several years, or if you do not have a requirement to file a 2019 return, you can provide bank information for your payment on IRS’ website here: https://tinyurl.com/sz9l387.
<![if !supportLists]>d. <![endif]>Detailed information on how the payment is calculated was included in our CARES Act Alert for Individuals, which can be found here: https://tinyurl.com/qwtuhss.
<![if !supportLists]>e. <![endif]>If you receive a Recovery Check based on your 2018 or 2019 income but are phased-out when reporting on your 2020 tax return, you do NOT have to repay the excess with your 2020 tax return.
<![if !supportLists]>f. <![endif]>If you do not receive a payment based on your 2018/2019 tax returns, but are eligible based on your 2020 tax returns, you will can claim a refund on your 2020 tax return.
<![if !supportLists]>2. <![endif]>Unemployment Options Available. Any furloughed or laid-off employees are eligible for state unemployment. Details are as follows:
<![if !supportLists]>a. <![endif]>Unemployment amount via the state typically ranges from 30-50% of the standard wage, depending on the state.
<![if !supportLists]>b. <![endif]>The amount a person will receive for unemployment over four months will be the amount the state would already provide, increased by $600 per week through July 31, 2020. For example, if an unemployed person is eligible for $300 weekly, they will receive $900 per week over four months or through July 31, 2020, whichever comes first.
<![if !supportLists]>c. <![endif]>If an employee is already unemployed due to COVID-19, the $600 weekly additional payment will be paid retroactively.
<![if !supportLists]>d. <![endif]>Self-employed individuals, independent contractors and gig workers are eligible for unemployment under this program. See your state unemployment office’s website for details on applying.
<![if !supportLists]>3. <![endif]>Tax Deadline Extension to 7/15. As of 4/11/2020, all 50 states have extended their 2019 tax individual income tax filing deadline to 7/15/2020. This includes both the 2019 tax filing as well as both the 2020 1st and 2nd quarter estimated tax payment normally due on 4/15 and 6/15. The deadline change is automatic in all cases (no separate extension forms required). If you have any other tax filings during this timeframe (especially those not handled by BenderCPAs), you should confirm whether those deadlines have changed as well.
<![if !supportLists]>4. <![endif]>IRA and HSA Funding Deadlines Moved to 7/15. The deadline to make eligible IRA or HSA contributions retroactively for the 2019 tax year has also been extended to 7/15/2020. No changes have been made to the income or health coverage qualifications for being eligible to make such a contribution, only to the timeframe to make a retroactive contribution.
BUSINESS RELIEF UPDATES
<![if !supportLists]>1. <![endif]>SBA Loan Programs Continue. The Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) programs are still open to affected businesses.
<![if !supportLists]>a. <![endif]>PPP loans provide a loan of 2.5 month’s average ‘payroll cost’ with full tax-free forgiveness if the loan is used for payroll, rent, utilities, or mortgage interest within 8-weeks of getting the loan funded. Any unforgiven amount is a 2-year loan with 1% annual interest (no personal guarantee or collateral required). Applications are through your local SBA banker.
<![if !supportLists]>b. <![endif]>EIDL loans are calculated based on six-months of operating expenses for your business. Each loan can include an advance of $1,000 per employee, up to $10,000 per business, which does not need to be repaid. The unforgiven amount is a loan at 3.75% interest with an up to 30-year term. Personal guarantees are required, and collateral may be required if your loan is over a certain dollar amount. Expenses used for the PPP loan cannot be used for the EIDL calculations (and vice versa). In addition, any EIDL grant will reduce the otherwise available loan forgiveness on a PPP. Applications are directly through the SBA website.
<![if !supportLists]>c. <![endif]>On both programs, we recommend you speak with your BenderCPA advisor before proceeding, if you haven’t already, to ensure you are maximizing your benefit under each program and fully understand what the implications are of getting these loans.
