Articles on Latest Developments
Federal Tax Deadline Extended to May 17 for Individuals (March 18, 2021)
Individual taxpayers now have one more month to file their taxes. The Internal Revenue Service (IRS) announced that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021.
Federal income tax payments have also been postponed for the 2020 tax year. These payments were due on April 15, 2021, and have also been moved May 17, 2021, without penalties and interest, regardless of the amount owed.
Estimated Payment Deadline Not Extended
This relief doesn't apply to estimated tax payments that are due on April 15, 2021. These payments are still due on that date. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS if your income isn't subject to income tax withholding. This includes self-employment income, interest, dividends, prize winnings, alimony and rental income. Many taxpayers automatically have taxes withheld from their paychecks and sent to the IRS by their employers.
State Tax Returns Not Included
Be aware that the federal tax filing deadline postponement to May 17, 2021, only applies to individual federal income returns and tax (including tax on self-employment income) payments otherwise due April 15, 2021. It does not apply to state tax payments or deposits or payments of any other type of federal tax. Taxpayers also will need to file income tax returns in 42 states plus the District of Columbia. State filing and payment deadlines vary and aren't always the same as the federal filing deadline. Check with your tax advisor or your state tax authority for more information. The IRS urges taxpayers to check with their state tax agencies for those details.
Note: In addition, earlier this year, the IRS announced relief for victims of the February winter storms in Texas, Oklahoma and Louisiana. These states have until June 15, 2021, to file various individual and business tax returns and make tax payments. This extension to May 17 doesn't affect the June deadline.
Overview of American Rescue Plan Act of 2021 (March 15, 2021)
On March 11, 2021, the $1.9 trillion American Rescue Plan Act of 2021 (ARPA) was signed into law. The act includes mandatory funding, program changes and tax policies to provide relief for individuals and businesses struggling due to COVID-19. Below are some of the tax provision highlights.
Individual Tax Relief
Additional stimulus payments: The act includes stimulus payments of $1,400 for taxpayers, children, and non-child dependents. The payments are essentially refundable credits against 2021 taxes that are payable in advance. Like previous stimulus payments, this round is subject to income limitations and begins to phase out for single filers with adjusted gross income (AGI) over $75,000 ($112,500 for head of households and $150,000 for joint filers). Payments will completely phase out at $80,000 of AGI for single filers, $120,000 for head of household and $160,000 for joint filers, creating a much quicker phase-out range than previous payments. As such, many families will not receive 2021 payments that had previously received 2020 payments.
Unemployment Benefits: ARPA includes an extension of $300 per week of additional unemployment benefits through September 6, 2021. The act also makes the first $10,200 of unemployment benefits exempt from tax for households with up to $150,000 of income for 2020.
Expanded Child Tax Credit: Prior to the new law, the amount of the child tax credit was $2,000, but only $1,000 of that was refundable. ARPA increases the amount to $3,000 per child for 2021 ($3,600 for children under six years old) and makes the credit fully refundable. The act also directs the IRS to issue advance payments equal to half of the credit beginning on July 1, 2021. This credit begins to phase out at $150,000.
Expanded Child and Dependent Care Credit: The act temporarily increases the value of the child and dependent care tax credit, which currently covers 35% of care expenses up to $3,000 for one dependent or $6,000 for two or more dependents. The measure makes the credit refundable, increases the maximum allowable expenses to $8,000 for one dependent and $16,000 for two or more, and allows the credit to cover 50% of expenses. The dependent care credit percentage is 20% when adjusted gross income is over $43,000, so those earning $43,000 - $125,000 have an increase of 30%. This credit begins to phase out at $125,000. In addition to the credit change, the maximum exclusion of employer-provided dependent case assistance is also increased from $5,000 to $10,500 for 2021.
Expanded Earned Income Tax Credit: ARPA includes several enhancements to the earned income credit. For 2021, the credit has increased for filers without children, plus the age for childless claimants has been reduced from 25 to 19 (except in the case of full-time students). The act also allows taxpayers to substitute 2019 earned income for 2021 earned income if the 2021 earned income was less than the 2019 earned income.
Student Loan Debt: ARPA excludes from gross income certain discharges of student loans after December 31, 2020, and before January 1, 2026. The exclusion from income does not apply to the discharge of a loan made by certain lenders if the discharge is on account of services performed for the lender.
Employer Tax Relief
Employee Retention Credit: This new act extends the employer retention credit established by the CARES Act through the end of 2021.
Paid Sick Leave and Family Leave Credits: The payroll tax credit for employers providing paid sick and family leave has been extended to September 30, 2021. The act also increases the limit on applicable wages for the credit from $10,000 to $12,000. The leave now includes time off to receive a COVID-19 vaccine or recover from vaccine-related illnesses. The 10-day per employee limitation on claiming the credit will also reset after March 31, 2021.
COBRA Coverage: The act provides a 100% credit for employer payment of employee COBRA coverage for up to six months starting April 1, 2021.
The COVID-19 pandemic has affected every household and business in some way. This article only covers some of the provisions in the 628-page new law. If you or your business have suffered financial losses, contact your Baden point of contact to discuss resources under the ARPA that may be available to help you with recovery. Send us an email firstname.lastname@example.org or call 260-422-2551.
Employee Retention Credit Increases for Employers (Feb 16, 2021)
Signed into law in the waning days of 2020, the Consolidated Appropriations Act (CAA) of 2021 provides an employee retention tax credit (ERC) for employers. This article looks at the extended and modified employee retention tax credit (ERC), allowing some employers to now receive tax refunds even if a PPP loan was received.
The COVID-19 pandemic made it difficult for many employers to keep workers on the books in 2020. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law in March 2020, provided some relief. And the Consolidated Appropriations Act (CAA) extends some provisions (with a few modifications) through June 30, 2021.
Under the CARES Act an employer could claim an employee retention credit (ERC) for 50% of qualified wages paid after March 12, 2020, and before January 1, 2021. Eligible employers were able to benefit immediately from the credit because it reduced the Social Security component of tax deposits. If an employer's current payroll tax deposits were insufficient to cover the credit, the employer could obtain an advance payment from the IRS.
To qualify for the ERC, an employer originally had to meet one of two requirements during any calendar quarter: 1) It was forced to fully or partially suspend operations because government authorities limited commerce, travel or group meetings due to pandemic concerns or 2) It experienced a significant decline in gross receipts. For the CARES Act credit, a "significant decline" occurred when gross receipts were less than 50% of gross receipts in the same calendar quarter of 2019. Only the first $10,000 of wages paid to an employee during the designated time frame qualified for the credit. Therefore, employers could claim a maximum credit of $5,000 per employee.
Below are some of the changes made by the CAA to the original ERC:
- The gross receipts test to determine eligibility has been reduced from a 50% decline to a 20% decline for 2021.
- Increased the employer size in determining the amount of eligible wages for 2021.
- The credit is increased to 70% of the first $10,000 of qualified wages for two quarters, for a maximum credit per worker of $14,000 (70% x $10,000 of qualified wages for two quarters) for 2021.
- A safe-harbor rule permits employers to determine their eligibility by using gross receipts from the previous quarter.
- If an employer was operational for only part — or none — of 2019, it's still eligible to claim the credit.
- An employer that receives PPP loans may still qualify for the ERC for wages that are not paid with forgivable PPP loan proceeds.
Key Takeaways for Expanded ERC
- Refund opportunities for some businesses that took out a PPP loan in 2020 (as long as the same wages are not used for both).
- The 20% decline in gross receipts for Q4, 2020 compared to Q4, 2019 could make an employer eligible for Q1, 2021.
- Timing of the Round 2 PPP loan may be important to maximize both PPP loan and ERC.
Employee Retention Tax Credit Basics
If you need assistance with calculating your employee retention credit, feel free to reach out to your point of contact at Baden Gage & Schroeder or email us at email@example.com or call 1-800-830-2551.
