Tarlow Update: The Paycheck Protection Program (PPP) Flexibility Act Passed the House

The Paycheck Protection Program (PPP) Flexibility Act passed the House on Thursday, May 28, 2020. The PPP Flexibility Act extends the time businesses need to spend funds and alters the rule that they must contribute 75% of the funds on payroll for full forgiveness (that level would be reduced to 60%).

The House bill proposes extending the time in which businesses must use the funds from eight weeks to 24 weeks; amending the 75/25 rule for how much businesses must spend on payroll versus non-payroll costs to get full forgiveness of the loan to 60/40. The bill pushes back the deadline to rehire workers from June 30 to December 31; and extends the two-year term for the loans to five years, among other provisions.

The Senate has its own PPP extension bill that would propose increasing that time frame from eight to 16 weeks, extend the deadline to apply for the PPP, and allow businesses to use funds to purchase protective equipment for employees, among several other amendments.

The first recipients of loans that opened up on April 3 are nearing the end of their eight-week period. Many small businesses and lobbyists have argued the time frame and payroll limits have made it challenging for businesses that remain unable to fully open, (especially restaurants, bars, and salons), to use the funds.

The House’s legislation has been widely endorsed by various outside groups, including the U.S. Chamber of Commerce and the National Restaurant Association, among others. 

The House bill now heads to the Senate for a vote. The bill must be signed by the President to become law.

 

Tarlow is here to help!

Our Partners and staff members are closely monitoring tax-related legislation and regulations and will continue to update you by sending communications about relevant news and changing guidelines. If you have any questions, please contact your Tarlow advisor.

SBA and Department of Treasury Release PPP Loan Forgiveness Application

On Friday, May 15, 2020, the Small Business Administration (SBA), together with the Department of the Treasury, released the Paycheck Protection Program (PPP) Loan Forgiveness Application. The application, which was announced via a press release, includes detailed instructions to advise borrowers how to apply for forgiveness of their PPP loans, consistent with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The SBA will also soon issue regulations to further assist borrowers in completing their applications and provide lenders with guidance on their responsibilities.

The application and instructions include several updates related to the tracking and calculation of loan forgiveness. These changes, which reduce the compliance burden and simplify the process for borrowers, include:

  • Borrowers are given options on calculating payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles.
  • After receiving their PPP loan, borrowers have the flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week covered period.
  • To confirm eligibility for loan forgiveness, detailed ‘step-by-step’ instructions guide borrowers on how to perform the calculations required by the CARES Act.
  • Borrowers are given clear guidance on the implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30.
  • The addition of a new exemption from the loan forgiveness reduction. This applies to borrowers who made ‘good-faith,’ written offers to rehire workers that were declined.

As background, the PPP was created by the CARES Act to provide forgivable loans to eligible small businesses. The goal of the PPP was to keep American workers on the payroll during the coronavirus pandemic. The newly released Loan Forgiveness application and detailed instructions will assist small businesses apply for forgiveness at the conclusion of the eight-week covered period, which begins with the disbursement of their loans.

Tarlow is Here to Help – Please Contact Us with Questions

Tarlow Partners and staff members are closely monitoring tax-related legislation and regulations, and new guidance from the SBA and the Department of Treasury. We will continue to send updates and communications about relevant news and changing guidelines.

We are readily available to assist business owners in submitting Loan Forgiveness applications. If you have any questions about interpreting these new requirements and maximizing PPP loan forgiveness, please contact your Tarlow advisor for assistance.

Rebates Are Finally Flowing – Did You Get Yours; Was It Correct?

Article Highlights:

  • Economic Impact Payments
  • What Rebates Are Based Upon
  • Non-Filers
  • Get My Payment
  • Auto-Deposit and Addresses
  • Family Makeup & Income
  • IRS Q&A

The IRS has finally started making those much anticipated Economic Impact Payments, aka “Recovery Rebates.” However, not everyone who was expecting one has received theirs, and some may not be the amount expected.

The Treasury first looked for a filed 2019 return when they began making the payments. If a 2019 return was not filed in time to catch the payment dates, they used the family makeup and income from the 2018 return if one was filed. If neither was filed, then they paid rebates to recipients of Social Security, SSI disability, survivors, Railroad Retirement, and veterans’ benefits.