<![if !supportLists]>2. <![endif]>Families First Coronavirus Relief Act (FFCRA) Payroll Tax Credits. The FFCRA added a mandate that employers provide Paid Sick Leave and Paid Family Leave to employees unable to work due to the coronavirus. For more detailed information on eligibility, see our Alert on the mandate and related credits. Based on Department of Labor FAQs issued earlier this month, it appears that your business must be otherwise open for employees to work in order to qualify for this credit (either physically open or able to work remotely). See FAQ #23 and 24 here: https://tinyurl.com/tagubjb. Employers can claim eligible hours and related payroll tax credits for hours beginning April 1st when included in payroll.
<![if !supportLists]>3. <![endif]>Employee Retention Payroll Tax Credit. Added by the CARES act, the Employee Retention Payroll Tax Credit equals 50% of qualified wages (up to $10,000 in wages per employee). Employers are not eligible for the credit if they participated in the Payroll Protection Program or any other loan where payroll costs are forgiven. To qualify, the employer’s gross receipts must be 50% or less than the same calendar quarter in 2019. For employers with 100 or less employees, qualified wages include wages paid for all employees during the period—whether they were able to work or not. For employers with 100 or more employees, qualified wages are defined as wages paid to employees not providing services.
<![if !supportLists]>4. <![endif]>Deferral of Employer Social Security Taxes. The CARES Act also provides the opportunity to defer the employer’s portion of Social Security Taxes until as late as December 2022. This deferral, however, is not available to employers who took advantage of the Payroll Protection Program. If eligible, an employer can defer their part of Social Security taxes from March 27, 2020 to January 1, 2021. 50% is due by December 31, 2021 and the remainder by December 31, 2022.
<![if !supportLists]>5. <![endif]>Qualified Improvement Technical Correction. The Tax Cuts and Jobs Act (TCJA) effective for 2018 tax years included a technical error that made building improvements ineligible for bonus depreciation. Under the CARES Act, building improvements made in 2018 and later years are eligible for 100% bonus depreciation. Any amounts not claimed in 2019 can be claimed now via an amended return or a Form 3115 accounting method change.
We hope this overview provides some clarity on your situation and gives you useful information as you plan for the remainder of the current crisis. If you have any questions about how the above apply to your situation, please reach out to your BenderCPA advisor to discuss.
To Our Valued Clients:
In Part 2 of our two-part update on the recently passed CARES Act, we focus on changes and COVID-19 relief that focuses on individual taxpayers.
<![if !supportLists]>1. <![endif]>Recovery Checks for Individuals. Each US individual is eligible for a payment within the next few weeks of up to $1,200 per individual taxpayer plus $500 for every child. Eligibility for the payment is based on 2019 or 2018 Adjusted Gross Income (AGI) and is phased out as follows:
<![if !supportLists]>a. <![endif]>$75,000 to $99,000 for Single taxpayers
<![if !supportLists]>b. <![endif]>$112,000 to $146,500 for Heads of Household, and
<![if !supportLists]>c. <![endif]>$150,000 to $198,000 for Joint filers
If no 2018 return has been filed, IRS will use information from the individual's 2019 Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement. While the payment amounts will initially be based on 2018 or 2019 tax returns, the final eligibility is based on your 2020 tax returns to be filed next year. With all 2020 tax returns, taxpayers will need to report what Recovery Credit they are eligible for based on their 2020 AGI and then will either receive additional refundable credit or will owe back any advance payment received that they have phased-out of.
<![if !supportLists]>2. <![endif]>Early Retirement Distribution Penalties Waived for 2020. For retirement plan distributions by individuals under age 59 ½ made between 1/1/2020 and before 12/31/2020, the 10% additional tax (penalty for early withdrawal) does not apply to a qualified individual for any coronavirus-related distribution, up to $100,000. A qualified individual is an individual:
<![if !supportLists]>· <![endif]>(1) who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention (CDC),
<![if !supportLists]>· <![endif]>(2) whose spouse or dependent is diagnosed with such virus or disease by such a test, or
<![if !supportLists]>· <![endif]>(3) who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury.
<![if !supportLists]>3. <![endif]>Required Minimum Distribution (RMD) Waived for 2020. For taxpayers over age 70 ½, RMD requirements do not apply for calendar year 2020 to most IRA and other retirement accounts which require an RMD. The RMD requirements also do not apply to any distribution which is required to be made in calendar year 2020 by reason of: (I) a required beginning date occurring in calendar year 2020, and, (II) such distribution not having been made before January 1, 2020.
