Hiring independent contractors? Make sure they’re properly classified

As a result of the coronavirus (COVID-19) crisis, your business
may be using independent contractors to keep costs low. But you should be
careful that these workers are properly classified for federal tax purposes. If
the IRS reclassifies them as employees, it can be an expensive mistake.

The question of whether a worker is an independent contractor or
an employee for federal income and employment tax purposes is a complex one. If
a worker is an employee, your company must withhold federal income and payroll
taxes, pay the employer’s share of FICA taxes on the wages, plus FUTA tax.
Often, a business must also provide the worker with the fringe benefits that it
makes available to other employees. And there may be state tax obligations as
well.

These obligations don’t apply if a worker is an independent contractor.
In that case, the business simply sends the contractor a Form 1099-MISC for the
year showing the amount paid (if the amount is $600 or more).

No uniform definition

Who is an “employee?” Unfortunately, there’s no uniform
definition of the term.

The IRS and courts have generally ruled that individuals are
employees if the organization they work for has the right to control and direct
them in the jobs they’re performing. Otherwise, the individuals are generally
independent contractors. But other factors are also taken into account.

Some employers that have misclassified workers as independent
contractors may get some relief from employment tax liabilities under Section
530. In general, this protection applies only if an employer:

  • Filed all federal returns consistent with its treatment
    of a worker as a contractor,
  • Treated all similarly situated workers as contractors,
    and
  • Had a “reasonable basis” for not treating the worker as
    an employee. For example, a “reasonable basis” exists if a significant
    segment of the employer’s industry traditionally treats similar workers as
    contractors.

Note: Section 530 doesn’t apply to certain types of technical
services workers. And some categories of individuals are subject to special
rules because of their occupations or identities.

Asking for a determination

Under certain circumstances, you may want to ask the IRS (on
Form SS-8) to rule on whether a worker is an independent contractor or
employee. However, be aware that the IRS has a history of classifying workers
as employees rather than independent contractors.

Businesses should consult with us before filing Form SS-8
because it may alert the IRS that your business has worker classification
issues — and inadvertently trigger an employment tax audit.

It may be better to properly treat a worker as an independent
contractor so that the relationship complies with the tax rules.

Be aware that workers who want an official determination of
their status can also file Form SS-8. Disgruntled independent contractors may
do so because they feel entitled to employee benefits and want to eliminate
self-employment tax liabilities.

If a worker files Form SS-8, the IRS will send a letter to the
business. It identifies the worker and includes a blank Form SS-8. The business
is asked to complete and return the form to the IRS, which will render a
classification decision.

Contact us if you receive such a
letter or if you’d like to discuss how these complex rules apply to your
business. We can help ensure that none of your workers are misclassified.

© 2020


IRS extends some (but not all) employee benefit plan deadlines

The IRS recently issued Notice 2020-23, expanding on previously
issued guidance extending certain tax filing and payment deadlines in response
to the novel coronavirus (COVID-19) crisis. This guidance applies to specified
filing obligations and other “specified actions” that would otherwise be due on
or after April 1, 2020, and before July 15, 2020. It extends the due date for
specified actions to July 15, 2020.

Specified actions include any “specified time-sensitive action”
listed in Revenue Procedure 2018-58, including many relating to employee
benefit plans. The relief applies to any person required to perform specified
actions within the relief window, and it’s automatic — your business doesn’t
need to file any form, letter or other request with the IRS.

Filing extensions beyond July 15, 2020, may be sought using the
appropriate extension form, but the extension won’t go beyond the original
statutory or regulatory extension date. Here are some highlights of Notice
2020-23 specifically related to employee benefit plans:

Form 5500. The
relief window covers Form 5500 filings for plan years that ended in September,
October or November 2019, as well as Form 5500 deadlines within the window as a
result of a previously filed extension request. These filings are now due by
July 15, 2020. Notably, the relief window does
not
include the July 31, 2020 due date for 2019 Form 5500 filings
for calendar-year plans. Those plans may seek a regular extension using Form
5558.

Retirement plans. The
extended deadlines apply to correcting excess contributions and excess
aggregate contributions (based on nondiscrimination testing) and excess
deferrals. They also apply to:

  • Plan loan repayments,
  • The 60-day timeframe for rollover completion, and
  • The deadline for filing Form 8955-SSA to report
    information on separated plan participants with undistributed vested
    benefits.

