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 rapidly evolve, we will provide updates as they become available*.
If you have questions or would like to set up a virtual consultation, please email email@example.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.
• 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.
• 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.)
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.
The IRS computers generally looked at income in the following order:
1. 2019 taxes, if filed and processed by early April to May.
2. 2018 taxes, if 2019 not processed.
3. 1099-SSA, if 2018 and 2019 not filed.
4. No payment will be made if 2018 and 2019 were not filed and the taxpayer did not receive a 1099-SSA in 2019.
Any additional amounts will be refunded on the taxpayer’s 2020 return, based on their 2020 income and circumstances.
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.
• One week waiting period waived.
• Self-employed individuals are allowed to make a claim.
• 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.
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.
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. (There is no provision for MFJ to get $600.)
100% Limit on Charitable Donations
Cash charitable donations will be limited to 100% of AGI, except to private foundations and donor advised funds.
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.
Student Loan Payment Suspension for 60 Days
You will need to ask your servicer not to pay. Interest is 0% during this time.
The SBA re-opened the application to all small businesses effective June 15th, until funds run out (which is expected quickly).
Most businesses and sole proprietors in operation on 1/31/20 are eligible to apply for an EIDL of up to $2M. Even if you don’t feel you need a loan, you may want to consider applying, because any qualified business will receive a $1,000 grant per employee (up to $10,000) that does not have to be repaid, to help cover unexpected costs related to COVID-19. If you apply for the program, be sure to choose to request the “Advance” which is a grant. The application has been streamlined to provide the initial grant, directly deposited to the business’ account.
Beyond that, an EIDL loan can be used to help cover necessary operating expenses, if your business has been partly or entirely shut down. The loan needs to be carefully coordinated with any Payroll Protection Plan loans you may obtain in the future.
Even if you are denied an EIDL loan, you are allowed to keep the up to $10,000 grant.
Full Economic Injury Disaster Loan (beyond the up to $10,000 grant)
The SBA will contact you by email with more information after you apply for the grant. You can disregard this unless you decide to continue with the full EIDL application (to get a loan of at least $25k and up to $2M) to obtain operating funds beyond the PPP loan. Generally the SBA is limiting loans to no more than $150,000. The loan terms are at 3.75% interest to be repaid up to 30 years with no payment due for one year.
This is the centerpiece of the business relief program.
NOTE: SBA Guidnace indicates that an eligible business must apply to their bank, and their bank must submit the application to the SBA, NO LATER than June 30, 2020 to be eligible to obtain the loan.
NOTE: An employer who receives a loan under PPP is NOT eligible to claim an employee retention credit.
Who May Qualify: All businesses and non-profits with fewer than 500 employees may apply, including the self-employed without employees.
Amount of The Loan: The loan amount is 2.5 times the average monthly payroll for the 12 months immediately preceding the application. (Special rules apply for seasonal businesses, and new businesses). Payroll includes wages, salaries, commissions, sick and vacation pay, health insurance costs and retirement benefits paid. The net self-employment income of the owner is also included, up to $100,000. The maximum loan amount is $10M.
Loan Forgiveness: Recent changes to the program by means of the PPP Flexibility Act, have greatly simplified the manner in which forgiveness can be obtained. Generally, businesses have up to 24 weeks from the date the loan is received to spend the funds on allowable payroll, health insurance, and retirement contributions. Up to 40% of the loan can also be used for rent, certain business interest and utilities. Businesses that received their loans prior to June 5th can also elect an shorter 8 week period to spend funds.
Forgiveness will be reduced to the extent that the average full-time equivalent employees employed during the 24 weeks (or optional 8 weeks) decreased compared to a test period, or if individual employee rates of pay were reduced by more than 25% compared to the test period.
Ability to Re-hire: Applicants that had a decrease in full time equivalent employees between 2/15/20-4/26/20 may have the entire amount of the loan (that was spent for appropriate purposes) forgiven, if the business rehires the same number of full time equivalent employees, anytime before December 31, 2020, that were employed the payroll period including February 15, 2020.
Inability to Re-Hire: An employer may also be able to receive forgiveness for PPP loan proceeds that were spent on allowable expenses with 24 weeks of the loan, if the employer can show to the satisfaction of the SBA that certain COVID related business conditions prevented them from re-hiring the same number of FTEs. The SBA will have to clarify this forgiveness provision.
How Do I Obtain This Benefit?: You need to apply with an SBA lender starting on 4/3/20 (or 4/10/20 if self-employed) and complete the application by 6/30/20. After the eight weeks of the loan period have ended, you need to apply for forgiveness with your lender. In both cases you will need to supply appropriate documentation.
Click here for application
If any portion of the loan is not forgiven, you will have up to 5 years to repay the difference, with at least a six month deferral period before you have to repay, at 1% interest.
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.
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.
Credit Amount: 50% of employee’s wages, up to $10,000 in wages for the year, that are paid between 3/12/20-12/31/20, in eligible payroll quarters. (Max $5,000 credit per employee)
An eligible payroll quarter is any payroll quarter in 2020 where 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.
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 expect a refund, you may fax a request for advance payment on IRS Form 7200.
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 and July.
• 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 if they are not working, even if they were not covered by unemployment.
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.
C corporations’ limit on charitable donations is increased to 25% of income for cash donations during 2020. Excess contributions carry forward 5 years.
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.
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.