We have all been inundated with new information from everywhere as we adjust to the current situation surrounding COVID-19. It has been increasingly difficult to stay on top of every policy change taking place as Congress reacts to the pandemic with the goal of providing relief to both employers and employees. This overview is meant to consolidate all of these various changes in one place, and give a brief summary of each change relevant to small businesses and individual taxpayers. This is not all-encompassing, and many of these areas have fine details that will need to be addressed on a case-by-case basis.
- Effective April 1, 2020, for private-sector employers with fewer than 500 employees
- 80 hours emergency paid sick leave
- Emergency family and medical leave expansion
- Tax credits for paid sick and paid family and medical leave
- Coronavirus Aid, Relief, and Economic Security (CARES) Act
- Businesses
- Small Business Administration Paycheck Protection Program
- Employee retention credit
- Payroll tax deferral
- Net operating losses
- Business interest expense limitation
- Qualified improvement property
- Individuals
- Recovery rebates
- Retirement withdrawals
- Charitable contributions
- Emergency Paid Sick Leave
- Emergency Family and Medical Leave Expansion
- Small Business Administration Paycheck Protection Program
- Employee Retention Credit
- Payroll Tax Deferral
- Net Operating Losses
- Business Interest Expense Limitation
- Qualified Improvement Property
- Recovery Rebates
- Retirement Withdrawals
- Charitable Contributions
Emergency Paid Sick Leave
Up to two weeks (80 hours, or a part-time employee’s two-week equivalent) of paid sick leave based on the higher of their regular rate of pay, or the applicable state or federal minimum wage, paid at:
- 100% of regular pay, up to $511 daily and $5,110 total for employees:
- subject to a federal, state, local, or healthcare provider-issued quarantine
- experiencing COVID-19 symptoms and is seeking a medical diagnosis
- Two-thirds of regular pay, up to $200 daily and $2,000 total for employees:
- caring for an individual subject to a federal, state, local, or healthcare provider issued quarantine
- experiencing any other substantially similar condition specified by the Dept of Health
- Up to 12 weeks of paid sick leave and expanded family and medical leave paid at 2/3 up to $200 daily, and $12,000 total for employees caring for a child whose school or place of care is closed
Emergency Family and Medical Leave Expansion
The first two weeks of Family Medical Leave Act (FMLA) may be unpaid, at which time an employee may use accrued leave, but they are not required to do so. The remaining 10 weeks of FMLA will be paid up to two-thirds of employee's regular rate and the number of hours the employee is normally scheduled to work up to a limit of $200 per day, up to a total of $10,000 for all calendar quarters.
Small Business Administration Paycheck Protection Program
- Businesses with fewer than 500 employees, including self-employed individuals, who have had operations impacted by the pandemic are eligible to apply for a loan through the SBA
- Loans are expected to be forgiven up to the amount of the following expenses during the eight-week period, beginning with the origination of the loan:
- Payroll costs
- Interest on mortgage or other debt instruments
- Rent obligated under a leasing agreement
- Utilities including electricity, gas, water, transportation, telephone, and internet
- The maximum loan is set to be 2.5x the company’s average total monthly payroll cost for the previous year up to $10 million
- Within five days of applying, an initial disbursement of $25,000 will arrive
- The rest of the loan being disbursed on a schedule determined by loan office
- Applicants must verify the previous six weeks of payroll and subsequently verify that they have paid employees for eight weeks after receiving the loan
Businesses seeking to apply will be required to provide several documents including:
- SBA Form 5 completed and signed
- Tax Information Authorization (IRS Form 4506T) completed and signed by each applicant and each principal owning 20 percent or more
- Complete copies of the most recent Federal tax return for the business
- Personal Financial Statement completed, signed and dated by applicant and each principal owning 20 percent or more
- Schedule of Liabilities listing all fixed debts
The SBA application process has three methods for applying:
- SBA online portal - https://disasterloan.sba.gov/apply-for-disaster-loan/index.html
- By mail – SBA Processing & Disbursement Ctr, 14925 Kingsport Rd, Fort Worth, TX, 76155-2243
- In-person at an SBA disaster center
Employee Retention Credit
One-year only credit against the employer’s 6.2% share of Social Security payroll taxes. The credit will equal 50% of the qualified wages through December 31, 2020. There are two ways a business is eligible for the credit:
- Operation of business was fully or partially suspended during any calendar quarter during 2020, due to government orders related to COVID-19 and the business continued to pay its employees
OR
- The business remained open, but during any quarter in 2020, gross receipts for that quarter were less than 50% of what they were for the same quarter in 2019.
- In this case, the business will then be entitled to a credit for each quarter until the business has a quarter where its receipts exceed 80% of what they were for the comparative quarter in the previous year.
Payroll Tax Deferral
The employer’s share of the 6.2% Social Security tax for the period beginning on March 27, 2020 through December 31, 2020 will now be due as follows: 50% on December 31, 2021 and the remaining 50% on December 31, 2022. This also applies for self-employed taxpayers owing their 50% of the employer portion of self-employment tax. (businesses utilizing the forgiveness of loans from the SBA are not eligible for this payroll tax deferral)
Net Operating Losses
There will now be a five-year carryback period for net operating losses arising in 2018, 2019, or 2020 by a business. Businesses will be able to amend returns dating back to 2013 to take advantage.
Business Interest Expense Limitation
Increases the interest expense limitation created under the new tax laws from 30% of income to 50%.
Qualified Improvement Property
Fixes the error in the signed version of the new tax laws that limited qualified improvement property to a 39-year depreciation life. They will now be 15-year property and eligible for bonus depreciation.
Recovery Rebates
Individual taxpayers will receive rebates depending on their filing status and calculated based on either 2018 or 2019 taxes. The rebates are phased out by $5 for every $100 of income in excess of the threshold. These rebates are advance refunds for credits that will be calculated on your 2020 taxes.
- $1,200 for single filers claiming themselves
- Phaseout begins with AGI of $75,000 and is fully phased out at $99,000
- $2,400 for married filing jointly
- Phaseout begins with AGI of $150,000 and is fully phased out at $198,000
- $1,200 for head of household filers
- Phaseout begins with AGI of $112,500 and is fully phased out at $136,500
- $500 credit for each child
Taxpayers that have already filed their 2019 return will have their rebate determined utilizing that information while taxpayers that have not filed will see their 2018 income used. The IRS will be direct depositing these amounts for every taxpayer that already utilizes the direct deposit for refunds.
Retirement Withdrawals
The 10% early withdrawal penalty will be waived on withdrawals up to $100,000 made to individuals that were either diagnosed with COVID-19 or experiences adverse financial consequences as a result of quarantine, business closure, layoff, or reduced hours. Any income attributable to the withdrawal will be subject to tax over a three-year period. Taxpayers may re-contribute the withdrawn amounts without regard to annual caps within the same three-year period to avoid taxes.
Charitable Contributions
Individuals that do not itemize their deductions will now be allowed a deduction for qualified charitable contributions up to $300. Additionally, in 2020, taxpayers that do itemize will no longer be subject to the 60% of AGI limit for charitable contributions.
COVID-19 has created many challenges in recent weeks. At Malloy, Montague, Karnowski, Radosevich & Co., P.A. (MMKR), we strive to guide our clients through these uncertain times. If you are concerned about how these changes will impact you and your business, contact our team today to schedule a consultation with one of our accountants.