Someone who does not fit into one of those categories is generally deemed to be a non-filer and will not receive a rebate until they either file a return or use the Non-Filer Tool on the IRS website.

You can check on the status of your rebate using the “Get My Payment” feature on the same IRS webpage as the non-filer tool. That same page also provides the ability for some taxpayers to enter their direct deposit information. If the IRS doesn’t have your direct deposit information in their records, you can use “Get My Payment” to submit that information after properly verifying your identity and if the payment hasn’t already been scheduled for processing. To protect against potential fraud, “Get My Payment” won’t allow direct deposit bank information already on file with the IRS to be changed. However, direct deposit information can be updated for people whose direct deposit information on the last return filed was incorrect and resulted in a paper check being issued for their refund. Unfortunately, address changes cannot be made through “Get My Payment”.

It is important to note that births, deaths, under age 17 dependent children, marriages, separations, divorces, emancipations, and income changes can cause the rebate amounts to be different from what may have been expected, or in some cases, be incorrect. Also, the rebates are reduced (phased out) for higher-income taxpayers, so based on your reported adjusted gross income on your 2019 return (or 2018 if 2019 has not been filed yet), you may only qualify for a reduced rebate or no rebate at all.

The IRS provides an extensive Q&A related to rebate issues and situations that may answer any questions you may have about your rebate.

If you have any other questions, please contact your Tarlow advisor.

SBA Releases Final Rule on Loan Increases for Partnerships

On Wednesday, May 13, 2020, the Small Business Administration (SBA) released Interim Final Rule 9 (“IFR 9“), which provides important guidance for partnerships on loan increases.

As an update, partnerships that received a Paycheck Protection Program (PPP) loan and only included the partnership’s employees in the loan amount calculation are given the option of submitting a request to the SBA to increase the PPP loan amount to include partner compensation. The request would allow the lender to make an additional disbursement, although the previously issued Interim Final Rule on Disbursements (Interim Final Rule – Disbursements of PPP Proceeds) requires PPP loans to be disbursed in a single disbursement. Although an additional disbursement is allowed, the SBA clearly stated that maximum loan amounts still apply, including $10 million for an individual borrower or $20 million for a corporate group.

As background, on April 14, 2020, the SBA released an interim final rule (“IFR 2”) to provide guidance for individuals with self-employment income. The rule, “Guidance on SBA Loans for Self-Employed,” stated, “if you are a partner in a partnership, you may not submit a separate PPP loan application for yourself as a self-employed individual. Instead, the self-employment income of general active partners may be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by or on behalf of the partnership.”

On April 28, 2020, the Department of the Treasury posted an interim final rule (“IFR 4”) that provided an alternative criterion for calculating the maximum loan amount for PPP loans issued to seasonal employers.  It was expected that compensation to partners was not to be included in calculating the PPP loan amount.  With concerns of diminishing PPP funds, many partnerships filed their applications quickly, and without including partner compensation in their calculations.  The Interim Final Rule offers further options for ‘partnerships that received a PPP loan that did not include any compensation for its partners’ on their application.

Tarlow is Here to Help!

We are readily available to assist partnerships who applied for a PPP loan and did not include partner compensation as part of the loan amount calculation.

Please contact your Tarlow advisor for assistance and to discuss how to calculate partner income for the loan amount increase, or how to interpret and document spending requirements for PPP forgiveness.

Tarlow Update: SBA Announces Additional Guidance on the Paycheck Protection Program Certification Requirement

We would like to provide an update released today, May 13, 2020, by the Small Business Administration (SBA) regarding how the SBA will review borrowers’ required good-faith certification concerning the necessity of their loan request.

According to the SBA, “When submitting a Paycheck Protection Program (PPP) application, all borrowers must certify in good faith that ‘current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.’ SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.”

Borrowers with loans greater than $2 million that do not satisfy this safe harbor may have an adequate basis for making the required good-faith certification, based on their individual circumstances. The SBA previously stated that all PPP loans in excess of $2 million will be subject to review by SBA for compliance with the program requirements as set forth in the PPP Interim Final Rules and in the Borrower Application Form. If, during the course of the SBA’s review, it is determined that a borrower lacked an adequate basis for the required certification regarding the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness.  If, after receiving notification from SBA, the borrower repays the loan, SBA will not pursue administrative enforcement with respect to the certification regarding the necessity of the loan request. In addition, SBA’s determination concerning the certification will not affect SBA’s loan guarantee.