The relief for excess deferrals is a change from previous
guidance indicating that 2019 excess deferrals still needed to be corrected by
April 15, 2020. In addition, while loan relief is already available to certain
individuals for specified reasons related to COVID-19, this relief appears to
apply more broadly — albeit for a shorter period. The Form 8955-SSA due date is
the same as for the plan’s Form 5500, so the extension applies in the same
manner.

Health Savings Accounts (HSAs). The
notice extends the 60-day timeframe for completing HSA or Archer Medical
Savings Account (MSA) rollovers. It also extends the deadline to report HSA or
Archer MSA contribution information by filing Form 5498-SA and furnishing the
information to account holders. The regular deadline for the 2019 Form 5498-SA
would be June 1, 2020, placing it squarely within this relief period.

Business owners and their plan administrators should carefully
review Notice 2020-23 in conjunction with Revenue Procedure 2018-58 to
determine exactly what relief may be available. For example, the revenue
procedure covers various cafeteria plan items, but many deadlines may fall
outside the notice’s window. We can provide you with further information about
this or other forms of federal relief.

The IRS recently issued Notice 2020-23, expanding on previously
issued guidance extending certain tax filing and payment deadlines in response
to the novel coronavirus (COVID-19) crisis. This guidance applies to specified
filing obligations and other “specified actions” that would otherwise be due on
or after April 1, 2020, and before July 15, 2020. It extends the due date for
specified actions to July 15, 2020.

Specified actions include any “specified time-sensitive action”
listed in Revenue Procedure 2018-58, including many relating to employee
benefit plans. The relief applies to any person required to perform specified
actions within the relief window, and it’s automatic — your business doesn’t
need to file any form, letter or other request with the IRS.

Filing extensions beyond July 15, 2020, may be sought using the
appropriate extension form, but the extension won’t go beyond the original
statutory or regulatory extension date. Here are some highlights of Notice
2020-23 specifically related to employee benefit plans:

Form 5500. The
relief window covers Form 5500 filings for plan years that ended in September,
October or November 2019, as well as Form 5500 deadlines within the window as a
result of a previously filed extension request. These filings are now due by
July 15, 2020. Notably, the relief window does
not
include the July 31, 2020 due date for 2019 Form 5500 filings
for calendar-year plans. Those plans may seek a regular extension using Form
5558.

Retirement plans. The
extended deadlines apply to correcting excess contributions and excess
aggregate contributions (based on nondiscrimination testing) and excess
deferrals. They also apply to:

  • Plan loan repayments,
  • The 60-day timeframe for rollover completion, and
  • The deadline for filing Form 8955-SSA to report
    information on separated plan participants with undistributed vested
    benefits.

The relief for excess deferrals is a change from previous
guidance indicating that 2019 excess deferrals still needed to be corrected by
April 15, 2020. In addition, while loan relief is already available to certain
individuals for specified reasons related to COVID-19, this relief appears to
apply more broadly — albeit for a shorter period. The Form 8955-SSA due date is
the same as for the plan’s Form 5500, so the extension applies in the same
manner.

Health Savings Accounts (HSAs). The
notice extends the 60-day timeframe for completing HSA or Archer Medical
Savings Account (MSA) rollovers. It also extends the deadline to report HSA or
Archer MSA contribution information by filing Form 5498-SA and furnishing the
information to account holders. The regular deadline for the 2019 Form 5498-SA
would be June 1, 2020, placing it squarely within this relief period.

Business owners and their plan administrators should carefully
review Notice 2020-23 in conjunction with Revenue Procedure 2018-58 to
determine exactly what relief may be available. For example, the revenue
procedure covers various cafeteria plan items, but many deadlines may fall
outside the notice’s window. We can provide you with further information about
this or other forms of federal relief.

© 2020


New COVID-19 law makes favorable changes to “qualified improvement property”

The law providing relief due to the coronavirus (COVID-19)
pandemic contains a beneficial change in the tax rules for many improvements to
interior parts of nonresidential buildings. This is referred to as qualified
improvement property (QIP). You may recall that under the Tax Cuts and Jobs Act
(TCJA), any QIP placed in service after December 31, 2017 wasn’t considered to
be eligible for 100% bonus depreciation. Therefore, the cost of QIP had to be
deducted over a 39-year period rather than entirely in the year the QIP was
placed in service. This was due to an inadvertent drafting mistake made by
Congress.

