COVID-19 – Tax updates and relief for individuals and businesses
The House and Senate this week passed the Paycheck Protection Program Flexibility Act which is on its way for signature by President Trump. The PPP Flexibility Act makes key changes to the PPP to make the program more accessible and usable to small businesses that need it most. As with most of the recent legislation regarding the various stimulus packages, this is still subject to change, but these changes will give businesses that received PPP funding the ability to get most of the funds received forgiven through the grant process. Businesses must still track and account for the expenses paid and must use the funds properly in order to receive the maximum forgiveness, so it is important to follow the SBA and Federal guidelines when applying for the grant.
It should also be noted that there is still funding available for those businesses that were impacted by COVID-19 and that have not received PPP funding. The deadline to file for a new loan is June 30th. Contact your bank to find out how you can still apply if you haven’t applied.
The key provisions of the PPP Flexibility Act will increase flexibility and access to PPP loans by: •Allowing forgiveness for expenses beyond the 8-week covered period to 24 weeks and extending the rehiring deadline;
•Decreasing the current amount that must be spent on payroll from 75% to 60% •Extending the program from June 30 to December 31;
•Extending loan terms from two to five years; and
•Ensuring full access to payroll tax deferment for businesses that take PPP loans
Contact the FMA C.P.A. team with any questions or for more information. Copyright © 2020 FMA, C.P.A., All rights reserved.
Relief For Individuals
Paycheck Protection Act
The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. The Paycheck Protection Program will be available through June 30, 2020.
Who Can Apply
This program is for any small business with less than 500 employees (including sole proprietorships, independent contractors and self-employed persons), private non-profit organization or 501(c)(19) veterans organizations affected by coronavirus/COVID-19. Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries. Small businesses in the hospitality and food industry with more than one location could also be eligible at the store and location level if the store employs less than 500 workers. This means each store location could be eligible.
How to Apply
You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating in the program. FMA C.P.A. note: We urge you to contact your bank to see if they will be participating. If not, please contact us for an introduction to banks that may be able to help. Lenders began processing loan applications as soon as April 3, 2020.
In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are currently eligible to apply for disaster assistance (https://www.sba.gov/disaster-assistance/coronavirus-covid-19). Enhanced Debt Relief (https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources#section-header-2) is also available in SBA’s other business loan programs to help small businesses overcome the challenges created by this health crisis. For information on additional Lending options, please click here (https://www.sba.gov/partners/lenders/7a-loan-program/types-7a-loans). SBA provides local assistance via 68 district offices and a nationwide network of resource partners. To find resources near you, please click here (https://www.sba.gov/local-assistance). FMA, C.P.A. comments: Stay tuned, but in the meantime contact your bank to see if they will be participating. If not, please contact us for an introduction to banks that may be able to help. In the meantime, refer to our Business Relief Loan Checklist for the items that you should be gathering right now. More details than you ever want to know about the bill follow: Paycheck Protection Act Under the bill, entities can use the funds to make payroll and cover other expenses, including rent, utilities, mortgage interest and interest on other debt obligations, from February 15, 2020, to June 30, 2020. Eligible entities may borrow up to $10 million, based on a formula tied to 2.5 times average monthly payroll, covering employees making up to $100,000 per year. A loan forgiveness component exists and is based on certain amounts spent for an eight-week period. Here are some key components:
- No collateral.
- No personal guarantees (non-recourse debt).
- 4% interest on remaining loan balance after forgiveness, amortized 2 years.
- No prepayment penalty.
Small businesses must provide a good faith certification that-
- The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations.
- The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments.
- Borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for here.
- From Feb. 15, 2020, to Dec. 31, 2020, the borrower has not received a loan duplicative of the purpose and amounts applied for with the Paycheck Protection Program.
Federal Tax Filing and Payment Deadline Information
- The IRS mission-critical operations continue but no face-to-face assistance available
- The Federal Tax filing deadline for individuals has been extended from April 15 to July 15
- This is an automatic extension of time to file your individual
- The extension Form 4868 does not have to be filed
- Check your specific state tax agency’s website for any changes to filing or payment dates.
- Federal income tax payments are postponed
- Taxpayers have until July 15 to pay taxes for 2019 that are otherwise due on April 15
- Quarterly estimated tax payments that were due on 4/15 and 6/15 have been extended to 7/15
- The relief also extends to self-employment tax of sole proprietors and the first quarterly estimated income tax payment for 2020 normally due April 15.
