Business-wise the CARES Act, the giant economic stimulus package, is now law and we’re studying as hard as we can to make sense of the many different provisions for each of our clients.

To our clients and friends —

This piece is aimed primarily at our business clients, i.e., sole proprietors, corporations and partnerships. We anticipate we will receive many inquiries about the specifics of the programs and the application process. Please help us treat everyone’s questions thoroughly by replying to this email with a time when you will be available for a telephone discussion of your specific questions. Note that the EIDL programs are available now, but the administrative procedures for the PPP loans (the forgive-able program) won’t be set for two more weeks.

The SBA acted quickly and has implemented its portion of the CARES Act relatively thoroughly. The have helpful websites already established and explanations of the new programs on their website, https://www.sba.gov/. The latest we have from the SBA announces that all existing home and business disaster loans (from previous disasters) are in automatic deferral until 31 December 2020.

The following information relates to the loan provisions of the CARES Act. 

Economic Injury Disaster Loan (EIDL)

The CARES act expands the SBA’s existing Disaster Loans Program, both streamlining and simplifying the application-to-approval process. The details are very business-friendly and are designed to get money into the hands of businesses very quickly. The covered period for this program is 31 January 2020 to 31 December 2020. The interest rate on EIDLs is 3.75% with maximum repayment term of 30 years. The term depends on the business’s ability to repay. The new guidelines do not require personal guarantees or tax forms if the loan is under $200,000.

One important new provision is the ability to apply for an emergency grant of up to $10,000 which must be issued within three days and need not be repaid, even if the loan application is denied. An important caveat – if the business subsequently obtains a forgive-able 7(a)(36) Payment Protection Program (PPP) loan discussed later, the forgiveness amount will be reduced by the amount of the emergency advance. We do not believe this is a problem.

Disaster loan proceeds can be used for purposes already authorized under the SBA program, specifically including:

1. Providing sick leave to employees who cannot work due to COVID-19;
2. Maintaining payroll during business disruption;
3. Meeting increased supply chain costs;
4. Making rent or mortgage payments; and
5. Repaying debts that cannot be paid due to loss of revenue.

This links to the website where you can apply for an EIDL now:

https://www.sba.gov/funding-programs/disaster-assistance

Payment Protection Program (PPP) forgive-able Loans

This is a new program also called “7(a)(36) loans.” The loans are available for amounts equaling 2.5 times average monthly payroll cost for the 12 months before your application, up to a maximum $10 million. Payroll cost includes paid time off, health insurance payments, pension benefits, and state and local payroll taxes, not just paycheck amounts. The maximum term for the portion not forgiven is 10 years at a 4% rate.

The main distinction of the PPP loan program is that if you receive a PPP loan and spend the loan amount on payroll costs, rent, mortgage interest, and utilities, you can apply to have up to 100% of the principal amount forgiven, with no income tax consequences. Businesses may spend the money on other things, but the forgiveness cannot be more than the total of the expenses listed. Payments are automatically deferred for six months and can be deferred up to one year.

This is a link to a brief summary of the PPP loan program on our website www.wernercpa.net that summarizes the program well.

It is important to note that payroll cost under the PPP rules include owner’s compensation up to $100,000 per year and 50% of self-employment taxes for sole proprietors or partners who cannot by law receive a payroll check.

The $100,000 limitation applies to any employee as well as to the owner. For example, if an employee earns $120,000 per year you would include $8.333 and compensation in calculating the monthly average payroll cost instead of including the average gross pay of $10,000 per month.

We will email and post new information as we receive it. Please remember to reply to this email so we may schedule a time to discuss your specific case.

In the meantime, please stay safe, follow the new rules, and listen to the CDC and the medical professionals. We want all of us to see all of you as soon as possible, safe and healthy!

That was quite the week we had and it’s not over yet!

Greetings, clients and friends —

We’re still on the upward slope of COVID-19 disease progression and our hearts go out to all who are impacted, whether suffering through loss, sick, lonely, or anxiety. We hope that you are staying safe and not taking unnecessary risks, following the rules laid down by Gov. Wolf and the suggestions of the CDC and other medical organizations.

As many of you know, President Trump signed a $2 trillion coronavirus relief bill (CARES Act 2020) on Friday March 27, 2020. This email is intended to provide short summary on the impact it will have on individuals. We will have a separate email discussing the business programs. We are currently pushing out updates on our various social media channels; FaceBook, Twitter, LinkedIn and our website https://wernercpa.net/blog/. You can subscribe to our blog to receive notification when we post something.

Individual impacts:

Stimulus Payments

            Who receives one?

• $1,200 per US taxpayer, $2,400 for joint filers. Additional $500 payments for each child under age 17 in the household. Amounts are phased out for taxpayers with an adjusted gross income (AGI) exceeding $75,000, joint filers $150,000 and head of household filers 112,500.

What if my AGI is above the threshold?

• For single filers with an AGI above $75k, your check will be reduced by $5 for every $100 over the threshold. Ex. $80k AGI, your payment will be $950 ($1,200 – $250). For joint filers same calculation but starting at $150k.

What tax year is used to determine eligibility?

• 2019, if that return has not been filed, 2018.

How will checks arrive?

• If the IRS has your bank information on file from your 2018 or 2019 filing, they will submit payments via direct deposit. If that method is rejected because the account no longer exists, they will mail you a check.

Will retirees receive a payment?

