COVID-19 Update

January 17, 2021 Post:

Tax Bulletin – PPP Loan 2

As part of the Economic Aid Act [1] passed on December 27, certain qualifying small businesses may be eligible for another round of Payroll Protection Loans available generally under the same terms and conditions as the first round.  PPP 2 is available regardless of whether you applied for PPP I.

Here’s a brief summary of the eligibility requirements and key provisions you should know:

  1. Applications available beginning January 15 for small lenders (< $1.0 billion in assets) and January 19 for larger banks.  Application period closes on March 31, 2021
  • Availability varies among lenders so best to check with your lending institution.
  1. Eligibility (all must apply)
    • 300 or fewer average employees (lowered from 500 EEs for PPP I loans)
    • Experienced at least 25% decline in gross receipts in any 2020 quarter compared to same quarter in 2019
      • Gross receipts defined as based on accounting method used for tax return and includes all sources of revenue excluding capital gains,  PPP loans, and other Cares Act loans or grants
  2. Calculation
    • Similar to PPP I, eligible borrowers may receive a loan equal to 2.5x (times) the average monthly payroll costs. Measurement period could be (average payroll):
      • 12 month period prior to application date of PPP 2
      • Calendar 2019
      • Calendar 2020
    • Borrowers in the especially hard hit accommodation and food service sector (NAICS code 72) will be allowed 3.5x average monthly payroll
  1. Application Requirements
  • Generally the same documentation required as for PPP I
  • However, no additional documentation required for PPP II if applicant:
  • Used 2019 payroll figures as a basis for PPP I draws and will use the same figures for round  2
  • Uses the same lender for both PPP loans
  • Applicant must submit documentation to substantiate 25% revenue reduction in 2020 quarter vs 2019. Documention could include relevant income tax forms, quarterly financial statements or bank statements
    • For loans of $150,000 or less, no documentation of revenue reduction needed on the front end. However, this support will be needed for the subsequent forgiveness application.
  1. Loan Forgiveness
  • Payroll costs over 8-24 week period

  • Expanded to certain operation expenditures

  • Property damage costs

  • Supplier costs

  • Worker protection gear

  • Employee benefits such as group life, disability, vision or dental insurance

Borrowers will continue to be required to spend at least 60% of loan proceeds on payroll costs.  As with PPP I, payroll costs alone should suffice for most borrowers to achieve loan forgiveness.  As with PPP I, forgiven loans will not be taxable.

We expect most of you will be receiving information from your lender.  More detail of the program can be found at:  SBA and Treasury Announce PPP Re-Opening; Issue New Guidance

For additional questions, feel free to contact anyone on your team here at Houlihan LLP

[1] Short for “Economic Aid to Hard-Hit Businesses, Nonprofits and Venues Act’ as part of the Consolidated Appropriations Act, 2021.  Congress must get paid by the word……

January 17, 2021 Post:

Tax Bulletin – Employee Retention Credit

We first reported on the Employee Retention Credit (ERC) when it was introduced last April as part of the Coronavirus Aid, Relief and Economic Security Act (the Cares Act). The purpose of the credit was to encourage small businesses to retain employees while they were shut down or severely impacted by the early weeks of COVID-19. The credit is based upon a percentage of wages paid plus the costs of providing continuing health benefits to employees.    

The recently passed Consolidated Appropriations Act, 2021 (“CAA”) extended the credit through June 30, 2021 and also retroactively expanded eligibility to include employers who also received PPP loans.

With its newfound relevance, here’s a summary of what you should know to determine whether you qualify for the retention credit. We’ve also included a link below with greater detail. Since the CAA both extended and modified the credit, this discussion will distinguish between the 2020 and 2021 credit.

2020 Employee Retention Credit

  • Applicable to those employers whose operations were fully or partially suspended due to COVID-19 related government order, or
  • Gross receipts of the business are less than 50% of the receipts generated in the same calendar quarter 2019
  • The credit is calculated at 50% of wages paid in the quarter plus 50% of the employee healthcare benefits paid to the employee..

   Limited to $5,000 credit per employee (up to $10,000 of qualifying wages & benefits)

  • If the employer had 100 employees or less, all wage payments to employees, both laid off and retained, apply toward the credit calculation.

Employers with >100 employees could only use wages and benefits paid to laid off workers in the calculation.