Stay up to date on COVID-19 relief updates on our website at www.BenderCPA.com/COVID-19.
We continue to work on clients’ 2019 tax returns during the ‘Stay Home’ order and we appreciate your understanding and patience during these difficult times. Your Bender CPAs Principal will contact you upon completion of the returns.
ALERT- CARES Act Part 1 – Business & Payroll Updates
To Our Valued Clients:
In our continuing effort to keep you informed of developments, we provide the following updates. This is Part 1 of a two-part update that focuses on business and payroll relief, including relief granted from the CARES Act signed into law on Friday, March 27th.
<![if !supportLists]>1. <![endif]>CARES Act- Small Business Loans via SBA 7(a). SBA 7(a) loans to qualifying businesses [no personal guarantee and loan forgiveness based on continuing payroll requirements]. Over the weekend, BenderCPAs contacted several SBA affiliated banks in the St Louis area requesting the loan applications & instructions to assist our clients. The contacted bankers told us the SBA has NOT provided them with the applications & instructions yet, and they are ‘unofficially’ being told by the SBA it will most likely be the end of the coming week before the applications are distributed to the banks. The following link https://www.venable.com/insights/publications/2020/03/the-cares-act-what-you-need-to-know-about provides an informative summary of ‘Borrower FAQs’ for the new round of SBA loans that you may find helpful.
Our guidance to our business clients is to be patient (we know that is difficult at this time), and we’ll provide further updates as the SBA 7(a) loan application information becomes available.
Based on information in the above FAQs url link, taxpayer’s that have applied for SBA 7(b) Economic Injury Disaster Loans (EIDL) should discuss potential modifications to your loan application with the SBA by contacting the SBA’s Customer Service Center at 800-659-2955 or email email@example.com to see if the application should be converted to a SBA 7(a) loan and the impact of such change.
<![endif]>Families First Coronavirus Response Act (FFCRA)-
Paid Sick and Family Leave Payroll Tax Credits Update. As an update to our ALERT email of 3/24/2020,
the IRS issued Technical Guidance Notice 2020-21 on Fri 3/27/2020 (at 5:17 pm) establishing
4/1/2020 as the effective date for wages paid under the Act that will
be eligible for the employment tax credits. Businesses that submitted FFCRA related
payroll hours for the period 3/18 – 3/31 will NOT qualify for the credit.
The Dept of Labor (DOL) has issued a poster (link: https://www.dol.gov/sites/dolgov/files/WHD/posters/FFCRA_Poster_WH1422_Non-Federal.pdf) with an overview of qualifications for sick and family leave and related credits. Qualified leave pursuant to the FFCRA includes employees unable to work or telework, subject to a Federal, State, or local quarantine or isolation order related to COVID-19. While DOL or IRS have not issued guidance on this point, we have encountered legal commentary that a ‘stay at home’ order MAY qualify as an ‘isolation order’. We continue to recommend you speak with your legal counsel to evaluate your specific facts and circumstances if you’re unclear how your employees’ situation is applied under the FFCRA.
<![if !supportLists]>3. <![endif]>MO Shared-Work Program. Missouri Division of Employment Security (MODES) and Missouri Department of Labor have announced the ability for employees to access partial unemployment benefits if workforce hours are reduced by 20 – 40%. See the following link for more information: https://labor.mo.gov/shared-work.
<![if !supportLists]>4. <![endif]>MODES Unemployment Benefits Q & A. MODES also announced a Q&A page (link: https://labor.mo.gov/coronavirus) for employees impacted by the coronavirus. The Q&A includes guidance that:
<![if !supportLists]>a. <![endif]>Coronavirus effected claims will have the waiting week requirement waived
<![if !supportLists]>b. <![endif]>Coronavirus unemployment claims will temporarily NOT be charged to the employer’s account
At this point in time, the CARES Act is only a few days old and additional guidance and clarification is expected in the upcoming weeks. Once that information is available, we’ll provide further updates. You can also follow all COVID-19 updates on our website at www.BenderCPA.com/COVID-19.
