The new Form 1099-NEC and the revised 1099-MISC are due to recipients soon
There’s a new IRS form for business taxpayers that pay or receive certain types of nonemployee compensation and it must be furnished to most recipients by February 1, 2021. After sending the forms to recipients, taxpayers must file the forms with the IRS by March 1 (March 31 if filing electronically).
The requirement begins with forms for tax year 2020. Payers must complete Form 1099-NEC, “Nonemployee Compensation,” to report any payment of $600 or more to a recipient. February 1 is also the deadline for furnishing Form 1099-MISC, “Miscellaneous Income,” to report certain other payments to recipients.
If your business is using Form 1099-MISC to report amounts in box 8, “substitute payments in lieu of dividends or interest,” or box 10, “gross proceeds paid to an attorney,” there’s an exception to the regular due date. Those forms are due to recipients by February 16, 2021.
1099-MISC changes
Before the 2020 tax year, Form 1099-MISC was filed to report payments totaling at least $600 in a calendar year for services performed in a trade or business by someone who isn’t treated as an employee (in other words, an independent contractor). These payments are referred to as nonemployee compensation (NEC) and the payment amount was reported in box 7.
Form 1099-NEC was introduced to alleviate the confusion caused by separate deadlines for Form 1099-MISC that reported NEC in box 7 and all other Form 1099-MISC for paper filers and electronic filers.
Payers of nonemployee compensation now use Form 1099-NEC to report those payments.
Generally, payers must file Form 1099-NEC by January 31. But for 2020 tax returns, the due date is February 1, 2021, because January 31, 2021, is on a Sunday. There’s no automatic 30-day extension to file Form 1099-NEC. However, an extension to file may be available under certain hardship conditions.
When to file 1099-NEC
If the following four conditions are met, you must generally report payments as nonemployee compensation:
- You made a payment to someone who isn’t your employee,
- You made a payment for services in the course of your trade or business,
- You made a payment to an individual, partnership, estate, or, in some cases, a corporation, and
- You made payments to a recipient of at least $600 during the year.
We can help
If you have questions about filing Form 1099-NEC, Form 1099-MISC or any tax forms, contact us. We can assist you in staying in compliance with all rules.
Don’t forget to take required minimum distributions this year
If you have a traditional IRA or tax-deferred retirement plan account, you probably know that you must take required minimum distributions (RMDs) when you reach a certain age — or you’ll be penalized. The CARES Act, which passed last March, allowed people to skip taking these withdrawals in 2020 but now that we’re in 2021, RMDs must be taken again.
The basics
Once you attain age 72 (or age 70½ before 2020), you must begin taking RMDs from your traditional IRAs and certain retirement accounts, including 401(k) plans. In general, RMDs are calculated using life expectancy tables published by the IRS. If you don’t withdraw the minimum amount each year, you may have to pay a 50% penalty tax on what you should have taken out — but didn’t. (Roth IRAs don’t require withdrawals until after the death of the owner.)
You can always take out more than the required amount. In planning for distributions, your income needs must be weighed against the desirable goal of keeping the tax shelter of the IRA going for as long as possible for both yourself and your beneficiaries.
In order to provide tax relief due to COVID-19, the CARES Act suspended RMDs for calendar year 2020 — but only for that one year. That meant that taxpayers could put off RMDs, not have to pay tax on them and allow their retirement accounts to keep growing tax deferred.
Begin taking RMDs again
Many people hoped that the RMD suspension would be extended into 2021. However, the Consolidated Appropriations Act, which was enacted on December 27, 2020, to provide more COVID-19 relief, didn’t extend the RMD relief. That means if you’re required to take RMDs, you need to take them this year or face a penalty.
Note: The IRS may waive part or all of the penalty if you can prove that you didn’t take RMDs due to reasonable error and you’re taking steps to remedy the shortfall. In these cases, the IRS reviews the information a taxpayer provides and decides whether to grant a request for a waiver.
