Attempting to hire your laid off employees and pay them with PPP funds is becoming a disaster in the small business world right now.

Here is the latest information and interpretation about loan forgiveness regarding workers returning to work or refusing to return to work, including examples.

To our clients and friends,

We remain hopeful that your families and friends are safe and healthy! Today’s news is about unemployment compensation and deals with both employers and employees.

What if some refuse to return?

The SBA released new guidance on loan forgiveness through its FAQ page just before 3:00 PM EDT Sunday, 3 May. For employers, the main clarification deals with rehiring laid-off workers. The SBA said if a worker refuses to return to work after a written offer of employment at the old pay rate and number of hours, the worker will be excluded from the employer’s FTE calculation when computing the amount of loan forgiveness. How excluding the worker will appear in the calculation is unclear, but if the hours are not in the base or the offered hours are included in the PPP hours, the answer will be the same.  

How it might work if they do — or if they don’t

The following example illustrates our interpretation of this new provision.

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Employer A, who is in an essential business, has 6 FTEEs (all full-time) in one of the calculation periods (15 February – 30 June 2019 or 1 January – 29 February 2020.) Due to lack of work A lays off two employees. On 4 May, A decides that the two employees can work at their usual jobs. Employee 1 accepts the offer, while employee 2 stays on unemployment. In this case, employee 2’s refusal to return would not count against the employer. Either the base number of 6 FYEEs would be reduced to 5; or the hours offered to employee 2 but not accepted would be included in the FTEE calculation for forgiveness. Both methods would help A qualify for full forgiveness, but we don’t know how the SBA or the banks will want to see the presentation.

Looking at the same example from the employees’ perspective, employee 1 would notify unemployment that she went back to work and that would be the end of it. If employee 2 were concerned about the health risk of going back to work, he could work with employer A to determine his level of risk. This web page is a tool developed by the PA Department of Labor (PA DOL) to help assess each employee’s risk of contracting COVID-19.

https://www.health.pa.gov/topics/Documents/Diseases%20and%20Conditions/COVID-19%20Business%20Risk%20Assessment%20Tool.pdf

If, after assessing the risk, the employer still needs the employee but the employee refuses without a good reason, the employer should report the employee to PA DOL using the new form UC-1921. On the other hand, in his press conference on 20 April Governor Wolf said that “fear for his or her life” is a “good cause” for an employee to refuse work.

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We hope this puts the unemployment compensation situation in better focus for you. Please feel free to call if you develop any questions, as we try very hard to stay up-to-the minute and things are changing quickly — 610-770-9236 or info@wernercpa.net.

Stay safe,
All of us at Werner & Co.

Tune in to WAEB 790AM

Tuesday morning May 5th at 9:00am to hear our own Kris DePaolo discuss the Payroll Protection Program (PPP) with host Bobby Gunther Walsh.

Contact your senators and congress members asking them to support legislation to further assist small business.

To our clients and friends:

We remain hopeful that you and everyone close to you are safe and healthy. It’s promising that people in power are discussing ways to safely restart the parts of the economy presently shut down.

Late evening on April 30^th, 2020 the IRS released an advance version of Notice 2020-32, interpreting a section of the Internal Revenue Code (§265) as strictly prohibiting the deduction of expenses reimbursed by forgiven PPP loan proceeds.   We cannot disagree with the notice, as the Code and case law are strong and specific in this area.

We urge you to support the only avenue we see that would afford a business the opportunity to earn an additional cash boost by deducting the expenses without recognizing the PPP forgiveness as income.   Congress enacted §265 and Congress can create an exception that would apply to PPP forgiveness only.

If you believe, as we do, that the intent of Congress in the CARES Act was to allow the deduction of PPP-reimbursed expenses, call, write and email your senators and congress members asking them to support legislation to further assist small business.

This website lists all the members of both the House and the Senate. It’s easy to find the representative from each state by selecting your state from the criteria on the left side of the page.

https://www.congress.gov/members?q=%7B%22congress%22%3A116%7D

These are the US senators from Pennsylvania:

Casey, Robert P., Jr. – (D – PA)
393 Russell Senate Office Building, Washington DC 20510
(202) 224-6324 | www.casey.senate.gov/contact/

Toomey, Patrick J. – (R – PA)
Class III
248 Russell Senate Office Building, Washington DC 20510
(202) 224-4254 | www.toomey.senate.gov/?p=contact

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We suggest wording like below (an example for owners of small businesses).
Additional specific information is also helpful. 

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Dear __________________

I am the/an owner of a small business with X employees and my livelihood as well as theirs is threatened by the shutdowns in my area as well as across the nation. If the Internal Revenue Code, specifically Section 265, were amended to permit the deduction of expenses reimbursed by the Paycheck Protection Program enacted as part of the CARES Act, it would provide very important additional support to me and all my peers in the world of small business. Please note that this additional help would not add any effort or expenditure on the part of the government, as the means of monitoring and enforcing the tax code already exists.

Thank you for your support of us, the job creators, as we work our way through this crisis.

Sincerely,

Your name & business

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Please stay safe & remember, we are here to answer questions and work though the complexities of all these programs with you. Don’t hesitate to call!

Werner & Co. CPAs, PC

CARES Act creates unique opportunities from an individual tax perspective

To our clients and friends,

As always, we wish you and your family safe passage through this challenging time. “Staying in touch” is truly a figure of speech when many of those on the front line can’t even touch their immediate family members! We’ll try to keep you up to date on how best to interact with the various governments’ programs from a tax and cashflow point of view.

100% of AGI Charitable Donation

As we learn more about the many provisions of the CARES Act, one that stands out from an individual tax perspective is the ability to donate up to 100% (that’s right, ALL) of your 2020 Adjusted Gross Income (AGI) to charity if you itemize your deductions. Normally, deductions for cash donations to most organizations are limited to 60% of your AGI. For 2020, the CARES Act suspends the 60% limitation, so we can deduct up to 100% of AGI for contributions. The modified limits apply to cash donations only, however taxpayers can still rely on the 20% and 30% limitations on certain long-term gain property as part of the overall donation plan.

What to do with this news

Naturally, since we are tax strategists, we prefer to think about the future rather than the past and this CARES Act provision creates unique opportunities that could apply, depending on individual situations, plans, and expectations for the future. Two examples follow.

1. Bunching of Deductions

The first thought we have is to use this to bunch your deductions for the next two or more years into 2020. This way you itemize for 2020 and use standard deductions into the future. For example, if you normally donate $8,000 per year to qualified charities and use the standard deduction, your 2020 deduction could be $16,000 or $24,000, Your standard deduction for 2021 and perhaps 2022 would not change. Of course, you would communicate with your charities about making several years’ donations at once. Using this technique, you donate a similar amount over time, but to a much better tax effect overall.

2. Drastic reduction of ordinary income

Many of our clients have multiple sources of income such as dividends, capital gains and ordinary income from compensation, interest, retirement accounts, or businesses. For those people, the type of income a deduction reduces can make a significant difference in the net taxes paid, due to different rates. Fortunately, the tax law applies itemized deductions favorably for the taxpayer, reducing ordinary income to zero before reducing favorably taxed income like qualified dividends or long-term capital gains.

Knowing this, if we create a tax plan to donate most or all of a person’s ordinary income, the tax rate on qualified dividends and long-term gains can be as low as zero percent. In the case of larger gains, the rate could be higher, most often 15%.

Do these strategies apply to me?

Clearly, these strategies are not for everyone. They depend on availability of opportunity and the ability to fit the strategy into each client’s overall financial plan.

Please stay safe and come talk to us! We’re here to help!
Werner & Company, CPAs