April 2, 2020
To help small businesses deal with the impact of COVID-19, the City has launched the NYC Small Business Continuity Loan Program. This program is available to New York City businesses with fewer than 100 employees that can demonstrate at least a 25% decrease in revenue as a result of COVID-19. Eligible businesses can apply for an interest-free loan up to $75,000.
The City is also providing services to businesses that have up to four employees. The NYC Employee Retention Grant Program will officially stop accepting applications on Friday, April 3, 2020, at 5 p.m. Businesses seeking assistance can access the NYC Small Business Continuity Loan Fund and apply to programs from the U.S. Small Business Administration (SBA) listed at nyc.gov/covid19biz.
To help small businesses deal with the impact of COVID-19, the City has launched the Employee Retention Grant Program to help retain employees as businesses face decreased revenue. This program is available to New York City businesses with one to four employees that can demonstrate at least a 25% decrease in revenue as a result of COVID-19. Eligible businesses will receive a grant covering up to 40% of their payroll for two months. Businesses can access up to $27,000.
We remain committed to providing you with the most up-to-date information as we know it. As always, we are in this together.
We hope that you are keeping yourself, your loved ones, and your community safe from COVID-19 (commonly referred to as the Coronavirus). Below is an update on the tax-related provisions in the CARES Act that was signed into law on March 27, 2020.
Recovery rebates for individuals. To help individuals stay afloat during this time of economic uncertainty, the government will send up to $1,200 payments to eligible taxpayers and $2,400 for married couples filing joints returns. An additional $500 additional payment will be sent to taxpayers for each qualifying child dependent under age 17 (using the qualification rules under the Child Tax Credit).
Rebates are gradually phased out, at a rate of 5% of the individual’s adjusted gross income over $75,000 (singles or marrieds filing separately), $122,500 (head of household), and
$150,000 (joint). There is no income floor or ‘‘phase-in’’—all recipients who are under the phaseout threshold will receive the same amounts. Tax filers must have provided, on the
relevant tax returns or other documents (see below), Social Security Numbers (SSNs) for each family member for whom a rebate is claimed. Adoption taxpayer identification numbers will be accepted for adopted children. SSNs are not required for spouses of active military members. The rebates are not available to nonresident aliens, to estates and trusts, or to individuals who themselves could be claimed as dependents.
The rebates will be paid out in the form of checks or direct deposits. Most individuals won’t have to take any action to receive a rebate. IRS will compute the rebate based on a taxpayer’s tax year 2019 return (or tax year 2018, if no 2019 return has yet been filed). If no 2018 return has been filed, IRS will use information for 2019 provided in Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement.
Rebates are payable whether or not tax is owed. Thus, individuals who had little or no income, such as those who filed returns simply to claim the refundable earned income credit or child tax credit, qualify for a rebate.
Waiver of 10% early distribution penalty. The additional 10% tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) is waived for distributions made between January 1 and December 31, 2020 by a person who (or whose family) is infected with the Coronavirus or who is economically harmed by the Coronavirus (a qualified individual). Penalty-free distributions are limited to $100,000, and may, subject to guidelines, be re-contributed to the plan or IRA. Income arising from the distributions is spread out over three years unless the employee elects to turn down the spread out. Employers may amend defined contribution plans to provide for these distributions. Additionally, defined contribution plans are permitted additional flexibility in the amount and repayment terms of loans to employees who are qualified individuals.
Waiver of required distribution rules. Required minimum distributions that otherwise would have to be made in 2020 from defined contribution plans (such as 401(k) plans) and IRAs are waived. This includes distributions that would have been required by April 1, 2020, due to the account owner’s having turned age 70 1/2 in 2019.
Charitable deduction liberalizations. The CARES Act makes four significant liberalizations to the rules governing charitable deductions:
- Individuals will be able to claim a $300 above-the-line deduction for cash contributions made, generally, to public charities in 2020. This rule effectively allows a limited charitable deduction to taxpayers claiming the standard
- The limitation on charitable deductions for individuals that is generally 60% of modified adjusted gross income (the contribution base) doesn’t apply to cash contributions made, generally, to public charities in 2020 (qualifying contributions). Instead, an individual’s qualifying contributions, reduced by other contributions, can be as much as 100% of the contribution base. No connection between the contributions and COVID-19 activities is required.
