Author Archives: Steven J Weil, PhD, EA, LCAM

Paid Medical Leave Eligibility For COVID-19

The Families First Coronavirus Response Act established the Emergency Paid Sick Leave Act (EPSLA) and the Emergency Family and Medical Leave Expansion Act (EFMLEA). Effective April 1, 2020, through Dec. 31, 2020, the EPSLA requires certain employers to provide paid sick leave to employees who are unable to work or telework under certain circumstances EFMLEA provides paid family leave to employees to take care of a son or daughter in the event of a school closure or their child care provider is unavailable due to COVID-19.

Need to know if you or your employee are eligible to take advantage of this paid leave? The Department of Labor (DOL) has launched an online tool to help workers determine if they are eligible for paid leave for Covid-19 under that act. To access the DOL tool click the link below.

https://www.dol.gov/agencies/whd/ffcra/benefits-eligibility-webtool

We’re Here When You Need Us

Steve & his crystal ballAs things start to get back to the new normal, many employees and business are wondering what is next. A quick look into our crystal ball shows that while it is hard to see what lays around the bend, it’s more important that ever to be prepared for the unexpected.

Many of our clients have had to learn to work from home, ignoring distractions and sharing internet connections along with work space with children that were dealing with distance learning for the first time. While governors told us what businesses and employees were “essential” and “non-essential”.

The truth is that every business and every employee is essential. Every business is essential to those who invested their hard-earned money, the people that work in the business, and the customers that support them. In this new world it is more important than ever to support the local businesses that invest in our community, employ our friends and neighbors, and provide the products and services we have come to rely on.

Many businesses are still suffering the effects of shut down, curfews, and forced reduced capacity. This is exasperated by increased expenses to assure the public that it is safe to return. These expenses include additional cleaning supplies and staff, protective gear, such as gloves and masks, and even erecting safety shields between customers and employees.
While these challenges are unique, this is not the first time the business owners we work with have faced challenges and I am certain it won’t be the last time. For many years we have helped businesses and individuals not just survive challenging times but grow and prosper in spite of them.
Through all these challenges we have been here for our clients and friends, to answer your questions, provide the latest information on government programs, and provide support.

(SBA) issued a new interim rules on PPP – June 16, 2020

The Small Business Administration (SBA) issued a new interim rule on June 16, providing clarity on changes regarding the PPP. Specifically, the new rule gives detail on the amount of payroll costs that can be forgiven on a tax-free basis now that the covered period has been extended to 24 weeks.

This interim final rule also clarifies how much of the borrowers PPP loan can be spent on owner compensation within the new 24 week period.

The new rule states that companies can spend up to $46,154 per individual on payroll costs over the extended 24-week covered period to qualify for loan forgiveness. Payroll costs include covered benefits for employees ONLY, not owners, and can include healthcare expenses and retirement contributions.

This latest interim final rule also clarifies how much of the borrowers PPP loan can be spent on owner compensation within the new 24 week period. According to the rule, the amount permitted to be spent on owner compensation by individuals with self-employment income who file a Schedule C or F is determined based on eight weeks of 2019 net profit up to $15,385, or two and a half months of 2019 net profit up to $20,833 for a 24-week covered period.

In clarifying this issue SBA and Treasury stated … “This approach is consistent with the structure of the CARES Act and its overarching focus on keeping workers paid, and will prevent windfalls that Congress did not intend,” further explaining that “Specifically, Congress determined that the maximum loan amount is generally based on 2.5 months of the borrower’s average total monthly payroll costs during the one-year period preceding the loan.”

For example, a borrower with only one other employee who received a loan for two and a half months of his payroll plus two and a half months of payroll for the employee, for a total loan amount of five months of payroll. The government stated that without the new rule, that owner could theoretically lay off that employee, use a safe harbor in the new law, treat the entire amount as payroll, and have it forgiven.

“This would not only result in a windfall for the owner, by providing the owner with five months of payroll instead of 2.5 months, but also defeat the purpose of the CARES Act of protecting the paycheck of the employee,” the government said. “For borrowers with no employees, this limitation will have no effect, because the maximum loan amount for such borrowers already includes only 2.5 months of their payroll.”

SMALL BUSINESS ADMINISTRATION  13 CFR Part 120 [Docket No. SBA-2020-0037]  06/16/20
Business Loan Program Temporary Changes; Paycheck Protection Program – Revisions to
the Third and Sixth Interim Final Rules  (Full Text)

SBA’s Inspector General Reports SBA Failed to Follow Guidelines on PPP Loans

Think the FAQs Released by the SBA and IRS give the definitive answer on how the PPP loans are to be made, used and forgiven? Think again. According the SBA’s Inspector General report the SBA has failed to follow guidelines on PPP loans included in the law.

