03/30/2020
Let’s face some hard facts here about COVID 19 and the RELIEF payment (as the talking heads do not want us referring to it is as the Economic Stimulus payment any more (who cares about political correctness at the moment?!)
1. This little “health inconvenience” we are dealing with will not be over in a few weeks. NO ONE knows what is ahead of us, so keep your wits about you, and take precautions as advertised. There has been no better time to say, “Better safe than sorry.” The next three weeks are going to get very ugly as this unfolds. Be ready for it but don’t panic. The FDA has issued an emergency authorization for doctors and hospitals to prescribe Hydroxycloroquine
2. The government is going to issue up to 6 TRILLION dollars in stimulus and it’s simply unprecedented. They know something we don’t-and a few politicians sold their entire portfolios over it-we’ll get to them later. This should also tell you something.
3. I’m going to mention this right out in front. I am already receiving calls from people (not clients!) on how to “game the system.” They’ve all got a hard luck story, and I won’t help them by being a participant in what they perceive as a free-for-all. It’s akin to the hoarding we are seeing. When this is over, and it will be over, there will be a lot of prosecutions, so do the ethical thing. This whole thing is all about doing the right thing. Please remember that and remind others. That being said, there are loans from banks and the SBA to replace your revenue stream as business grinds to a halt. These loans will turn into grants in a year if you follow the rules. That’s totally legitimate. Go for it.
4. PLEASE READ MY ALERT ABOUT NEW SCAMS FOR LOANS AND GRANTS BELOW. DON’T BE A VICTIM!
5. We WILL be paying this back someday. So, if everyone does their part by not partaking in the “I want to game the system” attitude, our kids and grandkids will not saddle the burden. I am simply stunned (and in some cases appalled) by the phone calls I am fielding.
6. The IRS, for all practical intents and purposes, is closed. They are not available to help you. No one knows when then normal service will resume. I am not even sure if they are processing paper tax returns, which means any individual return from 2018 and earlier since the e-filing season has expired for these returns.
NOTE: If you have an entity tax return (corporation, partnership, estate or trust) from a prior year, I can still e-file those returns.
The more I read into this act (and what CPA has the time to go through 850+ pages of legalese during tax season?) the more I wonder, “”How bad really IS this situation, anyway?” I don’t want to sound like Bill Ackman (look up Pershing Square Capital Management and see how this jerk panicked the market to make 2 BILLION dollars in this mess,) but we are resilient and we WILL get through this.
NOW, if you got to this point of doom and gloom, here is the best advice I can give you if you read nothing about the stimulus package highlights below it:
If you are a laid off employee: Go to the unemployment website and file. You may want to wait after hours as the sites often are jammed. I understand benefits start immediately up to $600 per week and the filing period may be extended beyond six months.
If you are an employer: Call your payroll service. They have the responsibility to advise you of the tax credits you will get that I mention below (and believe me, they are VERY confusing.) Clients pay good money for payroll services and they better be equipped to advise you on what credits you are entitled to.
Call the Small Business Administration: The Federal government put them in charge of issuing working capital loans to employers to meet the needs of keeping employees on the payroll, and meeting certain cash flow needs. And trust me, the new reg’s issued for employers with small payroll could cripple them into simply shutting their doors and never opening again. Knowing that, they have been urged to approve these loans on the spot.
Call your bank: They have also been designated to issue working capital loans and from what I am reading have wide latitude and discretion to issue loans for keeping employees on the payroll ON THE SPOT. In many instances, these loans will turn into grants (not having to be paid back) if you meet certain guidelines. They will know the new regulations best, so go and talk to them directly. I am told you will need your entire payroll for the last calendar year when applying for a loan.
This package is the third in a series of stimulus packages to circumvent the effects of this disaster. The earlier versions provided federal support for extended unemployment insurance benefits, paid sick leave for workers, and waived time restrictions on access to Supplemental Nutrition Assistance Program (SNAP) benefits for certain individuals.
Putting my total annoyance aside that the third stimulus package should have been approved by last Monday morning but took all week to approve, I have tried to sum up the salient points of this. I assure you, it will make your eyes glaze over.