Under the recently enacted Coronavirus Preparedness and Response Supplemental Appropriations Act (the Act), small businesses that have suffered substantial economic injury as a result of COVID-19 can apply for low-interest federal disaster loans through SBA. Small businesses and nonprofits can apply for working capital loans of up to $2 million.
We’ve highlighted the following key details of the Act for you here, but you can also learn more by visiting the COVID-19 disaster assistance page on SBA’s website.
<![if !supportLists]>· <![endif]>State governors must first request access to the Economic Injury Disaster Loan program. Once the declaration is made, information on the application process for disaster loan assistance will be made available to affected small businesses within the given state.
<![if !supportLists]>· <![endif]>Loans carry an interest rate of 3.75% for small businesses and 2.75% for nonprofits.
<![if !supportLists]>· <![endif]>Loans can be used to cover accounts payable, debts, payroll and other bills.
<![if !supportLists]>· <![endif]>Loans can be offered with long-term repayments in order to keep payments affordable—up to a maximum of 30 years. Terms are determined on a case-by-case basis.
<![if !supportLists]>· <![endif]>Businesses will apply for loans online and select “Economic Injury” as the reason for seeking assistance.
<![if !supportLists]>· <![endif]>SBA offers disaster assistance via its customer service center. If you have questions or want to check if your state is eligible, contact U.S. Small Business Administration via phone at 800.659. 2955 (TTY: 800.877.8339) or e-mail firstname.lastname@example.org.
The Coronavirus situation is changing rapidly, as are the updates to various relief efforts. We will continue to monitor news and keep you updated as clarification is provided.
If you have questions, be sure to reach out to us. Our entire team is here to support and guide you!
The City of St. Louis issued the following bulletin announcing that the filing and payment deadline for St. Louis City tax returns (Both individual Form E-1 and business Form E-234) is extended to July 15, 2020. This mirrors both the Federal and Missouri extensions in response to the COVID-19 pandemic.
With a ‘Shelter in Place’ order in effect for the St. Louis area beginning today, we are forced to cancel all client meetings in our office. We are also closing the office to all client visitors to both comply with the County’s order and to minimize the risk of infection to both you and our staff. The only exception is for clients who need to pickup payroll checks processed by our firm.
Our staff will continue to work on returns either in the office or remotely to the extent possible. However, with the IRS and states changing the filing and payment deadline to July 15th and with the COVID-19 related restrictions in place by state & local governments, we anticipate that returns may take longer than usual to complete. We appreciate your patience while we work through returns in the order they are received. If any action is needed by April 15th for a state or local filing, we will contact you as necessary to either complete the return or file an extension.
If you have not yet sent us your 2020 tax information, we can receive the tax support in the following ways during the Shelter in Place order:
<![if !supportLists]>· <![endif]>Scan and upload to your secure portal available from our website
<![if !supportLists]>· <![endif]>Fax support (especially missing forms) to 314-525-7126
<![if !supportLists]>· <![endif]>Mail paper copies of your support to our office
<![if !supportLists]>· <![endif]>Bring paper copies to our office and put through mail slot (bottom of front door)
Please know that while we are forced to close our office, we are still working diligently to complete returns and other projects for our clients. If you have any specific questions or concerns, please call your BenderCPA contact to discuss.
On March 21st, IRS issued Notice 2020-18 that officially moved the tax filing deadline for 2020 Federal income tax returns to July 15, 2020. In addition, any 1st quarter estimated tax payments normally due April 15th are also due July 15, 2020.
Note that this is a follow-up announcement to Notice 2020-17 that had previously only extended the payment deadline to July 15th. With the most recent announcement, both the filing and payment deadline are moved to July 15th.
Observation: While the Federal deadline was moved by the IRS, state deadlines are not always automatically extended. As of March 23rd, Illinois has NOT changed its due date while Missouri has announced that Missouri returns will mirror the Federal filing and payment deadlines of July 15, 2020.