• Yes, if you are receiving social security payments, you will receive a payment. If you are not required to file a return because income levels too low, you will still qualify.

Is this payment taxable?

• No.

What if I haven’t filed for 2019 but my income is lower than in 2018?

• You will apply any unused additional credit on your 2020 return.

Retirement provisions:

• Waiver of 2020 required minimum distributions (RMDs) from IRAs and retirement plans. Planning note, if you are having federal withholding from your RMD and plan on not taking one in 2020, contact our office to discuss making estimated tax payments.
• Hardship withdraws, waives the 10% penalty for early withdraws up to $100k.
• 401k loans, increases the loan limits from $50k to $100k or the lessor of 100% of the present value of vested balance. Loan must be made 180 days following CARES Act enactment.

Miscellaneous items

• Existing IRS installment agreements. If you’re under a current installment agreement, payments due April 1 through July 15, 2020 are suspended. The IRS will not default any Installment Agreement during this same period, interest will continue to accrue on unpaid balance.
• Charitable Contributions. The Act is relaxing some of the limitations on charitable contributions by allowing a deduction up to $300, whether the you itemize deductions. Suspending the 50% limitation on individuals.
• Student Loans. Suspends payment on federally held student loans until 9/30/2020. Interest will NOT accrue during this period.

Our intent is to help you stay up-to date about the efforts of the various governments to help you through this troubling time.

Please be careful and call or email us if you have any questions.

https://www.sbc.senate.gov/public/_cache/files/9/7/97ac840c-28b7-4e49-b872-d30a995d8dae/F2CF1DD78E6D6C8C8C3BF58C6D1DDB2B.small-business-owner-s-guide-to-the-cares-act-final-.pdf

The PA loan program for business owners.

Greetings, clients and friends —

We hope that you are staying safe and not taking unnecessary risks, following the rules laid down by Gov. Wolf and the suggestions of the CDC and other medical organizations.

We received word from State Senator Bob Mensch’s office that a new COVID-19 relief program is available for business owners. Please look to see if you might benefit from this new effort on the part of the Commonwealth.

The Pennsylvania Industrial Development Authority sponsors the COVID-19 Working Capital Access (CWCA) program, now available through a Certified Economic Development Organization (CEDO) serving in each county. The program offers three-year loans to businesses in Pennsylvania that are adversely impacted by the COVID-19 outbreak.

Loans will be for three years on a 12-year amortization schedule, with no payments due during the first 12 months. Principal and interest, if applicable, will be due according to the amortization schedule in years two and three with a balloon payment at the end of the three-year term. Agricultural producers will have a 2% interest rate, and other businesses will have a rate of 0%. The maximum loan will be $100,000.

Visit the Department of Community & Economic Development webpage to learn the CEDOs in your county – https://dced.pa.gov/cedo/. Businesses in Lehigh County should contact Stephanie Wean, 610.266.2218, email is also an option on the website.

We constantly monitor developments in the world of coronavirus individual and business support. Our intent is to help you stay up-to date about the efforts of the various governments to help our community through this time of trouble and anxiety.

Please be careful and call or email us if you have any questions.

As part of our effort to keep everyone informed, we want to share some of the details of the Coronavirus payroll tax credit process so you can apply them in your business or share them with your employers.

As always, please heed the advice of the CDC and other health professionals as you go through each day. We look forward to all of us serving all of you for a long time!

On 18 March, the President signed the Families First Coronavirus Response Act (the Act). The Act provides for expanded paid sick and family leave. Small and midsized employers, those with fewer than 500 employees, will recover the cost of Coronavirus leave through a direct payroll tax credit.

On 20 March the US Treasury Department, IRS and the Department of Labor explained the process for claiming the payroll tax credit. Simply identify the applicable wages and health insurance costs paid to or for the affected employees and do not send those funds to IRS in payroll tax deposits. Instead, use the cash to pay the employees. The taxes that fall under tis credit program are withheld federal income tax, Social Security, and Medicare taxes. Social Security and Medicare taxes include both employee-paid and employer-paid taxes.

The Paid Sick Leave Credit

The amount of the credit is up to $511 per day for 100% of wages paid to employees on Corona virus-related leave or $200 per day (2/3 of normal wage) for employees caring for someone with Coronavirus or for children whose schools or care facilities closed due to the virus. The upper limit is 10 days or 80 hours of wages, $5,110 in the case of employees themselves or $2.000 for care-giving employees.

The credit for paid sick leave applies to an employee who is unable to work because of Coronavirus quarantine or self-quarantine or who has symptoms and is seeking a medical diagnosis, or in the case of child care, due to the closures already mentioned.

The Child Care Leave Credit

If an employee provides care for a child as described above, the $200per day credit will apply to an additional 10 weeks, or $10,000 in total,

Small Business Exception

Businesses with fewer than 50 employees will be exempt from the requirement that leave be granted to care-giving employees if the employer would jeopardize the business by granting leave. The news release stated that simple and clear criteria will be forthcoming to help with this particular decision.

Non-Enforcement Period

For 30 days, the Department of Labor will focus on helping employers comply with the Act and will not pursue enforcement action as long as employers act reasonably and in good faith.

Example

This example shows how straightforward the process is for claiming the credits, If an employer would normally pay a quarterly total of $10,500 in federal payroll taxes and in that quarter paid Corona-affected employees $3,500, the required payroll tax deposit total would be $7.000.