And I will mention there will be a fourth stimulus package coming. That will likely be more advanced promulgations and technical clarifications.
THE HIGHLIGHTS AS (BEST AS I CAN SUM UP THE LAW)
1. THE BIG ONE: Overall, EVERYONE wants their stimulus payment. If you haven’t seen the requirements on the news, the web, the radio and elsewhere, you are living under a rock. But here it is in case you need to refer back to it:
• The payment is scheduled to go out in three weeks
• Eligible taxpayers will receive with stimulus payment for up to $1,200 if an individual, or $2,400 if married filing jointly. They may also receive an additional $500 per child who is 16 or under.
• The amount of the stimulus payment is based on their income.
• For individuals filing single, who have an adjusted gross income of $75,000 or less, they will receive the full amount. If they earn above this threshold, their stimulus payment will begin to phase out, and stops altogether at $99,000 or more,
• Married couples earning $150,000 or less will also receive the full amounts. If they earn above these thresholds, their stimulus payment will begin to phase out, and stops altogether at $198,000 or more.
• If you claim the head-of-household filing status on your tax return, your payment will be reduced if your AGI tops $112,500
• Income levels for the thresholds are determined by their 2018 tax return if they have not filed a 2019 tax return; if they have filed a 2019 tax return, their income thresholds are based on their 2019 tax return. (Obviously, you should think about whether you want to file your 2019 return right now in some cases.)
• The stimulus payments are not taxable
• There are no clawbacks if a taxpayer received the payment and makes over the thresholds in the future.
• If the IRS already has a taxpayer's bank information, it is anticipated that the service will direct deposit the funds into their bank account. Otherwise, they will send a paper check. If the taxpayer does not receive their check, they should contact the IRS directly. (Yeah, good luck with that. See my next note #2 below.)
2. As with previous disaster-related relief, the IRS is waiving the 10-percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after Jan. 1, 2020. (This can be a loan from your pension plan, folks!)
• Income attributable to such distributions would be subject to tax over three years.
• taxpayers can recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions.
• The provision provides flexibility for loans from certain retirement plans for coronavirus-related relief.
• The coronavirus-related distribution is made to an individual: (1) who is diagnosed with COVID-19; (2) whose spouse or dependent is diagnosed with COVID-19; or (3) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury Secretary.
3. Pension RMD’s: There is also a temporary waiver of required minimum distribution rules for certain retirement plans and accounts such as IRAs to help individuals who would otherwise be required to withdraw funds from retirement accounts during the economic slowdown due to COVID-19. This provision waives the required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020.
4. Allowance of partial above the line deduction for charitable contributions: The provision encourages Americans to contribute to churches and charitable organizations in 2020 by permitting them to deduct up to $300 of cash contributions, whether they itemize their deductions or not.
5. Modification of limitations on charitable contributions during 2020: The provision increases the limitations on deductions for charitable contributions by individuals who itemize, as well as corporations. For individuals, the 50 percent of adjusted gross income limitation is suspended for 2020. For corporations, the 10 percent limitation is increased to 25 percent of taxable income. This provision also increases the limitation on deductions for contributions of food inventory from 15 percent to 25 percent.
6. Exclusion for certain employer payments of student loans: The provision enables employers to provide a student loan repayment benefit to employees on a tax-free basis. Under the provision, an employer may contribute up to $5,250 annually toward an employee’s student loans, and such payment would be excluded from the employee’s income. The $5,250 cap applies to both the new student loan repayment benefit as well as other educational assistance (such as tuition, fees, books) provided by the employer under current law. The provision applies to any student loan payments made by an employer on behalf of an employee after the date of enactment and before Jan. 1, 2021.
7. Employee retention credit for employers subject to closure due to COVID-19: The provision provides a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis. The credit is available to employers whose
(1) operations were fully or partially suspended, due to a COVID-19-related shut-down order; or
(2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.
(3) The credit is based on qualified wages paid to the employee. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above.
(4) For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order.
(5) The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020 through Dec. 31, 2020.