But the error is now fixed. The Coronavirus Aid, Relief, and
Economic Security (CARES) Act was signed into law on March 27, 2020. It now
allows most businesses to claim 100% bonus depreciation for QIP, as long as
certain other requirements are met. What’s also helpful is that the correction
is retroactive and it goes back to apply to any QIP placed in service after
December 31, 2017. Unfortunately, improvements related to the enlargement of a
building, any elevator or escalator, or the internal structural framework
continue to not qualify under the definition of QIP. 

In the current business climate, you may not be in a position to
undertake new capital expenditures — even if they’re needed as a practical
matter and even if the substitution of 100% bonus depreciation for a 39-year
depreciation period significantly lowers the true cost of QIP. But it’s good to
know that when you’re ready to undertake qualifying improvements that 100%
bonus depreciation will be available.

And, the retroactive nature of the CARES Act provision presents
favorable opportunities for qualifying expenditures you’ve already made. We can
revisit and add to documentation that you’ve already provided to identify QIP
expenditures.

For not-yet-filed tax returns, we can simply reflect the
favorable treatment for QIP on the return.

If you’ve already filed returns that didn’t claim 100% bonus
depreciation for what might be QIP, we can investigate based on available
documentation as discussed above. If there’s QIP that was eligible for 100%
bonus depreciation, note that the IRS has, for past retroactive favorable depreciation
changes, provided taxpayers with detailed guidance for how the benefit is
claimed. Specifically, the IRS clarified how much flexibility taxpayers have in
choosing between a one-time downward adjustment to income on their current
returns or an amendment to the return for the year the QIP was placed in
service. We will evaluate what your options are as anticipated IRS guidance for
the QIP correction is released. 

If you have any questions about how you can take
advantage of the QIP provision, don’t hesitate to contact us.

© 2020


What are the key distinctions between layoffs and furloughs?

As businesses across the country grapple with the economic
fallout from the novel coronavirus (COVID-19) pandemic, many must decide
whether to downsize their workforces to lower payroll costs and stabilize cash
flow. If your company is contemplating such a move, you’ll likely want to
consider the choice within the choice: that is, should you lay off workers or
furlough them?

Basic difference

The basic difference between the two is simple. Layoffs are the
ostensibly permanent termination of employees from their positions, though you
can rehire some of these individuals when business improves. Meanwhile, a
furlough is a mandatory or voluntary suspension from work without pay for a
specified period.

In most states, furloughed workers are still considered employees
and, therefore, don’t receive a “final” paycheck. Check with an employment or
labor attorney, however, to make sure your state’s furlough laws don’t trigger
final pay requirements.

Employee benefits are another issue to explore. Reach out to
your health insurance provider to see whether a furlough is a triggering event
for COBRA health care coverage purposes. In addition, employees can sometimes
be dropped from a group health plan if they don’t work enough hours. Ask about
potential problems this might cause under the Affordable Care Act.

Applicable laws

If you’re a midsize business, and layoffs or furloughs begin to
look unavoidable, it’s particularly important to coordinate the move with legal
counsel. Under the Worker Adjustment and Retraining Notification (WARN) Act,
employers with 100 or more employees must provide written notice at least 60
days before a plant closing or mass layoff.

To have a mass layoff, at least 50 workers at a single site must
be laid off for more than six months (or have their hours reduced by at least
50% in any six-month period). Because furloughs generally last for less than
six months, a WARN notice wouldn’t likely be required. But you should still
check with your employment attorney regarding applicable state laws and any other
potential legal ramifications.

Unemployment benefits

To soften the blow, you can inform furloughed employees that
they’re generally eligible for unemployment benefits — assuming their previous
year’s wages are enough to qualify. Although a waiting period often applies
before an employee can start receiving unemployment benefits, many states have
waived these waiting periods because of the COVID-19 outbreak. Again,
double-check with your attorney to fully understand the unemployment insurance
rules before communicating with employees.

Formulate a strategy

Unprecedented unemployment numbers show that many businesses
have had to downsize. It’s worth noting that, if you can hang on to your
employees, recently passed tax relief created a refundable credit against
payroll tax. (Rules and limits apply.) Our firm can help you assess your
employment costs and formulate a strategy for optimally sizing your workforce.

