The SBA Releases New PPP Forgiveness Guidance: Interim Final Rule, “Treatment of Owners and Forgiveness of Certain Nonpayroll Costs”

On Monday, August 24, 2020, the U.S. Small Business Administration (SBA) and the Treasury Department released an interim final rule (IFR) entitled, “Treatment of Owners and Forgiveness of Certain Nonpayroll Costs.” This IFR addresses important guidance related to Paycheck Protection Program (PPP) loan expenses eligible for forgiveness, owner-employee compensation, the eligibility of nonpayroll costs, including related party rents, and rent-related costs.

Notably, the newly released IFR includes the following three clarifications regarding previous guidance impacting PPP loan borrowers:

  • Certain individuals are exempt from owner-employee compensation limits;
  • Having tenants or sub-tenants can impact the eligibility of certain non-payroll costs; and
  • Limitations on related party rent when applying for loan forgiveness.

In addition, the guidance includes several decisions that are designed to maintain equitable treatment between a business owner that holds property in a separate entity and one that holds the property in the same entity as its business operations. To follow are additional details regarding this new PPP forgiveness guidance:

Owners

This newly-released IFR states that owner-employees with less than a 5% stake in a C- or S- corporation are exempt from the PPP owner-employee compensation rule in terms of determining the amount of their compensation for loan forgiveness. According to the IFR, the exemption’s intention is to cover owner-employees who do not have the ability to influence decisions over how loan proceeds are allocated.

  • In the first decision, the SBA and Treasury state that the amount of loan forgiveness requested for nonpayroll costs may not include any amount attributable to the business operation of a tenant or subtenant of the PPP borrower.
  • In the second decision, regarding certain nonpayroll costs, SBA and Treasury state that rent or lease payments to a related party are eligible for loan forgiveness provided that:
    • the amount of loan forgiveness requested for those payments is no more than the amount of mortgage interest owed on the property during the covered period that is attributable to the space being rented by the business; and
    • the lease and the mortgage were entered into prior to Feb. 15, 2020.

However, mortgage interest payments to a related party are not eligible for forgiveness. Per the ruling, PPP loans are intended to assist businesses cover nonpayroll costs owed to third parties, not payments to a business’s owner that occur because of how the business is structured.

Additional Clarification Is Needed

This IFR clarifies who qualifies as an owner; however, it is unclear if ownership attribution of close family members applies in defining who is an owner-employee. In addition, clarity is required related to the eligibility of health benefits of S-Corp owners with between 2% and 5% ownership.

Related Party Rents

Whether or not limitations apply to related party rents has been a significant question for many PPP borrowers. This new IFR provides guidance by limiting the amount of loan forgiveness requested for rent or lease payments to a related party to “no more than the amount of mortgage interest owed on the property during the Covered Period” to the space being rented by the business, assuming both the lease and the mortgage were entered into prior to February 15, 2020. For this purpose, “any ownership in common” between the business and the rented property creates a related party lease.

Treating the lease payments as payments of mortgage interest eliminates the eligibility of prepaid related party rents since prepaid mortgage interest is not eligible for forgiveness. This is an important consideration for some business owners.

Certain Other Nonpayroll Costs

This IFR limits the amount of rent, interest, and utility costs that are eligible for forgiveness where some or all of the property on which the rent, interest, or utilities are being paid is leased or sub-leased to others.

When a borrower operates out of an owned building on which it has a mortgage, the eligible mortgage interest is limited to the percent share of the fair market value of the space that is not leased out to other businesses. Utilities must be prorated in the same manner.

For home-based businesses, nonpayroll costs are limited to the prorated share of covered expenses that were deductible on the borrower’s 2019 tax return. For new businesses, the amount expected is to be deductible on the borrower’s 2020 tax return.

 

Tarlow is Here to Help – Please Contact Us with Questions

Tarlow Partners and staff members are closely monitoring the PPP rules, tax-related legislation and regulations, and guidance from the SBA and the Department of Treasury. We are readily available to assist business owners and will continue to send updates about relevant news and changing guidelines. If you have any questions about this update or any tax matter, please contact your Tarlow advisor for assistance.

Pre-Election and Year-End Planning Strategies for Individuals and Corporations to Address Now

Since the Presidential Election is only ten weeks away, we would like to share pre-election and year-end planning strategies that individuals and corporations can address now.

