COVID-19 Impact: Resources and Information

Like you, Flaherty Salmin CPAs is continuously monitoring the impact of COVID-19 in our community, across the country, and around the world. The health and well-being of our team members, our clients and all of our families is our top priority, and we have taken every safety precaution recommended by the Centers for Disease Control and Prevention.

At the same time, we are committed to continuing to provide the high-quality services and personalized attention that you’ve come to expect from us. We have an internal task force that is working on COVID-19 related issues. We are ready to assist you and your business to weather this financial storm.

We understand the challenges that many businesses, organizations and individuals are facing as you deal with the serious financial impacts that have resulted from the COVID-19 pandemic.

To help you navigate various economic relief programs and benefits that may be available to help you deal with these challenging times, we’ve compiled a few resources that we hope you find helpful. As programs continue to evolve, we will provide updates as they become available*.

If you have questions or would like to set up a virtual consultation, please email info@fs-cpa.com or call 585.279.0120.

*As with any new legislation, Executive Order or program, we expect additional technical corrections legislation as well as more detailed regulations that add clarity.

Individuals

Update: There are currently no provisions to extend any future tax deadlines.
The following extensions have expired:
• The IRS and NYS have moved all personal filing deadlines from 4/15/20 to 7/15/20.
• 2019 IRA and HSA contributions are due by 7/15/20.
• 2020 Federal and NYS first estimated tax payments are now due 7/15/20. Federal 2nd quarter estimated tax payments are also due 7/15/20. All other deposits are due at their normal due date.
• IRS installment agreements don’t have to be paid for monthly payments due between now and 7/15/20.
• IRS has suspended most audit and enforced collection actions through 7/15/20.

Update: An additional payment of $600 per taxpayer and per dependent under 17 was calculated and issued before January 15, 2020 based on the 2019 tax return or to Social Security recipients. The calculation was the same as the original payment. If direct deposit information was on file, the stimulus was automatically sent to that account on January 4th. If not, a check or debit card was mailed. If a taxpayer does not receive the stimulus by January 15th for any reason, they must claim it on their 2020 tax returns.

The original rebate is as follows:
• One filer: $1,200
• MFJ: $2,400
• For each child under age 17: $500
• A person claimed as a dependent does not qualify on their own return.
(Effectively no one gets a credit for kids 17-23 if in school.)

Other aspects of the original rebate and additional rebate:

The credit begins phasing out at AGI of:
• Single: $75,000
• MFJ: $150,000
• HOH: $112,500

There is a 5% phaseout of the credit for the amount in excess of the AGI limit. Therefore, with NO children, phase out is $99,000 for Single and $198,000 for MFJ. Each child adds $10,000 to the limit.

The payment is technically an advance credit on 2020 taxes. The credit will be reconciled on your 2020 return, and if you would have been entitled to more credit based on your 2020 income and circumstances, you will receive additional credit on that return. If you received too much credit, you will not be required to repay it.

Payments will be made by direct deposit, if the 2019 (or 2018) returns included a direct deposit bank account, or if Social Security is directly deposited. For others, the IRS has mailed either a government check or a debit card containing the stimulus payment.

The IRS will send a notice 15 days after the payment to your last known address, with instructions to call the IRS if you didn’t receive payment.

The rebates are NOT subject to offset, if the taxpayer owes Federal taxes or other debts, state taxes, student loans or any other obligation, other than delinquent child support.

Update: An additional $300 per week, for 11 weeks, beginning on the week of December 26, 2020.

If you are not working due to COVID-19, unemployment benefits have been enhanced:
• One week waiting period waived.
• Self-employed individuals are allowed to make a claim.

Expired enhancements:
• An additional $600 per week, in addition to normal weekly benefit through 7/31/20.
• An additional 13 weeks of benefits through 12/31/20.

Update: The relief provided in 2020 was not extended for 2021.

Waiver of 10% Penalty for Distributions and Payment of Tax Over 3 Years for Coronavirus Related Withdrawals

Tax benefits for Coronavirus related distributions:
• The 10% penalty for early distributions is waived for up to $100,000 withdrawn during 2020.
• The income is treated as a distribution in 3 equal amounts in 2020, 2021, and 2022 (unless you elect to pay the entire tax in 2020).
• The mandatory 20% withholding on payouts of employer retirement plans is waived.
• You may repay these distributions to your accounts within 3 years and have the tax refunded.