Links to Government Agencies for Latest Stimulus and PPP Updates (Jan 19, 2021)
To learn more about the relief options available go to the SBA web page click here
For IRS Updates visit: https://www.irs.gov/
Tax Relief and Second Draw PPP Financing Opportunities for Businesses (Jan 12, 2021)
The Consolidated Appropriations Act (CAA), signed into law in December 2020, is known for authorizing a second round of direct stimulus payments to individuals and extending enhanced unemployment benefits. But the law also provides tax relief and new financing opportunities for businesses affected by the COVID-19 pandemic. Following are highlights of key provisions:
New PPP Financing Available
Eligible small businesses that previously received forgivable Paycheck Protection Program (PPP) loans may apply for a “second draw,” provided they’ve used or will use all the proceeds of their original loans by the time a second draw is disbursed. Generally, to qualify for an additional loan, you must have 300 employees or less and demonstrate a 25%-or-more decline in gross receipts in any quarter of 2020 compared to the same quarter in 2019. (Special eligibility rules apply to businesses that didn’t exist during some or all of 2019.)
Like the first round of PPP loans, you may receive up to 2½ times your average monthly payroll costs in 2019 (or in the one-year period preceding the date of the loan), but new loans are capped at $2 million. Businesses that are ineligible for a second draw may be able to increase the amount of their original PPP loans. Also, the CAA permits certain businesses that didn’t previously receive PPP loans to apply for them. But you will have to act quickly: Applications are due by March 31, 2021.
PPP Expenses Deductible
The CARES Act, which established the PPP program, provided that the amount of PPP loan forgiveness isn’t included in a borrower’s gross income for tax purposes. But last year, the IRS essentially erased this tax benefit by ruling that borrowers may not deduct expenses paid with the proceeds of loans that have been (or likely will be) forgiven.
The CAA restores the tax advantages of loan forgiveness by overruling the IRS and providing that otherwise deductible expenses remain deductible regardless of whether a loan is forgiven.
Allowable Loan Uses Expanded
As before, to qualify for forgiveness, applicants must use at least 60% of a PPP loan’s proceeds for payroll. But the CAA expands the allowable nonpayroll uses beyond mortgage, rent and utility expenses, to include:
- “Covered operations expenditures” for software or cloud computing services that facilitate business operations,
- “Covered property damage costs” related to vandalism or looting due to public disturbances in 2020 and not covered by insurance or otherwise reimbursed,
- “Covered supplier costs” for goods that are essential to business operations and meet certain requirements, and
- “Covered worker protection expenditures” to comply with health guidelines, such as expenses for creating drive-through window facilities or air filtration systems.
The CAA also clarifies that payroll costs, for PPP purposes, include employer-provided group life, dental, vision or disability insurance.
Other PPP Updates of Interest
Modified covered period. The “covered period” is the one during which PPP loan proceeds must be spent on eligible expenses in order to qualify for forgiveness. Originally, the covered period was eight weeks from the time the loan is made. Later, it was extended to 24 weeks, although borrowers that received loans before June 5, 2020, could choose either an eight-week or 24-week period. Now, borrowers can choose a covered period of any length between eight and 24 weeks.
Simplified forgiveness application procedures. The CAA allows businesses that borrow less than $150,000 to simply certify that they meet the 25% revenue loss requirement. However, they must substantiate compliance with this requirement when (or before) they submit a forgiveness application. Finally, the CAA simplifies the forgiveness application for PPP loans under $150,000.
Year-End Stimulus Bill: Christmas Eve Update (Dec. 24, 2020)
To provide the most recent update on the COVID-19 stimulus bill and clarify our previous release, President Trump has pushed the bill back to Congress to increase the individual economic stimulus payments from $600 per individual to $2,000. The House GOP rejected the President’s request, and talks will continue. The President may ultimately fight the bill up through the January 3rd deadline, or Congress may have enough votes to override any veto measure.
Year-End COVID-19 Stimulus Bill Passes (Dec. 24, 2020)
As 2020 concludes, there has been hope that the Federal government could implement a stimulus program designed to provide additional aid to individuals and small businesses during the COVID-19 pandemic. While this bill has not yet been signed by the President, it has passed both the House and the Senate, and the final details have started to become clear this week.
Individual Stimulus Payments
The bill contains a second round of individual stimulus payments at $600 for an individual and $1,200 for a married filing jointly couple. There will also be $600 provided for each dependent under the age of 17. The second round of stimulus payments will have the same basic structure as the first round of payments in terms of income phaseouts and how the ultimate credit will be calculated on the taxpayer’s 2020 tax return. The stimulus payment begins to phase out at $75,000 AGI for an individual and $150,000 for a married filing jointly couple. At the time of this article, President Trump has requested Congress increase the individual stimulus payments to a higher amount before signing the bill into law.
PPP Tax Impact
An unexpected technicality has led many businesses to learn that their uses of PPP funds would not be deductible, essentially creating a “taxable forgiveness” scenario. This result was determined from an IRS interpretation, and was not Congress’s intent with the Paycheck Protection Program. The new law amends the original version and specifically allows a deduction for the use of forgivable PPP loan expenses, which will mean the IRS’ interpretation will no longer be applied to the PPP loans. The amendment will truly allow for the PPP loans to be forgiven ‘tax-free.’ This amendment applies to all PPP loans, even those that have already been forgiven.
Eligible PPP Expenses Added
We will keep this section more high-level, but additional business expenses will now qualify towards PPP loan forgiveness. This includes eligible software and cloud computing expenses, costs relating to property destruction from vandalism in 2020 not covered by insurance, certain costs relating to supplier orders, and certain expenses designed to provide employee protection from COVID-19. Borrowers will still need to use 60% of their PPP funds for payroll expenses to receive full forgiveness.
Additional PPP Funding
The new law creates a second round of PPP funding for eligible small businesses, nonprofit organizations, and self-employed individuals. To be eligible for the second round of funding, an applicant must have 300 or fewer employees and have experienced a 25% reduction in gross receipts for any quarter in 2020 compared to that same quarter in 2019.
The same calculation will be used to determine PPP funding amounts (2.5x average monthly payroll in 2019) except for the hospitality industry, which will be able to take out additional PPP loans equal to 3.5x their average 2019 monthly payroll.
EIDL Advance Changes
The new law also appears to remove the taxability of the EIDL advance and remove the requirement that the EIDL advance be deducted from the PPP forgiveness calculations. Additionally, there will be funding available for business entities and self-employed individuals who did not participate in the first round of PPP funding.
Simplified Forgiveness for Smaller PPP Loans
A one-page forgiveness application form will now automatically be provided for PPP loans under $150,000, and they will not be subject to the FTE or employee pay rate forgiveness reductions put in place for other PPP loans.
Grants for Event and Venue Operators
Additional SBA grants designed to replace a significant amount of revenue will be available for identified entertainment industries. Live venue operators, promoters, theatrical producers, performing art organizations, museum operators, movie theatre operators and talent representatives appear to fall under this category. Qualifying businesses will need to show a 25% revenue reduction for any quarter in 2020 compared to that same quarter in 2019.
Additional Business and Tax Provisions Included in Bill
- The bill extends the date that any employee payroll tax deferral must be paid. The payroll taxes now must be repaid by December 31, 2021 as opposed to April 30, 2021.
- FFCRA payroll credits have been extended from December 31, 2020 to March 31, 2021.
- The bill authorized the SBA to pay an additional three months of principal and interest for eligible Section 7 loans beginning in February 2021.
- The Employee Retention Credit has been extended to July 1, 2021. Additional flexibilities were also provided regarding the calculation of the credit. For the first two quarters of 2021, the applicable credit percentage was increased from 50% to 70%, and the employee qualified wage threshold has been increased to $10,000 per quarter as opposed to $10,000 on an annual basis. A business now also needs to have a 20% drop in quarter over quarter gross receipts as opposed to 50%.
- It also appears that a business may qualify for both the Employee Retention Credit and PPP loan forgiveness under the current bill beginning in 2021.
- Business meals will be 100% deductible in 2021 and 2022 so long as they are considered “restaurant” meals.
- The 100% AGI limitation for charitable contributions has been extended into 2021. Additionally, for individuals who do not itemize their deductions, a Married Filing Jointly return with eligible charitable contributions can now qualify for a $600 “above the line” deduction as opposed to $300.
- Permanent extension of the 7.5% AGI limitation for individual medical expense deductions, as opposed to 10%.
- The bill also includes other miscellaneous business and individual credit extensions, as well as phaseout increases.
We will continue to monitor the progress of the bill and try to timely update our clients as the final bill becomes law. Additional commentary provided by The Journal of Accountancy has been linked here. https://www.journalofaccountancy.com/news/2020/dec/covid-19-relief-bill-addresses-key-ppp-issues.html
IRS Issues Additional Guidance on PPP Tax Implications and Timing (Nov. 19, 2020)
The eligible expenses are paid or incurred during the 2020 taxable year.