To begin, the following tax changes are included in Joe Biden’s published proposals:

  • Increase the top income tax bracket from 37% to 39.6%.
  • Tax capital gains at ordinary income rates, for $1 million earners and above, and perhaps for all taxpayers. Dividends may get the same treatment.
  • Eliminate the step-up that exempts unrealized capital gains at death. It is uncertain whether the heirs would owe tax immediately or instead be burdened with the original cost basis when they eventually sell.
  • Eliminate the 20% deduction for pass-through business income.
  • Cut the standard deduction in half.
  • Cut the estate/gift tax exemption to $5.6 million or possibly down to $3.5 million.
  • Impose the 12.4% Social Security tax (combined employer and employee amount) on salaries above $400,000.
  • Limit the value of itemized deductions to 28%.
  • Restore an income tax surcharge that goes by the name Pease. If the 28% rule is implemented, you will be charged the surcharge of 0.8%.
  • Eliminate the $10,000 ceiling on the deduction for state and local tax. However, the Alternative Minimum Tax (AMT) would limit the benefit they get from this deduction.
  • Restore the electric vehicle credit for brands that have exhausted their allotment.
  • Increase the corporate tax rate from 21% to 28% and make it harder for multinationals to avoid the tax by sheltering profits offshore.
  • A minimum tax of 15% on companies with $100 million or more in annual net income that pay little or no federal tax.
  • Double the tax rate on Global Intangible Low-Tax Income (GILTI) earned by foreign subsidiaries of U.S. Companies. The tax would increase from 10.5% to 21%.
  • Provide Section 8 housing vouchers so eligible families will not have to spend more than 30% of their income on rent.
  • The existing child and dependent care tax credit allowable expense would increase to $8,000 for individuals and $16,000 for multiple dependents.

In addition to tax increases, Biden proposes a variety of tax incentives that are meant to encourage specific kinds of activities:

  • A restoration of the electric vehicle tax credit
  • Tax credits for residential energy efficiency
  • Making permanent the New Markets Tax Credit
  • Establishing a Manufacturing Communities Tax Credit
  • A renter’s credit to reduce rent and utilities to 30% of income
  • An expanded Earned Income Tax Credit (EITC) for those older than 65
  • A $5,000 tax credit for informal caregivers
  • Expanding the Low-Income Housing Tax Credit (LIHTC)
  • A reinstated Solar Investment Tax Credit (SITC)
  • A tax credit for childcare facilities built by businesses
  • Providing a 26% tax credit to match traditional retirement contributions as a replacement to deductibility of those contributions (Roth treatment remains unchanged)
  • Establishing a First Home Down Payment Tax Credit of up to $15,000

To follow are strategies to consider if the Democrats win the election:

  • Time gains and losses
    Sell appreciated stocks. If you do, postpone capital losses until January so you can use them against gains occurring in higher-tax years.
  • Accelerate bonuses and postpone deductions
    If you expect to use the standard deduction this year but go back to itemizing in 2021, it is recommended to defer donations and your year-end property tax until January. One exception: Donate $300 this year, since the pandemic bailout allows nonitemizers to write-off that amount in 2020.An accelerated bonus and capital gain would boost your 2020 state income tax, which you would cover with an increase in your January 15 estimated state payment. You would deduct that estimated state payment on your 2021 federal return.
  • Tax shelters
    Suspended passive losses are included in your 1040 on complete liquidation of your investment. You probably want that event to take place next year when losses will be more advantageous.
  • Consider exercising options
    The AMT relating to stock options will be reinstated. It is recommended that you exercise options in December and hold onto the shares for at least a year.For non-qualified options, if your salary is over $400,000, it would make sense to exercise in December. It is better to have earned income taxed this year rather than 2021 when it will be subject to the Biden payroll tax.
  • Roth conversion
    The prospect of higher tax brackets in later years will probably increase the optimum sum for Roth conversion in December 2020.
  • Review your will
    Your estate plan may be obsolete if Biden is elected. If you are leaving some money to relatives and some to charity, your will should already have flexibility built-in. It should permit your heirs or executor to reallocated assets with the worst tax liabilities to charities.Under either Trump or Biden, the taxable heirs would first take Roth IRAs, next, unappreciated assets, then appreciated assets, and then as a last choice taxable IRAs. Under Biden, the third category is worth less and perhaps you need to adjust the dollar amounts of bequests.
  • Review trusts
    You might want to sell appreciated stock in December and immediately buy it back. You would trigger a taxable event in 2020, but you or your heirs will inevitably owe tax on the gain at some point. It is better to be taxed at the current rates rather than at the Biden tax rates. Also, the income tax payment decreases your estate by $250,000, and thus reduces estate tax.