In a report released May 8th the SBA’s Office of Inspector General (OIG), led by Inspector General Hannibal Ware, told Congressional leaders that the agency failed to follow several congressional mandates in implementing the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The report stated that borrowers “including rural, minority and women-owned businesses may not have received the loans as intended” even though Congress had specifically required the SBA to give clear guidance to lenders about under-served and rural markets. It also found that the rules issued by the SBA requiring borrowers to use 75% of the PPP funding on payroll costs in order to qualify to receive full forgiveness of their loan were not consistent with the law, as the Cares Act didn’t mandate any specific amount be dedicated for payroll expenses. According to the National Society of Accountants many members have heard from their clients that the 75% requirement created a hardship as their businesses were not yet in operation or only in limited operation and they really needed the loans to enable them to pay rent, utilities and other ongoing expenses that were due regardless of the fact that they operations were limited by government action.

As we draft this article, the SBA has yet to comment on the report’s findings, however, the report does include a statement on the original intent of the SBA regarding the 75/25 Rule; the agency said it did so “in light of the act’s overarching focus on keeping workers paid and employed.”

Click here to read the full SBA Inspector General’s Report https://www.sba.gov/sites/default/files/2020-05/SBA_OIG_Report_20-14_508.pdf

Do you have an SBA 7(a) or 504 loan?

The CARES Act gives debt relief to business with 7(a) and 504 SBA loans. The Small Business Administration will automatically pay the principal, interest, and fees on these loans for a period of six months.  This relief also applies to new 7(a), 504, and microloans issued prior to September 27, 2020. To get this relief you do not need to take action unless according to the SBA website you have preauthorized and recurring payments (auto debits or ach payment through your bank) as the SBA says these payments will not be automatically canceled and will be applied to your loan in lieu of the debt forgiveness offered under the CARES act. To get the debt relief you will need to cancel any preauthorized payment of debts. For additional information see the SBA’s website at https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/sba-debt-relief.

 

COVID-19 Paid Leave Tax Credits for Small and Midsize Businesses

Small and midsize businesses can swiftly recover the costs of providing Coronavirus-related paid leave for employees. This is done by using one or two new refundable payroll tax credits. The Paid Sick Leave credit and the Paid Family Leave credit are designed to immediately and fully reimburse eligible employers for the cost of providing COVID-19 related leave to their employees.

Here are some key things to know about these credits.

Coverage

  • Employers receive 100% reimbursement for required paid leave
  • Health insurance costs are also included in the credit
  • Employers do not owe their share of social security tax on the paid leave and get a credit for their share of Medicare tax on the paid leave
  • Self-employed individuals receive an equivalent credit

Fast funds

  • Reimbursement will be quick and easy
  • The credit provides a dollar-for-dollar tax offset against the employer’s payroll taxes
  • The IRS will send any refunds owed as quickly as possible.

To take immediate advantage of the paid leave credits, businesses should use funds they would otherwise pay to the IRS in payroll taxes. If those amounts are not enough to cover the cost of paid leave, employers can request an expedited advance from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.

For details about these credits and other relief, visit Coronavirus Tax Relief on www.IRS.gov or contact the tax professionals at RMS Accounting.

Tax-excluded Education Payments by an Employer Temporarily Include Student Loan Repayments

The CARES Act extends the traditional ability of employers to exclude payments on behalf of an employee for educational expenses of up to $5,250 per year to include the repayment of employee student loans. In both cases, payments are deductible to the employer while excluded from the gross income of the employees. Student loan payments may not exceed $5,250 per employee and made before January 1, 2021. When an employer makes a payment on a student loan on behalf of an employee that employee may not deduct any student loan interest paid in the year of the payment.

What can I Deduct Since I Have Been Forced To Work From Home?

One of the questions we are getting the most right now is regarding what those who have been forced by their business or company to work at home can deduct. The truth is if you are an employee working from home as the tax law currently stands, deductions for employee business expenses are no longer allowed.

Employees should speak to their employers about the possibility of being reimbursed for business related expenses; reimbursements would be deductible to the employer and not taxable to the receiving employee. Reimbursements can include things like internet service fees, office supplies, cell phone fees, and even business use of auto. Employers can also provide things like funds to purchase computers, printers and software and deduct them while excluding the payments under code section 139. Disaster Relief Payment also allows the payment of certain other expenses for employees due to a presidentially declared disaster, like COVID-19. These include reimbursement or payment of reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster, but only to the extent any expense compensated by such payment is not otherwise compensated for by insurance or otherwise.

