Update from Heveron & Company, CPAs
Taxes, Stimulus checks, business and relevant information surrounding COVID-19
The Internal Revenue Service (IRS) and state tax departments have been busy responding to the tax issues related to the CARES Act and the economic upheaval brought on by the Coronavirus pandemic.
We have new guidance, filing dates and other updates to share with you since our last Heveron & Company CPAs newsletter on March 27, 2020.
Economic Stimulus and Stimulus Checks
The following individuals are eligible for stimulus payments:
Taxpayers who filed tax returns for either 2019 or 2018.
Individuals who receive Social Security retirement or disability benefits, SSDI or who receive Railroad Retirement benefits but did not file a return for 2019 or 2018.
Citizens with a Social Security number, who did not file a tax return in 2018 or 2019, and who did not receive Social Security, but who register with IRS at https://www.irs.gov/coronavirus/non-filers-enter-payment-info-here
Economic Impact Payment will be up to $1,200 for individuals or $2,400 for married couples and $500 for each qualifying child provided they qualify for the payments. Payments are phased out for individuals with adjusted gross income over $75,000, and couples with adjusted gross income over $150,000.
To help everyone check on the status of their payments, the IRS is building a second new tool expected to be available for use by April 17. Get My Payment will provide people with the status of their payment, including the date their payment is scheduled to be deposited into their bank account or mailed to them.
Further details are available from the IRS through this link.
Delayed Filing/Delayed Payments
The list of tax returns and payments that are delayed continues to grow. On April 9, IRS extended the due dates and payment dates for all returns and payments due between April 1, 2020 and before July 15, 2020 to July 15, 2020. While we don’t have confirmation at this time, New York State is generally implementing the same extensions. This deferment applies to all taxpayers and filers, including individuals, trusts and estates, nonprofits (their 990 series of forms), corporations and other non-corporate tax filers as well as those who pay self-employment tax.
The deadline for the 2020 – 2nd quarter estimated tax payment has been extended to July 15, 2020 (so now the deadline for tax returns and the 1st and 2nd quarterly estimated tax payments are all due on July 15, 2020). An extension (Forms 4868 or 7004) can be filed to extend the due dates of the tax returns to October 15, 2020, however, this is not an extension of time to pay so interest and penalties will start to accrue as of July 16, 2020.
Americans who live and work abroad, with a due date of June 15th for their federal income tax return, also have until July 15, 2020 to file their 2019 federal income tax return and pay any tax due.
IRS filings and payment deadlines questions and answers are available through this link.
Through the end of the year, individuals who are affected directly or indirectly can take up to $100,000 in coronavirus-related distributions from qualified retirement plans without the usual 10% penalty for early distributions by those under age 59 ½. The distributions may be recontributed to the plan within three years. To the extent distributions aren’t timely, tax can be paid over three years.
If you were over 70 ½ at Dec. 31, 2019 you won’t have to take required minimum distributions (RMD) in 2020. If your retirement assets have taken a hit, not having to take an RMD may allow those assets to recover some value before you liquidate them.
The deadline to make an IRA contribution is extended to July 15, the extended due date for tax returns.
Loans from Retirement Plans
For those impacted by the Coronavirus pandemic the maximum loan amount is increased from the lesser of $50,000 or 50% of vested balance to the lesser of $100,000 or 100% of vested balance. This increase applies to loans made between March 27, 2020 (the date of enactment of the CARES Act) and December 31, 2020.
In addition, if a qualified individual has a loan repayment due date after March 27, 2020 and before December 31, 2020, on an outstanding retirement plan loan, the payment due date is delayed one year (or, if later, until September 22, 2020). Any subsequent repayments will be adjusted accordingly and the five-year period for repayment is disregarded
Your employer may need to modify the retirement plan document to incorporate these changes into the Plan. You should contact your Plan Administrator to determine eligibility under the Plan.
If you have a federally-held student loan, your payments will be suspended through Sept. 30, 2020 and interest won’t accrue during this period. Note that this relief does not apply to private student loans.
Unemployment for Self-Employed Individuals
Self-employed individuals may be eligible for unemployment compensation under the new federal law. You can find guidance on this at: https://www.labor.ny.gov/ui/pdfs/self-employed-ui-guide.pdf
Unemployment Is Generous and Taxable
Unemployment amounts are much higher than in the past, but as always, they are taxable and there is no withholding, so you need to set aside a portion of the unemployment payments you receive to cover federal and state taxes.
Delayed Payment of Employer Payroll Taxes
Payroll taxes due from the period beginning on March 27, 2020 (the date the CARES Act was signed into law) and ending on December 31, 2020, can be deferred. The total payroll taxes incurred by employers, and 50 percent of payroll taxes incurred by self-employed persons qualify for the deferral. Half of the deferred payroll taxes are due on December 31, 2021, with the remainder due on December 31, 2022.