The taxpayer received a PPP loan and at the end of 2020 expects the loan to be forgiven after the 2020 taxable year.
In a subsequent year, the taxpayer’s request for forgiveness is denied, in whole or in part, or the taxpayer decides to never complete an application for forgiveness.
Recent Updates to Paycheck Protection Program (Oct 12, 2020)
In the last two weeks, recipients of the Paycheck Protection Program (PPP) have been receiving guidance piece by piece on how to move forward with loan forgiveness. The Small Business Administration (SBA) and Department of the Treasury released the following new information and guidance about the program.
Guidance on PPP Deferral Period
The SBA added clarification to its “frequently asked questions” section regarding the deferral of borrower payments. This clarification states that the extension of the deferral period granted under the Paycheck Protection Program Flexibility Act of 2020 will automatically apply to all PPP loans. Borrowers will be notified of this change, and no changes need made to any existing promissory notes.
The Paycheck Protection Flexibility Act of 2020 extended the deferral period for payments to 10 months after the end of the borrower’s PPP covered period if the borrower has not received loan forgiveness.
Loan <$50k Given Streamlined Process
The SBA and Department of the Treasury released a simplified loan forgiveness application for Paycheck Protection Program loans of $50,000 or less. Under this streamlined provision, the PPP loan recipient does not need to certify nor calculate if employee headcounts or salaries were reduced during the covered period. The simplification also moves the application to more of a “check the box” process for these borrowers. Even though these borrowers will be exempt from these potential forgiveness reductions, they still must submit proper documentation to lenders to substantiate their payroll costs or other forgivable expenses. Borrowers can use the new SBA Form 3508S application to utilize this provision.
PPP Changes of Ownership Guidance
Under new guidance from the SBA, if an entity with a PPP loan changes ownership, the borrowers must first notify their PPP lenders in writing prior to closing when any of the following facts apply:
- At least 20% of common stock or other ownership interest in a PPP borrower is sold or transferred (including to affiliates);
- The borrower sells or transfers at least 50% of its assets (measured by fair market value); or
- The borrower merges with another entity.
The PPP lender may approve the change in ownership without prior SBA approval in certain circumstances.
For all ownership changes, the borrower remains responsible for fulfilling loan obligations, related certifications and retaining all required documentation. The full notice from the SBA can be read here: Procedural Notice on PPP Loans and Changes of Ownership
Learn More about PPP by Registering for Our Webinar
On Monday, Oct. 26, 2020, from 2-3 pm, please join our Baden CPA professionals, Kara Smith, Melissa Bradberry, Shawn Sollenberger and Tyler Engstrom, for an updated discussion about Paycheck Protection Program (PPP) loans including:
- PPP Loan Forgiveness Applications
- GAAP Treatment for Financial Statements
- PPP Tax Implications
We will also be comparing Trump/Biden tax plans for the upcoming presidential election. There will be a Q&A opportunity at the end of the webinar. Register Now
PPP Loan Forgiveness: How CPAs Should Advise Clients (Sept 28, 2020)
With so much uncertainty still in the PPP loan forgiveness process, The Journal of Accountancy is recommending that CPAs proceed with caution when advising clients. This article is a good summary of the gray areas still surrounding PPP forgiveness. According to the article, "The wise course is to begin preparing the forgiveness application and stay on top of documentation requirements but also be patient with the process as substantial areas are settled. To help you explain the current situation to business owners and leaders, let’s take a look at a collection of PPP questions, key facts, and best practices." (see link below for full article)
Payroll Tax Deferral Guidance from IRS (Aug 31, 2020)
On August 8, 2020, President Trump issued a Presidential Memorandum directing the Secretary of the Treasury to defer the withholding and payment of the employee share of Social Security tax (6.2% of FICA wages) or the railroad retirement tax. In response, the IRS has issued Notice 2020-65. Highlights of the Notice are as follows:
- The Notice allows employers to defer withholding of social security tax on wages paid between September 1, 2020 and December 31, 2020.
- The deferral applies to any employee whose pretax wages or compensation during any biweekly pay period is less than $4,000 or the equivalent when applied to other pay periods. The threshold is applied each pay period, irrespective of the wages or compensation paid in other pay periods. The less than $4,000 threshold will be applied each biweekly pay period.
- The 2020 deferred payroll tax will be withheld and remitted ratably from wages and compensation between January 1, 2021 and April 30, 2021. Interest and penalties will begin to accrue on unremitted amounts on May 1, 2021.
- Per Notice 2020-65, the employer if necessary “may make other arrangements to otherwise collect the total Applicable Taxes from the employee.” The Notice does not provide detail on the requirement and how this would be handled if the individual is no longer an employee during the period when the payroll tax is to be withheld (January 1, 2021 to April 30, 2021).
If you have questions about this deferral of Social Security tax and the payroll tax forms, feel free to reach out to your point of contact at Baden Gage & Schroeder or email us at firstname.lastname@example.org or call 1-800-830-2551.
New PPP Loan Guidance: Related Party Rent and Owner-Employee Comp (Aug 27, 2020)
New definition of owner-employee for S or C corporations: The owner-employee compensation limitations for S or C corporate shareholders do not apply to shareholders with less than 5% ownership.
Related party rent/lease payments limitation:
Limited to the amount of mortgage interest owed on the property during the covered period (as long as the lease and mortgage were in place prior to 2/15/2020)
Mortgage interest payments to a related party are not considered an eligible cost
This limitation applies if there is ANY common ownership between the business and the property owner.
Shared rent, mortgage interest and utility costs: The new guidance offers four examples on how to segregate expenses when the borrower is subleasing or sharing space with another business.
Updated PPP Loan Forgiveness FAQs Published by SBA (Aug 13, 2020)
President Takes Executive Action to Defer Employee Social Security Taxes (Aug 12, 2020)
On August 8, President Trump signed a memorandum directing the “Secretary of the Treasury to use his authority to defer certain payroll tax obligations.”
The objective of the order is to provide “modest, targeted” economic relief to working Americans, beyond that which has already been provided that will quickly put money directly into their pockets.
Specifics of the memorandum:
- Deferred payroll tax: employee’s portion of Social Security tax (6.2% of wages, wage base of $137,700 in 2020). The employer’s portion of Social Security is not affected.
- Time period: paychecks dated from September 1 through December 31, 2020.
- Covered employees: those whose wages are less than $4,000 in a bi-weekly pay period, or the equivalent with respect to other pay periods (annually, about $104,000 in 2020).
- Deferral vs. forgiveness: The order directs the Secretary of the Treasury to implement the deferral. He is also asked to explore avenues, including legislation, to eliminate the obligation to pay the deferred taxes. If elimination / forgiveness does not occur, these taxes would need to be remitted later.
At this point, there are many unanswered questions, including deciding if the deferral is optional or required. The Treasury is to provide guidance by September 1. We will forward updates to you as the guidance is provided. Link to full memorandum
PPP Loan Forgiveness FAQs Published by SBA (Aug 4, 2020)
5 Reasons Borrowers Shouldn't Rush Their PPP Forgiveness Applications (July 20, 2020)
Borrowers who received Paycheck Protection Program (PPP) loans under the Coronavirus Aid, Relief, and Economic Security (CARES) Act are asking their CPAs if and how they will qualify for PPP loan forgiveness.
This blog was published by the AICPA on July 14, 2020. We believe that it provides sound advice for clients who have received PPP loans. Please select the link below for the full article.
Webinar: PPP Loan Forgiveness Update
Thursday, June 25, 2020 at 10-11 am
On demand viewing of webinar
Slides from the Webinar
Further guidance for PPP loan forgiveness was released on June 16 providing an application for loan forgiveness and application instructions. We will be reviewing this new information along with some highlights of the recent PPP Flexibility Act of 2020. Below are links for the newly published application and instructions:
- Loan Forgiveness Application Instructions (Revised 6/16/2020)
- Loan Forgiveness Application(Revised 6/16/2020)
How do you account for a PPP loan on your annual financial statements? We will also be covering this topic briefly for borrowers, following some recently released guidance from the AICPA on how nongovernmental entities should account for PPP loans using GAAP.