8. Delay of payment of employer payroll taxes: The provision allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax (NOT THE MEDICARE TAX!!!) they otherwise are responsible for paying to the federal government with respect to their employees.
Employers generally are responsible for paying a 6.2-percent Social Security tax on employee wages. The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by Dec. 31, 2021 and the other half by Dec. 31, 2022. The Social Security Trust Funds will be held harmless under this provision.
9. Modifications for net operating losses: The provision relaxes the limitations on a company’s use of losses.
• Net operating losses (NOL) are currently subject to a taxable-income limitation, and they cannot be carried back to reduce income in a prior tax year.
• The provision provides that an NOL arising in a tax year beginning in 2018, 2019 or 2020 can be carried back five years.
• The provision also temporarily removes the taxable income limitation to allow an NOL to fully offset income. These changes will allow companies to utilize losses and amend prior year returns, which will provide critical cash flow and liquidity during the COVID-19 emergency.
10. Modification of limitation on losses for taxpayers other than corporations: The provision modifies the loss limitation applicable to pass-through businesses and sole proprietors, so they can utilize excess business losses and access critical cash flow to maintain operations and payroll for their employees.
11. Modification of credit for prior year minimum tax liability of corporations: The corporate alternative minimum tax (AMT) was repealed as part of the Tax Cuts and Jobs Act, but corporate AMT credits were made available as refundable credits over several years, ending in 2021. The provision accelerates the ability of companies to recover those AMT credits, permitting companies to claim a refund now and obtain additional cash flow during the COVID-19 emergency.
12. Modification of limitation on business interest: The provision temporarily increases the amount of interest expense businesses are allowed to deduct on their tax returns, by increasing the 30-percent limitation to 50 percent of taxable income (with adjustments) for 2019 and 2020. As businesses look to weather the storm of the current crisis, this provision will allow them to increase liquidity with a reduced cost of capital, so that they are able to continue operations and keep employees on payroll.
13. Technical amendment regarding qualified improvement property: The provision enables businesses, especially in the hospitality industry, to immediately write off costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of the building. The provision, which corrects an error in the Tax Cuts and Jobs Act, not only increases companies’ access to cash flow by allowing them to amend a prior year return, but also incentivizes them to continue to invest in improvements as the country recovers from the COVID-19 emergency.
14. Unemployment Expansion for All Eligible Workers: The Act extends coverage to workers who are self-employed, seeking part-time employment (if permitted under state law), do not have sufficient work history, or otherwise would not qualify for regular unemployment under state or federal law and become unemployed or cannot find work due to COVID-19. This provision covers independent contractors.
• Covered individuals are those who are unemployed, partially unemployed, or unable to work because:
• They have tested positive for COVID-19 or are experiencing symptoms of COVID-19 and are seeking a medical diagnosis;
• A member of their household has been diagnosed with COVID-19;
• They are providing care for a family or household member who has been diagnosed with COVID-19
• A child or other person in the household for whom they have primary caregiving responsibility is unable to attend school or another facility that is closed as a direct result of COVID-19, and such school or facility care is required for the individual to work;
• They cannot reach the place of employment, or the place of employment is closed, because of a quarantine imposed as a direct result of a COVID-19 outbreak;
• They were scheduled to commence employment and do not have a job or are unable to reach the job as a direct result of a COVID-19 outbreak:
• They have become the breadwinner for a household because the head of the household has died as a direct result of COVID-19; or
• They had to quit their job as a direct result of COVID-19.
• Covered individuals will receive benefits for weeks of unemployment, partial unemployment, or inability to work caused by COVID-19 beginning on or after January 27, 2020 and ending on or before December 31, 2020, for as long as the unemployment, partial unemployment or inability to work caused by COVID-19 continues. The weekly benefit amount is equal to the amount authorized under the state law where the covered individual was employed. For self-employed individuals, the weekly benefit is calculated under 20 C.F.R. § 625.6.
• The Act also enhances unemployment compensation benefits for all eligible individuals – whether eligible under the expansion in the CARES Act or under applicable state law. The enhanced benefits include an additional $600 per week (even if this takes the employee above their pre-unemployment earnings level), the elimination of waiting periods (a measure many states already have taken), and an additional 13 weeks of eligibility for benefits (39 weeks in total). It is anticipated that these benefits will be carried out through agreements between each state and the federal government.
