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.
Paycheck Protection Program 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 other 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 of 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?
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 or 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.
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