Tarlow is Here to Help – Please Contact Us for Assistance

Tarlow Partners and staff members are readily available to assist with year-end tax strategies, planning, and preparation.  If you have any questions about your situation and if you would like to schedule a call or virtual meeting, please contact your Tarlow advisor for assistance.

Wealthy Taxpayers May Want to Strategize for Potential Tax Increases

Article Highlights:

  • Skyrocketing Government Spending
  • Federal and State Deficits
  • Tax Increases in Our Future
  • Tax Strategies

The outcome of the November elections could have a significant impact on taxes for the wealthy. The COVID-19 pandemic has wreaked havoc on the economy, as the government’s tax revenues have declined while government spending has soared. Although the President has not revealed his tax policies for the future, Joe Biden, his opponent in November, has, and that is why the wealthy are strategizing for potential increases.

Regardless of who wins the November election, with rising deficits at the state and federal levels, government spending skyrocketing, and revenue dropping due to the COVID-19 pandemic, there is a high chance taxes will increase in the coming years. The likely focus to generate this additional tax revenue is through taxing the wealthy.

Biden has already said that the wealthy will be targeted and has proposed the following changes:

  • Return the statutory tax rates to what they were before the 2017 tax reform enacted in the Tax Cuts and Jobs Act (TCJA), which means for higher-income taxpayers, the top tax rate will increase from 37 to 39.6 percent.
  • Tax long-term capital gains and qualified dividends as ordinary income for taxpayers making over $1 million.
  • End the step-up in basis for inherited assets, which will result in increased taxes on beneficiaries when those assets are sold.
  • Phase-out the Sec 199A pass-through deduction for households with taxable income in excess of $400,000.
  • Reinstate an overall limit (often referred to as the Pease limit) on itemized deductions. When itemized deductions are subject to the Pease limit, the itemized deductions begin to phase out when a taxpayer’s adjusted gross income (AGI) exceeds a threshold amount. In 2017, the last year the Pease limit was in effect, the phase-out threshold was $261,500 for single filers and $313,800 for married taxpayers filing jointly.
  • Limit the tax benefit of itemized deductions to 28%.
  • Resume the 12.4% Social Security payroll tax once earnings reach $400,000. Currently, for 2020, this tax only applies to the first $137,700 of compensation. Employees pay half, and their employers pay half; self-employed individuals also pay into this program. The amount subject to this tax is inflation-adjusted each year. If Biden’s plan were currently in effect, this payroll tax would apply for the first $137,700 of earnings and resume when a worker’s earnings reach $400,000, creating a gap between $137,700 and $400,000 in which this tax wouldn’t apply.

Some strategies higher-income taxpayers are contemplating in preparation for tax increases include:

  1. Sell appreciated stocks that have been held for over one year to take advantage of the lower capital gains rates in 2020 as a hedge against not qualifying for the capital gains rates in the future. If a taxpayer wants to maintain a position in the stock, it can always be repurchased immediately, since wash sale rules only apply to losses, not gains.
  2. If you are considering selling a rental property or other real estate that you’ve owned for over a year, it might be appropriate to close the sale in 2020, when the top capital gains tax rate is 20%, as a hedge against the gain being subject to the proposed ordinary income rates of 39.6%.
  3. Although not mentioned by either presidential candidate, estate tax will be a likely target. During the last election, the Democratic ticket proposed dropping the lifetime estate tax exclusion to $3 million. It is currently at $11.58 million ($23.16 million for couples). The wealthy should consider gifting money to family members and friends to utilize the current lifetime exemption and avoid the 40% estate tax. This could be the motivation to give gifts that were already planned for the future.
  4. If possible, wealthy owners of private businesses should look for ways to accelerate income into 2020 and shift expenses to 2021 to avoid potentially higher income tax rates in 2021.
  5. As a result of the COVID-19 pandemic, many taxpayers have found they can do their work at home, and that shift in lifestyle combined with potentially higher state taxes has many people considering relocating to a state with no income tax. Taxes in states such as CA, NY, and NJ are exceptionally high; CA, for example, is even considering reinstating a state estate tax.