A retirement plan withdrawal (401k, 403b, IRA etc.) is Coronavirus related if:

• You, your spouse, or your dependent is diagnosed with COVID-19, or
• You experience a related financial hardship due to being quarantined, furloughed, laid off, or having hours reduced, or needing to stay home or pay for additional childcare due to a child not being able to attend school, and
• Occurs during 2020.

Increase in Retirement Plan Loans due to Coronavirus
Retirement plan loans made between 3/27/20 – 9/23/20 (such as 401k’s) will be allowed to be increased to a maximum of $100,000 (instead of $50,000) and may equal up to 100% of the value of your vested account balance (instead of 50%).

No payments are required for one year, and then you may repay over the next five years, though interest will accrue during the entire period.

Waiver of Required Minimum Distributions (RMD’s) in 2020

All RMD’s required for 2020 are waived, including:

• For those who turned 70 ½ by 2019
• Those who turned 72 in 2020
• Those who inherited an IRA
• On an inherited IRA with a 5-year distribution requirement, 2020 will not count as the fifth year.

Update: See below for any updates to specific items.

Charitable Above-the-Line Deduction
Cash donations to a qualified public charity that is not a donor advised fund, will be allowed as an above-the-line deduction of $300, if you don’t itemize. Update: This provision is extended for 2021, and those married filing jointly can claim up to $600.

100% Limit on Charitable Donations
Cash charitable donations will be limited to 100% of AGI, except to private foundations and donor advised funds. Update: This provision was extended through 2021.

Tax-free Student Loan Assistance up to $5,250
An employer may provide payments to an employee to reimburse student loan principal and interest up to $5,250 between 3/27/20-12/31/20, tax-free to the employee. This limit is in conjunction with any tax-free tuition paid in the same year. Update: This provision has been extended through 2025.

Federal Student Loan Payment Suspension
You will need to ask your servicer not to pay. Interest is 0% during this time. Update: Payments have been extended through September 30, 2021.

Eviction Protection
You may be able to file a declaration from the CDC to receive protection from eviction through December 31st. Update: This has been extended through at least March 31, 2021. Other states and programs have enhanced eviction protection.

Foreclosure Protection
You may be able to obtain foreclosure protection and forbearance if you have certain Federally backed loans or under state law. See the Consumer Finance Website

New Provisions
Educator Expenses: Teachers can include PPE as deductible expenses for the $250 out of pocket deduction.

Simplification of Tuition Deductions/Credits: The deduction for tuition deductions is repealed. Instead the Lifetime Learning Credit earning limit is matched to the American Opportunity Credit which will provide a greater tax benefit.

Earned Income Options: Taxpayers who had limited earned income in 2020 can claim Earned Income Credit and Additional Child Tax Credit based on 2019’s earned income.

Medical Expenses: Expenses in excess of 7.5% are now permanently deductible (not 10%).

FSA/HRA excess funds: Leftover funds in FSAs and HRAs may be allowed to roll over from 2020 to 2021 or from 2021 to 2022. Additionally, employers may allow midyear changes to FSA elections.

Disaster Relief Provisions: Certain common disaster provisions were extended to Presidentially Declared Disaster Areas (other than related to Covid-19) for disasters in 2020 through February 2021.

Businesses

SBA’s Economic Injury Disaster Loan (EIDL) and Related $10,000 Targeted Grant

Update: The EIDL grant is now generally tax free.

New Targeted $10,000 EIDL Grant:
Businesses that did not previously obtain an EIDL grant or did not receive the entire grant are eligible to apply for $10,000 in total grants, if they lost at least 30% gross revenue in any 8 week period between 3/12/20 and 12/31/20 and are located in a low income community and have less than 300 employees. The SBA will automatically contact potentially eligible businesses by email based on the business address and ask for verification of reduction in gross receipts. There is no mechanism to apply directly for the targeted EIDL grant.

It may be possible for businesses that did not obtain an EIDL loan to obtain a new loan or increase their current loan up to a total of $150,000. The SBA has not provided details for already existing loans.

How Do I Obtain This Benefit?:
Click here for the online application form.

Obtaining a 1st or 2nd Draw Paycheck Protection Program (PPP) Loan from SBA and Related Loan Forgiveness

This is the centerpiece of the business relief program.