Tarlow is here to help!

Our Partners and staff members are closely monitoring tax-related legislation and regulations and will continue to update you by sending communications about relevant news and changing guidelines. If you have any questions, please contact your Tarlow advisor.

What’s in the Paycheck Protection Program and Health Care Enhancement Act?

President Trump has signed the Paycheck Protection Program and Health Care Enhancement Act (PPP & HCE Act), a $484 billion package that was passed by both the Senate and the House the week of April 20, 2020.

PPP & The CARES Act

Following the passage of the $2.2 trillion CARES Act stimulus package at the end of March, one of the most talked-about provisions was the Paycheck Protection Program (PPP). The CARES Act had earmarked $349 billion for PPP, which was designed to help small businesses cover their payroll, benefits, utilities, and rent and mortgage payments.

However, it came as no surprise that these loans, (forgivable if specific requirements were met), ran out extremely quickly, as small businesses flocked to banks to apply for relief.

The public demand for more funding allocated to the PPP was a significant factor in driving the creation of the latest bill.

What’s in the PPP & HCE Act?

  • $310 billion for the SBA’s Paycheck Protection Program
  • $60 billion for the SBA’s economic injury disaster loans and grants, including:
    ○ $50 billion for economic injury disaster loans – each loan can be up to $2 million with interest rates not to exceed 4% and long-term repayment periods of up to 30 years;

    ○ and $10 billion for grants of up to $10,000 that do not have to be repaid.

  • Additional funds are provided for the SBA to administer these programs.
  • $100 billion in emergency supplemental appropriations. $75 billion of which is designated for hospitals and healthcare providers, and $25 billion of which is assigned to ramp up COVID-19 testing.

It’s important to note that banking industry groups have said that the money set aside to “replenish the emergency loan program for small businesses impacted by the coronavirus pandemic is likely already all spoken for.” Due to the volume of applications already sent to the Small Business Administration, it’s likely that “much, if not all, of the new money, will go to those already in the queue.”

We will keep you updated as additional details on this bill come to light, as well as any upcoming legislation to be passed. Please stay tuned and contact your Tarlow advisor with any questions.

Employers Can Defer Payroll Taxes

Article Highlights:

  • Applicable Payroll Taxes
  • Deferral Period
  • Payback Times
  • Self-Employed Individuals
  • SBA Loan Forgiveness

One of the benefits included in the COVID-19 epidemic stimulus package is the ability for an employer to defer payment of the employer’s share of certain federal payroll taxes. The deferral applies to the employer’s 6.2% share of the Social Security (OASDI) payroll tax.

The deferral does not apply to the employer’s 1.45% share of the hospital tax. The deferral is optional, applies to employers of any size, and applies to wages paid between March 27, 2020, and December 31, 2020.

The deferred payments will be due 50% before December 31, 2021, and the balance before the end of 2022.

For self-employed individuals, the deferral applies to 50% of the self-employment tax liability (including any related estimated tax liability).

Employers who receive Small Business Administration (SBA) loans that are forgiven under the CARES Act are not eligible for this payroll tax deferral. However, after that eight-week period is complete, deferral may resume.

If you have questions related to deferring a portion of your payroll taxes, please contact your Tarlow advisor.

Unemployed by COVID-19? Special Benefits May Apply to You

Article Highlights:

  • Pandemic Unemployment Assistance
  • Benefit Extensions
  • Self-employed Coverage
  • Taxability
  • Withholding – Estimated Payments

The CARES Act includes Pandemic Unemployment Assistance (PUA) provisions that extend and supplement state-provided unemployment insurance. These provisions are intended to lessen the financial burdens on individuals who have lost their jobs because of the COVID-19 emergency by allowing states to extend unemployment benefits up to 13 weeks and waiving the standard one-week waiting period. The provisions also continue the benefits to individuals who are self-employed, seeking part-time employment, or otherwise ineligible for regular unemployment compensation.

To qualify for PUA benefits, you must not be eligible for regular (unrelated to the COVID-19 crisis) unemployment benefits. You should be unemployed, partially unemployed, or unable or unavailable to work because of specific health or economic consequences of the COVID-19 pandemic.