PPP Flexibility Act Signed into Law by President Trump (June 8, 2020)
On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 into law. The Act makes several changes to the Paycheck Protection Program (PPP) that had been introduced under the CARES Act. While these changes will require additional guidance to provide stakeholders the mechanics required to apply for forgiveness under the new rules, we are able to summarize the high points of the Act below:
The most notable change provided by the Act deals with the length of the covered period. Borrowers will now have 24 weeks to pay or incur both payroll and non-payroll costs that would be eligible for forgiveness under the original guidelines. Before this Act, borrowers only had eight weeks to incur or pay eligible costs. If a borrower received their PPP funds prior to the new Act, they will have the option to elect the original covered period length of eight weeks.
Originally borrowers were required to spend 75% of their loan proceeds on payroll costs in order to obtain full forgiveness. Under the new Act, this threshold has been reduced to 60%. Guidance issued from the SBA and Treasury Secretary Steven Mnuchin on June 8 clarified that partial forgiveness would still be available for borrowers who did not meet the new 60% standard. The joint statement confirmed that at least 60% of the loan forgiveness amount would need to be used for eligible payroll costs.
The new Act has extended the minimum required maturity length for costs that are not ultimately forgiven. Under the CARES Act, the maturity date would be two years. Now, for loans funded after the date of this Act, this maturity date has been extended to a minimum of five years.
The FTE and wage reduction safe harbor dates have been extended from June 30, 2020, to December 31, 2020. This safe harbor provides a date that employers can utilize to restore their employment levels to that which is required to obtain full forgiveness, in the event that they are not able to restore employment to an adequate level during the covered period itself.
The Act adds a new safe harbor for reductions in FTEs for borrowers unable to rehire employees or restore their business activity as it was prior to COVID-19. The new safe harbor states that a reduction in FTEs will not harm a borrower’s forgiveness calculation if:
The borrower is unable to rehire those who were employees on Feb. 15, 2020, and unable to hire employees with comparable qualifications for vacant positions on or before Dec. 31, 2020; OR
The borrower is unable to achieve the same business level as before Feb. 15, 2020, due to compliance requirements issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the time range of March 1, 2020 - Dec. 31, 2020. The compliance requirements would need to arise due to safety concerns surrounding COVID-19.
A borrower under the Paycheck Protection Program can now participate in the deferral of payroll taxes, as was afforded to other businesses under the CARES Act. Under this provision, a business can defer its remaining payroll taxes for 2020. Fifty percent of the deferred amount will become due by Dec. 31, 2021, while the remaining 50% would be due by Dec. 31, 2022.
As stated previously, we will await further guidance and detailed explanations regarding these provisions. Additionally, we could receive further changes relating to the structure of the program. Baden Gage & Schroeder continues to monitor developments as they relate to COVID-19 relief initiatives and will provide updates as information becomes available. If you have any questions regarding this Act or your PPP loan in general, please do not hesitate to reach out to us at 1-800-830-2551 or email@example.com
PPP Flexibility Act Passes Senate (June 4, 2020)
On June 3, the Senate passed the House-approved Paycheck Protection Program (PPP) Flexibility Act. The bill now waits for the President’s signature. Key highlights in the bill include:
- Extending the loan repayment period from two to five years
- Extending the covered period borrowers have to use the funds from eight weeks to 24 weeks
- Allowing borrowers who receive loan forgiveness to also defer payroll taxes
- As defined in the law, the payroll expenditure requirement drops from 75% to 60%, but is now a cliff
- Pushing back the rehire date from June 30 to Dec. 31, 2020
On-Demand PPP Loan Forgiveness Webinar (May 27, 2020)
SBA releases PPP Loan Forgiveness Application (May 18, 2020)
The Small Business Administration released their PPP Loan Forgiveness Application and provided new guidance for those who have applied for assistance through the program. Specifically, the instructions answer several questions to assist borrowers when planning spending related to their PPP loan during the 8-week covered period.
Under the new procedures, a borrower must request the forgiveness of PPP loan proceeds by filing SBA Form 3508, Paycheck Protection Program Loan Forgiveness Application. The application has four components: (1) the PPP Loan Forgiveness Calculation Form; (2) PPP Schedule A; (3) the PPP Schedule A Worksheet; and (4) an (optional) PPP Borrower Demographic Information Form. Borrowers are required to submit items (1) and (2) to their lender.
Eligible payroll costs include payroll costs paid and incurred during the covered period, which is the 8 week period commencing when the PPP funds are received (“covered period”). In addition, payroll costs incurred (earned) during the 8 week period and paid on or before the next regular payroll date are eligible for forgiveness.
Alternative Payroll Period
The PPP loan forgiveness forms give borrowers options to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles. If you process payroll bi-weekly or weekly, you can begin your 8-week payroll covered period on your first payroll date following the date you received the PPP funds.
Full Time Equivalents
The FTE calculation uses a 40-hour workweek as a base. Any employee working more than 40 hours counts as one employee. Any employee working less is a fractional employee, calculated using a 40-hour denominator, rounded to the nearest tenth. Borrowers can also elect to count all part-time employees as 1/2-FTE.
Eligible non-payroll costs of rent, mortgage interest, and utilities will receive some relief. The costs incurred, but not paid, during the 8-week period are also eligible for forgiveness if they are paid by the next due date. Don’t forget that eligible non-payroll costs cannot exceed 25% of the forgivable amount.
Eligible costs include rent or lease payments pursuant to an obligation in force prior to February 15, 2020, for real or personal property. It appears that vehicle and equipment leases will be considered eligible rental costs.
Eligible costs include interest on any business mortgage obligation in place before February 15, 2020, for real or personal property. It appears that interest on loans for vehicles and equipment will be considered eligible interest expenses.
Eligible costs include electricity, gas, water, telephone, internet, and transportation costs where service began before February 15, 2020. There is still no guidance regarding what costs are included as “transportation,” other than gas for business vehicles, which was indicated in previous guidance.
Baden Gage & Schroeder will continue to monitor developments as they relate to COVID-19 relief initiatives and will provide updates as information becomes available. If you have questions about any of this information, please reach out to us at 1-800-830-2551 or firstname.lastname@example.org
SBA Increases PPP Loan Amounts to Include Partner Compensation (May 14, 2020)
The Small Business Administration (SBA) has released additional interim final rules Final Rule 9 (“IFR 9“) providing guidance on the ability to increase certain PPP loans for partnerships and seasonal employers. Some PPP loans were approved to partnerships or seasonal employers before the additional guidance was issued and, as a result, those businesses may not have received PPP loans in the maximum amount for which they are eligible. If you think you might be eligible, you should contact your bank to verify.
Language from Interim Rule (IFR 9):
If a partnership received a PPP loan that did not include any compensation for its partners, can the loan amount be increased to include partner compensation?
Yes. If a partnership received a PPP loan that only included amounts necessary for payroll costs of the partnership’s employees and other eligible operating expenses, but did not include any amount for partner compensation, the lender may electronically submit a request through SBA’s E-Tran Servicing site to increase the PPP loan amount to include appropriate partner compensation, even if the loan has been fully disbursed, provided that the lender’s first SBA Form 1502 report to SBA on the PPP loan has not been submitted. After the initial SBA Form 1502 report on the PPP loan has been submitted to SBA, or after the date the first SBA Form 1502 was required to be submitted to SBA, the loan cannot be increased. In no event can the increased loan amount exceed the maximum loan amount allowed under the PPP Program, which is $10 million for an individual borrower or $20 million for a corporate group. Additionally, the borrower must provide the lender with required documentation to support the calculation of the increase.
Paycheck Protection Program (PPP) Borrowers with Less than $2M Given Safe Harbor (May 13, 2020)
New guidance was released today by the Small Business Administration on determining “necessity” of the Paycheck Protection Program loans. Borrowers with loans less than $2 million will have a safe harbor for establishing a good-faith certification concerning their loan request. These borrowers “will be deemed to have made the required certification concerning the necessity of the loan request in good faith” This guidance was released today by the SBA as a new FAQ #46. The entire updated FAQ is linked here.
Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?
Answer: When submitting a PPP application, all borrowers must certify in good faith that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.
SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.
Importantly, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance. SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.
We understand how the COVID-19 crisis and changing legislation have made it difficult to make business decisions. As such, we will continue to monitor these changes and discuss the impact with our clients. If you should have any follow-up questions from this article, please do not hesitate to reach out to your point of contact at Baden Gage & Schroeder, LLC.
Indiana DOR Announces Filing and Payment Extensions (May 11, 2020)
The Indiana Department of Revenue (DOR) announces additional extensions for the filing and payment of certain individual and corporate tax returns to provide further relief during the COVID-19 health crisis. These extensions are in addition to the ones previously announced on March 19, 2020.