15. Short-Term Compensation Program: The Act provides funding to support states that develop a “short-time compensation” program for employers that reduce hours in lieu of a layoff (but not for seasonal, temporary or intermittent employees). Many states already have so-called “work share” programs that provide for partial unemployment benefits when employers do hours reductions, or partial furloughs, in lieu of layoffs. Under such a program, employees whose hours have been reduced would receive pro-rated unemployment benefits, and the federal government would fund 100% of the costs employers incur by retaining employees at reduced hours through December 31, 2020. This is intended to provide an incentive for employers to reduce employee hours in lieu of laying off employees. The Act provides similar enhanced benefits under the Railroad Unemployment Insurance Act.
16. Additional Eligibility Considerations: Employees who are able to telework with pay and those who are receiving Emergency Paid Sick Leave (EPSL) or FMLA-Public Health Emergency Leave under the FFCRA, or are receiving paid leave under an employer plan or state or local law, cannot simultaneously receive unemployment benefits under the CARES Act.
17. Filing and payment deadlines deferred. After briefly offering more limited relief, the IRS almost immediately pivoted to a policy that provides the following to all taxpayers—meaning all individuals, trusts, estates, partnerships, associations, companies or corporations regardless of whether or how much they are affected by COVID-19:
1) For a taxpayer with a Federal income tax return or a Federal income tax payment due on April 15, 2020, the due date for filing and paying is automatically postponed to July 15, 2020, regardless of the size of the payment owed.
2) The taxpayer doesn’t have to file Form 4686 (automatic extensions for individuals) or Form 7004 (certain other automatic extensions) to get the extension.
3) The relief is for Federal income tax payments (including tax payments on self-employment income) and Federal income tax returns due on April 15, 2020 for the person’s 2019 tax year, and Federal estimated income tax payments (including tax payments on self-employment income) due on April 15, 2020 for the person’s 2020 tax year.
4) No extension is provided for the payment or deposit of any other type of Federal tax (e.g. estate or gift taxes) or the filing of any Federal information return.
5) As a result of the return filing and tax payment postponement from April 15, 2020, to July 15, 2020, that period is disregarded in the calculation of any interest, penalty, or addition to tax for failure to file the postponed income tax returns or pay the postponed income taxes. Interest, penalties and additions to tax will begin to accrue again on July 16, 2020.
18. Favorable treatment for COVID-19 payments from Health Savings Accounts Health savings accounts (HSAs) have both advantages and disadvantages relative to Flexible Spending Accounts when paying for health expenses with untaxed dollars. One disadvantage is that a qualifying HSA may not reimburse an account beneficiary for medical expenses until those expenses exceed the required deductible levels. But IRS has announced that payments from an HSA that are made to test for or treat COVID-19 don’t affect the status of the account as an HSA (and don’t cause a tax for the account holder) even if the HSA deductible hasn’t been met. Vaccinations continue to be treated as preventative measures that can be paid for without regard to the deductible amount.
19. Tax credits and a tax exemption to lessen burden of COVID-19 business mandates. On March 18, President Trump signed into law the Families First Coronavirus Response Act (the Act, PL 116-127), which eased the compliance burden on businesses. The Act includes the four tax credits and one tax exemption discussed below.
Payroll tax credit for required paid sick leave (the payroll sick leave credit). The Emergency Paid Sick Leave Act (EPSLA) division of the Act generally requires private employers with fewer than 500 employees to provide 80 hours of paid sick time to employees who are unable to work for virus-related reasons (with an administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy). The pay is up to $511 per day with a $5,110 overall limit for an employee directly affected by the virus and up to $200 per day with a $2,000 overall limit for an employee that is a caregiver.
The tax credit corresponding with the EPSLA mandate is a credit against the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax). The credit amount generally tracks the $511/$5,110 and $200/$2,000 per-employee limits described above. The credit can be increased by
1) The amount of certain expenses in connection with a qualified health plan if the expenses are excludible from employee income and
2) The employer’s share of the payroll Medicare hospital tax imposed on any payments required under the EPSLA.