- The Service won’t charge interest or penalties
- Also extended are the deadlines to make IRA and HSA contributions. The new deadline date for these contributions is July 15
- The IRS has posted an FAQ page (https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers) on its website relating to filing and payment deadlines.
IRS web page for updates as they relate to COVID-19 – https://www.irs.gov/coronavirus –
- The Federal Tax filing deadline for individuals has been extended from April 15 to July 15
Emergency Family and Medical Leave Expansion Act
- The coronavirus paid-leave package includes tax credits for many employers (details can be found at www.kiplinger.com/links/paidleave)
- The law requires firms with fewer than 500 workers to provide paid sick and family leave to employees who can’t work because they or a family member is affected by COVID-19, or who need to stay home to care for their kids while schools and day care are closed.
- Employers will be reimbursed for this paid-leave via payroll tax credits against quarterly payroll tax payments on a dollar for dollar basis.
- This means if you pay someone for 80 hours of wages you will get a credit equal to the amount of wages paid under this emergency act
- Self-employed individuals are also entitled to a credit to offset SECA tax
Details on the Paid Sick Leave Benefits
- For the birth and care of the newborn child of an employee
- For placement with the employee of a child for adoption or foster care
- To care for an immediate family member (i.e., spouse, child, or parent) with a serious health condition
- To take medical leave when the employee is unable to work because of a serious health condition
- For exigencies arising from a family member’s military service
Even before the introduction of the Families First Act, the FMLA protected the job of an employee taking leave for the employee’s own serious health condition (which would include COVID-19 to the extent the employee requires hospitalization or ongoing treatment that would cause the illness to be a serious health condition) or that of an immediate family member. These existing protections remain. Division C of the Families First Act, the Emergency Family and Medical Leave Expansion Act (the FMLA Expansion Act), would be effective no later than 15 days after enactment and would amend the FMLA to add a new temporary category of leave, in place through December 31, 2020. This new category of leave (Public Health Emergency Leave) would cover employees who are unable to work (including telework) due to a need to care for a child under age 18 if school or child care is unavailable due to a public health emergency (limited to one declared by a federal, state, or local authority related to COVID-19). Only Small Employers would be subject to the new FMLA requirements for Public Health Emergency Leave. These Small Employers — the smallest of whom (those with fewer than 50 employees) were not previously subject to the FMLA — would be required to:
- Provide Public Health Emergency Leave as part of their standard FMLA leave
- Provide Public Health Emergency Leave if needed by any employee who has been employed for at least 30 calendar days
- Pay eligible employees the leave at a rate of no less than two-thirds of their regular rate of pay, for Public Health Emergency Leave that extends beyond 10 days (employees may elect, or be required, to use existing accrued leave during the first 10 days)
Small Employers of fewer than 25 employees would be allowed an exception from providing Public Health Emergency Leave if certain conditions were met. Employers of a health care provider or an emergency responder could elect to exclude those employees from the FMLA Expansion Act’s requirements. Emergency Paid Sick Leave Act (Division E of the Families First Act) Division E of the Families First Act, the Emergency Paid Sick Leave Act (the Paid Sick Leave Act), which would be effective no later than 15 days after enactment, would impose additional paid sick leave requirements on Small Employers through December 31, 2020. This provision would effectively fill in the initial two-week gap of unpaid leave left by the FMLA Expansion Act. The Paid Sick Leave Act would require Small Employers to provide:
- 80 hours of paid sick leave to full-time employees
- Two weeks of paid sick leave to part-time employees, based on the average hours that the part-time employee works
This paid leave requirement would be triggered if an employee is unable to work (or telework) for one of six reasons:
- To self-isolate or quarantine due to a federal, state, or local quarantine or isolation order related to COVID-19
- To quarantine due to COVID-19 concerns on the advice of a health care provider
- To obtain a medical diagnosis if the employee has COVID-19 symptoms
- To care for someone (not limited to family) experiencing one of the first two situations listed
- To care for the employee’s son or daughter if the school or place of care has been closed, or the child care provider is unavailable, due to COVID-19 (the Secretary of Labor could exempt businesses with fewer than 50 employees from this requirement if it would jeopardize the viability of a business as a going concern)
- The employee is experiencing another substantially similar condition to those above if specified by the Secretary of Health and Human Services in consultation with the Secretaries of Labor and the Treasury
