Exploring the CARES Act: What It Could Mean for You & Your - - PowerPoint PPT Presentation

Exploring the CARES Act: What It Could Mean for You & Your Business

April 2, 2020

Paycheck Protection Program (PPP) SBA Disaster Loan Update

Keith Barfield, CPA BMSS Advisors & CPAs kbarfield@bmss.com (205) 982-5500

Paycheck Protection Program

CAUTION The CARES Act does not contain specific answers to many questions that have been raised about PPP. The SBA has not issued processes to banks lending. We will look at the guidance from the SBA using a Fact Sheet.

The Paycheck Protection Program (“PPP”) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for everyone. The loan amounts will be forgiven as long as:

• The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over

the 8-week period after the loan is made; and

• Employee and compensation levels are maintained.
• Payroll costs are capped at $100,000 on an annualized basis for each employee.
• Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for

non-payroll costs.

• Loan payments will be deferred for 6 months.

Paycheck Protection Program

When can I apply?

• Starting April 3, 2020, small businesses and sole proprietorships can

apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.

• Starting April 10, 2020, independent contractors and self-employed

individuals can apply for and receive loans to cover their payroll and

• ther certain expenses through existing SBA lenders.

Paycheck Protection Program

What do I need to apply?

You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process your application by June 30, 2020.

Paycheck Protection Program

https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf

Paycheck Protection Program

What other documents will I need to include in my application?

• Fact Sheet
• You will need to provide your lender with payroll documentation.

Paycheck Protection Program

Typical Bank Information Request

• Most recent Fed Income Tax Return – Business
• 2019 year-end P&L (if 2019 Tax Return is not available)
• Verification of payroll for the past 12 months (Paychex, ADP, Bank Statements, 941, etc.)
• (For purposes of the CARES ACT LOAN CALCULATION, please include any of the following paid by the

company)

• W-2 and 1099 Wages Paid
• Health and Life Benefits
• Retirement Benefits

Paycheck Protection Program

What can I use the money for in accordance with the SBA guidance? You should use the proceeds from these loans on your:

• Payroll costs, including benefits;
• Interest on mortgage obligations, incurred before February 15, 2020;
• Rent, under lease agreements in force before February 15, 2020;

and

• Utilities, for which service began before February 15, 2020.

Paycheck Protection Program

What counts as payroll costs?

Payroll costs include:

• Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis

for each employee);

• Employee benefits including costs for vacation, parental, family, medical, or sick

leave; allowance for separation or dismissal; payments required for the provisions

• f group health care benefits including insurance premiums; and payment of any

retirement benefit;

• State and local taxes assessed on compensation.

Paycheck Protection Program

Most frequent questions:

• How long before I get my money?
• How do I get my loan forgiven?

Paycheck Protection Program

Economic Injury Disaster Loan Update

All the attention has shifted to the Paycheck Protection Program Loan due to forgiveness and promised quick turnaround. The EIDL is still available and you can do both loans. (Don’t use the money for the same expenses.) The EIDL process has been streamlined twice since last week. Still expect 4-6 weeks to process. The EIDL loan now has added a $10,000 grant amount whether you are approved for the EIDL loan

• r not.

Steve Smith, CPA, J.D.

BMSS Advisors & CPAs

ssmith@bmss.com

(205) 982-5500

Tax Developments

• IRS Developments Subsequent to our Webinar on 2.24.2020
• Reminder regarding State Filings and Payment Relief Measures
• Tax-Related Portions of the Coronavirus Aid, Relief, and

Economic Security (CARES) Act enacted on 2.27.2020

• Other Existing Relevant Relief Provision in the IRC

Recent IRS Developments

• Further clarification related to Notice 2020-18 issued 3.24.2020 - located at

https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers

• 2019 returns with extended due date of April 15, 2020 postponed until July 15, 2020.
• Process for rescheduling payments until July 15 for situations in which taxpayers have already

filed returns due April 15, 2020 and scheduled a payment of taxes on April 15.