In conjunction with the additional federal extensions provided by the Internal Revenue Service (IRS) under Notice 2020-23, DOR has extended the following Indiana deadlines:
- Individual estimated payments originally due on June 15, 2020, are now due on or before July 15, 2020.
- The deadline for filing a claim for refund of income tax set to expire between April 1 and July 14, 2020, is now extended to July 15, 2020 (including refunds of withholding or estimated tax paid in 2016).
- Corporate estimated payments due on April 20, May 20 or June 22, 2020, are now due on or before July 15, 2020.
- The corporate tax returns listed below due on May 15, June 15 or July 15, 2020, are now due on August 17, 2020. This includes forms IT-20, IT-41, IT-65, IT-20S, FIT-20, IT-6WTH and URT-1.
“Our team is constantly monitoring IRS actions and taking the steps required to help Hoosiers who may be experiencing difficulty during the COVID-19 pandemic,” stated DOR Commissioner Bob Grennes.
DOR announced several other filing and payment deadline extensions in mid-March. All changes related to the COVID-19 pandemic can be found on DOR’s Coronavirus webpage at dor.in.gov/7078.htm.
Customers with questions about individual income taxes may call DOR Customer Service at 317-232-2240. Customers with specific questions regarding corporate income taxes may call 317-232-0129. Customer Service is available to take calls Monday through Friday, 8 a.m. – 4:30 p.m., EST. Customers may also email DOR using the online form at dor.in.gov/3392.htm.
Economic Necessity and Repayment for PPP Loans Explained (May 6, 2020)
When the Paycheck Protection Program (PPP) was introduced in March, most companies were concerned about qualifying for loan forgiveness. Fast forward to early May, now companies are focused on certifying that they have an “economic necessity” to obtain these loans.
The PPP program's intent is to provide funds for payroll and certain other approved expenditures for borrowers that have determined, in good faith, that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” However, some applicants have applied that may not meet the United States Treasury's (Treasury) or Small Business Administration's (SBA) current definition of “need.”
On April 23, 2020, which was 20 days after applications could first be submitted for PPP loans, the Treasury and SBA provided their first guidance on the “need” issue in the form of Frequently Asked Question #31 (FAQ #31), which states:
“Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.”
Repayment Options and Extensions
If a borrower decides that there is not an economic need and wishes to return the funds, the SBA is allowing any borrower who applied for a PPP loan prior to April 24, 2020 and repays the loan in full by May 7, 2020 will be deemed by the SBA to have made the required certification in good faith. The SBA published additional guidance (44 FAQs – FAQ #43) on May 5 extending the repayment date for this safe harbor to May 14, 2020. Borrowers do not need to apply for this extension. This extension will be promptly implemented through a revision to the SBA’s interim final rule providing the safe harbor. SBA intends to provide additional guidance on how it will review the certification prior to May 14, 2020.
Practical Tips for Staying in Compliance
Here are some common-sense steps for keeping in compliance with the necessity certification:
- Document and retain your application files
- Consider writing a position statement identifying all of the reasons why your business needs the PPP loan
- Maintain a file with your approval documentation (emails with lenders, receipt of funds)
- Maintain and retain record of the utilization of funds. This step is critical for the forgiveness portion of the loan.
- Retain key records for 10 years after loan is forgiven, paid, or both.
Current Forgiveness Rules
The amount eligible for forgiveness depends in part on what you spend the money on for the eight weeks following the distribution of funds. We are still waiting on final guidelines for the actual calculation, but we do know that a PPP loan can be forgiven if it is used on the following categories of costs during the eight-week period (SBA Rules & Regulations):
- Payroll costs, including salary, wages, and tips, up to $100,000 of annualized pay per employee (for eight weeks, a maximum of $15,385 per individual)
- Benefits for employees including group health care expenses, retirement contributions and state taxes imposed on employee payroll paid by the employer (such as unemployment insurance premiums)
- Interest on mortgage obligations on real or personal property incurred before February 15, 2020
- Rent payments on lease agreements in force before February 15, 2020
- Utility payments under the service agreements dated before February 15, 2020
Tax Implications for Accepting Loans
The debt forgiveness is tax-free to borrowers, but an entity cannot deduct the expenses (e.g., payroll, rent, utilities) that were used to compute the debt forgiveness. On April 30, 2020, the IRS released Notice 2020-32 confirming that an entity cannot claim tax deductions, even if the wages, rent, etc. are normally fully deductible.
On May 1, 2020, the AICPA announced that they are challenging the nondeductibility of PPP-related expenses because it believes the intent of the CARES Act was to allow businesses to deduct all their ordinary and necessary expenses. Edward Karl, the AICPA Vice President – Tax Policy & Advocacy, says he is hopeful that we’ll see movement on the legislative front this week.
Baden Gage & Schroeder will continue to monitor developments as they relate to COVID-19 relief initiatives and will provide updates as information becomes available. If you have questions about any of this information, please reach out to us at 1-800-830-2551 or email@example.com
Deductibility of PPP Expenses (April 21, 2020) (Updated May1, 2020)
Will COD income increase stock basis? Currently Section 108 (e) (7) does not permit a basis increase for COD income for S-corporations. If the deduction for the expenses is allowed and the COD income is not taxable, many S-corps will lack the basis to take distributions and indirectly the COD income will become taxable.
Business Personal Property Tax Extended in Indiana (April 24, 2020)
Routine Care Offices to Open in Indiana (April 21, 2020)
Property Tax Relief in Indiana (April 17, 2020) (Updated April 30, 2020)
Normally, spring personal property tax is due on May 11. However, Governor Eric Holcomb issued an Executive Order (“E.O. #20-005”) on March 19, 2020, that mandates all counties to waive penalties for delinquent non-escrow property taxes paid within sixty (60) days after May 11, 2020—the May installment due date.
Tax Bills to be Mailed on Schedule. The normal deadline for mailing spring property tax statements remains in place. County Treasurers are still required to mail statements by April 15, 2020.
Six-Month Payment Plans. Even prior to the Governor’s Executive Order, a number of counties had in place payment plan options for taxpayers to schedule payments over a period of time. Payment plans are not uniform across the state, so interested taxpayers should research the particular requirements of the county in which their property is located.
PDF Signature for Form 136 Filings. Since IC 6-1.1-10 and IC 6-1.1-11 do not specify that exemption applications must be submitted with an original signature, counties can accept scanned copies of signed exemption applications or copies of the exemption application with electronic signatures.
Baden will continue to monitor property tax developments as they relate to COVID-19 relief initiatives and will provide updates a s information becomes available.
Paycheck Protection Program Out of Funding (April 16, 2020)
According to the SBA Website
NOTICE: Lapse in Appropriations
What if you didn't receive funding? (April 18, 2020)
- If you have an eTran number, this means your application for the loan has been accepted by the Small Business Administration but the funds have not been disbursed from the bank.
- If you haven't received your eTran number yet, don't despair, this could mean that your application is still in process.
- If you haven't applied for funding, now is the time to prepare your application. Congress is working on a second round of funding for this program, which could pass as quickly as next week. See our PPP Resource Page for preparation guidelines.
More Guidance on Paycheck Protection Program (April 14, 2020)
- The new guidance discusses loan amounts and loan forgiveness calculations for individuals with self-employment income (with and without employees).
- Additionally, the guidance clarifies that the self-employment income of general partners may be reported as a payroll cost, up to $100,000 annualized, on a PPP application filed by or on behalf of the partnership (and LLC filing taxes as a partnership).
Emergency Relief Funds for Healthcare Providers During COVID-19 (April 13, 2020)
The rapid disbursement of relief from The Department of Health and Human Services (HHS) came as a welcome surprise to many providers on Friday, April 10. The initial delivery of the $30 billion in relief funding to providers in response to COVID-19 is a part of the distribution of the $100 billion provider relief fund provided for in the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Why are you receiving funds?
This initial broad-based distribution of the relief funds will go to hospitals and healthcare providers across the United States that are enrolled in Medicare. Facilities and providers are allotted a portion of the $30 billion based on their share of 2019 Medicare fee-for-service (FFS) reimbursements. These are payments, not loans, to healthcare providers, and will not need to be repaid.