Keep more of your money
Feel free to contact us if have questions about calculating RMDs or avoiding the penalty for not taking them. We can help make sure you keep more of your money.
PPP Second Draw – Program Analysis, Eligibility, and Instructions
Summary: On December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021 (CAA, 2021) into law. The CAA includes Division N - Additional Coronavirus Response and Relief (ACRR), which has a provision that provides for Paycheck Protection Program (PPP) Second Draw loans.
CAA, 2021 - Paycheck Protection Program Second Draw Loans. ACRR permits certain smaller businesses who received a PPP loan and experienced a 25% reduction in gross receipts may take a second draw from the PPP of up to $2 million.
Eligible entities. Prior PPP borrowers must meet the following conditions to be eligible for the second draw loans:
- Employ no more than 300 employees per physical location;
- Have used or will use the full amount of their first PPP loan; and
- Demonstrate at least a 25% reduction in gross receipts in the first, second,or third quarter of 2020 relative to the same 2019 quarter. Applications submitted on or after January 1, 2021 are eligible to utilize the gross receipts from the fourth quarter of 2020.
Eligible entities include for-profit businesses, certain non-profit organizations, housing cooperatives, veterans organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives.
Loan terms. Borrowers may receive a second loan of up to 2.5 times the average monthly payroll costs in the one year prior to the loan or the calendar year. However, borrowers in the hospitality or food services industries (NAICS code 72) may receive loans of up to 3.5 times average monthly payroll costs.
Gross receipts and simplified certification of revenue test. Second draw loans of no more than $150,000 may submit a certification, on or before the date the loan forgiveness application is submitted, attesting that the eligible entity meets the applicable revenue loss requirement.
Loan forgiveness. Like the first PPP loan, the second draw loan may be forgiven for payroll costs of up to 60% (with some exceptions) and nonpayroll costs such as such as rent, mortgage interest and utilities of 40%.
Application of exemption based on employee availability. ACRR extends current safe harbors on restoring full-time employees and salaries and wages. Specifically, applies the rule of reducing loan forgiveness for the borrower reducing the number of employees retained and reducing employees salaries in excess of 25%.
Clarification of tax treatment of Paycheck Protection Program loans. Sec. 276 clarifies that gross income does not include any amount that would otherwise arise from the forgiveness of a PPP loan. This provision also clarifies that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven, and that the tax basis and other attributes of the borrower s assets will not be reduced as a result of the loan forgiveness. The provision is effective as of the date of enactment of the CARES Act. The provision provides similar treatment for Second Draw PPP loans, effective for tax years ending after the date of enactment of the provision.
Interim Final Rules: Paycheck Protection Program Second Draw Loans under CAA, 2021:
The IFR states that Second Draw PPP Loans are 100% guaranteed by the SBA under the same terms, conditions, and processes as First Draw PPP Loans. Second Draw Loans are subject to the Consolidated First Draw PPP IFR, including the FAQs contained within and all PPP loan requirements.
The IFR notes the following terms and conditions that are the same as First Draw PPP Loans:
- Loan guarantee is 100%.
- Collateral and personal guarantees are not required.
- 1% interest rate, calculated on a noncompounding, non-adjustable basis.
- Maturity of five years.
- All loans will be processed by all lenders and lenders will rely on borrower certifications to determine eligibility and use of loan proceeds.
A borrower is prohibited from obtaining a Second Draw PPP Loan if it has not complied with PPP loan program requirements.
Revenue reduction requirement. To be eligible for a Second Draw PPP Loan, the borrower must have experienced a 25% revenue reduction in 2020 relative to 2019. The reduction is calculated by comparing the borrower's quarterly gross receipts for one quarter in 2020 with the borrower's gross receipts for the corresponding quarter of 2019.
The appropriate reference quarter depends on how long the Applicant has been in operation:
- For all entities other than those satisfying the conditions set forth below, Applicants must demonstrate that gross receipts in any quarter of 2020 were at least 25% lower than the same quarter of 2019. Alternatively, Applicants may compare annual gross receipts in 2020 with annual gross receipts in 2019; Applicants choosing to use annual gross receipts must enter "Annual" in the 2020 Quarter and Reference Quarter fields and, as required documentation, must submit copies of annual tax forms substantiating the annual gross receipts reduction.
