Provisions that affect individuals

Provisions that affect individuals –

Advance tax credit payments

The IRS is about to issue advance tax credits for 2020 of $1200 for single individuals and $2400 for married couples.  They are going to use either your 2019 income if you’ve filed a return or 2018’s income if you have not.  There are phase outs based on incomes over $75,000 single or $150,000 married filing jointly, so if your income is more than $99,000 single or $198,000 married filing joint, you’ll get zero.  There is a $500 per kiddo payment that is not subject to income limits.  If you had your 2018 refunded via direct deposit, that’s how you’ll get it, otherwise it’s by check and they’ll send you a notice.  If you end up getting more or less than you should have, you’ll get/pay the difference on your 2020 tax return.  Save the notice, do not send it in to us now – but we will need it.

 

Waiving IRA 10% penalties on retirement account distributions

Distributions from qualified retirement plans are taxable and can be subject to 10% penalties if you’re under 59.5 years old.  This 10% penalty is waived on distributions of up to $100,000 if you’re diagnosed with the coronavirus by a test (good luck with that), a spouse or dependent is diagnosed or experiences “adverse financial consequences” as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or “other factors as determined by the Secretary of the Treasury”.  You can elect to average these distributions into your income over 3 years.  You also do have a three year window after the first distribution to contribute it back to your account.  Tapping retirement accounts is a bad idea and you should avoid doing it if you can.  You’re going to be stuck with a tax bill next year if you do an have no withholding.

 

Required minimum distributions (RMD’s) are waived for 2020

RMD’s are payments the IRS forces you to take from retirement accounts based on some table that is based on a life expectancy.  You have to take them if you inherit an IRA or if you’re over 72.  These are waived for the year.  The retirement account balance on January 1st is divided by the (basically) number of years the IRS expects you’re going to live based on your age.  If you’ve received one already and don’t need it, see if you can undo it – it’s taxable.

 

Other stuff

There are some other things that are not as relevant right now about charitable contributions.  Something of interest is that employers can make educational assistance payments of up to $5,250 per year per employee.  Now, you can include student loan payments in that tax free.

 

Provisions that affect businesses-

Required paid sick leave 

This was in a prior act, but there is a payroll tax credit for either $511 per day or $200 per day up to two weeks if your employee is directly affected by the virus or is a caregiver to someone that is.  This is a credit against the employer’s social security portion of the taxes (not all your payroll withholdings such as federal withholding tax).  There is another credit for up to $200 per day for paid leave for employees that are affected with it or are forced to stay at home since kids are out of school.

 

…Payroll tax credit for required paid sick leave (the payroll sick leave credit). The Emergency Paid Sick Leave Act (EPSLA) division of the Act generally requires private employers with fewer than 500 employees to provide 80 hours of paid sick time to employees who are unable to work for virus-related reasons (with an administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy). The pay is up to $511 per day with a $5,110 overall limit for an employee directly affected by the virus and up to $200 per day with a $2,000 overall limit for an employee that is a caregiver.

 

…Income tax sick leave credit for the self-employed (self-employed sick leave credit). The Act provides a refundable income tax credit (including against the taxes on self-employment income and net investment income) for sick leave to a self-employed person by treating the self-employed person both as an employer and an employee for credit purposes. Thus, with some limits, the self-employed person is eligible for a sick leave credit to the extent that an employer would earn the payroll sick leave credit if the self-employed person were an employee.

 

…Payroll tax credit for required paid family leave (the payroll family leave credit).  The Emergency Family and Medical Leave Expansion Act (EFMLEA) division of the Act requires employers with fewer than 500 employees to provide both paid and unpaid leave (with an administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy). The leave generally is available when an employee must take off to care for the employee’s child under age 18 because of a COVID-19 emergency declared by a federal, state, or local authority that either (1) closes a school or childcare place or (2) makes a childcare provider unavailable. Generally, the first 10 days of leave can be unpaid and then paid leave is required, pegged to the employee’s pay rate and pay hours. However, the paid leave can’t exceed $200 per day and $10,000 in the aggregate per employee.

 

…Income tax family leave credit for the self-employed (self-employed family leave credit). The Act provides to the self-employed a refundable income tax credit (including against the taxes on self-employment income and net investment income) for family leave similar to the self-employed sick leave credit discussed above. Thus, a self-employed person is treated as both an employer and an employee for purposes of the credit and is eligible for the credit to the extent that an employer would earn the payroll family leave credit if the self-employed person were an employee.

 

…Exemption for employer’s portion of any Social Security (OASDI) payroll tax or railroad retirement tax arising from required payments. Wages paid as required sick leave payments because of EPSLA or as required family leave payments under EFMLEA aren’t considered wages for purposes of the employer’s 6.2% portion of the Social Security (OASDI) payroll tax or for purposes of the Railroad Retirement tax.

 

Employee retention credit for employers 

This provision provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis. The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis. The credit is not available to employers receiving Small Business Interruption Loans under Sec. 1102 of the Act. For employers who had an average number of full-time employees in 2019 of 100 or fewer, all employee wages (including health benefits) are eligible, regardless of whether the employee is furloughed. For employers who had a larger average number of full-time employees in 2019, only the wages of employees who are furloughed or face reduced hours as a result of their employers’ closure or reduced gross receipts are eligible for the credit.  This is capped at $10,000 per employee.  Wages do not include amounts taken into account for purposes of the payroll credits, for required paid sick leave or required paid family leave in the Families First Coronavirus Act.  This applies to wages paid after March 12^th.