Actions to Be Taken
Within 30 days of receiving the payment, providers must sign an attestation confirming receipt of the funds and agreeing to the terms and conditions of payment. The portal for signing the attestation will be open the week of April 13, 2020 and will be linked from hhs.gov/providerrelief.
- HHS has partnered with UnitedHealth Group (UHG) to provide rapid payment to providers eligible for the distribution of the initial $30 billion in funds.
- Providers will be paid via Automated Clearing House account information on file with UHG or the Centers for Medicare & Medicaid Services (CMS).
- The automatic payments will come to providers via Optum Bank with "HHSPAYMENT" as the payment description.
- The Recipient certifies that it will not use the Payment to reimburse expenses or losses that have been reimbursed from other sources or that other sources are obligated to reimburse.
- Providers who normally receive a paper check for reimbursement from CMS, will receive a paper check in the mail for this payment as well, within the next few weeks.
- Payments are based on the Taxpayer Identification Number (TIN). This means the payment will come to the group and not the individual physician (except for solo practitioners where the individual physician is the group/TIN).
- HHS payment of initial funds is conditioned on the healthcare provider's acceptance of the Terms and Conditions - PDF, which acceptance must occur within 30 days of receipt of payment. Not returning the payment within 30 days of receipt will be viewed as acceptance of the Terms and Conditions.
- If a provider receives payment and does not wish to comply with these Terms and Conditions, the provider must do the following: contact HHS within 30 days of receipt of payment and then remit the full payment to HHS as instructed. Appropriate contact information will be provided soon.
Terms and Condition Highlights
- The Recipient certifies that the Payment will only be used to prevent, prepare for, and
respond to coronavirus, and shall reimburse the Recipient only for health care related
expenses or lost revenues that are attributable to coronavirus.
- The Recipient certifies that it billed Medicare in 2019; currently provides diagnoses,testing, or care for individuals with possible or actual cases of COVID-19
Recipient must file a report no later than 10 days after the end of each calendar quarter. The Recipient shall maintain appropriate records and cost documentation including:
- Total amount of funds received from HHS
- Amount expended or obligated for each project or activity
- Detailed list of projects or activities which covered funds
- Estimated number of jobs created or retained
- Any level of sub-contractors or subgrants awarded
- Data elements required by Federal Funding Accountability and Transparency Act of 2006
- Recipient certifies that it will not seek to collect from the patient out-of-pocket expenses in an amount greater than what the patient would have otherwise been required to pay if the care had been provided by an in-network Recipient.
- Funds cannot be used for Executive Pay.
HHS and the Administration are working rapidly on additional targeted distributions to providers that will focus on providers in areas particularly impacted by the COVID-19 outbreak, rural providers, and providers of services with lower shares of Medicare FFS reimbursement or who predominantly serve the Medicaid population. This supplemental funding will also be used to reimburse providers for COVID-19 care for uninsured Americans.
Visit hhs.gov/providerrelief for additional information.
Another Program for Funds from CMS
The Centers for Medicare & Medicaid Services (CMS) has expanded its current Accelerated and Advance Payment Program to a broader group of Medicare Part A providers and Part B suppliers. The expansion of this program is only for the duration of the public health emergency. Providers are required to submit a request for these funds. More details about this program can be found here.
Baden Gage & Schroeder understands how the COVID-19 crisis and changing legislation have made it difficult to make business decisions. As such, we will continue to monitor these changes and discuss the impact with our clients. If you should have any follow-up questions from this article, please do not hesitate to reach out to your point of contact at Baden.
IRS Extends Tax Deadlines for Individuals, Trusts, Estates and Corporations (April 10, 2020)
In a recent Notice published on 4/9/2020, the IRS has extended more tax deadlines to cover individuals, estates, corporations and others. This extension includes a variety of tax form filings and payment obligations that are due between April 1, 2020 and July 15, 2020, including estimated tax payments due June 15 and the deadline to claim refunds from 2016. The Notice also suspends associated interest, additions to tax, and penalties for late filing or late payment until July 15, 2020.
More tax deadlines extended. The new Notice expands upon the relief provided in Notice 2020-18 and Notice 2020-20. The new relief includes extending the following filing and payment deadlines:
- Individual income tax payments and return filings on 1040-NR, U.S. Nonresident Alien Income Tax Return, 1040-NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents, 1040-PR, Self-Employment Tax Return - Puerto Rico, and 1040-SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for Bona Fide Residents of Puerto Rico);
- Calendar year or fiscal year corporate income tax payments and return filings on Form 1120, U.S. Corporation Income Tax Return, 1120-C, U.S. Income Tax Return for Cooperative Associations, 1120-F, U.S. Income Tax Return of a Foreign Corporation, 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation, 1120-H, U.S. Income Tax Return for Homeowners Associations, 1120-L, U.S. Life Insurance Company Income Tax Return, 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons, 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return, 1120-POL, U.S. Income Tax Return for Certain Political Organizations, 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts, 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies, 1120-S, U.S. Income Tax Return for an S Corporation, and 1120-SF, U.S. Income Tax Return for Settlement Funds (Under Code Sec. 468B);
- Calendar year or fiscal year partnership return filings on Form 1065, U.S. Return of Partnership Income, and Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return;
- Estate and trust income tax payments and return filings on Form 1041, U.S. Income Tax Return for Estates and Trusts, 1041-N, U.S. Income Tax Return for Electing Alaska Native Settlement Trusts, and 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts;
- Estate and generation-skipping transfer tax payments and return filings on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return, 706-A, United States Additional Estate Tax Return, 706-QDT, U.S. Estate Tax Return for Qualified Domestic Trusts, 706-GS(T), Generation-Skipping Transfer Tax Return for Terminations, 706-GS(D), Generation-Skipping Transfer Tax Return for Distributions, and 706-GS(D-1), Notification of Distribution from a Generation-Skipping Trust (including the due date for providing such form to a beneficiary);
- Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return filed pursuant to Revenue Procedure 2017-34;
- Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent and any supplemental Form 8971, including all requirements contained in Code Sec. 6035(a);
- Gift and generation-skipping transfer tax payments and return filings on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return that are due on the date an estate is required to file Form 706 or Form 706-NA;
- Estate tax payments of principal or interest due as a result of an election made under Code Sec. 6166, Code Sec. 6161, or Code Sec. 6163 and annual recertification requirements under Code Sec. 6166;
- Exempt organization business income tax and other payments and return filings on Form 990-T, Exempt Organization Business Income Tax Return (and proxy tax under Code Sec. 6033(e));
- Excise tax payments on investment income and return filings on Form 990-PF, Return of Private Foundation or Code Sec. 4947(a)(1) Trust Treated as Private Foundation, and excise tax payments and return filings on Form 4720, Return of Certain Excise Taxes under Chapters 41 and 42 of the Internal Revenue Code; and
- Quarterly estimated income tax payments calculated on or submitted with Form 990-W, Estimated Tax on Unrelated Business Taxable Income for Tax-Exempt Organizations, 1040-ES, Estimated Tax for Individuals, 1040-ES (NR), U.S. Estimated Tax for Nonresident Alien Individuals, 1040-ES (PR), Estimated Federal Tax on Self Employment Income and on Household Employees (Residents of Puerto Rico), 1041-ES, Estimated Income Tax for Estates and Trusts, and 1120-W, Estimated Tax for Corporations.
This relief is automatic. Taxpayers do not have to call the IRS or file any extension forms or send letters or other documents to receive this relief.
The relief provided in the Notice includes extending the time for filing all petitions with the Tax Court, or for review of a decision rendered by the Tax Court, filing a claim for credit or refund of any tax, and bringing suit upon a claim for credit or refund of any tax. However, the Notice does not provide relief for the time period for filing a petition with the Tax Court, or for filing a claim or bringing a suit for credit or refund if that period expired before April 1, 2020.
In the Notice, the IRS has also provided additional time for the IRS to perform certain time-sensitive actions during this period and the application date to participate in the Annual Filing Season Program.
The Notice also suspends associated interest, additions to tax, and penalties for late filing or late payment until July 15, 2020.
(Source: Checkpoint Newsstand, April 10, 2020)
Paycheck Protection Program Clarifications (April 8, 2020)
• The Gross Payroll approach should be used for both loan application and forgiveness. The guidance also clarifies that employer FICA should not be included.
• The $100,000 salary limitation does not include healthcare, retirement benefits, and state and local taxes.
• Applicants who use Professional Employer Organizations (PEOs) can provide payroll reports since they cannot produce individual entity payroll tax documents.