  • The ERC is retroactively available in 2020 if the employer also received PPP funds. However, to the extent that wages were used to obtain PPP forgiveness or other existing employment tax credits, those wages are not also eligible for the ERC (no double dipping).

2021 Employee Retention Credit

  • Expires June 30, 2021
  • For companies with less than 500 employees, credit can be claimed on all wages paid, retained or laid off, regardless of company size (increased from 100 employees)
  • Credit based on 70% of eligible wages (up from 50%) on up to $10,000 wages paid in quarter plus continuing healthcare benefits.  Maximum credit $14k per employee.
  • For 2021, gross receipts only need to decline by 20% or more compared to similar period in 2019.

Claiming the Credit

The credit is claimed on that quarter’s Form 941 – Employer’s Quarterly Federal Tax Return. The credit is refundable, meaning refunds will be issued if the credit exceeds payroll taxes paid for that quarter. 

Since the recent legislation expanded the credit retroactively for 2020, any credit that should have been taken on a prior 941 form can be taken on the 4th quarter 941 return due January 31, 2021.  

Please note that the retention credit cannot be claimed on any wages used for any other credit, including PPP forgiveness.

Summary

This credit got lost last summer because it couldn’t be used by small employers who also received PPP loans.  Now that restriction has been removed, there are potentially significant dollars available for those employers who qualify. Note: If you don’t apply for the credits on the 4th quarter 941 form, you may have to amend one or more earlier 2020 941s to claim your refund.

For questions, please contact your payroll processor any of us here at Houlihan LLP.

Link:

https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-how-to-claim-the-employee-retention-credit-faqs

December 23, 2020 post:

In a rare bipartisan effort late Monday, Congress overwhelmingly passed the Consolidated Appropriations Act, 2021,  another COVID-19 Relief Bill.  The colossal year end package will provide another round of stimulus payments to individuals, enhance unemployment benefits and direct billions of dollars to small business and struggling industries.  

Current Status

This bill hasn’t yet been signed and President Trump has railed on several of what he considered wasteful provisions.  Despite the huff and puff, Congress passed the bill with veto proof majorities in both houses so expect the bill and these provisions to eventually become law.  

Summary of some major provisions:

  • Provides full tax deductibility of expenses paid by PPP funds, thus rendering the forgiven PPP funds tax free.
    • Prior to this Bill, the IRS had taken the position that unless Congress ratified through statute, the expenses paid by the PPP funds would not be deductible 
  • Another round of stimulus checks of $600/person subject to $75,000/$150,000 income limitations
  • Paycheck Protection Loans Part II – this version will be more targeted to the hardest hit industries.  Allocation will be needs based and demonstrated by revenue declines of at least 25%. There will be a lot of fine print so more to come on this provision….
  • The employee retention credit was expanded and PPP loan recipients are now eligible for the employee retention credit too
  • Business meals will become 100% deductible for 2021 & 2022 in an attempt to stimulate the restaurant industry
  • Extends federal pandemic unemployment insurance benefit of $300/week through March 14, 2021

Effect on 2020 Quarterly Tax Payments

The provision providing full deductibility was most surprising because of the sheer size of tax relief it provided. This clarification was introduced in a separate bill last May that had stalled out. Thus, all year we anticipated the PPP loan in our 2020  projections so as to avoid large tax underpayment penalties. Now business owners paying quarterly may be overpaid for the year. Of course, that’s a minor inconvenience at this point as recovery of those funds are just around the corner when we file returns.  

  • If you own a business and haven’t made your 4th quarter tax payment, please check in with us before doing so.   

Christmas came early this year. The bill is an unexpected gift to small business and may we humbly suggest you put the tax savings aside for another day.  The Biden administration has made it clear they intend to raise taxes on corporations and higher income individuals and so, depending on the results of the two Senate runoff races, taxes may be heading north. Georgia should definitely be on your mind…..

Look for more details to follow in the days ahead, particularly after the Bill becomes law.  For now, our small biz clients have all once again exhibited resilience and adaptability in the most trying of years and we appreciate the privilege of partnering with you.  Have the merriest of Christmas, the happiest of holidays and celebrate that better times await.   


Relief with Respect to Employment Tax Deadlines Applicable to Employers Affected by the Ongoing Coronavirus (COVID-19) Disease 2019 Pandemic- August 31, 2020

Last Friday, the IRS issued limited guidance on how to implement the payroll tax deferral that was signed by President Trump on August 8.  Notice 2020-65 allows employers to defer withholding on affected employees for payroll paid from September 1, 2020 to December 31, 2020.  The deferred taxes would then be later withheld and paid during the first four months of 2021.

