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.

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.

More news, resources, and FAQs about impact of COVID-19 on Pennsylvania unemployment concerns

In the most recent series of our webinars, we’ve received increasing numbers of questions regarding unemployment compensation. In order to help our clients advise their employees, clarify the employer rules, and use the new opportunities for business owners, we located these pages on the PA unemployment site.

UC answers about Covid-19 relief for employees:
https://www.uc.pa.gov/COVID-19/Pages/UC-COVID19-FAQs.aspx

UC filing for self-employed, S-corp shareholders, partners, and others who normally don’t qualify:
https://www.uc.pa.gov/unemployment-benefits/file/Pages/Filing-for-PUA.aspx

Help with the way Covid-19 impacts both employers and claimants:
https://www.uc.pa.gov/COVID-19/Pages/Employer-COVID19-FAQs.aspx

While we’re not unemployment experts, we will try to help in any way we can and provide access to the latest data available for all our clients, employers, employees, and self-employed folks.

Stay safe out there! It is getting better!