• Borrowers can calculate their aggregate payroll costs using data either from calendar year 2019 or from the previous 12 months. The FAQs also provide information for businesses that have been in operation less than 12 months.
Paycheck Protection Program Now Taking Loans (April 4, 2020)
The Paycheck Protection Program (PPP) administered by the Small Business Administration is now offering $349 billion in forgivable loans to businesses that have been adversely impacted by the coronavirus pandemic. Congress created this program as part of the $2 trillion Coronavirus Aid Relief and Economic Security (CARES) Act.
Small businesses can apply for PPP loans beginning April 3, but the SBA release of detailed guidelines the day prior to the first application window opening resulted in some banks being unable to start processing loans immediately. The new guidelines provide clarity on several issues and changes the interest rate on loans made under the program from 0.5% to 1% (100 basis points) in the hope that more banks will participate.
Applications can be submitted under the Paycheck Protection Program through June 30, 2020, or until funds made available for this purpose are exhausted. Independent contractors and self-employed individuals can apply for PPP loans beginning April 10.
More Loan Details
• PPP is a new 7(a) loan option overseen by the Treasury Department and backed by the SBA, which is authorized to provide a 100% guarantee to lenders on loans issued under the program.
• The full principal amount of the loans may qualify for loan forgiveness if the borrower maintains or rehires staff and maintains compensation levels. However, not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs.
• Loan payments will be deferred for six months; however, interest will continue to accrue during the six-month deferment. No collateral or personal guarantees are required.
• The program is available to small businesses that were in operation on Feb. 15 with 500 or fewer employees, including not-for-profits, veterans’ organizations, Tribal concerns, self-employed individuals, sole proprietorships, and independent contractors. Businesses with more than 500 employees in certain industries also can apply for loans, according to the SBA and Treasury.
Four Economic Relief Programs for Small Business Owners (April 3, 2020)
Through the CARES Act funding, the Small Business Administration (SBA) has four new temporary programs to address the COVID-19 outbreak for businesses that qualify.
1. Paycheck Protection Program (PPP) – With this loan, employers can cover payroll costs as well as rent, mortgage interest, and utilities. The maximum loan amount is 2.5 times the borrower’s average total monthly payroll costs, not to exceed $10 million. This loan program provides debt forgiveness for retaining employees. Eligible employers can apply for the PPP loan through an SBA-authorized lender starting April 3, 2020 through June 30, 2020.
Visit our PPP Resource Center for documentation that may be needed to apply for the loan.
2. Economic Industry Disaster Loan (EIDL)- Eligible businesses can borrow up to $2 million if they can show a financial impact or loss directly related to COVID-19. The EIDL loan can be used to pay fixed debts, payroll, accounts payable and other bills that otherwise could not be paid due to COVID-19. This loan can be applied for directly via the SBA website, and the application includes an opportunity to get a $10,000 advance within a few days. The loan advance will not have to be repaid.
3. SBA Express Bridge Loans – The bridge loans allow small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 quickly.
4. SBA Debt Relief - As part of SBA's debt relief efforts, the SBA will automatically pay the principal, interest, and fees of current 7(a) loans for a period of six months. The SBA will also automatically pay the principal, interest, and fees of new 7(a) loans issued prior to September 27, 2020. We understand this a deferral of debt service payments and not a forgiveness of loan payments.
To learn more about the relief options available go to the SBA web page click here
After nearly a week of back and forth, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act on Friday afternoon (March 27), and it has now been signed into law by President Trump. The Act is geared toward providing economic benefits to individuals and businesses during this difficult time in our world.
Pertaining to the interest of our clients, the Act can be broken down into three main sections. The first deals with economic stimulus checks that will be provided to American households. The second looks at loans granted through the Small Business Administration (SBA) that have the potential to be forgiven if certain criteria is met. The final section relates to a set of individual and business tax provisions geared toward reducing tax burdens.
Individual Economic Stimulus Checks
Single and jointly filing taxpayers will be eligible to receive economic stimulus payments, likely in the next six-eight weeks, for amounts totaling $1,200 or $2,400, respectively. An additional $500 will be granted to taxpayers for each qualifying child under the age of 17. This program will phase-out as adjusted gross income exceeds $150,000 for joint filers and $75,000 for single filers. As income exceeds these thresholds, 5% of the stimulus check will be lost for every $100 of excess income. For example, a married couple, with no children and an adjusted gross income of $175,000 would receive $1,150 under the Act. Including a child in the above example would add $500 to the stimulus payment and provide an additional level of income phase-out protection.
The data to compute the payment will, in most cases, be taken from the 2019 individual tax return. If the 2019 tax return has not been filed yet, it will be taken from the 2018 tax return. It is important to note that this is an advance on a 2020 income tax credit. However, the Act does not explicitly require repayment of the credit if it turns out a taxpayer in theory should have received a smaller stimulus check based on final 2020 results.
Small Business Administration Loans
Through June 30, 2020, small businesses will have access to loans designed to keep businesses operating during this time. The definition of a small business for this purpose generally means less than 500 employees; however, there could be maximum revenue thresholds based on the industry of the business. The loans may be used for payroll, mortgages, utilities, rent and other business debts during this time. The loans are available for these businesses equal to 2.5 times their average monthly payroll costs for the one-year period prior to the loan, up to a maximum of $10 million. For business purposes, “payroll costs” consist of:
- Salaries, wages, commissions or tips (for employees earning less than $100,000 annually)
- Independent contractor compensation
- Vacation, family, medical or sick leave (aside from payments under last week’s Families First Coronavirus Response Act)
- Employer health insurance costs
- Employer retirement plan contributions
- Employer state or local tax assessed on the payment of employees. Federal payroll taxes are not to be included here.
The loans will have maximum maturity lengths of 10 years with a maximum interest rate of 4%. However, the Act also allows for the loans to be forgiven for an amount equal to certain expenses incurred during the first eight weeks of the outstanding loan. The expenses include payroll costs based on the above requisites, mortgage interest, rent and most utility payments. Businesses will be required to document their expenses during this time as well demonstrate certain employment levels. The employer must keep its workforce at levels equal to other comparable periods in 2019 or 2020 as well as keep employee wages at those levels.
This section of the Act could become difficult to navigate and to make sound business decisions. As such, we would recommend engaging an experienced, certified SBA lender to help guide your small business through the application and decision-making process.
The CARES Act includes a number of favorable taxpayer provisions, which are listed below. Many of these provisions modify existing rules that came into effect during tax reform in 2017 under the Tax Cuts and Jobs Act.
Business Tax Relief:
- Employee retention credit: A late addition to the Act comes in the way of this tax credit. Here, an employer can take a credit against their share of the Social Security taxes when their business continues to pay employees after it is forced to suspend or shut down operations due to the virus. Or, the employer would have to show gross receipts for the quarter in which the credit is calculated if less than 50% compared to the same quarter in 2019. The credit includes additional calculations outside the context of this article and is also dependent upon the number of employees the company has.
- Delay of employer payroll taxes and self-employment taxes: The employer’s share of the 6.2% Social Security tax that would become due as of the date of enactment from 12/31/2020 can now be deferred. Of the payroll tax, 50% will become due on 12/31/2021, and 50% will become due on 12/31/2022. Self-employed individuals can utilize these deferrals as well. This deferral can also be utilized with the above employee retention credit to free up additional cash flow during 2020.
- Changes to net operating losses: Net operating losses incurred during 2018, 2019 and 2020 can be carried back up to five years and then carried forward. Losses for 2019 and 2020 can be carried forward to offset 100% of income. The rules prior to the Act did not allow for loss carrybacks after tax reform in 2017, and only permitted loss carryforwards to offset 80% of income.
- Ease on interest expense limitation: Tax reform introduced a new provision that requires certain taxpayers to only be able to deduct interest expense in what essentially amounts to 30% of their EBITDA. Under the CARES Act, this limitation is changed to 50%, which will allow affected taxpayers to reduce a greater amount of this expense. There is an exception for partnerships under this change in that they do not get to use the 50% limitation for 2019. However, in 2020, 50% of their suspended interest will free up and become deductible. The other 50% will remain suspended until enough income is available to free up the deduction.
- Qualified improvement property (QIP) fix: A technical correction from the Tax Cuts and Jobs Act of 2017 comes in the way of the QIP fix. The correction reduces the depreciable life of nonresidential building improvements from 39 years to 15 years, which in turn makes it eligible for 100% bonus depreciation in year one. This fix is retroactive back to both 2018 and 2019.