© 2020


The 2019 gift tax return deadline is coming up

If you made large gifts to your children, grandchildren or other
heirs last year, it’s important to determine whether you’re required to file a
2019 gift tax return. And in some cases, even if it’s not required to file one,
it may be beneficial to do so anyway.

Who must file?

Generally, you must file a gift tax return for 2019 if, during
the tax year, you made gifts:

  • That exceeded the $15,000-per-recipient gift tax annual
    exclusion (other than to your U.S. citizen spouse),
  • That you wish to split with your spouse to take
    advantage of your combined $30,000 annual exclusion,
  • That exceeded the $155,000 annual exclusion for gifts
    to a noncitizen spouse,
  • To a Section 529 college savings plan and wish to
    accelerate up to five years’ worth of annual exclusions ($75,000) into
    2019,
  • Of future
    interests — such as remainder interests in a trust —
    regardless of the amount, or
  • Of jointly held or community property.

Keep in mind that you’ll owe gift tax only to the extent that an
exclusion doesn’t apply and you’ve used up your lifetime gift and estate tax
exemption ($11.4 million for 2019). As you can see, some transfers require a
return even if you don’t owe tax.

Who might want to file?

No gift tax return is required if your gifts for 2019 consisted
solely of gifts that are tax-free because they qualify as:

  • Annual exclusion gifts,
  • Present interest gifts to a U.S. citizen spouse,
  • Educational or medical expenses paid directly to a school or
    health care provider, or
  • Political or charitable contributions.

But if you transferred hard-to-value property, such as artwork
or interests in a family-owned business, you should consider filing a gift tax
return even if you’re not required to. Adequate disclosure of the transfer in a
return triggers the statute of limitations, generally preventing the IRS from
challenging your valuation more than three years after you file.

Deadline

The gift tax return deadline is the same as the income tax filing deadline. For 2019 returns, it’s July 15, 2020 — or October 15, 2020, if you file for an extension. But keep in mind that, if you owe gift tax, the payment deadline is July 15, regardless of whether you file for an extension. If you’re not sure whether you must (or should) file a 2019 gift tax return, contact us.


Relief from not making employment tax deposits due to COVID-19 tax credits

The IRS has issued guidance providing relief from failure to
make employment tax deposits for employers that are entitled to the refundable
tax credits provided under two laws passed in response to the coronavirus
(COVID-19) pandemic. The two laws are the Families First Coronavirus Response
Act, which was signed on March 18, 2020, and the Coronavirus Aid, Relief, and
Economic Security Act (CARES) Act, which was signed on March 27, 2020.

Employment tax penalty basics

The tax code imposes a penalty for any failure to deposit
amounts as required on the date prescribed, unless such failure is due to
reasonable cause rather than willful neglect.

An employer’s failure to deposit certain federal employment
taxes, including deposits of withheld income taxes and taxes under the Federal
Insurance Contributions Act (FICA) is generally subject to a penalty.

COVID-19 relief credits

Employers paying qualified sick leave wages and qualified family
leave wages required by the Families First Act, as well as qualified health
plan expenses allocable to qualified leave wages, are eligible for refundable
tax credits under the Families First Act.

Specifically, provisions of the Families First Act provide a
refundable tax credit against an employer’s share of the Social Security
portion of FICA tax for each calendar quarter, in an amount equal to 100% of
qualified leave wages paid by the employer (plus qualified health plan expenses
with respect to that calendar quarter).

Additionally, under the CARES Act, certain employers are also
allowed a refundable tax credit under the CARES Act of up to 50% of the
qualified wages, including allocable qualified health expenses if they are
experiencing:

  • A full or partial business suspension due to orders
    from governmental authorities due to COVID-19, or
  • A specified decline in business.

This credit is limited to $10,000 per employee over all calendar
quarters combined.

An employer paying qualified leave wages or qualified retention
wages can seek an advance payment of the related tax credits by filing Form
7200, Advance Payment of Employer Credits Due to COVID-19.

Available relief

The Families First Act and the CARES Act waive the penalty for
failure to deposit the employer share of Social Security tax in anticipation of
the allowance of the refundable tax credits allowed under the two laws.