• Deadline for making contributions to IRA for 2019 is also extended to July 15, 2020.
• Deadline for making contributions to HSA or Archer MSA for 2019 is also extended to July 15,

2020.

• Claims for refunds for 2016 still must be filed by April 15, 2020.
• No relief for failure to pay required amount of estimated tax payments for 2019.

Recent IRS Developments

• Notice 2020-20 (amplifying Notice 2020-18) - the due date for filing Form 709 (United States

Gift and Generation-Skipping Transfer Tax Return) and making payments of Federal gift tax and generation skipping tax due April 15, 2020 is automatically postponed until July 15, 2020.

• Notice 2020-21 - the tax credits for qualified sick leave wages and qualified family leave wages

required to be paid by the Families First Coronavirus Response Act will apply to wages paid for the period beginning on April 1, 2020 and ending on December 31, 2020.

• Notice 2020-22 - provides employers relief from the failure to deposit penalty imposed by

section 6656 of the Internal Revenue Code for an employer’s failure to timely deposit employment taxes to the extent that the amounts not deposited are equal to or less than the amount of refundable tax credits to which the employer is entitled under the Families First Act (qualified leave wages) and the CARES Act (qualified retention wages).

Recent IRS Developments

• FAQs: Employee Retention Credit under the CARES Act at

https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares- act

• COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and

Midsize Businesses FAQs at https://www.irs.gov/newsroom/covid-19-related- tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses- faqs

Reminder re State Filings and Payment Relief Measures

• For other states, see “State Tax Filing Guidance for Coronavirus Pandemic”

from the AICPA :

• https://www.aicpa.org/content/dam/aicpa/advocacy/tax/downloadabledocuments

/coronavirus-state-filing-relief.pdf

• Last Updated April 1, 2020 at 2:00p.m. EDT

Coronavirus Aid, Relief, and Economic Security (CARES) Act Tax-related Provisions

CARES Act PPP Loan Forgiveness

• For purposes of the Internal Revenue Code of 1986, any amount

which (but for this subsection) would be includible in gross income of the eligible recipient by reason of forgiveness described in subsection (b) shall be excluded from gross income.

CARES Act

Recovery Rebates and Other Individual Provisions

CARES Act Recovery Rebates for Individuals

• A credit against income tax for 2020 allowed for 2020 in amount equal to lesser of
• Net Income Tax Liability (tax before reduction for child tax credits), or
• $1,200 ($2,400 for joint return)
• Plus $500 per qualifying child
• Advance payment of Recovery Rebate reportedly to be paid via check or direct

deposit within the next two weeks

CARES Act Recovery Rebates for Individuals

• Available to any individual who has a Social Security number

and who is not:

• a nonresident alien, an individual who can be claimed as a

dependent on another taxpayer’s return, or an estate or trust

• Includes individuals who collected Social Security benefits, but

who did not have enough taxable income to necessitate filing a return

CARES Act Recovery Rebates for Individuals

• Credit is reduced by 5% of the individual’s AGI in excess of

$75,000 single, $112,500 head of household and $150,000 joint

• Completely phases out at $99,000 ($198,000 for joint filers)
• The IRS will look at 2018 or 2019 to calculate AGI for the

advance payment

CARES Act Recovery Rebates for Individuals

• When the taxpayer files their 2020 return, the credit will be recalculated

based on 2020 AGI.

• If the advance payment was less than what the taxpayer was actually owed,

an additional credit will be available against 2020 tax liability.

• If the advance payment is greater than what the taxpayer is actually owed,

there is no adjustment.

CARES Act Special Rules for Uses of Retirement Funds

• Relief from 10% Excise Tax on Early Withdrawals: coronavirus-related

distributions from eligible retirement plans are not subject to the 10% excise tax

• n early distributions through December 31, 2020.
• Distributions under this provision may not exceed $100,000 in the aggregate.
• Taxpayers can spread the income over a three-year period beginning with

taxable year 2020.