Please note that this represents a deferral of employee FICA and Medicare taxes, not a tax cut.  And there is no deferral of the employer’s share of these same taxes.  Also, this deferral appears to be elective, not mandatory, although it’s unclear who actually makes the election.  Since the deferral applies to the employee’s portion of payroll taxes, it would seem that it’s the employee’s election to make. 

This has the potential of getting messy if employees choose to forego withholding during some pay periods and not others.  Thus, it seems reasonable for employers to require employees to opt in or out for the entire four month period.  Separately, while the deferral will boost after tax cash flow in the short term, the later withholding and payment of the deferred taxes - combined with regular withholding - may create an unwelcome & untimely pay cut in early 2021.  For this reason, we’re not a fan of the program.

Your payroll processor may provide you with additional guidance but feel free to contact any one of us with questions.


President Trump signs Memorandum on Deferring Payroll Tax Obligations August 11, 2020

President Trump issued an executive order to defer the withholding, deposit and payment of certain payroll taxes paid Sept 1 through December 31, 2020.  The order was one of four issued that day, the others include extending  unemployment compensation, landlord evictions and student loan relief.

The Treasury has been directed to issue guidance on implementing the payroll tax holiday but here’s what we know right now:

  • The deferral applies to the employee portion of FICA taxes, or 6.2% of wages.  Further, the deferral only applies to those employees whose pretax wages are less than $4,000 per bi-weekly pay period
  • Employers will still be required to deposit their portion of the 6.2% FICA tax
  • The deferred taxes will not be subject to penalties or interest

Although Trump indicated that he’d planned to forgive the deferred taxes if re-elected, only Congress has the authority to cut taxes. So at this point, employees should expect to pay back the deferred taxes at some point in 2021 or later.  Employers and employees thus face the decision as to whether to increase the employee’s paycheck or escrow the deferred taxes for now and pay them to employees if subsequent legislation forgives the taxes.

We will pass along further guidance from Treasury as it becomes available, expected to be prior to the September 1 implementation date. 


Paid Leave under the Families First Coronavirus Response Act     Post March 24, 2020

The Families First Coronavirus Response Act (FFCRA) signed by President Trump on March 18, 2020, expanded the requirements under the FMLA and requires certain employers to provide sick pay to employees affected by COVID-19.   The provisions of this Act apply to certain public employers and private employers with fewer than 500 employees.

How FFCRA applies to your small business

According to the Department of Labor - Under the FFCRA, an employee qualifies for "sick pay" and/or expanded "family and medical leave" if the employee is unable to work (or unable to telework) due to a need for leave because either the employee:

  1. is subject to a Federal, State, or local quarantine or isolation order related to COVID-19 (paid at 100% and capped at $511 per day and $5,110 in the aggregate). ;
  2. has been advised by a health care provider to self-quarantine related to COVID-19 (paid at 100% and capped at $511 per day and $5,110 in the aggregate.);
  3. is experiencing COVID-19 symptoms and is seeking a medical diagnosis  (paid at 100% and capped at $511 per day and $5,110 in the aggregate).;
  4. is caring for an individual subject to an order described in (1) or self-quarantine as described in (2)  (paid at 2/3 the employee’s rate and capped at $200 per day and $2,000 in the aggregate).;
  5. is caring for a child whose school or place of care is closed (or child care provider is unavailable) for reasons related to COVID-19  (paid at 2/3 the employee’s rate and capped at $200 per day and $2,000 in the aggregate.); or
  6. is experiencing any other substantially-similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.

If your employer closes after the FFCRA’s effective date (even if you requested leave prior to the closure), an EE will not get paid sick leave or expanded family and medical leave even if business closes due to Fed,state, or local directive.

Tax Credit to Employers for sick payFor more information, see the Department of Labor’s website .https://www.dol.gov/agencies/whd/flsa/pandemic

For an employee who is unable to work because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis, eligible employers may receive a refundable sick leave credit for sick leave at the employee's regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days.