IRS Notice 2020-22 provides that an employer won’t be subject to
a penalty for failing to deposit employment taxes related to qualified leave
wages or qualified retention wages in a calendar quarter if certain
requirements are met. Contact us for more information about whether you can
take advantage of this relief.

More breaking news

Be aware the IRS also just
extended more federal tax deadlines. The extension, detailed in Notice 2020-23,
involves a variety of tax form filings and payment obligations due between
April 1 and July 15. It includes estimated tax payments due June 15 and the
deadline to claim refunds from 2016. The extended deadlines cover individuals,
estates, corporations and others. In addition, the guidance suspends associated
interest, additions to tax, and penalties for late filing or late payments
until July 15, 2020. Previously, the IRS postponed the due dates for certain
federal income tax payments. The new guidance expands on the filing and payment
relief. Contact us if you have questions.

© 2020


Just launched: The SBA’s Paycheck Protection Program

To stem the tide of joblessness caused by the coronavirus
(COVID-19) outbreak, the Small Business Administration (SBA) has officially
launched the Paycheck Protection Program (PPP). The program’s stated objective
is “to provide a direct incentive for small businesses to keep their workers on
the payroll.”

What does the program offer?

The PPP was authorized under a provision of the Coronavirus Aid,
Relief, and Economic Security (CARES) Act. It provides up to eight weeks of
cash-flow assistance through 100% federally guaranteed loans to eligible
recipients to maintain payroll during the COVID-19 crisis and cover certain
other expenses.

Under the program, eligible recipients may qualify for loans of
up to $10 million determined by eight weeks of previously established
average payroll. The first loan payment is deferred for six months. All loans
will have an interest rate of 0.5%, a maturity of two years, and no borrower or
lender fees.

If the recipient maintains its workforce, up to 100% of the loan
is forgivable if the loan proceeds are used to cover the first eight weeks of
payroll, rent, mortgage interest or utilities. (The U.S. Treasury Department
anticipates that no more than 25% of the forgiven amount can be for non-payroll
costs.)

How is payroll defined?

Under the PPP, payroll includes:

  • Employee salaries (up to an annual salary of $100,000),
  • Hourly wages,
  • Cash tips,
  • Paid sick or medical leave,
  • Group health insurance premiums,
  • Retirement benefit payments,
  • State or local tax on employee wages, and
  • Compensation to a sole proprietor or independent
    contractor of up to $100,000 per year.

If the PPP recipient doesn’t retain its entire workforce, the
level of forgiveness is reduced by the percentage of decrease. However, if the
laid-off workers are rehired by June 30, the full amount of the loan may still
be forgiven.

Who’s eligible?

Eligible recipients are small businesses with fewer than 500
employees (including sole proprietorships, independent contractors and
self-employed persons). Private nonprofits and 501(c)(19) veterans
organizations affected by COVID-19 may also qualify. In addition, businesses in
certain industries with more than 500 employees may be eligible if they meet
the SBA’s size standards for those industries.

The PPP begins retroactively on Feb. 15, 2020, and ends June 20,
2020. (The retroactive start allows eligible recipients to bring back workers
who were laid off because of the crisis.) Qualifying companies may apply for a
loan at lending institutions approved to participate in the program through the
SBA’s 7(a) lending program. Applications may also be available through
participating federally insured depository institutions, federally insured
credit unions and Farm Credit System institutions.

When should you apply?

The Treasury Department released the PPP Application Form on
March 31, and lenders could begin processing applications on April 3. If you
believe your small business may be eligible to participate, it’s a good idea to
apply as soon as possible because funds are limited under the program. We can
help you confirm your eligibility, complete the application and optimally
manage any loan funds you receive.


Answers to questions about the CARES Act employee retention tax credit

The recently enacted Coronavirus Aid, Relief, and Economic
Security (CARES) Act provides a refundable payroll tax credit for 50% of wages
paid by eligible employers to certain employees during the COVID-19 pandemic.
The employee retention credit is available to employers, including nonprofit
organizations, with operations that have been fully or partially suspended as a
result of a government order limiting commerce, travel or group meetings.

The credit is also provided to employers who have experienced a
greater than 50% reduction in quarterly receipts, measured on a year-over-year
basis.

IRS issues FAQs  

The IRS has now released FAQs about the credit. Here are some
highlights.