• Income recognition can be avoided by repaying the distribution to the retirement

plan within three years.

CARES Act Special Rules for Uses of Retirement Funds

• Distributions are coronavirus related if made to an individual:
• Who is diagnosed with COVID-19 with a test approved by the CDC,
• Whose spouse or dependent (as defined by section 152) is diagnosed with COVID-19, or
• Who experiences adverse financial consequences as a result of being quarantined,

furloughed, laid, off having work hours reduced, being unable to work due to lack of childcare due to COVID-19, closing or reducing hours of a business because of COVID- 19, or other factors determined by Treasury.

• A plan administrator may rely upon the certification of an employee that a condition was

satisfied.

CARES Act Special Rules for Uses of Retirement Funds

• Temporary Waiver of Required Minimum Distribution Rules: Minimum

distribution rules are waived for 2020 for IRAs and certain defined contribution plans.

• The bill also provides that the limit on loans from qualified plans are

increased from $50,000 to $100,000. The loan limit is increased for a 180- day period starting on the date of enactment.

CARES Act Charitable Contributions

• For the 2020 tax year, the deduction percentage limitation (currently 60%)

for charitable contributions of cash has been removed for individuals.

• If qualified charitable contributions exceed a taxpayer’s AGI in 2020, they

are carried forward.

• For tax years beginning in 2020, eligible taxpayers that do not itemize are

entitled to an above-the-line deduction of up to $300 for qualified charitable contributions.

• The limitation on charitable contributions made by a C Corporation has

been increased from 10% of taxable income to 25%.

CARES Act Employer-Paid Student Loan Payments

• Section 127 is amended to provide that the $5,250 can be used

for a combination of educational assistance and –for 2020

• nly–to pay the principal and interest of an employee’s student

loan payment.

• The employee, of course, cannot deduct any interest paid by

the employer as student loan interest under Section 221.

CARES Act Business Provisions

CARES Act

Employee Retention Credit for Employers Subject to Closure Due to COVID-19

• The bill provides a refundable payroll tax credit for 50% of wages paid by

employers to employees - available to eligible employers carrying on a trade or business in calendar year 2020 whose:

• Operations were fully or partially suspended, due to the COVID-19

crisis, or

• Gross receipts declined by more than 50% when compared to the

same quarter in the prior year.

• Employer Receiving a PPP Loan not eligible for credit.

• The credit is against payroll taxes - specifically, the employer’s share (6.2%) of the Social

Security tax. It is fully refundable. First, however, the payroll tax is reduced by qualified sick leave and family leave credits available pursuant to the FFCRA.

• The credit is equal to 50% of qualified wages paid to each employee and is done on a

calendar quarter basis. Credit applies only to wages paid after March 12, 2020 and before January 1, 2021.

• The TOTAL wages taken into account for any employee is $10,000 plus allocable health

care costs. Thus, an employee making more than $40,000/year will only generate a credit for one quarter.

CARES Act

Employee Retention Credit for Employers Subject to Closure Due to COVID-19

• The credit is for “qualified wages.”
• For employers with greater than 100 full-time employees,

qualified wages are wages paid to employees when they are not providing services due to COVID-19 circumstances.

• For eligible employers with 100 or fewer full-time employees, all

employee wages qualify.

CARES Act

Employee Retention Credit for Employers Subject to Closure Due to COVID-19

CARES Act

Delay of Payment of Employer Payroll Taxes

• Employers and self-employed taxpayers can delay payment of the

employer portion of payroll taxes through the end of 2020.

• 50% of payroll taxes deferred must be paid by December 31, 2021, with

the remaining 50% paid by December 31, 2022.

• Not available to an employer who had had indebtedness forgiven on a

PPP loan.

CARES Act

Modifications for Net Operating Losses

• Changes to Net Operating Loss Rules: After 2017, NOLs could not be

carried back, and post-2017 loss carryforward utilization was limited to 80% of taxable income.

• Net operating losses for 2018, 2019 and 2020 can be carried back for up

to five years and if carried forward, can offset 100% of taxable income until 2021.