For an employee who is caring for someone with Coronavirus, or is caring for a child because the child's school or child care facility is closed, or the child care provider is unavailable due to the Coronavirus, eligible employers may claim a credit for two-thirds of the employee's regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period  .Covered Employers (those who are required to provide sick pay & extended leave pay under this act) are entitled to a dollar-for-dollar reimbursement of this sick pay through payroll tax credits.  Businesses will be able to take immediate advantage of the paid leave credits by retaining (not remitting) the payroll tax taxes taxes they would ordinarily pay to the IRS.  Employers would then submit a claim form requesting any amounts of sick pay in excess of the payroll tax credit.  This refund claim form is expected to be released soon.

Tax Credit to Employers for Child Care Leave

In addition to the sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the Coronavirus, eligible employers may receive a refundable child care leave credit. This credit is equal to two-thirds of the employee's regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

We understand these are trying times and that situations are changing daily.  Please feel free to contact us for guidance on how the FFCRA affects you or check out the IRS link  https://www.irs.gov/newsroom/treasury-irs-and-labor-announce-plan-to-implement-coronavirus-related-paid-leave-for-workers-and-tax-credits-for-small-and-midsize-businesses-to-swiftly-recover-the-cost-of-providing-coronavirus .

 IRS FILINGS and PAYMENTS Delayed       Post March 24, 2020

IRS Provides 90-day Filing Extension:  The IRS has announced that the due date for filing federal income tax returns has been automatically extended from 4/15/20 to 7/15/20. Taxpayers also can defer federal income tax payments due on 4/15/20 to 7/15/20 without penalties and interest regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations, and other noncorporate tax filers, as well as those who pay self-employment tax. Taxpayers do not need to file additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individuals who need additional time to file beyond the 7/15/20 deadline can request an extension by filing Form 4868. Businesses that need additional time must file Form 7004 . Release IR 2020-58.

IRS Provides 90-day Payment Extension:  The IRS has announced that the due date for making federal income tax payments has been postponed from 4/15/20 to 7/15/20. For consolidated groups and stand-alone C corporations, up to $10 million of tax payments can be deferred. For all other taxpayers, up to $1 million can be deferred, regardless of filing status. The relief only applies to federal income tax payments (including self-employment tax payments) due on 4/15/20 for the 2019 tax year, and federal estimated income tax payments due on 4/15/20 for the 2020 tax year. Payments made within the 90-day deferral period will automatically be exempt from interest and penalties. The IRS has not provided an extension for the payment or deposit of any other type of federal tax, or for the filing of any tax return or information return. Notice 2020-17 .

Houlihan, LLP Office status            Post: March 24, 2020

At Houlihan, LLP the health and safety of our office staff and clients are our top priority. With the COVID-19 virus having an increasing impact in our community, we want to let you know how our business is addressing this situation.

The Executive Order signed by Governor Holcomb requires all employees of non-essential businesses to stay at home effective Wednesday March 25, 2020.  Some of your questions may be addressed in the body of the Order.

CPA firms were put on the essential businesses list due to the services they provide, including tax, payroll & business advisory services.  Thus, we will continue to operate through this shutdown, although perhaps not at full strength. Like each of you, our employees are confronting challenges due to the virus and will make their own decisions on work schedule through the duration of this shutdown.  Regardless, I expect our capability to be more than sufficient to handle the most pressing issues that arise in the short term.  

In the spirit of the Governor’s directive, and for all of our safety, we will also cancel all face to face appointments and try to limit interaction with the public.  We will email tax returns and documents for you to review so we can keep the tax preparation process moving.  If you need to drop off or pick up information from our office, please call or email one or more of us and we will make arrangements in our lobby or parking lot to exchange documents.  I know this is a hassle but it’s  minor relative to what most of us are already experiencing.  

We understand very well the hardship these shutdowns are having on businesses and employees.  Thus, we are at least thankful that we remain available to answer questions, advise, share information – anything that helps to alleviate some of the financial stress we are all experiencing.  We will continue to share pertinent information as it’s available and, for now, just let us know through email or call how we can help you in any way.  

During this difficult time, we are committed to serving our clients and staff with care and consideration. We will continue to monitor the situation and take precautionary measures to promote the health and safety of our staff and clients.

Thank you for being a valued client and for your continued trust as we manage through this time together. If you have any questions or need further assistance, please call us at (260)423-3396 or email us .

© Houlihan, LLP 2021, 421 E Cook Rd Ste. 300, Fort Wayne, IN 46825
T: (260)423-3396 F: (260)423-3397 E: info@houlihan.biz

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