The PUA program provides up to 39 weeks of benefits, which are available retroactively starting with weeks of unemployment beginning on or after January 27, 2020, and ending on or before December 31, 2020. The number of benefits paid out will vary by state and are calculated based on the weekly benefit amounts (WBAs) provided under a state’s unemployment insurance laws. Under the CARES Act, the WBA may be supplemented by the additional $600 in unemployment assistance provided per week under the Cares Act.

The individual states administer the unemployment benefits, and benefits must be applied for through each state.

NOTE: At the time this article was prepared, many states were struggling to implement the provisions of the PUA program, making it difficult for individuals to access these benefits quickly.

It is also essential to understand that unemployment benefits are taxable income for federal tax purposes and also taxable by most states. However, there are exceptions, and these states do not tax unemployment benefits.

Alabama
Alaska*
California
Florida*
Montana
Nevada*
New Hampshire**
New Jersey
Pennsylvania
South Dakota*
Tennessee**
Texas*
Virginia
Washington*
Wyoming*

*These states do not have a state income tax.
** These states do not have a state income tax but do tax interest and dividend income.

It may be appropriate for certain individuals to have federal taxes withheld from their unemployment compensation by using Form W-4V. Wherever the unemployment is taxable by a state, the state’s estimated taxes can be paid. Not prepaying taxes on unemployment benefits can lead to unpleasant surprises for some individuals when they file their 2020 tax returns.

If you have questions related to how unemployment income will impact your 2020 taxes and whether you should have income tax withheld, please contact your Tarlow advisor.

Tax Credit Pays for Keeping Employees on Payroll

Article Highlights:

  • Refundable Employer Retention Credit
  • Employer Qualifications
  • Categories
  • Conflict with Paycheck Protection Loans
  • Credit Amount
  • Qualifying Wages
  • Payroll Reimbursement
  • Advance Credit Payment
  • Planning Considerations

To help businesses retain employees and keep them employed during the COVID-19 crisis, Congress has provided a refundable employer retention credit available to all qualifying employers regardless of size, including tax-exempt organizations. To qualify for the credit, employers must fall into one of two categories:

  1. Business Operations Curtailed: Eligible employers were carrying out a trade or business during 2020, and the operation of that business is wholly or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to the COVID-19 outbreak.
  2. Gross Receipts Declined 50%: Eligible employers have gross receipts that are less than 50% of their gross receipts for the same quarter in 2019; employers remain eligible until their gross receipts exceed 80% of their gross receipts for the same 2019 calendar quarter.

However, an employer who secures an SBA Paycheck Protection Loan created by the CARES Act is ineligible for the employer retention credit, as a Paycheck Protection Loan can be forgiven for wages paid during an 8-week period, thereby leading to double-dipping on CARES Act benefits if the business tried to use both benefits.

The employer retention credit is a refundable payroll tax credit for 50% of qualified wages up to a maximum wage of $10,000 per employee. Wages taken into account are those paid between March 13, 2020, through December 31, 2020, and include a portion of the cost of health care provided by the employer. No credit is available concerning an employee in any period for which the employer is allowed a Work Opportunity Credit for that employee.

Qualifying wages are based on the average number of a business’s employees in 2019.

  • Employers with 100 or fewer employees: If the employer had 100 or fewer employees on average in 2019, the credit is based on wages paid to all employees, regardless of whether they worked. If the employees worked full time and were paid for full-time work, the employer still receives the credit.
  • Employers with more than 100 employees: An employer that had more than 100 employees on average in 2019 is allowed a credit only for wages paid to employees who did not work during the calendar quarter.

Wages do not include amounts for payroll credits provided for required paid sick leave or required paid family leave for which the government is reimbursing the employer.

Employers can be reimbursed for the credit immediately by reducing their required deposits of payroll taxes withheld from employees’ wages by the amount of the credit.

Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns or Form 941, beginning with the second quarter of 2020. If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19. Employers must carefully consider which tax benefit or combination of tax benefits works best for their particular set of circumstances, particularly the choice between the retention credit and the SBA paycheck protection loans, since a business cannot qualify for both.

If you have any questions, please contact your Tarlow advisor.