Kathryn Bruns, CPA
CARES Act and related relief Summary
Updated: Apr 3, 2020
Note that the details and practical application of all of the recent relief programs and provisions are changing daily; therefore, it is critical to take any issued guidance (including this summary) as "the guidance as of today", and with a grain of salt. The creators of all of these plans have good intentions in helping to mitigate the economic downturn; however, the implementation and funding of them is a whole other story. Patience, flexibility and some old fashioned hard work and wisdom will be key here for everyone involved. A lot of the guidance can be interpreted differently and this is simply my interpretation of the latest and greatest, provided in kind of a rush (taking a seminar during tax season?? I never would have thought I'd be doing that !). Believe it or not, this quite detailed summary is actually a HIGH-LEVEL SUMMARY ! With that in mind as you continue....
DISCLAIMER: THIS IS NOT TO BE CONSIDERED AS FORMAL ADVICE OR OPINION, AND I AM NOT A LOAN OFFICER, LAWYER, OR GOVERNMENT OFFICIAL. I AM A CPA WHO HAS BEEN KEEPING AS UP-TO-DATE WITH THE RELIEF PROVISIONS AS I CAN IN THE MIDST OF TAX SEASON AND PERSONAL CHALLENGES, SIMPLY TRYING TO HELP OTHERS IN MY PROFESSIONAL ROLE BY PROVIDING SOME CLARITY ABOUT THESE COMPLEX AND EVER-CHANGING PROVISIONS. ALL FINANCIAL DECISIONS YOU MAKE ARE YOUR ULTIMATE RESPONSIBILITY, AND ANY SPECIFIC ADVICE YOU DO SEEK SHOULD BE UNDER A FORMAL ENGAGEMENT AGREEMENT THAT CONSIDERS YOUR CUSTOMIZED NEEDS AND SITUATION.
Now that THAT'S out of the way....
REBATE PROGRAM UPDATE:
I recently posted about one of the provisions of the CARES Act, the rebate program. As an applicable refresher, the rebates will be based on 2018 or 2019 tax return AGI. The guidance had also stated that if there was no 2018 or 2019 return on file, a person's social security statement will be used if they were issued one. An update to this that I have just learned, is that it has been recognized that reliance on the social security statements will be challenging. Therefore, if you have not filed a 2018 or 2019 tax return for any reason, you may want to consider filing one or both ASAP. Don't forget to make sure you provide direct deposit details. The IRS has also stated that they will provide a central database for folks to enter their bank details. To date, this is not yet available.
Early on, the SBA's Economic Injury Disaster Loan (EIDL) was something that small businesses were looking to turn to for help. The SBA's response to the Coronavirus "disaster" was to offer loans for "working capital if economically injured". All states were considered to have such potential economically injured businesses, and I am pretty certain that none of us small businesses are or will be exempt from the negative impact of these challenging times.
The loans were listed to be at an interest rate of 3.75%, max 30 year terms. Loan funds were to be used for fixed debts, "payroll" (a now very complicated definition), accounts payable, and the like. These funds are supposed to aid businesses that are experiencing a temporary loss of revenue, and can go up to $2,000,000.
The latest on this, is that the SBA has streamlined it's application process, and offers applicants to check a box to request an immediate $10,000 advance. The initial application that includes this $10,000 advance, is now a quick and easy process. THE BEST NEWS? This advance was stated as...will be forgiven, regardless of whether or not you ultimately qualify for a loan. Sound too good to be true? We will see, but I'd say this is too good of an opportunity to pass up. The worst case scenario I envision is having some low interest on a loan, that interest ending when you pay it back (which could be quickly if you don't end up needing it). Better be safe than sorry and get some cash flow in line for the anticipated business downturn. What good are we in being able to serve others via our business if we don't continue to get through this financial difficulty with the available resources out there?
Above, I mentioned that the term "payroll" has become complicated for purposes of this and other loan opportunities. For businesses with employees other than themselves, you would think this is straightforward, but it is currently not. Does it include salary PLUS payroll taxes, or MINUS payroll taxes. WHICH payroll taxes? what about the employee withholdings? Fun stuff coming up. For businesses with no or "self" employees (the self employed and the independent contractors) what the heck IS "payroll"? The CPA community THINKS it will be the net profit of the business. Because hey, that is the amount that gets hit with self employment tax, which is essentially the employee and employer portion of payroll taxes. Got a headache yet? I know I do.