- Similarly, the limitation on charitable deductions for corporations that is generally 10% of (modified) taxable income doesn’t apply to qualifying contributions made in 2020. Instead, a corporation’s qualifying contributions, reduced by other contributions, can be as much as 25% of (modified) taxable income. No connection between the contributions and COVID-19 activities is
- For contributions of food inventory made in 2020, the deduction limitation increases from 15% to 25% of taxable income for C corporations and, for other taxpayers, from 15% to 25% of the net aggregate income from all businesses from which the contributions were
Exclusion for employer payments of student loans. An employee currently may exclude
$5,250 from income for benefits from an employer-sponsored educational assistance program. The CARES Act expands the definition of expenses qualifying for the exclusion to include employer payments of student loan debt made before January 1, 2021.
Break for remote care services provided by high deductible health plans. For plan years beginning before 2021, the CARES Act allows high deductible health plans to pay for expenses for tele-health and other remote services without regard to the deductible amount for the plan.
Break for nonprescription medical products. For amounts paid after December 31, 2019, the CARES Act allows amounts paid from Health Savings Accounts and Archer Medical Savings Accounts to be treated as paid for medical care even if they aren’t paid under a prescription. And, amounts paid for menstrual care products are treated as amounts paid for medical care. For reimbursements after December 31, 2019, the same rules apply to Flexible Spending Arrangements and Health Reimbursement Arrangements.
Business only provisions
Employee retention credit for employers. Eligible employers can qualify for a refundable credit against, generally, the employer’s 6.2% portion of the Social Security (OASDI) payroll
tax (or against the Railroad Retirement tax) for 50% of certain wages (below) paid to employees during the COVID-19 crisis.
The credit is available to employers carrying on business during 2020, including non-profits (but not government entities), whose operations for a calendar quarter have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also available to employers who have experienced a more than 50% reduction in quarterly receipts, measured on a year-over-year basis relative to the corresponding 2019 quarter, with the eligible quarters continuing until the quarter after there is a quarter in which receipts are greater than 80% of the receipts for the corresponding 2019 quarter.
For employers with more than 100 employees in 2019, the eligible wages are wages of employees who aren’t providing services because of the business suspension or reduction in gross receipts described above.
For employers with 100 or fewer full-time employees in 2019, all employee wages are eligible, even if employees haven’t been prevented from providing services. The credit is provided for wages and compensation, including health benefits, and is provided for the first
$10,000 in eligible wages and compensation paid by the employer to an employee. Thus, the credit is a maximum $5,000 per employee.
Wages don’t include (1) wages taken into account for purposes of the payroll credits provided by the earlier Families First Coronavirus Response Act for required paid sick leave or required paid family leave, (2) wages taken into account for the employer income tax credit for paid family and medical leave (under Code Sec. 45S) or (3) wages in a period in which an employer is allowed for an employee a work opportunity credit (under Code Sec. 51). An employer can elect to not have the credit apply on a quarter-by-quarter basis.
The IRS has authority to advance payments to eligible employers and to waive penalties for employers who do not deposit applicable payroll taxes in reasonable anticipation of receiving the credit. The credit is not available to employers receiving Small Business Interruption Loans. The credit is provided for wages paid after March 12, 2020 through December 31, 2020.
Delayed payment of employer payroll taxes. Taxpayers (including self-employeds) will be able to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Taxes that can be deferred include the 6.2% employer portion of the
Social Security (OASDI) payroll tax and the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer 6.2% Social Security (OASDI) rate). The relief isn’t available if the taxpayer has had debt forgiveness under the CARES Act for certain loans under the Small Business Act as modified by the CARES Act (see below). For self-employeds, the deferral applies to 50% of the Self-Employment Contributions Act tax liability (including any related estimated tax liability).
Net operating loss liberalizations. The 2017 Tax Cuts and Jobs Act (the 2017 Tax Law) limited NOLs arising after 2017 to 80% of taxable income and eliminated the ability to carry NOLs back to prior tax years. For NOLs arising in tax years beginning before 2021, the CARES Act allows taxpayers to carryback 100% of NOLs to the prior five tax years, effectively delaying for carrybacks the 80% taxable income limitation and carryback prohibition until 2021.