Updates on PPP Forgiveness:
Companies that did not take the PPP originally may now be eligible, and qualified companies that did receive the PPP may be entitled to take a second draw.

The amount of forgiven PPP loans will not be considered taxable income, or reduce allowable deductions, thus the PPP loans will not be taxed.

Any EIDL grant will no longer reduce the amount of PPP forgiveness.

You must apply for forgiveness within 10 months from the end of the 24 week period that you could use your funds. You must apply through your bank when they are ready to accept applications. Certain businesses such as businesses that received less than $150k of funds, may be able to utilize streamlined forgiveness applications.

Any remaining loan balance, must be repaid once forgiveness is determined over a 2 year or 5 year period (depending on when you applied for the PPP) at 1% interest rate.

Update: 1st Draw PPP Loans:
Businesses that qualify under the original rules, but did not obtain a loan during the first round, may apply for a 1st draw PPP before March 31, 2021.

Certain new businesses that did not qualify under the old rules may qualify now. This includes certain 501(c)(6) non-profits, destination marketing boards and certain news organizations controlled by non-profits.

The amount of the loan can be based off of 2019 or 2020 total payroll costs (including certain retirement and employee insurance benefit costs). The loan is generally 2.5x the average monthly payroll costs. Seasonal businesses have optional calculation methods available.

The covered period for the loan can be any number of weeks between 8 and 24 from the date of the loan.

Businesses in certain situations can increase their original PPP Loan, if they did not receive the full amount they were allowed under newer rules. This includes:

• Partnerships that did not initially request funds based on owner’s self employment income.

• An employer that returned some or all of their allowable loan, may request it again.

• Seasonal employers may use a new optional calculation method to determine their loan amount.

Update: 2nd Draw PPP Loans:
Companies that received an initial PPP loan, have less than 300 employees, and have properly spent all of the initial amount, may qualify for a 2nd draw of PPP funds.

To qualify, a business must be able to demonstrate that their gross receipts in a calendar quarter in 2020 dropped at least 25% from the same quarter in 2019. Certain businesses that existed on 2/15/20, but were not in existence for all of 2019, have certain alternative methods to qualify.

The available amount of the loan will be 2.5x the amount of qualifying average monthly payroll (including certain retirement and employee insurance benefits) from 2019 or 2020. Restaurants and hotels will qualify for 3.5x that amount. Seasonal employers have a special optional calculation method.

As before, sole proprietors and partners will be able to include their personal income up to a maximum of $100,000 on an annual basis.

Spending of Funds for 2nd Draws and new 1st Draw Loans:
To obtain full forgiveness 60% of loan funds must be spent on qualifying payroll during the up to 24 week qualifying period following loan funding. This includes cash payroll up to certain limits, employer retirement contributions and certain employee insurance benefits.

Up to 40% of the loan may be used for certain other expenses. It is important to note that if 60% of funds are not used on payroll expenses the total forgiveness will be reduced, such that at least 60% of forgiven funds are used for payroll expenses.

The 40% eligible other expenses include certain utilities, transportation, mortgage interest, and rent costs. In addition the new law adds for any PPP loan not already forgiven:

• Covered Operational Expenses- (business software or cloud computing service that facilitates: operations, product/service delivery, payroll processing expenses, human resources, sales and billing functions, accounting/tracking supplies, inventory and expenses).

• Covered Property Damage- Costs related to property damage or vandalism that occurred during 2020 and not reimbursed by insurance.

• Covered Supplier Costs- Costs to a supplier that were already contracted at the beginning of the covered period or, in the case of perishable goods, were contracted at any time before or during the covered period.

• Covered Worker Protection Costs- Costs associated with following guidance to protect workers, such as building a drive through window or installing a sneeze guard to protect workers or installing appropriate ventilation equipment.

Update: Effective January 1, 2021 through March 31, 2021 employers are not required to pay Covid related sick pay, however, if they do they may still qualify for the payroll tax credit that effectively pays for their employees’ wages.

Effective April 1, 2020 until December 31, 2020 employers with less than 500 employees must provide paid sick leave and certain medical leave related to the Coronavirus. Certain medical employers are exempted from the requirement, as are a few employers under 50 employees.