- For entities not in business during the first and second quarters of 2019 but in operation during the third and fourth quarters of 2019, Applicants must demonstrate that gross receipts in any quarter of 2020 were at least 25% lower than either the third or fourth quarters of 2019.
- For entities not in business during the first, second, and third quarters of 2019 but in operation during the fourth quarter of 2019, Applicants must demonstrate that gross receipts in any quarter of 2020 were at least 25% lower than the fourth quarter of 2019.
- For entities not in business during 2019 but in operation on February 15, 2020, Applicants must demonstrate that gross receipts in the second, third, or fourth quarter of 2020 were at least 25% lower than the first quarter of 2020.
Gross receipts defined. The IFR defines gross receipts consistent with the definition of receipts in 13 CFR 121.104 of SBA's size regulations. Any forgiveness amount of a First Draw PPP Loan that a borrower received in calendar year 2020 is excluded from a borrower s gross receipts with some exception.
Excluded entities. The IFR clarifies that borrowers who received a First Draw PPP Loan despite being ineligible to receive the loan are not eligible to receive a Second Draw PPP Loan. Further, the following are excluded entities:
- a business concern or entity primarily engaged in political activities or lobbying activities (e.g., think tank);
- borrowers that have already received a Second Draw PPP Loan; or
- businesses has permanently closed and has no intention of reopening.
Maximum loan amount and payroll cost calculation. Like First Draw PPP Loans, the maximum loan amount is the lesser of 2.5 months of the borrower's average monthly payroll costs or $2 million. However, the calculation method has been adjusted for Second Draw PPP Loans. The period to calculate payroll costs for a Second Draw PPP Loan is either 2020 or 2019. Borrowers may also use the precise one-year period before the date on which the loan is made to calculate payroll costs if they opt not use 2019 or 2020 to calculate payroll costs.
Business entities assigned an NAICS code beginning with 72 (including hotels and restaurants) may receive a maximum loan amount equal to 3.5 months of payroll costs rather than 2.5 months. Additionally, such businesses that are seasonal or new entities without 12 months of payroll costs may use this method.
Second Draw PPP Loan application. Second Draw PPP Loan applicants must submit documentation substantiating payroll costs calculation like First Draw PPP Loans.
However, these applicants are not required to provide additional documentation if:
- the applicant used calendar year 2019 figures to determine its First Draw PPP Loan amount,
- the applicant used calendar year 2019 figures to determine its Second Draw PPP Loan amount (instead of calendar year 2020)
- the lender for the applicants Second Draw PPP Loan is the same lender that made the applicants First Draw PPP Loan.
The additional documentation is not required because the lender has the relevant documentation to support payroll costs. The lender is required to confirm the borrower's average monthly payroll costs based on prior documentation.
For loans of greater than $150,000, the applicant is required to provide documentation that substantiates at least a 25% revenue reduction in 2020 relative to 2019. Acceptable documentation may include relevant tax forms, quarterly financial statements, or bank statements.
Loans to borrowers with unresolved First Draw PPP Loans. The IFR contains procedures on how to handle a Second Draw PPP Loan application when the borrower's First Draw PPP Loan is under review ("unresolved borrower").
Loan forgiveness. Generally, Second Draw PPP Loans are subject to the Consolidated First Draw PPP IFR with some exception. Second Draw PPP Loan borrowers of $150,000 or less are required to provide documentation of revenue reduction if such documentation was not provided at the time of the loan application.
Application process. Applicants must submit SBA Form 2483-SD (Paycheck Protection Program Second Draw Borrower Application Form) or the lender's equivalent form in addition to required certifications and documentation.