• Starting 2021, losses from pre-2018 can offset up to 100% of post-2020

taxable income, but losses from 2018 forward can only offset 80% of post- 2020 income.

• This applies to C corporations and individuals and, is an
• pportunity to amend returns to take advantage of the carry

back of losses generated in 2018 and 2019 as well as losses that will be generated in 2020.

• When analyzing the benefit of an NOL carry back, be sure to

consider the impact on attributes in the carry back years (changes to deductions, etc.).

CARES Act

Modifications for Net Operating Losses

CARES Act

Modification of Limitation on Losses for Taxpayers Other Than Corporations

• Limitation on Business Losses: the 2017 TCJA added Section 461(l) limiting “net

business loss” an individual may use in a year to offset other sources of income to $250K single, and $500K married filing jointly.

• Any excess loss was converted to an NOL, which was subject to more stringent

rules under the TCJA.

• The CARES Act temporarily halts Section 461(l) retroactive to January 1, 2018.
• A taxpayer who found a loss limited by the provision in 2018 or 2019 can file an

amended return to claim a refund.

CARES Act

Modification of Credit for Prior Year Minimum Tax Liability of Corporations

• Corporate AMT Credits: under TCJA, corporate AMT credits were

refundable over a four-year period from tax years beginning 2018-2021.

• The CARES Act accelerates the credit to 2018 and 2019. Effectively, any

remaining minimum tax credit will be fully used by the end of 2019. Alternatively, an election is available to claim the entire credit in 2018.

• Treasury is directed to provide procedures where a taxpayer electing to

make the credit refundable for 2018 can file for a tentative refund of the additional credit amount.

CARES Act

Modifications of Limitation on Business Interest

• Changes to the Interest Limitation Rules: the 2017 TCJA established a limitation on a

business’s ability to deduct interest expense to 30% of “adjusted taxable income.”

• For tax years beginning in 2019 and 2020, the deduction limitation for business interest

expense has been increased to 50% of adjusted taxable income for taxpayers other than partnerships.

• 2019 returns (other than for partnerships) that have been filed utilizing the 30% limitation may

need to be amended.

• Probably most impactful, is the ability of a business to use its 2019 income to calculate its

2020 limitation – as many businesses will have losses in 2020 this will allow a higher 2020 deduction and possibly generate an NOL.

CARES Act Technical Amendments Regarding Qualified Improvement Property

• Qualified Improvement Property Fix: For QIP (improvements to the interior of a

nonresidential building after placed in service) the CARES Acts provides a technical correction to the “glitch” in the 2017 Tax Cuts and Jobs Act that left QIP with a 39-year life.

• QIP is now subject to a 15-year life, thus qualifying for 100% bonus depreciation.
• This change is retroactive to 2018, thus taxpayers should be entitled to file

amended returns to reap the benefits of accelerated depreciation in 2018 and 2019.

Other Existing Relevant Relief Provision in the Internal Revenue Code

• Section 139 – Disaster relief payments - payments are tax-free

to the employees, but fully deductible to the employer – application to COVID-19 expenses?

How Does The CARES Act Help The Unemployed?

Arnold W. “Trip” Umbach, III STARNES DAVIS FLORIE LLP 100 Brookwood Place, Seventh Floor Birmingham, Alabama 35209 tumbach@starneslaw.com 205-868-6072

The Act:

• Expands who is eligible for benefits
• Significantly increases amount of benefits
• Facilitates administration of benefits

A state must reach an agreement with the federal government in

• rder for CARES to become effective there.