The Act also temporarily liberalizes the treatment of NOL carryforwards. For tax years beginning before 2021, taxpayers can take an NOL deduction equal to 100% of taxable income (rather than the present 80% limit). For tax years beginning after 2021, taxpayers will be eligible for: (1) a 100% deduction of NOLs arising in tax years before 2018, and (2) a deduction limited to 80% of taxable income for NOLs arising in tax years after 2017.
The provision also includes special rules for REITS, life insurance companies, and the Code Sec. 965 transition tax. There are also technical corrections to the 2017 Tax Law effective dates for NOL changes.
Deferral of noncorporate taxpayer loss limits. The CARES Act retroactively turns off the excess active business loss limitation rule of the TCJA in Code Sec. 461(l) by deferring its effective date to tax years beginning after December 31, 2020 (rather than December 31, 2017). (Under the rule, active net business losses in excess of $250,000 ($500,000 for joint filers) are disallowed by the 2017 Tax Law and were treated as NOL carryforwards in the following tax year.)
The CARES Act clarifies, in a technical amendment that is retroactive, that an excess loss is treated as part of any net operating loss for the year, but isn’t automatically carried forward to the next year. Another technical amendment clarifies that excess business losses do not include any deduction under Code Sec. 172 (NOL deduction) or Code Sec. 199A (qualified business income deduction).
Still another technical amendment clarifies that business deductions and income don’t include any deductions, gross income or gain attributable to performing services as an
employee. And because capital losses of non-corporations cannot offset ordinary income under the NOL rules, capital loss deductions are not taken into account in computing the Code Sec. 461(l) loss and the amount of capital gain taken into account cannot exceed the lesser of capital gain net income from a trade or business or capital gain net income.
Acceleration of corporate AMT liability credit. The 2017 Tax Law repealed the corporate alternative minimum tax (AMT) and allowed corporations to claim outstanding AMT credits subject to certain limits for tax years before 2021, at which time any remaining AMT credit could be claimed as fully-refundable. The CARES Act allows corporations to claim 100% of AMT credits in 2019 as fully-refundable and further provides an election to accelerate the refund to 2018.
Relaxation of business interest deduction limit. The 2017 Tax Law generally limited the amount of business interest allowed as a deduction to 30% of adjusted taxable income (ATI). The CARES Act generally allows businesses, unless they elect otherwise, to increase the interest limitation to 50% of ATI for 2019 and 2020, and to elect to use 2019 ATI in calculating their 2020 limitation. For partnerships, the 30% of ATI limit remains in place for 2019 but is 50% for 2020. However, unless a partner elects otherwise, 50% of any business interest allocated to a partner in 2019 is deductible in 2020 and not subject to the 50% (formerly 30%) ATI limitation. The remaining 50% of excess business interest from 2019 allocated to the partner is subject to the ATI limitations. Partnerships, like other businesses, may elect to use 2019 partnership ATI in calculating their 2020 limitation.
Technical correction to restore faster write-offs for interior building improvements. The CARES Act makes a technical correction to the 2017 Tax Law that retroactively treats (1) a wide variety of interior, non-load-bearing building improvements (qualified improvement property (QIP)) as eligible for bonus deprecation (and hence a 100% write-off) or for treatment as 15-year MACRS property or (2) if required to be treated as alternative depreciation system property, as eligible for a write-off over 20 years. The correction of the error in the 2017 Tax Law restores the eligibility of QIP for bonus depreciation, and in giving QIP 15-year MACRS status, restores 15-year MACRS write-offs for many leasehold, restaurant and retail improvements.
Accelerated payment of credits for required paid sick leave and family leave. The CARES Act authorizes IRS broadly to allow employers an accelerated benefit of the paid sick leave and paid family leave credits allowed by the Families First Coronavirus Response Act by, for example, not requiring deposits of payroll taxes in the amount of credits earned.
Pension funding delay. The CARES Act gives single employer pension plan companies more time to meet their funding obligations by delaying the due date for any contribution otherwise due during 2020 until January 1, 2021. At that time, contributions due earlier will be due with interest. Also, a plan can treat its status for benefit restrictions as of December 31, 2019 as applying throughout 2020.
April 1, 2020
YOU HAVE ALL INFORMATION NEEDED TO COMPLETE THE APPLICATION BY YOURSELF.
COST OF GOODS SOLD
We remain committed to providing you with the most up-to-date information as we know it. As always, we are in this together with you.
If you have any questions or need help please contact your Wagner & Zwerman assigned accountant or your attorney.