We will continue to monitor IRS and state guidance and will communicate to you as necessary to keep you informed of this ever-changing situation. If you have any questions, please contact your BenderCPA advisor for more information.
ALERT – FAMILIES FIRST CORONAVIRUS ACT TAX CHANGES
As promised in our last email, we’re providing an update to all clients on recent developments in the Federal and State government’s response to COVID-19.
On March 18, 2020, Congress passed, and the President signed, the Families First Coronavirus Response Act (H.R.6201) into law. Among the Act’s many provisions was a mandate for all employers with 500 or fewer employees to provide up to 80 hours of paid sick leave and up to 10 weeks of paid family leave to eligible employees. The Federal government is providing Employers a 100% reimbursement of the mandated wages paid under the Act. See the discussion below for additional specifics, including the maximum paid leave amounts under the mandate.
Payroll Client Action Item: For all clients for whom we process payroll, effective immediately, we need you to separately include in your payroll information the hours / pay for employees who are subject to the mandatory sick and family paid leave per the Families First Coronavirus Response Act. While we are providing the information in this email as a courtesy to our clients, we are not responsible or able to determine what amounts you pay that qualify for relief under the Act. If you have questions about your specific situation, we recommend you contact your legal counsel.
The following paragraphs provide more detail about the changes summarized above. We encourage everyone to review the details below to see how they may apply to you personally or to your business’ employees. For your information, here are links to the full text of the Act as well as Congress’ technical explanation of the Act’s tax credits: Full Text of Act | Technical Explanation
PAID SICK LEAVE
All employers with 500 or fewer employees are required to pay up to 2 weeks (80 hours) of paid leave for employees who are unable to work or telework as a result of one of the following reasons:
<![if !supportLists]>1. <![endif]>The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19,
<![if !supportLists]>2. <![endif]>The employee has been advised by a health care provider to self-quarantine,
<![if !supportLists]>3. <![endif]>The employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis,
<![if !supportLists]>4. <![endif]>The employee is caring for an individual listed in reason #1 or #2, above,
<![if !supportLists]>5. <![endif]>The employee is caring for the employee’s son or daughter if the child’s school or childcare facility has closed or the childcare provider is unavailable, due to COVID-19 precautions, or
<![if !supportLists]>6. <![endif]>The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services.
Employees who miss work due to items #1, 2, or 3, above, must be paid 100% of their normal wages for hours normally scheduled to work, up to $511 per day. Employees who miss work due to items #4, 5, or 6, above, must be paid at least 2/3rds of their normal wages for hours normally scheduled to work, up to $200 per day. Employers are allowed to pay more, but not less, than these thresholds.
Employers cannot require an employee to find a replacement worker or to use other benefits (sick time, PTO, etc.) before the mandated sick leave under the Act. Each employee is also only entitled to a cumulative total of 80 hours of paid sick leave between now and December 31, 2020. After December 31, 2020, there is no mandate under current law to provide additional sick time to employees impacted by COVID-19.
Employer Credit – Employers who pay sick leave benefits outlined above will receive a credit for 100% of the wages paid (up to a per-day threshold) against their Form 941 payroll tax liability. The amount of the credit depends on the circumstances under which the employee was paid:
<![if !supportLists]>1. <![endif]>For employees who miss work due to items 1, 2, or 3, above, the credit is equal to 100% of the wages paid, up to a maximum of $511 per day for each affected employee ($5,110 total per employee).
<![if !supportLists]>2. <![endif]>For employees who miss work due to items 4, 5, or 6, above, the credit is equal to 2/3 of the wages paid, up to a maximum of $200 per day for each affected employee ($2,000 total per employee).
The credit is also increased by employer-paid health insurance premiums for the period the employee is out of work, above. For example, if an employee is out 2 weeks under quarantine for COVID-19, a pro‑rated portion of the health insurance premiums paid for by the company for that employee can be included as an additional credit on the Form 941.
Any credit amount that exceeds the 941 liability is fully refundable to the business. The cash-flow benefit of this credit is available before filing the quarterly 941 by reducing the Form 941 tax deposits by the expected credit. If the expected credit exceeds the current 941 liability, the business can request an expedited refund if their expected credit exceeds their current 941 liability. Additional procedures for requesting the advanced refund will be released by the IRS next week.