Credit amounts earned in excess of the employer’s 6.2% Social Security (OASDI) tax (or in excess of the Railroad Retirement tax) are refundable. The credit is electable and includes provisions that prevent double tax benefits (for example, using the same wages to get the benefit of the credit and of the current law employer credit for paid family and medical leave). The credit applies to wages paid in a period
1) Beginning on a date determined by IRS that is no later than April 2, 2020 and
2) Ending on December 31, 2020.
Income tax sick leave credit for the self-employed (self-employed sick leave credit). The Act provides a refundable income tax credit (including against the taxes on self-employment income and net investment income) for sick leave to a self-employed person by treating the self-employed person both as an employer and an employee for credit purposes. Thus, with some limits, the self-employed person is eligible for a sick leave credit to the extent that an employer would earn the payroll sick leave credit if the self-employed person were an employee.
Accordingly, the self-employed person can receive an income tax credit with a maximum value of $5,110 or $2,000 per the payroll sick leave credit. However, those amounts are decreased to the extent that the self-employed person has insufficient self-employment income determined under a formula or to the extent that the self-employed person has received paid sick leave from an employer under the Act. The credit applies to a period
1) Beginning on a date determined by the IRS that is no later than April 2, 2020 and
2) Ending on December 31, 2020.
Payroll tax credit for required paid family leave (the payroll family leave credit). The Emergency Family and Medical Leave Expansion Act (EFMLEA) division of the Act requires employers with fewer than 500 employees to provide both paid and unpaid leave (with an administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy). The leave generally is available when an employee must take off to care for the employee’s child under age 18 because of a COVID-19 emergency declared by a federal, state, or local authority that either
1) Closes a school or childcare place or
2) Makes a childcare provider unavailable.
Generally, the first 10 days of leave can be unpaid and then paid leave is required, pegged to the employee’s pay rate and pay hours. However, the paid leave can’t exceed $200 per day and $10,000 in the aggregate per employee.
The tax credit corresponding with the EFMLEA mandate is a credit against the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax). The credit generally tracks the $200/$10,000 per employee limits described above. The other important rules for the credit, including its effective period, are the same as those described above for the payroll sick leave credit.
Income tax family leave credit for the self-employed (self-employed family leave credit). The Act provides to the self-employed a refundable income tax credit (including against the taxes on self-employment income and net investment income) for family leave similar to the self-employed sick leave credit discussed above. Thus, a self-employed person is treated as both an employer and an employee for purposes of the credit and is eligible for the credit to the extent that an employer would earn the payroll family leave credit if the self-employed person were an employee.
Accordingly, the self-employed person can receive an income tax credit with a maximum value of $10,000 as per the payroll family leave credit. However, under rules similar to those for the self-employed sick leave credit, that amount is decreased to the extent that the self-employed person has insufficient self-employment income determined under a formula or to the extent that the self-employed person has received paid family leave from an employer under the Act. The credit applies to a period
1) Beginning on a date determined by IRS that is no later than April 2, 2020 and
2) Ending on December 31, 2020.
Exemption for employer’s portion of any Social Security (OASDI) payroll tax or railroad retirement tax arising from required payments. Wages paid as required sick leave payments because of EPSLA or as required family leave payments under EFMLEA aren’t considered wages for purposes of the employer’s 6.2% portion of the Social Security (OASDI) payroll tax or for purposes of the Railroad Retirement tax.
IRS information site. Ongoing information on the IRS and tax legislation in response to COVID-19 can be found here https://www.irs.gov/coronavirus.
Ok, folks. Keep this in mind: I am piecing this together from my best sources. Keep in mind, that I cannot verify everything in here. As I get to the summer and this thing dies down, I will be in a better position to dive into this information and revise it. Likewise, there will be revision from the government as well.
Just do the best you can to do your part, and we will iron out the lingering issues as they crop up. And I am anticipating many issues to sprout from all of this. They always do. And, please, please, please be wary of …
To explain the tax relief for those affected by coronavirus.