March 29, 2020
You may want to consider applying for this particular SBA loan program for any entity that has payroll costs. This loan will give you up to 2.5 times of your average monthly payroll and then look at your payroll, health insurance, rent and utilities cost for the 8 week period immediately after you receive the loan and if those costs exceed the loan amount, and you do not reduce salaries by more than 25% or lay anyone off, then the entire loan is forgiven. Even if you have let some staff go, if you bring them back by a certain date it will not count in the loan forgiveness calculations.
Basically the government is covering your payroll and partial rent for 2 months.
They do not consider any payroll in excess of $100,000 so you would just have to cap the payroll calculation for anyone in excess of that amount but you still get to include them in the calculation for the first $100,000 of salary.
Applications are available at any SBA Lender (check and see if your current bank is an approved lender as it’s always best to work with a bank where you have an existing relationship).
If you already applied for the Economic Injury Disaster Loan and you decide to apply for this loan then you must choose one loan or the other or use the proceeds from this loan to pay off the other loan.
We have not yet seen the application since the program just passed Congress on Friday, but our understanding is that this loan application is more streamlined than the typical SBA loan application so it’s much easier to complete.
As previously mentioned, we have a partnership with a law firm in the city that is helping out clients with the application (they bill you directly) if you cannot do it yourself.
You may want to watch this video to assist you.
The WZ team is available to assist you with any questions and guidance.
Stay safe and healthy,
- Direct payments of $1,200 would be sent to most middle-income and lower-income individual taxpayers ($2,400 for joint taxpayers). The payment amount begins to phase out at $75,000 for singles and $150,000 for joint taxpayers at 5 percent per dollar of qualified income, or $50 per $1,000 earned. It phases out entirely at $99,000 for single taxpayers and $198,000 for joint taxpayers.
- Expanded unemployment insurance for laid-off workers would allow for four months of full pay (typically three). Maximum unemployment insurance benefit would be raised by $600 per week for all workers including self-employed.
- Required minimum distribution rules would be temporarily waived for certain retirement plans.
- Federal student loan payments would be postponed without interest accruing through September 30, 2020.
- Homeowners with federally backed mortgages could request loan forbearance for an initial period of 180 days due to financial hardships caused by COVID-19.
- $367 billion loan program would be available for small businesses and nonprofits. The loans could be forgiven if businesses continue to pay their employees through the crisis.
- Creditworthiness requirements for Economic Injury Disaster Loans (EIDL) would be temporarily eliminated, and $10 billion would be appropriated to the EIDL program to expedite payments to applicants.
- The deadline for depositing employer payroll taxes would be deferred to be payable over the next two years – half due on December 31, 2021 and half due on December 31, 2022.
- Certain employers would receive a refundable payroll tax credit of up to $5,000 for each employee on the payroll.
- The bill lowers the amounts that employers must pay for paid sick and family leave under the Families First Coronavirus Response Act to the amounts covered by the refundable payroll tax credit ($511 per day for employee sick leave or $200 per day for family leave).
- Limitations on excess business losses would be delayed until 2021.
- Net operating losses (NOLs) earned in 2018, 2019 or 2020 could be carried back five years. The NOL limit of 80 percent of taxable income would also be suspended. Loss limitations would be modified for non-corporate taxpayers as well, including rules governing excess farm losses.
- The net interest deduction limitation, which currently limits businesses’ ability to deduct interest paid on their tax returns to 30 percent of earnings before interest, tax, depreciation, and amortization (EBITDA), would be expanded to 50 percent of EBITDA for 2019 and 2020.
- The bill includes a technical amendment regarding qualified improvement property.
- $500 billion lending fund for industries, cities and states would include $25 billion for passenger airlines, $4 billion for cargo airlines, and $3 billion for industry contractors.
- Healthcare system would receive more than $150 billion, including funding for hospitals, research, treatment and supplies.
- State and local governments would receive $150 billion to address Coronavirus-related spending shortages.
- Charitable Contribution Incentives – The bill includes a new above-the-line deduction for charitable contributions up to $300. The incentive applies to contributions made in 2020 and would be claimed on tax forms next year.
- The existing cap on annual charitable contributions for those who itemize would be lifted, raising it from 60 percent of adjusted gross income to 100 percent. For corporations, the bill raises the annual limit from 10 percent to 25 percent.