Everyone’s tax and financial circumstances are unique. Please contact us if you would like to review your tax situation to determine if there are actions you can take in 2020 to avoid the potentially higher federal and state taxes that could begin in 2021.

Charity Volunteer Tax Breaks

Article Highlights:

  • Away-from-home travel
  • Lodging and meals
  • Entertaining for charity
  • Automobile travel
  • Uniforms
  • Substantiation requirements

If you volunteered your time for a charity or governmental entity during the COVID-19 pandemic, you probably qualify for some tax breaks. These rules apply to all charity volunteers, not just COVID-19 volunteers. Although no tax deduction is allowed for the value of services performed for a qualified charity or federal, state, or local governmental agency, some deductions are permitted for out-of-pocket costs incurred while performing the services. In this article, we address some examples:

  • Away-from-home travel expenses while performing services for a charity, including out-of-pocket round-trip travel costs, taxi fares, and other costs for transportation between the airport or station and hotel, plus 100% of lodging and meals. These expenses are only deductible if there is no significant element of personal pleasure associated with the travel or if your services for a charity do not involve lobbying activities.
  • The cost of entertaining others on behalf of a charity, such as taking a large potential contributor out for dinner. The costs of your own entertainment and meals are not deductible.
  • If you use your car or another vehicle while performing services for a charitable organization, you may deduct your actual unreimbursed expenses that are directly attributable to the services, such as gas and oil costs. Or, you may deduct a flat 14 cents per mile for the charitable use of your car. You may also deduct parking fees and tolls.
  • You can deduct the cost of the uniform you wear when doing volunteer work for the charity, as long as the outfit has no general utility. You can also deduct the cost of cleaning the uniform.

There are some misconceptions as to what constitutes a charitable deduction, and the following are frequently encountered issues:

  • No deduction is allowed for the depreciation of a capital asset as a charitable deduction. This includes vehicles and computers.Example: Kathy volunteers as a member of the sheriff’s mounted search and rescue team. As part of volunteering, Kathy is required to provide a horse. Kathy is not allowed to deduct the cost of purchasing her horse. She also cannot depreciate the value of her horse. She can, however, deduct uniforms, travel, and other out-of-pocket expenses associated with the volunteer work.

    However, a taxpayer may deduct the cost of maintaining a personally owned asset to the extent that its use is related to providing services for a charity. Thus, for example, a taxpayer is allowed to deduct the fuel, maintenance, and repair costs (but not depreciation or the fair rental value) of piloting his or her plane in connection with volunteer activities for the Civil Air Patrol. Similarly, a taxpayer—such as Kathy in our example, who participated in a mounted posse that is a civilian reserve unit of the county sheriff’s office—could deduct the cost of maintaining a horse (shoeing and stabling).

  • A taxpayer who buys an asset and uses it while performing volunteer services for a charity can’t deduct its cost if he or she retains ownership of it. That’s true even if the asset is used exclusively for charitable purposes. So, for example, this rule would knock out a deduction for COVID-19 personal protective equipment such as face coverings and gloves that an individual purchased and used while volunteering at a food bank if the volunteer retains these items after performing the volunteer work. But if that individual purchased and donated PPE to the county for use by medical personnel at a coronavirus testing site, the cost of the items would be allowed.

No charitable deduction is allowed for a contribution of $250 or more unless you substantiate the gift with a written acknowledgment from the charitable organization (including a government agency). To verify your donation:

  • Obtain written documentation from the charity about the nature of your volunteering activity and the need for related expenses to be paid. For example, if you travel out of town as a volunteer, request a letter from the charity explaining why you’re needed at the out-of-town location.
  • You should submit a statement of expenses to the charity if you are paying out of pocket for substantial amounts, preferably with a copy of the receipts. Then, arrange for the charity to acknowledge the value of the contribution in writing.
  • Maintain detailed records of your out-of-pocket expenses—receipts plus a written history of the time, place, amount, and charitable purpose of the expense.

