Long awaited new stimulus and spending bill finally passed last evening. 

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Dear clients and friends:

We hope you’re enjoying the abnormal holiday season upon us and staying healthy.  Late Sunday night, President Trump signed into law a second significant stimulus package as part of H.R. 133.  This $900 billion bill provides Covid-19 related relief to businesses and individuals.  The bill is over 5,500 pages in length, we summarized the major tax components below. 

Stimulus payments

The bill provides another round of individual stimulus payments – $600 for individuals, $1,200 for married couples, plus $600 for each dependent child under age 17.  Taxpayers over the age of 17 and claimed as a dependent on another return are ineligible to receive a payment.  Payments phase out once adjusted gross income (AGI) exceeds $75,000 for single filers and $150,000 for married filers.  Your 2019 AGI will be used to determine payment amount.  

These payments represent an advance against a 2020 tax credit that can be claimed on your 2020 1040.  Checks will be sent in the coming weeks; the Treasury will use bank information on file with the IRS for direct deposit.

Unemployment Insurance

Included in the bill is an additional $300 per week for all workers receiving unemployment benefits, through March 14, 2021.  PUA also was extended until March 2021 for self-employed and gig workers.  The bill increases the maximum number of weeks someone can claim benefits through regular state unemployment or the PUA program to 50 weeks.  

Payroll Protection Program (PPP)

This program originated during the CARES Act. This bill includes $284 billion for Round 2.  The program will operate like the first round but there are some changes.  

Deductibility of expenses paid with PPP funds.  Section 276 of the latest bill states that “no deduction shall be denied or reduced, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income.  Businesses may take deductions for business expenses paid by PPP loans, including businesses that already filed for forgiveness.  

Simplified Forgiveness application for loans under $150,000.  These borrowers will only be required to submit a one-page form and only subject to audit if they commit fraud or use the proceeds for improper purposes. 

Eligibility for Second Round Loan  – 300 or fewer employees (down from 500), have already or will use all proceeds from initial PPP loan, and can establish that they experienced a 25% drop in gross receipts during any quarter in 2020 compared to that same quarter in 2019.  As of this writing, guidance on determining gross receipts has not been established.  We should have answers from the SBA within the next 10 days.  

Loan amounts will be based on 2.5 times the borrower’s average monthly payroll for 2019, limited to $2 million.  Food service and accommodation industries are permitted to borrow 3.5 times average monthly payroll, still limited to $2 million.  

All borrowers are required to spend 60% of loan proceeds on payroll costs – wages, health insurance, payroll taxes.  

New legislation also provides PPP borrowers who have not yet applied for forgiveness the opportunity to spend proceeds on four new non-payroll expenses, in addition to rent, utilities and interest costs.  Non-payroll costs cannot exceed 40% of the total costs eligible for forgiveness.  

• Operations expenditures – business software, cloud computing, payroll tracking software, sales and billing functions, processing payments. 
• Supplier costs 
• Property damage costs sustained during public disturbances in 2020. 
• Covered worker protection – capital or operating expenditures that were required to comply with requirements issued by Department of Health and Human Services, CDC or OSHA beginning March 1, 2020 and ending when the national emergency declared by the President expires.  

Covered Period to spend PPP proceeds is no longer locked into either 8 weeks or 24 weeks, the borrower can choose any period between 8 and 24 weeks.  

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Miscellaneous items

100% business meals deduction permitted in 2021 and 2022.  You still need to meet requirements such as not lavish, taxpayer is present, as is an employee or business associate and business was discussed. 

Charitable contributions deduction, taxpayers who do not itemize their deductions can claim up to a $300 charitable deduction when calculating their adjusted gross income in 2020.  This provision extends that deduction to 2021 and increases the deduction to $600 for married filers.  

Unreimbursed medical costs are deductible to the extent they exceed 7.5% of AGI.  This bill makes that permanent instead of increasing to 10% as was set to happen in 2021.  Ex. AGI is $100k, medical expenses paid of $10k, you would receive a medical deduction of $2,500.  

Permanent Section 179D costs, this allows a limited deduction for energy efficient improvements made to nonresidential rental.

Additional loan forgiveness under SBA – under CARES Act, the SBA paid six months of a borrower’s principal and interest on existing Section 7 loans.  This bill provides an additional three months beginning February 2021 and for taxpayers involved in hospitality and accommodation industry allows for eight months.  The amount paid under this program is not taxable.  

More details will emerge now that the bill is finalized, and as new information rolls out we will continue to provide information to you.  Once the SBA provides further guidance (they have 10 days to do so) on the second PPP we will be conducting webinars to answer questions and go into further details.  Look for that invitation via email.  

2020 has certainly proved to be a challenging year for everyone but we are grateful for your continued trust and working together to find solutions.  We will get through this, stay positive, stay strong and stay healthy.  As always if you have questions about this bill or other matters, please contact us.  

The team at Werner & Co. CPAs

Important news about tax questions regarding the President’s recent executive orders dealing with the economic effects of the pandemic.

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To our clients and friends:

We continue to hope that you and yours are healthy and safe.

Three weeks ago, the President signed four executive orders that dealt with four aspects of the economic effects of the pandemic. They addressed a possible $300 federal addition to unemployment benefits if states contribute $100, totaling $400 for affected workers, deferring FICA and Medicare payroll taxes for employees making less than $104K per year, extending the CARES Act eviction moratorium, and keeping the 0% interest rate and payment deferral on federal student loans. We discussed these orders in a previous post (8-17-20).