Required documentation. Unless the applicant used calendar year 2019 figures to determine both its First Draw PPP Loan amount and its Second Draw PPP Loan amount (as noted above), and the lender for the applicant s Second Draw PPP Loan is the same as the lender that made the applicant s First Draw PPP Loan), the applicant must provide the following:
- Form 941 (Employer's Quarterly Federal Tax Return) or other tax forms with similar information;
- State quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020, as applicable or equivalent payroll processor records;
- Evidence of any retirement and employee group health, life, disability, vision and dental insurance contributions;
- For partnerships, Form 1065, Schedule K-1s (Partner's Share of Income, Deductions, Credits, etc.);
- For self-employed applicants who have employees, the 2019 or 2020 (the applicable year used to determine the loan amount) Form 1040, Schedule C and items listed above in a, b, and c. Additionally, a payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish the applicant was in operation on February 15, 2020.
- For self-employed applicants with no employees, the 2019 or 2020 (the applicable year used to determine the loan amount) Form 1040 Schedule C, a 2019 or 2020 (whichever was used to calculate loan amount) IRS Form 1099-MISC detailing nonemployee compensation received (box 7), invoice, bank statement, or book of record that establishes that the applicant is self-employed; a 2020 invoice, bank statement, or book of record to establish that the applicant was in operation on or around February 15, 2020. The IFR refers to Form 1099-MISC box 7 nonemployee compensation. Note that beginning with the 2020 tax year, nonemployee compensation is reported on Form 1099-NEC.
- For loans of greater than $150,000, documentation must be provided to establish the applicant experienced a reduction in revenue at the time of application that may include annual tax forms or quarterly income statements or bank statements.
- For loans of $150,000 or less, documentation must be provided to establish the applicant established a reduction in revenue at the time of application, on or before the date the borrower submits an application for loan forgiveness, or, if the borrower does not apply for loan forgiveness, at SBA s request. Documentation may include annual tax forms or quarterly income statements or bank statements.
Certifications. Applicants must certify that they:
- have not and will not receive another Second Draw PPP Loan;
- experienced a 25% revenue reduction with the necessary substantiating documentation;
- have used the full First Draw PPP Loan amount (including any increase) only for eligible expenses; and
- are not an ineligible business concern (listed under "Excluded entities").
Average Monthly Payroll. This section differs to reflect that for Second Draw PPP Loans, applicants with NAICS Code of 72 (Accommodations and Food Services) may multiply the average monthly payroll costs by 3.5 rather than 2.5 for other industries. The maximum loan request is $2 million as opposed to $10 million for a First Draw PPP Loan. The number of employees may not exceed 300 for a Second Draw PPP Loan.
PPP First Draw SBA Loan Number. The applicant must supply their First Draw PPP Loan number.
Reduction in Gross Receipts of at Least 25%. The applicant must supply the quarters in 2020 and 2019 used to determine the reduction and provide the gross receipts in those quarters. Additionally, the form notes that applicants requesting $150,000 or less are not required to complete section, but may be asked for this information when seeking loan forgiveness.
Certifications. In addition to similar certifications on the First Draw PPP Loan applications, applicants must also certify they experienced a 25% reduction in gross receipts and that the applicant has used the full loan amount of the First Draw PPP Loan (including any increase) for only eligible expenses. Also, the applicant does not fall under certain listed prohibited entities.
Instructions. The Instructions clarify how to determine whether an applicant has experienced a 25% reduction in gross receipts. The appropriate reference quarter depends on how long the Applicant has been in operation:
- For all entities other than those satisfying the conditions set forth below, Applicants must demonstrate that gross receipts in any quarter of 2020 were at least 25% lower than the same quarter of 2019. Alternatively, Applicants may compare annual gross receipts in 2020 with annual gross receipts in 2019; Applicants choosing to use annual gross receipts must enter "Annual" in the 2020 Quarter and Reference Quarter fields and, as required documentation, must submit copies of annual tax forms substantiating the annual gross receipts reduction.
- For entities not in business during the first and second quarters of 2019 but in operation during the third and fourth quarters of 2019, Applicants must demonstrate that gross receipts in any quarter of 2020 were at least 25% lower than either the third or fourth quarters of 2019.