There are also other special charitable provisions for the 2020 tax year, including:

  • Taxpayers that do not itemize their deductions can deduct up to $300 of cash contributions.
  • Cash contributions for those that do itemize their deductions are not limited to 60% of their adjusted gross income in 2020.
  • Employees (where their employer participates) can contribute the value of unused paid vacation and leave time to qualified charities and not have to include the leave payments in income.

For additional details related to expenses incurred as a charity volunteer or the special 2020 charitable provisions, please contact us.

How to Protect Yourself Against Coronavirus-Related Fraud

The Internal Revenue Service and other government agencies have noted a rise in scams and other fraudulent activities surrounding the COVID-19 crisis. There are individuals and groups, both in the United States and in countries across the world, who are attempting to take advantage of unwitting taxpayers and business owners. Let’s take a look at what you should look out for as you navigate the current environment.

Economic Impact Payments

While many Americans may have already received their economic impact payment (sometimes called stimulus checks), there are still some citizens awaiting their payments, and fraudsters are using a variety of methods to scam people out of their payment. If you receive a phone call, text, or email from an individual asking you to verify your personal information in order to receive your stimulus check, you’re most likely being scammed. Individuals eligible to receive an economic impact payment do not need to take any action in order to receive their payment.

Targeting Tax Refunds

Taxpayers have experienced numerous scams and illegal actions which target intercepting a tax refund owed to a taxpayer, or in some cases, fraudulently creating tax returns with a taxpayers’ personal information. These scams are numerous and come in a variety of forms.

One standard scheme involves filing a fraudulent tax return on behalf of an unsuspecting taxpayer. When the refund is deposited into the taxpayer’s bank account, the fraudster contacts the taxpayer impersonating an IRS representative. The fake IRS representative advises the taxpayer that the refund has been deposited in error and encourages them to purchase gift cards to restore the balance to the IRS. When the actual IRS representatives eventually discover the scam, the taxpayer is responsible for repaying the funds a second time.

Another frequent scam involves the scammer creating fraudulent tax returns using a taxpayer’s personal information. In this case, the fraudster uses their own deposit information as a way to intercept the refund.

If you are expecting a tax refund or receive a deposit from the IRS that you do not recognize, you should reach out directly to the IRS to confirm your status or to receive instructions on the next steps.

Fake Charities and Investment Opportunities

The IRS has advised that people are setting up charities purported to be for the benefit of those impacted by the COVID-19 virus.

Also, some individuals are maintaining that they represent companies who are working on a vaccine to combat the virus. They offer to allow you to invest in their companies and receive a significant return on your investment once the vaccine is ready.

What Should You Do?

If you think that you may have been the victim of a COVID-19 related scam, you are encouraged to file a report with the appropriate government authorities.

The National Center of Disaster Fraud has a complaint form on its website where you can voice your concerns. You can also call 866-720-5721 to speak with one of their representatives.

The Treasury Inspector General for Tax Administration is also available to receive complaints related to the theft of your economic impact payment.

Finally, if you are the subject of a phishing scam, where fraudsters are seeking to gain your personal information, you should alert the Internal Revenue Service at their phishing@irs.gov email address.

It is important to stay vigilant against those seeking to steal your hard-earned money or personal information during this troubling time. If you have any questions about COVID-19 related fraudulent schemes, or you would like more information, please contact us.

Don’t Throw Away IRS Notice 1444

Article Highlights:

  • IRS Notice 1444
  • You May Qualify for Additional Credit on the 2020 Return
  • Tax Records

The IRS is mailing all recipients of Economic Impact Payments a Notice 1444 that provides information about the amount of their payment, how the payment was made, and how to report any payment that wasn’t received. If you’ve already received your economic impact payment, you’ve probably already received this document too. This notice was issued from The White House and looked more like a letter than a traditional IRS notice, but the notice number is in the upper right-hand corner of the heading, just below the date.

For security reasons, the IRS mails this notice to each recipient’s last known address within 15 days after the payment is sent. Don’t discard this notice, as you may need it when you prepare your 2020 tax return. The economic impact payment is an advance payment of a refundable tax credit based upon your 2020 tax return. In order to get the money into people’s hands during the time of the greatest need, these payments generally were made based upon each individual’s 2019 return, or in some cases, their 2018 return.