You need to know

The FICA and Medicare deferrals have generated much discussion in the professional press. Problems identified so far with this potential program include:

• Participation by each employer is voluntary, making the potential benefit quite variable;
• The administrative complexity of implementing the deferral and tracking the liability;
• Repaying the deferred taxes; and
• The unknown risks to the employer with respect to compliance in unforeseen circumstances, such as when an employee leaves when withholding the deferred taxes should occur.

New guidance about deferred payroll taxes

On Friday 28 August, the Treasury issued guidance (Notice 2020-65) about the deadline for remitting deferred payroll taxes. Unfortunately, this notice did not address some important areas of uncertainty. We now know that any deferred taxes are to be withheld and paid by 30 April 2021, after which the normal interest and penalties will apply. The notice did not specify any process or schedule to collect or remit the deferred taxes, so it appears to be up to the employers (and perhaps employees) to determine the schedule. We also know that employers may not use the deferred deposit dates for taxes that were in fact withheld in the normal way. In other words, there’s no free loan for employers.

So, we’re still waiting . . .

We still advise employers wait for further guidance from the Treasury before implementing the payroll tax deferral. Continue withholding employment taxes and remitting according to their normal schedule. Communicate with your employees and educate them on the various implications of the payroll tax deferral.

If you have any questions regarding the payroll tax deferral matter or any tax matter, please contact us. We’ll continue to publish updates as we learn of them.

The team at Werner & Co. CPAs.

Four executive orders, each dealing with a separate topic, were signed on Saturday, August 8th.

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To our clients and friends:

We continue to hope you are well and finding ways to work and take care of your responsibilities as the pandemic continues. As part of our responsibility, we offer this update with respect to the four executive orders that were signed on Saturday August 8th.

Reminder!

Before getting into specifics on the signed orders, we would like to remind all clients that participated in the PPP loan program to hold tight before applying for forgiveness. The forgiveness application is still being re-worked and we expect to see a simpler forgiveness application for loans under $150k.

The 4 executive orders concern:

1. Unemployment benefits
2. FICA and Medicare withholding
3. Eviction moratorium
4. Federal student loans

As virtually every news outlet reported, there are four orders, each dealing with a separate topic. The most widely discussed is the reworking of the federal addition to state unemployment benefits. In sum, it provides for replacing the $600 federal payment that ended on 31 July with $300 in federal disaster funds and a $100 match from state funds. Also receiving significant attention is the order creating a deferral of employee payments of FICA and Medicare withholding for people earning less than about $104,000 per year, more on that topic below. The third order deals with possibly extending through 31 December the eviction moratorium that expired at the end of July. Last, and simplest, is the order dealing with federal student loans. It extends both the 0% interest rate and the moratorium on required payments until 31 December 2020.

We anticipate further clarifications

A greater number of complications exist around the payroll tax deferral that may begin September 1st. First, there is the fact that it is a deferral, not a cancellation. Confusion comes around the twin issues of when & how to collect the deferred liability and the most workable seems to be that IRS would need to add a section to all versions of Form 1040 to both calculate and report the deferred tax due. Employers and payroll companies are right to wonder how they could reprogram their payroll systems to stop the withholding. Some commentators suggested employers could park withheld but unpaid funds in escrow accounts. For sophisticated employers, this could amount to an interest-free loan of the employees’ cash, perhaps until Congress forgave the deferred liability. This would be an unintended consequence that does nothing for the intended beneficiaries. As an employer, you are not forced to comply with the payroll tax deferment.

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As with the programs created by the CARES Act in the spring, there is much left unsaid in the practical application of these orders, so we wait for guidance now as we did before. Be assured that as soon as we learn anything about implementing any of these new orders, we will pass it along as best we can. Until then, please ask any questions that may come to mind.

The Team at Werner & Co.

Here is the latest guidance about RMD distributions in 2020: news, plus a few questions and answers.

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To our clients and friends:

We remain hopeful that you and everyone close to you are safe and healthy. March feels like a lifetime ago but we wanted to update you on the CARES Act that was passed March 27, 2020 specifically the topic of Required Minimum Distributions (RMDs).

As you may know, the CARES Act waived all RMD obligations for 2020. For those of you that turned 70.5 in 2019 and did not take your first distribution then, you would normally need to take both your 2019 and 2020 distributions now. The new guidance says you can skip both distributions in 2020. If you were 70.5 before 2019 you can skip up to your entire 2020 RMD.

A question we fielded when the Act passed was “What if I took my RMD in 2020 and was past the 60-day window to reverse it?” The update released this week now allows you to reverse any 2020 RMD by August 31, 2020. The IRS extended the 60-day rollover period for any RMDs already taken this year to Aug 31 so that taxpayers have time to take advantage of this opportunity.

We often advise clients to use their RMDs to pay their income tax. If you withheld all or part of your federal tax for 2020 from an RMD you already took, you can use other funds to replace the withholding when you put the RMD back into your deferred account. You will then have a credit on your 2020 tax return. Please talk to us about how that affects your tax plan for the rest of the year!

What do you need to do if you took your RMD – contact us and your financial advisor. Together we can determine if it makes sense to return your RMD or let it be part of your 2020 income.

We are committed to keeping you informed of tax law changes. If you have any questions, please reach out to a member of our team.

We appreciate your trust,
All of us at Werner & Company CPAs, PC

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.