Employer Tax Credits
In our March 27, 2020 newsletter we outlined key provisions of the qualified sick leave credit, qualified family leave wages credit and the employee retention credit for employees affected directly or indirectly by the coronavirus, including:
Mandated sick pay/paid leave;
Credit for Qualified Sick Leave – In the case of sick leave wages paid by an employer to an employee, the employer may reduce payments of employer and withheld federal taxes. A separate refundable payroll tax credit applies for family leave wages paid by an employer.
Credit for qualified family leave – A separate refundable payroll tax credit applies for family leave wages paid by an employer under the Coronavirus Response Act. The credit is 100 percent of the amount of qualified family leave wages limited to $200 per day per employee, up to an aggregate of $10,000.
Self-employed persons may also benefit from the sick and family leave credits as if they were an employee of an employer (other than himself or herself). For self-employed persons, the credits are allowed against regular Federal taxes.
Eligible employers will be able to claim these credits based on the qualifying leave they pay provide between April 1, 2020 and Dec. 31, 2020.
If there are not sufficient payroll taxes to cover the cost of qualified sick and childcare 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.
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 childcare 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.
Employee Retention Credit – designed to encourage businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by coronavirus (COVID-19). The credit is available to all qualifying employers regardless of size, including tax-exempt organizations. There are only two exceptions: State and local governments and their instrumentalities and small businesses who take small business loans are not eligible.
Qualifying employers must fall into one of two categories:
The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.
The amount of the credit is 50% of qualifying wages paid up to $10,000 in total. Wages paid after March 12, 2020, and before Jan. 1, 2021, are eligible for the credit. Wages taken into account are not limited to cash payments, but also include a portion of the cost of employer provided health care.
Qualifying wages are based on the average number of a business’s employees in 2019.
Employers with less than 100 employees: If the employer had 100 or fewer employees on average in 2019, the credit is based on wages paid to all employees, regardless if they worked or not. If the employees worked full time and were paid for full time work, the employer still receives the credit.
Employers with more than 100 employees: If the employer had more than 100 employees on average in 2019, then the credit is allowed only for wages paid to employees who did not work during the calendar quarter.
Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.
Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns or Form 941 beginning with the second quarter. If the employer’s employment tax deposits are not enough to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
The IRS has posted additional guidance and frequently asked questions since our last newsletter. This can be found at: https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs
SBA Paycheck Protection Program Loans
The Small Business Administration (SBA) began accepting applications for Paycheck Protection Program (PPP) loans on April 3, 2020 for small businesses and sole proprietorships and April 10, 2020 for independent contractors and self-employed individuals. The application deadline is June 30, 2020.
The PPP loans provide cash-flow assistance for employers to maintain payroll during this crisis through SBA loans. Attractive features include the opportunity for debt forgiveness, low interest rates with no loan fees, a 6-month deferral on loan payments and no personal guarantees or collateral required.
These loans can be used to pay payroll, specific benefits, interest on mortgages, rent on a leasing agreement and utilities. There is a minimum that must be spent on payroll.
A businesses can submit their application to any existing SBA-approved private lender or participating federally insured depository institutions or federally insured credit. Many of the larger banks have online applications where you can submit your application. Most banks are limiting the applications to existing customers due to the overwhelming demand for the PPP loans. You should contact your banker to begin the loan application process.
Most payroll processors have developed payroll reports that can be used in the computation of the Average Monthly Payroll which is the basis for the PPP loan. We can assist you with this calculation.
For additional information on the PPP loans you can contact the SBA at this link for information, lenders and to download PPP loan application. You can also call the SBA at 800-659-2955.
The U.S. Chamber of Commerce has also published guidance and resources that can be found at this link.
Net Operating Losses
Finally, there are provisions in the law that allow businesses with operating losses from 2018, 2019, or 2020 to remove the income limitation and carry those losses back 5 years, to recover taxes paid. These provisions are also available to self-employed individuals with losses and to individuals who have losses from pass-through businesses like partnerships and S corporations.
Our firm is open to serve you
Our firm remains open and available to serve you. You can reach us by phone at 585-232-2956 or e-mail which can be found at www.heveroncpa.com. For the time being we strongly discourage in person meetings, but we will schedule phone conferences to discuss your questions.
Our commitment to you
The topics outlined above are a summary of the new law and business loans. Please contact us if you have tax or business questions or need advice on ways to navigate and go into further details on the expanded benefits outlined above.
During this unpredictable and challenging time, it’s more important than ever to stay connected. We’re in this together and our thoughts go out to all that have been impacted by this unprecedented situation.
Heveron & Company CPAs
April 13, 2020
We have built our services around our commitment to care, competence, and common sense.