PAID FAMILY LEAVE
In addition to 2 weeks of paid sick leave, the Act provides for up to 10 weeks of paid family leave for employees who are unable to work or telework because school or childcare is closed or unavailable for the employee’s son or daughter under age 18. To qualify for this benefit, the employee must have been employed for at least 30 days prior to missing work. The first 10 days of leave may be considered unpaid (because the employee would qualify for the Paid Sick Leave, above).
After the first 10 days, the employee is eligible for Paid Family Leave of up to 2/3rds of their normal pay for their normally scheduled hours with a maximum of $200 per day for a period of 10 weeks ($10,000 per employee maximum).
Employer Credit- Similar to the credit for Paid Sick Leave, employers who make Paid Family Leave payments will receive a credit for 100% of the wages paid (up to $200 per day) plus a pro-rated portion of employer-paid health insurance costs against their Form 941 payroll tax liability. Expected credits can be withheld from normal 941 payroll deposits or refunded to the employer via an advanced refund request.
SMALL BUSINESS EXEMPTION
The two paid leave mandates, above, are required for all organizations with 500 or fewer employees. However, an employer with 50 or fewer employees is allowed an exemption if making the mandated leave payments would jeopardize the ability of the business to continue as a going concern. The IRS has not released any guidance on how this determined, but if you feel your business may not survive making these payments, you are allowed an exemption.
ADDITIONAL GUIDANCE EXPECTED
Clearly, the new paid leave requirements are complex and are only two or three days old at this point. We fully expect additional guidance to be released over the upcoming weeks as both employers and the IRS implement the new provisions in payroll. We will work with our payroll clients to track qualified wages and will maximize the cash savings to businesses when scheduling payroll tax payments. If you have any questions about the above or how you need to respond, feel free to give your BenderCPA advisor a call to discuss.
As coronavirus (COVID-19) cases continue to be identified both in the St. Louis area and across the nation, Bender & Company CPAs continues to review the guidance issued by the Centers for Disease Control (CDC) and other governmental bodies. Our top priority is the safety and welfare of our team members, clients, and clients’ personnel. At the same time, we remain committed to meeting your professional service needs, especially with the April 15th tax deadline approaching (more on that later).
What We’re Doing
Safety: We will continue following the recommendations of the CDC and state health officials to limit the spread of the virus. In matters of judgment, we are erring on the side of caution. While our office will officially remain open, we are asking all clients to minimize their trips into our office where possible. Even if an in-person meeting is appropriate, do not come to our office if you or anyone you have been in contact with are sick or are exhibiting possible symptoms of the coronavirus (such as newly onset coughing, sneezing, shortness of breath, temperature above 100.4, etc.). Any clients exhibiting such symptoms in our office may be asked to leave and return when they are symptom free. Alternates to in-person meetings include telephone or videoconference meetings to discuss your returns. If you need to deliver documents to us, please use US Mail or upload to your secure portal.
Meeting Client Needs: With the next four weeks historically being our busiest time of year, our offices will officially remain open for the foreseeable future. Our staff will work diligently to complete all tax returns and other projects in reasonable timeframes given the coronavirus restrictions in place. Where work in the office is not possible, we have leveraged our technology to enable staff to work remotely and continue to provide the best client service possible.
Government & Industry Changes: We are closely monitoring federal, state and local regulators and authorities to stay abreast of changing deadlines and statutes that affect our clients. The initial information we’ve received calls for a delay in the deadline for tax payments past April 15th, but no change in the filing due date. Additional details are expected from the IRS this week and we’ll keep you informed as we learn more.
We cannot overstate that our primary goal is protecting the safety and welfare of our team members and clients while continuing to meet client needs. We will communicate pertinent information and changes with you as the situation continues to evolve. These are unique times, and we are optimistic that as we all pull together through these challenges, we will thrive as we move forward.
As always, we are grateful for your trust and confidence. Our best wishes to you and your loved ones, especially in the days and weeks ahead.