Individual Tax Relief:
- Suspension on excess business loss: Under tax reform, net business losses were limited to $500,000 per year for jointly filed returns and $250,000 per year for single filers. These limitations are temporarily suspended for 2020, as well as retroactive to 2018 and 2019. The loss limitations will resume in calendar year 2021.
- “Above the line” charitable donation: Beginning in 2020, the IRS will allow for a charitable deduction of up to $300 for taxpayers who make qualifying donations and do not itemize their deductions. Taxpayers who do itemize their deductions will not be eligible for this deduction.
- 100% AGI limitation on deductible donations: The IRS is temporarily suspending the 60% adjusted gross income limitation that limits the amount of charitable donations that can be deducted on a tax return. Taxpayers will now be able to deduct contributions up to 100% of their adjusted gross income for 2020.
- Penalty-free retirement plan distributions: The Act allows taxpayers to distribute up to $100,000 penalty-free in 2020 for those diagnosed with COVID-19 or SRS-COV-2, have a spouse or dependent diagnosed or experiences financial distress to the quarantine or employment reduction. It is important to note that these distributions will still be subject to income tax. Fortunately, the taxable income can be spread over three years and avoided altogether if the taxpayer repays the distribution.
- RMD waiver for 2020: For 2020, there will not be a required minimum distribution (RMD) mandated for taxpayers ages 72 and over. This waiver applies to distributions from all affected qualified plans including company 401(k)s, traditional IRAs and Roth IRAs. Inherited IRAs are also covered by this provision.
- Income exclusion - Employer payment of employee student loan debt: An employer can pay up to $5,250 of an employee’s student loan debt in 2020 on a pre-tax basis. This limit is combined with the existing $5,250 exclusion in which employers can pay for qualifying education expenses, such as tuition, for an employee on a tax-free basis.
CARES Act Passes: Tax Relief for Individuals and Businesses (March 27, 2020)
The Coronavirus Aid, Relief and Economic Security (CARES) Act provides relief for both individuals and businesses. In this article, we break the Act down into 3 main categories and help you understand how it affects your economic situation. Select link to review full article
Federal Tax Deadline Extended: How does this affect your taxes? (March 20, 2020)
Treasury Secretary Steven Mnuchin announced that the IRS will move the national income tax filing day from April 15 to July 15. Taxpayers and businesses will have three additional months to file and make payments without penalties. Indiana tax requirements are following the same policy as the federal changes. As always, Baden will share more details as we receive them.
Families First Coronavirus Response Act: What Employers Need to Know (March 18, 2020)
President Trump signed the Families First Coronavirus Response Act into law on March 18, 2020. The new law, which will take effect on or before April 2, 2020, and will continue through December 31, 2020, contains provisions for both employee paid leave directly related to COVID-19 and employee paid leave to care for eligible family members. The law applies to employers with fewer than 500 employees, although the Act offers exemptions for certain small businesses with fewer than 50 employees. The exact details surrounding the exemption for businesses with fewer than 50 employees have yet to be announced at this point.
There are two distinct but similar provisions that outline eligible paid leave granted by the Act. The two provisions may both be used by the employee, allowing for a potential total of 14 weeks of protected leave, 12 of which are required to be paid.
Emergency Paid Sick Leave
Employees, regardless of employment duration, are eligible for up to 80 hours of emergency paid sick leave under Division E of the Act. This leave is available to full-time employees as well as part-time employees, with the part-time employee leave being based on hours worked during an average two-week period. This leave is available to employees, whom can neither work or telework, and meet any of the conditions below:
- Employee is subject to a quarantine
- Employee received medical recommendation to be self-quarantined
- Employee is experiencing COVID-19 related symptoms and seeking diagnosis or testing
- Employee is caring for an individual mentioned in criteria numbers 1-3
- Employee is caring for a son or daughter whose school or childcare is closed due to COVID-19
Employees eligible for leave due to items #1, #2 and #3 must be compensated at their regular rate of pay up to $511 per day, for a maximum total of $5,110 during the 80 hours of emergency sick leave. Employees eligible due to items #4 and #5 must be compensated at two-thirds of their regular pay rate, up to $200 per day.
It is important to note that the employee shall not be required to utilize any paid time off prior to receiving the Emergency Paid Sick Leave, nor shall the employer require the employee to find a substitute employee during their leave.
Family and Medical Leave
Division E of the Act, relating to Family and Medical Leave, applies to employees who have completed at least 30 days of service with their employer. This leave is available to eligible employees who are unable to work or telework due to the need to care for a son or daughter under the age of 18 due to a school or daycare being closed. The employer may require the first 10 days of this leave be unpaid, after which the employee shall receive at least two-thirds of their regular pay up to $200 per day. The paid Family and Medical Leave is to last for a period of 10 weeks, with a leave pay up to $2,000 during the 10-week duration.
Employer Payroll Tax Credits:
A payroll tax credit has been implemented to reimburse employers required to comply with the Act. Under the credit provision, all eligible employee leave compensation, including related payroll taxes and health insurance costs, are eligible to be reimbursed up to the stated maximum compensation figures. The mechanism for receiving the reimbursement will most often be done via regularly scheduled payroll deposits by reducing the required deposit by the amount of expected tax credit.
For example, if an eligible employer pays $1,000 of Emergency Paid Sick Leave and $1,000 of Family and Medical Leave, they would be entitled to a $2,000 tax credit. When going to make their next required payroll tax deposit with the IRS, they would reduce the deposit by $2,000. Since this credit provision allows for a reimbursement of both gross wages and payroll taxes, there will be instances where the expected credit exceeds the required payroll tax deposit. In these cases, the employer would not make a payroll tax deposit for the respective period, and additionally would utilize the new streamlined credit system being introduced by the IRS this week to recoup the balance of tax credits owed to the employer.
IRS Website for Stimulus Check Information
Paycheck Protection Program for Small Businesses
Paycheck Protection Program (PPP) provides relief for small businesses. This information was recently released by the U.S. Department of Treasury that may assist you in determining what options are best for you and your employees.
Visit our PPP Resource Center for documentation that may be needed to apply for the loan.
The program will start accepting applications on April 3, 2020. Visit the SBA web site for more information on this program.
- PPP Loan Calculator – Nonseasonal & NOT in business 2/15/19 – 6/30/19 This calculator will apply for new businesses.
- PPP Loan Calculator – Seasonal business This calculator will apply for clients that don’t operate year-round.
- SBA loan snapshot A resource to help clients get a basic understanding of SBA loan options
Sick Paid Leave Guidance from DOL
Below are links to:
Questions and Answers
U.S. Department of Labor: Guidance for Preparing Workplaces for COVID-19
U.S. Chamber of Commerce: Combating the Coronavirus
U.S. Small Business Administration: Coronavirus (COVID-19) Small Business Guidance & Loans
U.S. Department of Treasury: CARES
Our Commitment to Clients and Staff
At Baden Gage & Schroeder LLC the health and safety of our staff and clients are our top priority. With the COVID-19 virus having an increasing impact in our community, we want to let you know how our business is addressing this situation.
Currently, our offices are still open but we are minimizing in-person client visits. We encourage clients to send their tax information electronically to us or by using the postal service. Here are the proactive steps we have put in place:
- All clients are encouraged to use our Secure Firm Portal to send us files and exchange documents online. You can access Secure Send on our website at https://www.badencpa.com/quick-send.php
- Our office is open, but we have temporarily closed our front lobby doors. If you need assistance during normal business hours, please use the lobby phone (just off elevator) and someone will assist you. If you want to schedule a phone appointment in lieu of a live visit, please call us at (800) 830-2551.
To accommodate any concerns our clients and staff may have, we have taken the following additional steps:
- We have increased the cleaning and sanitation of our offices.
- We have added additional alcohol-based sanitizer around our office.
- We informed our staff if anyone is feeling ill (fever or cough), they must stay home.
During this difficult time, we are committed to serving our clients and staff with care and consideration. We will continue to monitor the situation and take precautionary measures to promote the health and safety of our staff and clients.
Thank you for being a valued client and for your continued trust as we manage through this time together. If you have any questions or need further assistance, please call us at (800) 830-2551 or email us at firstname.lastname@example.org.
Webinar: PPP Loan Forgiveness
Wednesday, May 27, 2020 at 2-3 pm