 

Delay of payment of employer payroll taxes

This means you can choose to not pay in the employer (not employee) portion of the social security taxes (no mention of Medicare taxes) you withhold.  The deferral period is through January 1, 2021 and they are due December 31, 2021.  This is a bad idea because it’s going to be a headache to keep records on what you did/did not do and when.  If they ever figure out that you’re late on payments due to poor record keeping, you will get hit with big penalties.  This is complicated, if you think you’re going to do it, call me first.  I have no clue what PEO’s (payroll processors) are going to do about this, but I’ll bet they won’t be wild about it.

 

Modification of net operating loss (NOL) carrybacks

Before 2018, you used to be able to carry back NOL’s, but the tax law that went into effect in 2018 did away with this – they could only be carried forward.  This means that if you have a loss in 2020, you can carry back NOLs 5 years.  They don’t say specifically that you have to go back to the first eligible year and then carry unused amounts forward – that’s how it used to work.  I don’t know if they’ll let you pick and choose which year you want to carry it back to.  Hope for no losses.

 

Fixed qualified improvement property depreciation

This is a big deal.  When they wrote the tax law that went into effect in 2018, they had a technical error that made leasehold improvements to where you had to depreciate them over 39 years vs write them off.  Made no sense at all.  They fixed that and accountants have been grumbling about it for two years.  It may be that we can amend returns for this.

 

Loans (the big one)

I received this below from one of my banker contacts, they are really the key people in this part of things.  Some of you may have some work to do getting together documents such as operating agreements if you want to apply for a loan.  There does not appear to be anything to do in terms of this affecting tax returns, but we can help you prepare loan packages for submission.  It appears there is a portion of the loan that can be forgiven if used for payroll/health insurance/retirement benefits, interest, rent and utilities.  There is a reduction of the forgiveness based on employee terminations or reductions in salary in excess of 25%.

• Eligibility:

1. 1. 1. Business must have been in operation on 2/15/2020
      2. Business must be small (up to 500 employees, or if the SBA size standard for their primary NAICS code is higher, then they can use the larger limit – size standard table available herehttps://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf – use the NAICS code shown on the operating company’s tax return).

1. 1. 1. 1. 1. For most businesses, this test includes both the small business and affiliates, so they add the employees for the applicant business and all affiliates.
            2.  For those with a primary NAICS code starting with 72 (public accommodation – hotels, restaurants, public transportation), or franchises on the SBA franchise directory (https://www.sba.gov/document/support–sba-franchise-directoryclick red “Download .pdf” and search for the brand under which they operate if they are a franchise, dealership, or license agreement) they will be exempt from affiliation requirements, so we only need information on the business applicant for the # of employee test. They are also tested on number of employees per location and no single location can exceed 500 employees.

1. 1. 1. Business must have employees to whom it paid payroll and payroll tax expenses OR have independent contractor(s) that it paid from 1/1/2020 to 2/29/2020. What about sole proprietors, self-employed individuals, and others that take distributions or do not pay payroll expenses? We do not yet know, but they may not be able to obtain this financing because of how it is calculated?
      2. The applicant business cannot have an SBA Economic Injury Disaster Loan relating to the COVID-19 disaster.
      3. The business must be located in the US and must be owned by Legal Permanent Residents or US Citizens.
      4. If the business is a non-profit, it must be a 501(c)3 or 501(c)16 organization and must meet the size standard.
      5. Funds can only be used to pay payroll and related costs, interest payments on debt of record prior to 2/15/2020, rent, and utility costs.

 

Info to Gather for All Applicants:

• Gather business tax returns for the last 3 years, plus the extension document for 2019, if they have not filed the 2019 tax return yet
• Gather an income statement and balance sheet as of 2/29/2020 month-end
• Prepare a current debt schedule as of 2/29/2020 showing all debts listed on their 2/29/2020 balance sheet
• Obtain a current Certificate of Good Standing plus any Trade Name Certificates from their Secretary of State, and pull together their organization documents and all updates:

• • LLC: Articles of Organization with Meeting Minutes/other documents showing current ownership and management, plus Operating Agreement;
  • Corporation: Articles of Incorporation with Meeting Minutes/other documents showing current ownership and management, plus Bylaws;
  • Partnership: Partnership Agreement with list of General and/or Limited Partners;
  • Trust: Trust Agreement;
  • Franchise/Licensee/Dealership or Gas Station: Contract Documents and Franchise Addendum required for SBA

• Each Owner of 20% or more of the business:

• • Provide 3 years of personal tax returns including all schedules

• If Biz was open for business all of 2019:

• • Gather all 941 deposit information for 2019
  • Obtain a complete copy of all W-2’s for 2019 for all employees

• If Biz was not open for business for all of 2019:

• • Gather payroll information by employee for the period 1/1/2020 to 2/29/2020: How much was each employee paid during this period, and what was total payroll including payroll taxes, health insurance, and other payroll related costs.

• If Biz or Owner has an affiliate business (parent company, child company, or another business, including real estate holding company or other operating business that they own more than 20% of):

• • Provide 3 years of business tax returns including all schedules, plus the extension document for 2019, if not already filed
  • Prepare a debt schedule for those businesses
  • Collect documentation showing the number of employees (Full time and part-time) on 2/15/2020 for the primary business and each affiliate

 

Elbert Bivins IV, CPA

Investment Advisor Representative with Certified Planning Services, LLC

Investment advisory and financial planning services offered through Certified Planning Services, LLC, a registered investment advisor.

Bivins & Bunyak CPA’s PLLC

P:  303-578-0285×212

F:  866-214-5779