- For entities not in business during the first, second, and third quarters of 2019 but in operation during the fourth quarter of 2019, Applicants must demonstrate that gross receipts in any quarter of 2020 were at least 25% lower than the fourth quarter of 2019.
- For entities not in business during 2019 but in operation on February 15, 2020, Applicants must demonstrate that gross receipts in the second, third, or fourth quarter of 2020 were at least 25% lower than the first quarter of 2020.
The Balanced Scorecard approach to strategic planning
In the early 1990s, the Balanced Scorecard approach to strategic planning was developed to enable business owners to better organize and visualize their objectives. With 2021 shaping up to be a year of both daunting challenges and potentially remarkable recovery, your company should have a strategic plan that’s both comprehensive and flexible. Giving this methodology a try may prove beneficial.
Areas of focus
The Balanced Scorecard approach segments strategic planning into four critical areas:
1. Customers. Every business owner knows the importance of customer satisfaction but, to truly know and fulfill customers’ needs, you must identify the right metrics that measure it. Also identify the types of customers you want and, more important, can best serve.
Key question to ask: To fulfill our strategic objectives, how can we attract and retain the customers that build our bottom line?
2. Finance. Companies generally know how to measure their financial performance. However, they too often rely on finances as the only barometer of overall operational stability and success. Financial details are often lagging indicators because they reveal past events — not future performance. So, along with continuing to properly generate financial statements, also track data such as employee productivity and sales growth.
Key question to ask: To achieve our vision, how will our leadership and employees drive our company’s financial success?
3. Internal processes. To operate more productively and efficiently, identify problems and change the related processes. Simply paying closer attention to a shortcoming isn’t an adequate solution. For example, measuring productivity won’t automatically increase it. Your business must analyze the internal components of production — from design to delivery to billing and receipt of revenue — and implement process improvements.
Key question to ask: To meet our goals, in which business processes do we need to excel?
4. Learning and professional growth. Continuing education often calls for more time and effort than businesses are willing or able to devote. Learning must go beyond simply training new hires to include, for instance, mentoring and knowledge sharing through performance management programs. Many companies’ success depends largely on the development and preservation of intellectual capital.
Key question to ask: To accomplish our strategic plan, how can we better preserve and pass along knowledge, as well as encourage learning?
A multipronged effort
Compiling data under the Balanced Scorecard approach requires a multipronged effort. You might use a survey to gather customer info. Your financial statements and industry benchmarks should provide insights into finances. Employee surveys and open forums can illuminate internal operations. And a performance management consultant could help you target learning opportunities and methods.
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The right entity choice: Should you convert from a C to an S corporation?
The best choice of entity can affect your business in several ways, including the amount of your tax bill. In some cases, businesses decide to switch from one entity type to another. Although S corporations can provide substantial tax benefits over C corporations in some circumstances, there are potentially costly tax issues that you should assess before making the decision to convert from a C corporation to an S corporation.
Here are four issues to consider:
1. LIFO inventories. C corporations that use last-in, first-out (LIFO) inventories must pay tax on the benefits they derived by using LIFO if they convert to S corporations. The tax can be spread over four years. This cost must be weighed against the potential tax gains from converting to S status.
2. Built-in gains tax. Although S corporations generally aren’t subject to tax, those that were formerly C corporations are taxed on built-in gains (such as appreciated property) that the C corporation has when the S election becomes effective, if those gains are recognized within five years after the conversion. This is generally unfavorable, although there are situations where the S election still can produce a better tax result despite the built-in gains tax.
3. Passive income. S corporations that were formerly C corporations are subject to a special tax. It kicks in if their passive investment income (including dividends, interest, rents, royalties, and stock sale gains) exceeds 25% of their gross receipts, and the S corporation has accumulated earnings and profits carried over from its C corporation years. If that tax is owed for three consecutive years, the corporation’s election to be an S corporation terminates. You can avoid the tax by distributing the accumulated earnings and profits, which would be taxable to shareholders. Or you might want to avoid the tax by limiting the amount of passive income.