Rules:
If an employee is unable to work or telework because the employee is:
• Subject to a quarantine or isolation order
• Has been advised by a health care provider to self-quarantine due to coronavirus concerns, or
• Is experiencing symptoms of coronavirus and seeking a medical diagnosis

Then, the employer will pay 100% of the employee’s usual pay up to $511/day for up to 10 work days (80 hours for full time employees).

If an employee is unable to work or telework because the employee is:
• Caring for an individual subject to a quarantine or isolation order as advised by a medical professional,
• Is experiencing certain other similar circumstances to be determined by the Secretary of Labor and the Treasury

Then the employer will pay 2/3 of the employee’s usual pay up to $200/day for up to 10 work days.

If an employee is unable to work or telework because the employee is:
• Caring for a child under age 18, if their school or day care has been closed or is unavailable due to coronavirus.

Then the employer will pay 2/3 of the employee’s usual pay up to $200/day for up to 120 work days (12 weeks).

The employer will receive a 100% payroll credit for paying the above wages, as well as costs to keep their employee on their health insurance during these periods. The credit will reduce the payroll taxes the employer must deposit and if the costs exceed payroll, will result in a refund after each quarter. Thus, these wages will be paid for by the government.

How Do I Obtain This Benefit: Your payroll company will provide a means to code sick/family medical leave wages and will reduce your payroll taxes accordingly and file for any refunds each quarter.

Note: If state law provides better benefits such as under the New York Sick Leave Act, you must provide the greater benefit to employees.

Effective January 1, 2021, NY implements mandatory sick leave for all employers with at least 5 employees and, in some cases, smaller employers.

Update: Employers may continue to defer their share of Social Security taxes and is extended through December 31, 2021, but with the same repayment terms.

Deferral of Employer Payroll Taxes & Self-Employment Taxes

For wages paid between 3/12/20 – 12/31/20, the employer’s portion of Social Security taxes (but not Medicare taxes) may be deferred beginning on the date of enactment through 12/31/20. Employers are allowed to stop depositing their share of Social Security taxes. Taxes withheld from employees and the employer’s Medicare taxes still must be paid timely. Half of the deferred taxes are due by 12/31/2021 and half are due 12/31/2022.

One half of a self-employed person’s Social Security portion of Self-Employment Tax (6.2%) is also deferred until 2021 and 2022 as above. Installments of estimated tax payments for 2020 are therefore also reduced. Instead 50% of the deferred taxes are due 12/31/21 and the other half are due 12/31/22 with no penalties or interest.

How Do I Obtain This Benefit: Notify your payroll company that you want to defer your payroll taxes. Keep in mind this will become a longer-term liability.

Deferral of Employee Social Security Taxes

Update: While very few employers elected to implement this provision, the repayment of the taxes are now to be spread out from employee’s paychecks between January 1, 2021 – December 31, 2021.

Under an Executive Order issued by President Trump, employers may defer withholding employee’s Social Security taxes between September 1, 2020 and December 31, 2020. This is not a forgiveness of the tax. The employer must withhold the deferred taxes ratably between January 1, 2021 – December 31, 2021. If the employee is terminated any unpaid taxes become the responsibility of the employer. Accordingly, our Firm did NOT recommend employers implement this deferral.

Update: The provision that barred recipients of PPP funds from claiming the Employee Retention Credit (ERC) has been lifted. However, the same funds cannot be used for PPP and the ERC. Accordingly, PPP recipients may be entitled to refunds from 2020 and may be qualified for the modified credit available in 2021.

A more generous version of the credit is available for qualifying employers between January 1, 2021 – June 30, 2021.

2020 Version of ERC:
Available for all wages paid to employers with less than 100 employees. Only wages paid to employees not working count for employers with more than 100 employees.

Credit Amount: 50% of employee’s wages (including employer paid health insurance) of up to $10,000 paid during the year.

Eligible payroll in 2020 is payroll paid either:
1. For any part of the quarter the business is completely or partially closed, due to government order related to Coronavirus, or
2. For any calendar quarter where gross receipts drop at least 50%, as compared to the same quarter in the prior year, until the first day of the quarter, after gross receipts exceed 80% of the prior year’s quarter.

2021 Version of ERC:
All employers with less than 500 employees qualify including certain governmental entities.

Credit Amount: 70% of employee’s wages (including employer paid health insurance) of up to $10,000 paid per quarter. The credit is available for the first two quarters of 2021, 1/1/21-6/30/21.