How is the credit calculated? The
credit is 50% of qualifying wages paid up to $10,000 in total. So the maximum
credit for an eligible employer for qualified wages paid to any employee is
$5,000.

Wages paid after March 12, 2020, and before Jan. 1, 2021, are
eligible for the credit. Therefore, an employer may be able to claim it for
qualified wages paid as early as March 13, 2020. Wages aren’t limited to cash
payments, but also include part of the cost of employer-provided health care.

When is the operation of a business
“partially suspended” for the purposes of the credit?
The
operation of a business is partially suspended if a government authority
imposes restrictions by limiting commerce, travel or group meetings due to
COVID-19 so that the business still continues but operates below its normal
capacity.

Example: A state governor issues
an executive order closing all restaurants and similar establishments to reduce
the spread of COVID-19. However, the order allows establishments to provide
food or beverages through carry-out, drive-through or delivery. This results in
a partial suspension of businesses that provided sit-down service or other
on-site eating facilities for customers prior to the executive order.

Is an employer required to pay qualified
wages to its employees?
No. The CARES Act doesn’t require
employers to pay qualified wages.

Is a government employer or self-employed
person eligible?
No.Government employers aren’t eligible for the employee
retention credit. Self-employed individuals also aren’t eligible for the credit
for self-employment services or earnings.

Can an employer receive both the tax credits
for the qualified leave wages under the Families First Coronavirus Response Act
(FFCRA) and the employee retention credit under the CARES Act?
 Yes,
but not for the same wages. The amount of qualified wages for which an employer
can claim the employee retention credit doesn’t include the amount of qualified
sick and family leave wages for which the employer received tax credits under
the FFCRA.

Can an eligible employer receive both the
employee retention credit and a loan under the Paycheck Protection
Program? 
No. An employer can’t receive the employee retention credit if
it receives a Small Business Interruption Loan under the Paycheck Protection
Program, which is authorized under the CARES Act. So an employer that receives
a Paycheck Protection loan shouldn’t claim the employee retention credit.

For more information

Here’s a link to more questions: https://bit.ly/2R8syZx . Contact us if you
need assistance with tax or financial issues due to COVID-19.


Coronavirus (COVID-19): Small Business Guidance and Loan Support for Paycheck Protection Program and Others

The economic crisis hitting small business owners is moving fast, so we wanted to quickly  share with you details of provisions offered under the CARES Act as they relate to loan, grant, and debt relief programs currently being offered.

Our firm is providing assistance and services for small businesses, independent contractors, and sole-proprietors to file and claim relief through these programs. We are working directly with lenders to prepare expedited applications that will contain all supporting information. Due to the banks being inundated with requests, intermediaries like our firm ensure the orderly filing of applications that simplify the process for borrowers and lenders. We expect that applications prepared by our firm will be processed faster by lenders. We will also assist with obtaining forgiveness of loans where applicable.In many cases, lenders will compensate our firm for some or all of the services.

For more information on obtaining assistance with the Paycheck Protection Program or the Economic Injury Disaster Loan and Grant – please contact us.

Paycheck Protection Program

The Paycheck Protection Program prioritizes millions of Americans employed by small businesses by authorizing up to $349 billion toward job retention and certain other expenses.

Small businesses and eligible nonprofit organizations, Veterans organizations, and Tribal businesses described in the Small Business Act, as well as individuals who are self-employed or are independent contractors, are eligible if they also meet program size standards.

Under this program:

  • Eligible recipients may qualify for a loan up to $10 million determined by 8 weeks of prior average payroll plus an additional 25% of that amount.
  • Loan payments will be deferred for six months.
  • If you maintain your workforce, SBA will forgive the portion of the loan proceeds that are used to cover the first 8 weeks of payroll and certain other expenses following loan origination.

Economic Injury Disaster Loans and Loan Advance

To apply for a COVID-19 Economic Injury Disaster Loan, click here. For assistance, please contact our office.

In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000.

The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing. The loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid.

SBA Debt Relief

The SBA Debt Relief program will provide a reprieve to small businesses as they overcome the challenges created by this health crisis.

Under this program:

  • The SBA will also pay the principal and interest of new 7(a) loans issued prior to September 27, 2020.
  • The SBA will pay the principal and interest of current 7(a) loans for a period of six months.