4. Unused losses. If your C corporation has unused net operating losses, they can’t be used to offset its income as an S corporation and can’t be passed through to shareholders. If the losses can’t be carried back to an earlier C corporation year, it will be necessary to weigh the cost of giving up the losses against the tax savings expected to be generated by the switch to S status.
Other considerations
When a business switches from C to S status, these are only some of the factors to consider. For example, shareholder-employees of S corporations can’t get all of the tax-free fringe benefits that are available with a C corporation. And there may be issues for shareholders who have outstanding loans from their qualified plans. These factors have to be taken into account in order to understand the implications of converting from C to S status.
If you’re interested in an entity conversion, contact Dukhon Tax. We can explain what your options are, how they’ll affect your tax bill and some possible strategies you can use to minimize taxes.
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Need another PPP loan for your small business? Here are the new rules.
Need another PPP loan for your small business? Here are the new rules.
Congress recently passed, and President Trump signed, a new law providing additional relief for businesses and individuals during the COVID-19 pandemic. One item of interest for small business owners in the Consolidated Appropriations Act (CAA) is the opportunity to take out a second loan under the Paycheck Protection Program (PPP).
The Basics
The CAA permits certain smaller businesses who received a PPP loan to take out a “PPP Second Draw Loan” of up to $2 million. To qualify, you must:
- Employ no more than 300 employees per physical location,
- Have used or will use the full amount of your first PPP loan, and
- Demonstrate at least a 25% reduction in gross receipts in the first, second or third quarter of 2020 relative to the same 2019 quarter. Applications submitted on or after Jan. 1, 2021, are eligible to use gross receipts from the fourth quarter of 2020.
Eligible entities include for-profit businesses (including those owned by sole proprietors), certain nonprofit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, independent contractors and small agricultural co-operatives.
Additional points
Here are some additional points to consider:
Loan terms. Borrowers may receive a PPP Second Draw Loan of up to 2.5 times the average monthly payroll costs in the year preceding the loan or the calendar year. However, borrowers in the hospitality or food services industries may receive PPP Second Draw Loans of up to 3.5 times average monthly payroll costs. Only a single PPP Second Draw Loan is permitted to an eligible entity.
Gross receipts and simplified certification of revenue test. PPP Second Draw Loans of no more than $150,000 may submit a certification, on or before the date the loan forgiveness application is submitted, attesting that the eligible entity meets the applicable revenue loss requirement. Nonprofits and veterans’ organizations may use gross receipts to calculate their revenue loss standard.
Loan forgiveness. Like the first PPP loan, a PPP Second Draw Loan may be forgiven for payroll costs of up to 60% (with some exceptions) and nonpayroll costs such as rent, mortgage interest and utilities of 40%. Forgiveness of the loans isn’t included in income as cancellation of indebtedness income.
Application of exemption based on employee availability. The CAA extends current safe harbors on restoring full-time employees and salaries and wages. Specifically, it applies the rule of reducing loan forgiveness for a borrower reducing the number of employees retained and reducing employees’ salaries in excess of 25%.
Deductibility of expenses paid by PPP loans. The CARES Act didn’t address whether expenses paid with the proceeds of PPP loans could be deducted. The IRS eventually took the position that these expenses were nondeductible. The CAA, however, provides that expenses paid both from the proceeds of loans under the original PPP and PPP Second Draw Loans are deductible.
Further questions?
Contact us with any questions you might have about PPP loans, including applying for a Second Draw Loan or availing yourself of forgiveness.
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What’s better than PPP? PPP + ERC! – Expansion of the employer retention credit under new law
What’s better than PPP? PPP + ERC! – Expansion of the employer retention credit under new law
The CARES Act supports certain employers that operate a business during 2020 and retain employees with an employee retention credit. The tax credit is equal to 50% of qualified wages paid to employees after March 12, 2020, and before Jan. 1, 2021.