Unemployment Basics (Without CARES)

• Administered by states
• Funded by state and federal unemployment taxes paid by

employers on first $8,000 of all employees’ gross annual earnings

Unemployment Basics (Without CARES)

• Applies to employees, not all types of workers
• Employees are entitled to benefits if they are unemployed or working

reduced hours

• Due to no fault of their own
• No benefits if employee quits (without good cause connected with

work)

• No benefits (or benefits may be reduced) if fired for misconduct

Unemployment Basics (Without CARES)

• Must be available for and seeking work
• Must be able to work – not sick or injured
• Not entitled to benefits for first week – waiting week
• Current maximum weekly benefit in Alabama is $275, before taxes

(one of lowest in US)

• Alabama says it takes 2-3 weeks to start receiving benefits after

claim filed

How Are Benefits Currently Calculated In Alabama?

• It’s a complicated formula
• If you are eligible to receive unemployment, your weekly benefit

rate (WBR) will be 1/26 of your average quarterly earnings in your two highest paid quarters of the “base period”

• Employee gets benefits for 26 weeks

Are Unemployment Benefits Chargeable To The Employer?

• Normally, yes
• Not if employer files partial claims on behalf of employee

How Does CARES Affect Unemployment Benefits?

CARES Broadens The Group Eligible For Benefits

• Applies to individuals out of work as a direct result of Covid-19
• Covers the self-employed and independent contractors
• Includes church employees
• Applies to non-profit and governmental employees
• Includes gig economy workers
• Covers those who have exhausted state and federal unemployment benefits

CARES Increases Benefits

• Waiting week is eliminated
• Workers who have exhausted state benefits are entitled to an

additional 13 weeks of benefits, so 39 weeks total

• CARES adds $600 per week on top of state-law entitlement
• If worker is eligible for benefits under state law, he/she is

automatically entitled to the extra $600

Worker Obtains Benefits By Going Directly To The Alabama Department of Labor

The worker must certify that he/she meets one of the required conditions

Conditions:

• the individual has been diagnosed with COVID–19 or is experiencing symptoms of COVID–19 and seeking a medical diagnosis;
• a member of the individual’s household has been diagnosed with COVID–19;
• the individual is providing care for a family member or a member of the individual’s household who has been diagnosed with

COVID–19;

• a child or other person in the household for whom the individual has primary caregiving responsibility is unable to attend school or

another facility that is closed as a direct result of the COVID–19 public health emergency and such school or facility care is required for the individual to work;

• the individual is unable to reach the place of employment because of a quarantine imposed as a direct result of the COVID–19

public health emergency;

• the individual is unable to reach the place of employment because the individual has been advised by a health care provider to self-

quarantine due to concerns related to COVID–19;

• the individual was scheduled to commence employment and does not have a job or is unable to reach the job as a direct result of

the COVID–19 public health emergency;

• the individual has become the breadwinner or major support for a household because the head of the household has died as a

direct result of COVID–19;

• the individual has to quit his or her job as a direct result of COVID–19;
• the individual’s place of employment is closed as a direct result of the COVID–19 public health emergency; or
• the individual meets other criteria established by the Secretary of Labor.

Will Some Workers Be Better Off On Unemployment?

YES

Will COVID-19 Unemployment Benefits Be Chargeable To The Employer?

UNKNOWN

When Does CARES Go Into Effect?

According to the Alabama Department of Labor . . .

• ADOL does not yet have technical guidance or a start date

regarding the CARES Act programs

• However, it states that “benefits may be paid retroactively from

the time the employee separated from his or her job or

• therwise became eligible under the federal CARES Act, not

from the time the application was submitted or approved.”

How Do Workers File?

According to the Alabama Department of Labor: Claims can be filed online at www.labor.alabama.gov or by calling 1-866-234-5382. Patience is encouraged when trying to file a claim. Further details regarding the CARES Act programs will be forthcoming

Unemployment Statistics

• Last week, almost 75,000 unemployment claims in Alabama
• Eventually, 47,000,000 in the US (32%)?

The Two Big Questions Regarding The Paycheck Protection Program Loan

April 2, 2020

• How do I apply for a Paycheck Protection Program Loan?
• When can I apply for a Paycheck Protection Program Loan?

Brian Denney

SBA 7a and 504 Programs BBVA USA Bancshares, Inc Brian.denney@bbva.com 205-603-8429

Q&A?