Leave in the first three categories listed (Self-Care Leave) would have to be paid at the employee’s regular rate of pay as determined under the Fair Labor Standards Act and no less than minimum wage, capped at $511 per day and $5,110 in the aggregate; leave in the last three categories listed (Family Care Leave) would have to be paid at two-thirds of that amount, capped at $200 per day and $2,000 in the aggregate. An employer could not require an employee to use existing paid leave provided by the employer before using paid leave required by the Paid Sick Leave Act. Paying wages as required by the Paid Sick Leave Act would qualify a Small Employer for a refundable credit (discussed later). Self-Care Leave would be eligible for a higher credit amount than Family Care Leave. The Secretary of Labor could exclude health care providers and emergency responders from the Paid Sick Leave Act requirements. No mandated paid leave would be available under the FMLA Expansion Act, the Paid Sick Leave Act, or any other provisions of the Families First Act solely because a business closes, furloughs, or lays off employees during the COVID-19 pandemic. Payroll and income tax credits Division G of the Families First Act provides payroll and income tax credits that correspond to the FMLA Expansion Act and Paid Sick Leave Act provisions described previously. Any wages required to be paid by reason of the FMLA Expansion Act or Paid Sick Leave Act would not be subject to the employer portion of Old-Age, Survivors, and Disability Insurance Tax (Social Security Tax) or Tier 1 of the Railroad Retirement Tax Act (RRTA). Additionally, the Families First Act provides a refundable credit against the employer’s share of Social Security Tax or Tier 1 RRTA Tax in the amount of wages paid to employees for paid leave required by either the FMLA Expansion Act or the Paid Sick Leave Act. Similarly, self-employed individuals could claim a refundable income tax credit in the amount of daily average self-employment income that would be required to be paid as leave wages if the individual worked for an employer (but could not claim the credit to the extent the FMLA Expansion Act or Paid Sick Leave Act required wages to be paid to the individual for the leave days). Each credit would equal 100% of qualified wages (or average daily self-employment income) for qualified leave days up to the caps described later. For the FMLA Expansion Act, the Families First Act provides a credit on wages up to $200 per individual per day, up to a cumulative $10,000 for all calendar quarters. For self-employed individuals, the credit would also be capped at $200 per day for up to an aggregate 50 days during the tax year. That is, for each employee or self-employed individual, a credit of up to $10,000 would apply for qualified wages. For the Paid Sick Leave Act, up to $200 per day for Family Care Leave wages, and up to $511 per day for Self-Care Leave wages would be taken into account. A total of 10 days could be taken into account per employee over all calendar quarters. For self-employed individuals, the Paid Sick Leave Act credit would be subject to corresponding caps. Accordingly, a maximum Paid Sick Leave Act credit of $2,000 or $5,110 for qualified leave wages, depending on the type of leave, could be claimed per employee or self-employed individual. In the aggregate, an employer might claim up to $15,100 in credit for a single employee for qualified leave wages. Given that an employer’s maximum Social Security Tax or Tier 1 RRTA Tax liability per employee for 2020 is only $8,537.40 ($137,700 x 6.2%), the refundability of the tax credits is meaningful. In addition to credit for qualified leave wages, the credits could be claimed for qualified health plan expenses to the extent that the expenses are excludable from employee income by IRC Section 106(a) and allocable to the qualified sick leave wages under rules to be issued by Treasury. Small Employers would have to include the amount of the credit in their gross income. Additionally, no credit would be allowed for wages for which a credit is claimed under IRC Section 45S for family and medical leave. The credit would be available only for the period starting on the day designated by the Secretary of the Treasury, which would occur within 15 days of enactment and ending on December 31, 2020. Implications The Families First Act provides a safety net to employees of Small Employers if those employees cannot work due to self-isolation requirements or school closures. Small Employers in those instances would be able to access a substantial refundable tax credit to pay for the costs of the mandated leave. Many situations caused by the COVID-19 pandemic are not addressed by this legislation, including:
- Employees of large employers
- Employees who are able to telework but incur additional costs
- Employees who contract a severe version of COVID-19 or must care for a family member in this situation
- Employees who lose or are furloughed from their jobs
- Businesses required to close due to COVID-19
Some of these situations may be addressed by tax-free payments under IRC Section 139, job protection under the FMLA, or a more limited tax credit under IRC Section 45S. In addition, we do expect additional federal legislation, which may respond to the remaining issues. IRS sets out how employers can get coronavirus-related credits (Checkpoint) IR 2020-57, 3/20/2020 In an Information Release, the IRS has announced that employers can begin taking advantage of two new refundable payroll tax credits created by the Families First Coronavirus Response Act (the Act, PL 116-127, 3/18/2020). The IRS also announced that it will release guidance on how eligible employers who pay qualifying sick or child care leave under the Act will be able file a request for an accelerated payment from the IRS. Background-Act summary. The Information Release summarizes the Act as follows: The Act provides paid sick leave and expanded family and medical leave for COVID-19 related reasons and created the refundable paid sick leave credit and the paid child care leave credit for eligible employers. Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the Act. Eligible employers can claim these credits based on qualifying leave they provide between the effective date and December 31, 2020. Equivalent credits are available to self-employed individuals based in similar circumstances. Paid leave. The Act provides that employees of eligible employers can receive two weeks (up to 80 hours) of paid sick leave at 100% of the employee’s pay where the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis. An employee who is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or child care provider is unavailable for reasons related to COVID-19, and/or the employee is experiencing substantially similar conditions as specified by the U.S. Department of Health and Human Services can receive two weeks (up to 80 hours) of paid sick leave at 2/3 the employee’s pay. An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional 10 weeks of expanded paid family and medical leave at 2/3 the employee’s pay. Paid sick leave credit. For an employee who is unable to work because of coronavirus quarantine or self-quarantine or has coronavirus symptoms and is seeking a medical diagnosis, eligible employers may receive a refundable sick leave credit for sick leave at the employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days. For an employee who is caring for someone with coronavirus, or is caring for a child because the child’s school or child care facility is closed, or the child care provider is unavailable due to the coronavirus, eligible employers may claim a credit for 2/3 of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period. Child care leave credit. In addition to the sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the coronavirus, eligible employers may receive a refundable child care leave credit. This credit is equal to 2/3 of the employee’s regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period. Prompt payment for the cost of providing leave. In general, when employers pay their employees, they are required to withhold from their employees’ paychecks federal income taxes and the employees’ share of Social Security and Medicare taxes. (Code Sec. 3402, Code Sec. 3101(a), Code Sec. 3101(b)) The employers then are required to deposit these federal taxes, along with their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns (Form 941 series) with the IRS. (Instructions for Form 941) The Information Release says that, under guidance that will be released next week, eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS. The Information Release says that the payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees. If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure will be announced next week. Examples. If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date. If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000. Equivalent child care leave and sick leave credit amounts are available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments. Small business exemption. The Information Release says that small businesses with fewer than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or child care unavailability where the requirements would jeopardize the ability of the business to continue. The exemption will be available on the basis of simple and clear criteria that make it available in circumstances involving jeopardy to the viability of an employer’s business as a going concern. The Department of Labor (Labor) will provide emergency guidance and rulemaking to clearly articulate this standard. Non-enforcement period. The Information Release says that Labor will be issuing a temporary non-enforcement policy that provides a period of time for employers to come into compliance with the Act. Under this policy, Labor will not bring an enforcement action against any employer for violations of the Act so long as the employer has acted reasonably and in good faith to comply with the Act. Labor will instead focus on compliance assistance during the 30-day period. Contact the FMA C.P.A. team with any questions or for more information.
Tax Credits for Self-Employed
- $511 per day for people who are sick or quarantined, or $200 per day for people caring for another person or on leave because of an HHS-specified condition; or
- 100% of a sick or quarantined person’s average daily self-employment income for the year, or 67% of the average daily self-employment income for a person caring for another person or on leave because of an HHS-specified condition.
A self-employment tax credit is also be available for 100% of a person’s “qualified family leave equivalent amount.” That amount is equal to (1) up to 50 days during the year that the person can’t work for a reason that would entitle them to coronavirus-related family leave if he or she were an employee, (2) multiplied by the lesser of:
- $200; or
- 67% of the person’s average daily self-employment income for the year.
Health Care Updates Related to COVID-19 and Your Taxes:
Relief for employee student loan debt
Unemployment Information and Filing Resources
- Those who are quarantined by a medical professional or a government agency,
- Those who are laid off or sent home without pay for an extended period by their employer due to COVID-19 concerns, or
- Those who are caring for an immediate family member who is diagnosed with COVID-19.
How do I file a Reemployment Assistance claim? Reemployment Assistance claims are handled by the CONNECT system. You can file your claim by accessing CONNECT through www.floridajobs.org in the Reemployment Assistance Service Center in the right hand corner of the page. People who need assistance filing a claim online because of legal reasons, computer illiteracy, language barriers, or disabilities may call 1-800-681-8102. Contact the FMA C.P.A. team with any questions or for more information.