However, your filing status, income, and dependents may be different in 2020. If the advance payment was less than what you are entitled to based upon the 2020 return, you would qualify for the difference as a refundable credit on your 2020 return.

Example: Don and Shirley, whose AGI is less than $150,000, are newlyweds with no children and filed a joint return in 2019. They receive an advance economic impact payment of $2,400. In 2020, they have a baby, and when their credit is determined on the 2020 return, it is $2,900 ($1,200 + $1,200 + $500). Since they only received $2,400 as an advance payment, they will be entitled to a $500 refundable credit on their 2020 return. The credit will first be used to reduce their tax, and then any excess credit will be refunded.

As you can see, you need to keep IRS Notice 1444 – Your Economic Impact Payment, with your tax records since it documents the payment you received. You should keep this notice filed with all your other important tax records, including W-2s from employers, 1099s from banks and other payers, other income documents, and records to support tax deductions.

If you have any questions regarding your economic impact payment, please contact us.

President Trump Signs an Executive Order and Three Memoranda to Provide or Extend COVID-19 Relief to Individuals and Businesses

On Saturday, August 8, 2020, President Trump issued an Executive Order and three Memoranda to provide or extend COVID-19 relief to individuals and businesses.  Although the Executive Orders are not currently operational, at Tarlow, we feel that it is important for us to communicate this update.

Payroll Tax Deferral

The Executive Order directs the Secretary of Treasury to defer the withholding, deposit, and payment of the employee portion of social security tax, excluding Medicare tax, on wages or compensation paid during the period of September 1, 2020, through December 31, 2020. The deferral applies to any employee whose pre-tax wages or compensation during any biweekly payroll period are generally less than $4,000, calculated on a pre-tax basis, or the equivalent amount during other payroll periods. The tax payments are deferred without penalties, interest, additional amounts, or addition to the tax.

The Executive Order directs the Secretary of Treasury to issue guidance to implement the Memorandum and to identify methods to eliminate the obligation to pay the deferred taxes. It provides only for the deferral of the employee portion of social security tax and, in the event the Secretary of Treasury does not eliminate the deferred tax entirely, an affected employee will be required to pay any remaining deferred tax. We await further guidance; currently, it is not clear how an employee would pay the deferred tax following the end of the deferral period.

Employers have already had 50% of their portion of payroll tax payments due during the period that begins on March 27, 2020, and ends on December 31, 2020, delayed until December 31, 2021, and the other 50% until December 31, 2022, by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136.

The other Executive Orders involve compensation to unemployed individuals, evictions, and student loan relief, as follows:

Disaster Relief/Unemployment Insurance Benefits

The CARES Act provided a $600 per week federally funded unemployment compensation assistance to an eligible unemployed person, in addition to standard state unemployment benefits. This benefit expired on July 31, 2020.

The Disaster Relief Memorandum directs the Federal Emergency Management Agency (“FEMA”) to provide benefits from the Department of Homeland Security’s Disaster Relief Fund. It also directs states to utilize their Coronavirus Relief Fund allocation to provide financial relief to unemployed Americans affected by COVID-19. The maximum amount is $400 per week supplemental unemployment compensation benefit. In comparison to the $600 supplemental benefit under CARES, the Disaster Relief Memorandum calls for two significant changes in eligibility:

  • Individuals must receive at least $100 per week in regular state unemployment compensation assistance, an increase from $1.
  • Individuals must certify that their lost wages are attributable to disruptions caused by COVID-19.

The funding for this new benefit differs from the funding under the CARES Act in that the federal government will only pay for 75% of the costs associated with this benefit. The remaining 25% will be the responsibility of the state governments, subject to an agreement between the federal government and the state in terms of the program and funding.