PAYROLL PROTECTION PROGRAM (PPP):
This program is designed to encourage employers (including the self-employed and independent contractors) to keep their employees (for the self-employed, themselves?) on the payroll, so they don't have to bombard the states' unemployment system more than it already has been. This program can apply even if you already let employees go (you have to get them back).
The PPP is available for businesses with less than 500 employees. The loan amount you may get is what will cover 2.5 times your monthly payroll (there's that tricky "payroll" term again), plus mortgage, rent , perhaps other essentials). There is a capped amount. The idea here is to receive funds that can keep your business going and employees employed for 2 months. To get this loan, you must "certify" the need, and the funds MUST be used to pay the above listed things in order to get all or a portion of this loan forgiven. PROOF WILL BE NECESSARY. Interest would still have to be paid on the loan. S-corps would have to keep loan basis issues in mind.
These loans will have good terms as well, including some deferrals of payments for 6-12 months, good interest rates, AND any loan forgiveness will NOT be subject to tax.
It is stated that businesses can apply beginning Friday April 3, (self-employed and contractors can apply starting Friday April 10). You should discuss this with your bank or lender, and CPA's can assist in the process if we are privy to certain information that is needed to do some of the necessary calculations. Even though it is tax season and I am still swamped trying to wrap things up, I will do my best to provide any critical business financial data that I possess. A word of caution....I'd be shocked if all parties that are necessary to implement this program will be prepared to meet the above stated application start dates. But don't give up !
SOME OTHER MISCELLANEOUS PROGRAMS/PROVISIONS/THINGS TO THINK ABOUT:
-North Carolina is pushing for law change on the now-required interest charges on the deferred tax payments from 4/15 to 7/15. The hope is that well before April 15, we get word that there will be no interest charged, same as tax and penalty treatment.
-IRS offices are mostly closed, although many workers are continuing remote service. THINGS WILL GO SLOWER, likely including getting your 2019 tax refunds.
-For all of you who don't normally work at home but now are...don't forget to think about a new home office deduction for 2020. Can or will your employer reimburse you for expenses??
-Family First Response Act: Provides employers with payroll credit incentives to provide employees increased sick pay benefits or FMLA benefits to employees who are sick or caring for someone who is sick (or caring for their child or cannot be in school/daycare). Somehow, this is available for self-employed individuals, but I'm currently scratching my head on this one, as to how this will work.
-Charitable contribution deduction up to $300 for those that don't itemize deductions on their tax return.
-Net operating loss (NOL) deduction use, has been made more favorable again, removing the relatively new restriction on no carrybacks and the limited deduction to 80% of income
-"Qualified Improvement Property" is now eligible for bonus depreciation. Kind of a sneaky back door fix to a "mistake" made prior, in writing the law in the way it was supposed to be written
-No 10% penalty on early retirement fund pulls. The pulls have to be paid back and you'll be subject to tax - USE THIS AS A LAST RESORT
-More favorable terms on 401k loans.
-RMDs suspended for 2020.
-Retention Credits: Like the PPP loans, the incentive here is for businesses to keep their employees on the payroll, even if business is closed. The business will get a 50% credit of wages paid, up to $10,000 for each employee.
- Employment Tax Deferral: I purposefully listed this last. This enables employers to defer sending in the employer payroll taxes (50% to be paid by end of 2021 and 50% to be paid by the end of 2022). I say that I listed this last because I DO NOT RECOMMEND DOING THIS. in fact, I will not support my payroll clients in doing this. Payroll taxes are trust taxes and are already risky business. This program just adds a whole other level of risk that no one in their right mind should be taking on. Not clients, and not payroll service providers.
Keep in mind that getting involved in one program may preclude you from getting involved in another, so make sure you choose wisely. For example, I hear that you cannot do the PPP (with loan forgiveness), the Retention Credits, and the Employment Tax Deferral programs at the same time. There may be other no-nos.
AND...once again, these rules are and will be CONSTANTLY CHANGING, so don't draw your conclusions and make your decisions based solely on this summary or other things you have read or heard. However, I do hope you found this blog informative and helpful. After my tax season is finished, I will be available to provide engagement service agreements to assist with these programs, terms and rates to be discussed and customized. CPAs want to help, but we have to be careful to maintain independence and not violate our insurance policy's rules and provisions, as well as honoring our CPA boards and protecting our licenses.
Please reach out if you would like to schedule an appointment. Whew ! I'm exhausted....now back to taxes.....