On December 27, 2020, the Consolidated Appropriations Act, 2021 (CAA, 2021) was signed into law. The CAA includes the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR), which extends and expands upon the Employee Retention Credit (ERC) provided by the CARES Act.
Expansion of the Employer Retention Credit under the TCDTR
Beginning on January 1, 2021 and through June 30, 2021, TCDTR extends and expands the following CARES Act provisions:
- Increases the ERC rate from 50% to 70% of qualified wages
- Expands eligibility for the credit by reducing the required year-over-year gross receipts decline from 50% to 20% and provides a safe harbor allowing employers to use prior quarter gross receipts to determine eligibility
- Increases the limit on per-employee creditable wages from $10,000 for the year to $10,000 for each quarter
- Increases the 100-employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees
- Removes the 30-day wage limitation, allowing employers to, for example, claim the credit for bonus pay to essential workers;
- Allows businesses with 500 or fewer employees to advance the credit at any point during the quarter based on wages paid in the same quarter in a previous year
- Provides rules to allow new employers who were not in existence for all or part of 2019 to be able to claim the credit and
- reaffirms prior IRS guidance that group health plan expenses can be considered qualified wages even when no wages are paid to an employee
- provides that employers who receive a Paycheck Protection Program (PPP) loan may still qualify for the ERC for wages that are not paid for with forgiven PPP proceeds.
All employers are eligible for the employee retention credit, including tax-exempt organizations. There is no size limitation or threshold. However, state and local governments and their instrumentalities and small businesses that take small business loans are not eligible.
Qualifying employers must be either:
- an employer whose business is fully or partially suspended by a government order related to COVID-19 during the calendar quarter; or
- an employer whose gross receipts are below 50% of the comparable quarter in 2019. However, when the employer's gross receipts go above 80% of a comparable quarter in 2019, the employer no longer qualifies after the end of that quarter.
The credit is calculated quarterly. It 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 are not limited to cash payments, but also include a portion of the cost of employer provided health care.
Have questions? Just contact us
Prevent and detect insider cyberattacks
In one recent cybercrime scheme, a mortgage company employee accessed his employer’s records without authorization, then used stolen customer lists to start his own mortgage business. The perpetrator hacked the protected records by sending an email containing malware to a coworker.
This particular dishonest worker was caught. But your company may not be so lucky. One of your employees’ cybercrime schemes could end in financial losses or competitive disadvantages due to corporate espionage.
Best practices
Why would trusted employees steal from the hand that feeds them? They could be working for a competitor or seeking revenge for perceived wrongs. Sometimes coercion by a third party or the need to pay gambling or addiction-related debts comes into play.
Although there are no guarantees that you’ll be able to foil every hacking scheme, your business can minimize the risk of insider theft by implementing several best practices:
Restrict IT use.
Your IT personnel should take proactive measures to restrict or monitor employee use of email accounts, websites, peer-to-peer networking, Instant Messaging protocols and File Transfer Protocol.
Remove access.
When employees leave the company, immediately remove them from all access lists and ask them to return their means of access to secure accounts. Provide them with copies of any signed confidentiality agreements as a reminder of their legal responsibilities for maintaining data confidentiality.
Don’t neglect physical assets.
Some data thefts occur the old-fashioned way — with employees absconding with materials after hours or while no one is looking. Typically, a crooked employee will print or photocopy documents and remove them from the workplace hidden in a briefcase or bag. Some dishonest employees remove files from cabinets, desks or other storage locations. Controls such as locks, surveillance cameras and restrictions to access can help prevent and deter theft.
Treat workers well.
Create a positive work environment and treat employees fairly and with respect. This can encourage loyalty and trust, thereby minimizing potential motives for employee theft.
Wireless risk
In addition to the previously named threats, your office’s wireless communication networks — including Wi-Fi, Bluetooth and cellular — can increase fraud risk. Fraud perpetrators can, for example, use mobile devices to gain access to sensitive information. One way to deter such activities is to restrict Wi-Fi to employees with special passwords or biometric access.
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