SBA Express Bridge Loans

Express Bridge Loan Pilot Program allows small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 with less paperwork. These loans can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing and can be a term loans or used to bridge the gap while applying for a direct SBA Economic Injury Disaster loan. If a small business has an urgent need for cash while waiting for decision and disbursement on Economic Injury Disaster Loan, they may qualify for an SBA Express Disaster Bridge Loan.

Terms

  • Up to $25,000
  • Fast turnaround
  • Will be repaid in full or in part by proceeds from the EIDL loan

Find an Express Bridge Loan Lender by connecting with your local SBA District Office.

The above information is provided by the SBA at this link: https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources

For more information and for assistance with these programs, please contact us.


Business Tax Relief provided by the CARES Act

We hope that you are keeping yourself, your loved ones, and your community safe from COVID-19 (commonly referred to as the Coronavirus). Please review this summary of Business tax-related provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress’s gigantic economic stimulus package that the President signed into law on March 27, 2020.

Employee retention credit for employers.

Eligible employers can qualify for a refundable credit against, generally, the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax) for 50% of certain wages (below) paid to employees during the COVID-19 crisis.

The credit is available to employers carrying on business during 2020, including non-profits (but not government entities), whose operations for a calendar quarter have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also available to employers who have experienced a more than 50% reduction in quarterly receipts, measured on a year-over-year basis relative to the corresponding 2019 quarter, with the eligible quarters continuing until the quarter after there is a quarter in which receipts are greater than 80% of the receipts for the corresponding 2019 quarter.

For employers with more than 100 employees in 2019, the eligible wages are wages of employees who aren’t providing services because of the business suspension or reduction in gross receipts described above.

For employers with 100 or fewer full-time employees in 2019, all employee wages are eligible, even if employees haven’t been prevented from providing services. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in eligible wages and compensation paid by the employer to an employee. Thus, the credit is a maximum $5,000 per employee.

Wages don’t include (1) wages taken into account for purposes of the payroll credits provided by the earlier Families First Coronavirus Response Act for required paid sick leave or required paid family leave, (2) wages taken into account for the employer income tax credit for paid family and medical leave (under Code Sec. 45S) or (3) wages in a period in which an employer is allowed for an employee a work opportunity credit (under Code Sec. 51). An employer can elect to not have the credit apply on a quarter-by-quarter basis.

The IRS has authority to advance payments to eligible employers and to waive penalties for employers who do not deposit applicable payroll taxes in reasonable anticipation of receiving the credit. The credit is not available to employers receiving Small Business Interruption Loans. The credit is provided for wages paid after March 12, 2020 through December 31, 2020.

Delayed payment of employer payroll taxes.

Taxpayers (including self-employeds) will be able to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Taxes that can be deferred include the 6.2% employer portion of the Social Security (OASDI) payroll tax and the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer 6.2% Social Security (OASDI) rate). The relief isn’t available if the taxpayer has had debt forgiveness under the CARES Act for certain loans under the Small Business Act as modified by the CARES Act (see below). For self-employeds, the deferral applies to 50% of the Self-Employment Contributions Act tax liability (including any related estimated tax liability).

Net operating loss liberalizations.

The 2017 Tax Cuts and Jobs Act (the 2017 Tax Law) limited NOLs arising after 2017 to 80% of taxable income and eliminated the ability to carry NOLs back to prior tax years. For NOLs arising in tax years beginning before 2021, the CARES Act allows taxpayers to carryback 100% of NOLs to the prior five tax years, effectively delaying for carrybacks the 80% taxable income limitation and carryback prohibition until 2021.

The Act also temporarily liberalizes the treatment of NOL carryforwards. For tax years beginning before 2021, taxpayers can take an NOL deduction equal to 100% of taxable income (rather than the present 80% limit). For tax years beginning after 2021, taxpayers will be eligible for: (1) a 100% deduction of NOLs arising in tax years before 2018, and (2) a deduction limited to 80% of taxable income for NOLs arising in tax years after 2017.

The provision also includes special rules for REITS, life insurance companies, and the Code Sec. 965 transition tax. There are also technical corrections to the 2017 Tax Law effective dates for NOL changes.

Deferral of noncorporate taxpayer loss limits.

