CARES Act Update
I hope this finds you well and safe. This is our latest update on what the federal government is doing to help during the Covid19 crisis.
The Senate bill has been approved by the House and has been signed by the President.
Small Business Interruption Loans
There have been some changes here. Any business concern that was in operation on February 15, 2020 and had employees that were being paid will qualify for an SBA loan if that business was impacted by COVID-19. The amount of the loan is equal to the lesser of the average total monthly payment by the applicant for payroll (wages, commissions, tips, vacation and sick pay, health insurance, retirement benefits and state & local taxes) times 2.5 or $10,000,000. The intention of the program is for you to use the proceeds of the loan for payroll support, rent, utilities and other debt obligations. These loans are eligible for tax free forgiveness to the extent they are used for payroll continuity, rent and utilities through June 30, 2020. There are some limitations based on salary levels (annual wages over $100K don’t count) but the way this is written suggests that the loans will be forgiven if you keep paying your employees. Yes, the forgiveness is tax free.
This part of the bill has been expanded to cover self employed individuals as well. Banks are now going to be directly involved (rather than just the SBA) so as to get the loans processed quickly. I recommend that your reach out to your banker for guidance on how to apply. We can also help with this process, just give us a call.
The SBA has previously stated that this won’t apply to cannabis businesses but I suggest you speak with your bank. This bill does not have language in it that would discriminate against cannabis businesses.
Tax Provisions
Tax Credit. This provision hasn’t changed from last week. There is a proposed tax credit of $1,200 for individuals and $2,400 for married filing joint plus $500 per dependent child. There is a phaseout (of course) at a rate of 5% of adjusted gross income in excess of $75,000 for individuals and $150,000 for married filing joint. This credit will be reduced by any advance refund you may receive. Sounds like some checks are on the way. I suspect it should take about 3 or 4 weeks.
Extended Filing Deadline. There have been some changes here. The new filing deadline will still be July 15, 2020. This means that payments (no matter how large) won’t be due until July 15th as well. There is a change to how 2020 estimates will work however. The due date for the first estimate that would normally be due on April 15th has been changed to July 15th. However, the other estimate dates have not been changed. Therefore, the second estimate is still due on June 15th. The 3rd and 4th estimates will still be due on the 15th day of September and January of next year. NOTE: Our tax preparation software hasn’t been updated for the new filing deadline so if the package says April 15th we mean July 15th.
Withdrawals from retirement accounts. This provision hasn’t changed from last week. There is a provision for penalty waiver from retirement accounts up to $100K if you are impacted by COVID-19 (very generous definition of impacted). You’ll be able to pay it back to the retirement account over 3 years if you choose to do so. If not you’ll be able to bring it in to income over three years instead of in the year you take the money out. The withdrawal is not subject to withholding for 2020. If you want to borrow from your 401K you’ll be able to borrow up to $100K instead of $50K. The payback period has been extended by one year (6 instead of 5).
Charitable contributions. This provision hasn’t changed from last week. A $300 cash charitable contribution will be allowed even if you don’t itemize deductions. The limit on charitable contributions has been increase to 100% of adjust gross income rather than 50%. There are some restrictions so if you intend on making a large donation let’s talk first.
Payroll tax deposits. There have been some changes here. The Bill allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. Employers generally are responsible for paying a 6.2-percent Social Security tax on employee wages. The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022. Check with your payroll service provider if you want to take advantage of this. This provision will not apply if you have debt forgiven from a small business interruption loan discussed above.
Net Operating Losses. This provision hasn’t changed from last week. The new law relaxes the limitation on businesses use of losses from prior years. The new law now allows losses from 2018, 2019 and 2020 to be carried back 5 years. Such loss carrybacks allow for tax refunds. Under the old law, a NOL deduction was limited to a percentage of taxable income. The new law removes all taxable income limitations, allowing a corporation to utilize 100% of losses. For pass-through businesses and sole proprietors, the new law would allow loss carrybacks.
I’m sure we’ll be seeing more in the coming weeks and we’ll be doing our best to keep you informed. Stay safe!