Eviction Minimization

The Housing Executive Order directs members of the Cabinet to consider, identify, review, and minimize residential evictions and foreclosures during the COVID-19 pandemic. President Trump directs the Secretary of Health and Human Services and the Director of the Centers for Disease Control and Prevention to consider whether any temporary ceasing of evictions for failure to pay rent are reasonably necessary to prevent further COVID-19 spread. President Trump directs the Secretary of the Treasury and the Secretary of Housing and Urban Development to identify Federal funds that could be allocated to provide temporary financial assistance to renters and homeowners struggling to make monthly payments. The President also directs the HUD Secretary to promote the ability of renters and homeowners to avoid eviction or foreclosure, including by providing Federal funds to landlords.

Student Loan Payment Relief

The Education Memorandum directs the Secretary of Education to effectuate waivers of and modifications to the requirements and conditions of economic hardship deferments.  It provides such deferments as necessary to continue the temporary cessation of payments and the waiver of all interest on student loans held by the Department of Education until December 31, 2020. The Education Memorandum also states that student loan borrowers may continue to make payments.

Tarlow is Here to Help – Please Contact Us with Questions

Tarlow Partners and staff members are closely monitoring these Executive Orders, tax-related legislation and regulations, and new guidance from the SBA and the Department of Treasury. We are readily available to assist business owners and will continue to send updates about relevant news and changing guidelines.  If you have any questions about this update or any tax matter, please contact your Tarlow advisor for assistance.

Important Reminder from Tarlow: The Deadline to Apply for a Paycheck Protection Program Loan is Saturday, August 8, 2020

The Paycheck Protection Program (PPP) is a loan designed to provide a direct incentive for small businesses to keep their workers on payroll. The PPP resumed accepting applications on July 6, 2020, in response to President Trump signing the program’s extension legislation. As an important reminder from Tarlow, the deadline to apply for a Paycheck Protection Program loan is August 8, 2020. The five-week extension was intended to provide small businesses additional time to apply for the approximately $129 billion in PPP funding remaining. The Small Business Administration (SBA), which oversees the program with the Treasury Department, will forgive loans if all employee retention criteria are met, and the funds are used for eligible expenses.

PPP Loan Forgiveness Details 

PPP loan recipients can have their loans forgiven in full if the funds were used for eligible expenses and other criteria are met. The amount of the loan forgiveness may be reduced based on the percentage of eligible costs attributed to nonpayroll costs, any decrease in employee headcount, and decreases in salaries or wages per employee.  PPP loans will be fully forgiven if the funds are used for payroll costs (at least 60% of the forgiven amount must have been used for payroll), interest on mortgages, rent, and utilities. In addition:

  • PPP loans have an interest rate of 1%.
  • Loans issued prior to June 5, 2020, have a maturity of two years and loans issued after June 5, 2020, have a maturity of five years.
  • Loan payments will be deferred for six months.
  • No collateral or personal guarantees are required.
  • Neither the government nor lenders will charge small businesses any fees.

Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.  Forgiveness will be reduced if the full-time headcount declines, or if salaries and wages decrease. The loan forgiveness form and instructions include several measures to reduce compliance burdens and simplify the process for borrowers, including:

  • Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles.
  • Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the 24-week period after receiving their PPP loan.
  • Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness.
  • Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30, 2020.
  • Addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined.

Who Can Apply?

The following entities affected by COVID-19 may be eligible:

  • Any small business that meets SBA’s size standards, either the industry-based sized standard or the alternative size standard.
  • Sole proprietors, independent contractors, and self-employed persons.
  • Any business with a NAICS Code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location.
  • Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of:
  • 500 employees, or
  • That meets the SBA industry size standard if more than 500

How Can You Apply?

Entities can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating in the program.

If you wish to begin preparing your application, please contact your Tarlow advisor for assistance. You can also download the PPP borrower application form (revised June 24, 2020) to see the information that will be requested from you when you apply with a lender.

Paycheck Protection Small Business Forgiveness Act 

In addition to the five-week extension for the PPP application period, the Paycheck Protection Small Business Forgiveness Act was introduced to streamline forgiveness of PPP loans for small businesses. This bipartisan legislation includes forgiveness for PPP loans of $150,000 or less if the borrower submits a simple, one-page attestation form to the lender. It also ensures the lender will be held harmless from any enforcement action if the borrower’s attestation contained falsehoods.

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 are readily available to assist business owners submit Loan Forgiveness applications and will continue to send updates about relevant news and changing guidelines.  If you have any questions about maximizing PPP loan forgiveness, please contact your Tarlow advisor for assistance.