The CARES Act retroactively turns off the excess active by deferring its effective date to tax years beginning after December 31, 2020 (rather than December 31, 2017). (Under the rule, active net business losses in excess of $250,000 ($500,000 for joint filers) are disallowed by the 2017 Tax Law and were treated as NOL carry forwards in the following tax year.)

The CARES Act clarifies, in a technical amendment that is retroactive, that an excess loss is treated as part of any net operating loss for the year, but isn’t automatically carried forward to the next year. Another technical amendment clarifies that excess business losses do not include any deduction under Code Sec. 172 (NOL deduction) or Code Sec. 199A (qualified business income deduction).

Still another technical amendment clarifies that business deductions and income don’t include any deductions, gross income or gain attributable to performing services as an employee. And because capital losses of non-corporations cannot offset ordinary income under the NOL rules, capital loss deductions are not taken into account in computing the Code Sec. 461(l) loss and the amount of capital gain taken into account cannot exceed the lesser of capital gain net income from a trade or business or capital gain net income.

Acceleration of corporate AMT liability credit.

The 2017 Tax Law repealed the corporate alternative minimum tax (AMT) and allowed corporations to claim outstanding AMT credits subject to certain limits for tax years before 2021, at which time any remaining AMT credit could be claimed as fully-refundable. The CARES Act allows corporations to claim 100% of AMT credits in 2019 as fully-refundable and further provides an election to accelerate the refund to 2018.

Relaxation of business interest deduction limit.

The 2017 Tax Law generally limited the amount of business interest allowed as a deduction to 30% of adjusted taxable income (ATI). The CARES Act generally allows businesses, unless they elect otherwise, to increase the interest limitation to 50% of ATI for 2019 and 2020, and to elect to use 2019 ATI in calculating their 2020 limitation. For partnerships, the 30% of ATI limit remains in place for 2019 but is 50% for 2020. However, unless a partner elects otherwise, 50% of any business interest allocated to a partner in 2019 is deductible in 2020 and not subject to the 50% (formerly 30%) ATI limitation. The remaining 50% of excess business interest from 2019 allocated to the partner is subject to the ATI limitations. Partnerships, like other businesses, may elect to use 2019 partnership ATI in calculating their 2020 limitation.

Technical correction to restore faster write-offs for interior building improvements.

The CARES Act makes a technical correction to the 2017 Tax Law that retroactively treats (1) a wide variety of interior, non-load-bearing building improvements (qualified improvement property (QIP)) as eligible for bonus deprecation (and hence a 100% write-off) or for treatment as 15-year MACRS property or (2) if required to be treated as alternative depreciation system property, as eligible for a write-off over 20 years. The correction of the error in the 2017 Tax Law restores the eligibility of QIP for bonus depreciation, and in giving QIP 15-year MACRS status, restores 15-year MACRS write-offs for many leasehold, restaurant and retail improvements.

Accelerated payment of credits for required paid sick leave and family leave.

The CARES Act authorizes IRS broadly to allow employers an accelerated benefit of the paid sick leave and paid family leave credits allowed by the Families First Coronavirus Response Act by, for example, not requiring deposits of payroll taxes in the amount of credits earned.

Pension funding delay.

The CARES Act gives single employer pension plan companies more time to meet their funding obligations by delaying the due date for any contribution otherwise due during 2020 until January 1, 2021. At that time, contributions due earlier will be due with interest. Also, a plan can treat its status for benefit restrictions as of December 31, 2019 as applying throughout 2020.

Certain SBA loan debt forgiveness isn’t taxable.

Amounts of Small Business Administration Section 7(a)(36) guaranteed loans that are forgiven under the CARES Act aren’t taxable as discharge of indebtedness income if the forgiven amounts are used for one of several permitted purposes. The loans have to be made during the period beginning on February 15, 2020 and ending on June 30, 2020.

Suspension of certain alcohol excise taxes.

The CARES Act suspends alcohol taxes on spirits withdrawn during 2020 from a bonded premises for use in or contained in hand sanitizer produced and distributed in a manner consistent with FDA guidance related to the outbreak of virus SARSCoV- 2 or COVID-19.

Suspension of certain aviation taxes.

The CARES Act suspends excise taxes on air transportation of persons and of property and on the excise tax imposed on kerosene used in commercial aviation. The suspension runs from March 28, 2020 to December 31, 2020.