Eligible payroll in 2021 is payroll paid either:
1. For any part of the quarter the business is completely or partially closed, due to government order related to Coronavirus, or
2. For all payroll in a calendar quarter where gross receipts drop at least 20% from the same quarter in 2020. There is a safe harbor to use the gross receipts of the prior quarter to determine the drop.

How Do I Obtain This Benefit: Let your payroll company know when your company qualifies for the Employee Retention Credit and they will reduce your payroll tax deposits. If you qualified for a prior quarter, but did not claim the credit, you can file an amended payroll return to receive a refund. This may be particularly true for those that claimed the PPP in 2020 and may now be eligible for the ERC as well.

New 100% Deductibility of Meals: Typically meals are 50% deductible for business purposes, but are now 100% deductible for expenses incurred in 2021 and 2022.

Tax Filings and Payments (Expired)
Deferment of the following due dates from 4/15/20 to 7/15/20:
• 2019 income tax return filing (extension) and payment of balance due.
• 1st and 2nd quarter corporate estimated tax payment for Federal taxes.

Expanded Unemployment for Employees and the Self-Employed
Under the CARES Act, unemployment was expanded in several important ways:
• Employees with COVID-19 related layoffs, will not have a waiting week before being eligible for benefits.
• All recipients will receive an additional $600 per week in their check over and above their usual state benefits between April 2020 and July 2020. Update: Employees will have an extra $300 per week for the 11 weeks starting 12/26/20.
• For the most part, employers will not have unemployment rates increased because of laying off people due to Coronavirus.
• The self-employed, including the business owner, can collect unemployment beginning in April 2020 if they are not working, even if they were not covered by unemployment. This lasts through March 14, 2021.

Net Operating Losses
Net operating losses from taxable years beginning in 2018, 2019 or 2020, are now subject to an automatic 5-year NOL carryback. The 80% limitation on NOLs from after 2018 will apply to carryforwards beginning in 2021. Tentative tax carrybacks can be made within 120 days of enactment for 2018 returns as well. The standard 3-year statute of limitations applies to formal refund claims through amended returns.

Individuals with Excess Business Losses
The limit on excess business losses for individuals (the maximum $250,000/500,000 business loss) is moved to begin in 2021. Therefore, excess losses in 2018 require an amendment and will frequently generate an NOL (which is now carried back 5 years).

C Corp AMT Credit
The entire AMT credit is accelerated to tax year 2019.

Charitable Donations
C Corporations’ limit on charitable donations is increased to 25% of income for cash donations during 2020. Excess contributions carry forward 5 years. Update: This provision is extended for 2021.

Modification of Business Interest Rules
Generally, but with certain exceptions, the business interest rules only apply to taxpayers with annual gross receipts above $25M. Except for partnerships, the business interest rules were changed to allow 50% of business income (previously 30%) as the interest deduction limitation, starting in 2019. For partnerships, the 50% limitation is effective in 2020; however, partners will be able to deduct half of their limited interest from 2019 in the 2020 tax return.

Qualified Improvement Property Useful Life/Bonus Glitch Fix
A technical correction was passed to treat QIP as having a 15-year life. Under these circumstances, bonus depreciation is allowed, in addition to section 179 deductions. You will qualify for an amended 2018 return potentially generating an NOL that can be carried back 5 years, or it may be possible to take an automatic accounting method change to take a 2019 481a deduction.

Employers Tax-free Student Loan Benefits to Employees
Employers in 2020 may pay up to $5,250 of student loan interest and principal for employees, tax-free as part of the code allowing for employer payments of certain tuition costs. Update: This benefit has been extended through 2025.

Qualified Employee Disaster Payments
This is not a new provision, but COVID-19 has been declared a disaster in New York and much of the country and, accordingly, employers may pay tax-free to their employees payments beyond usual salaries and wages for qualified disaster relief payments, including for reasonable necessary personal, family, living and funeral expenses incurred as a result of a disaster. Reasonable amounts paid equitably, will not be challenged even if no documentation is provided by employees.

State Tax Changes:
A number of states, including New York, are not following the recent tax law changes.

Other State and Local Grants and Loans
Check with your state, county and municipal governments and economic development entities for more potential loans and grants.

Additional Resources