Those that are self-employed may deduct all ordinary and necessary expenses related to the operation of their self-employed business and of those of working from home. If you are a shareholder and employee of a S or regular corporation, the corporation can use the reimbursement rules stated above to reimburse you and any other employees it designates necessary to the ongoing operations of its business and to deduct those reimbursement.

IRS Clarifies PPP (Paycheck Protection Program) Loan Tax Consequences

The IRS recently released Notice 2020-32 which explains that while amounts forgiven under PPP loans are not taxable to the recipients of the loan, the expenses used to qualify for said loan forgiveness are also not deductible.

The CARES Act provides for PPP loan forgiveness when the use of proceeds meets certain conditions. If the recipient of a covered loan uses the proceeds to pay (1) payroll costs, (2) certain employee benefits relating to healthcare, (3) interest on mortgage obligations, (4) rent, (5) utilities, and (6) interest on any other existing debt obligations, and meets all other qualifications then loan will be forgiven. The CARES Act also excludes this loan forgiveness for income. It makes no reference however to the deductibility of the expenses paid with the loan fund forgiven.

The IRS however, in Notice 2020-32 has determined that based on the existing tax code these expenses will NOT be tax deductible, as in effect they are not being paid with the funds of the taxpayer and are in effect being paid with loan forgiveness funds provided by the government.

The notice spells out the revenue sections and other information on which the IRS has based the notice. Since the CARES Act does not make specific reference to the deduction of these expenses, and there is no way to determine congressional intent or court decision to rely on, this would seem to be the best guidance on how these expenses will be handled for now.

For example: If ABC Company receives a PPP loan for $100,000 which is forgiven based on $80,000 in payroll expenses and $10,000 in rent and $10,000 in utilities during the 8 week qualifying period, and total expenses for these items for the tax year of $1,000,000 for payroll, $100,000 for rent and $120,000 for utilities, then the tax deductions for these items would be payroll ($1,000,000 – $80,000) = $920,000, rent ($100,000- $10,000) = $90,000 and utilities ($120,000-$10,000)=$110,000.

For a closer look at IRS Notice 2020-32 click here.

Not All Businesses Will Recover

TooJay’s Deli Files for Bankruptcy

South Florida-based TooJay’s deli files for Chapter 11 bankruptcy; is this just the first of what is going to be a tsunami of bankruptcy filings to come? Will your company or employer be added to the list? No one ever wants to declare bankruptcy but it happens.

If you are a business owner, how do you stop your company from being added to the list of those filing for bankruptcy? Now is the time to start thinking about how you can reduce your expenses and preserve your cash so that you can survive the upcoming hard times. Survival almost always means being quick to adapt and keeping your eyes on two important things: your CASH and your Accounts Receivable.

Cash is the fuel required to keep your doors open, pay your employees, rent, and operating expenses. While accounts receivable is nothing more than future cashflow that is at risk.

At risk means that it’s something someone else can destroy – if you don’t control it. Make your credit policy too tight and you will lose sales and growth, but make it too loose and you end up with sales that you never collect payment on. Uncollected sales mean not only do you lose the cash you can’t collect, you also lose the cash expended to make the sale and the cash expended to purchase the goods sold.

Customers that have been good payers for years could be running into trouble through no fault of their own. The important thing is to prevent their trouble from becoming your trouble.

What can you do? Review the list of customers you extend credit too. Reevaluate their ability to meet their commitments, watch the balances of credit accounts, and be sure to cut them off early, as soon as they become delinquent. Keep in touch with those that owe you money and remember getting something now beats getting nothing later. When possible offer alternative payment terms, like payment by credit card.

Preserve your cash. Review expenses to see what recurring expenses can be eliminated. Check your credit card bills for services that automatically bill each month and are no longer used. Reduce the number of telephone lines, and eliminate services you don’t need like cable TV, window cleaners and other services that lower sales mean you can do in house.

Make a plan to protect your assets so that should things go down hill you are not left with nothing to show for many years of hard work. Talk to your accountant and your attorney about how to best protect your personal assets, and remember a business is not a ship, and in business the Capitan does not have to go down with the business. Be sure to save a spot on the lifeboat so if necessary you have the resources to start over.

IRS Employee Recall Begins

IRS recalls employee. Effective April 27th 2020 the IRS began recalling certain employees in mission-critical functions. We are hopeful this means that the IRS will again begin processing Powers of Attorney and other documents submitted as well as responding to transcript requests.

The IRS Human Capital Officer is instructing employees returning to work that, face coverings to be required in IRS facilities and workspaces.

Click here for a full copy of the memo from the IRS Human Capital Officer.