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

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

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.

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.

What a week and what a time in US history!

To Clients and Friends —

I will cut to the point – Governor Wolf ordered that “all non-life sustaining businesses in Pennsylvania close or face enforcement action.” That enforcement will go into effect 12:01am Saturday March 21, 2020. For this reason, we are not staffing our Allentown office after Friday March 20, 2020. Our staff is working remotely and it’s important that you know we will be serving our clients as earnestly as ever. If you were scheduled to meet in-person with a member of our team, we will be in touch shortly to reschedule that meeting to a phone call.  

Parallel to Governor Wolf’s order, Treasury Secretary Mnuchin announced “We are moving Tax Day from April 15 to July 15, all taxpayers and businesses will have this additional time to file and make payments without interest or penalties.”

What this means to our clients – in the middle of the tension and uncertainty, the tax world is back to normal but pushed back 90 days. If we completed your return and you have a balance due to the IRS, that payment is now due 7/15/2020. You do not need a new voucher or any additional forms, simply make payment on 7/15.  

If your return is not complete as of this email, there is no further action required on your part. Tax Day is now 7/15/2020 and we will continue working on your returns.  As usual, a member of our team will contact you with any questions/information requests.  

We will work as diligently as we can under these new circumstances and your patience is appreciated. It is our responsibility to file your return on time and we will do so. This environment is changing by minute – there are new tax credits, stimulus payments, loan forgiveness among a host of other items in discussion and we update our Emergency Tax Updates webpage as information becomes available.

We at Werner & Company CPAs stand with our community to keep everyone safe and end the spread of COVID-19. Stay safe, everyone – and thank you for the trust you have placed in us. We are confident by working together we will overcome this.

Sincerely,
Kristofer DePaolo, CEO