Archives for May 2020

News You Can Use

If you’ve laid off employees due to the coronavirus between February 15, 2020, and June 30, 2020, you may still qualify for a forgivable loan through the Paycheck Protection Program (PPP) if you meet certain requirements. Additionally, if you return employees and wages to their pre-February 15, 2020 levels before June 30, 2020, you may avoid having any loan forgiveness reduced.

The Paycheck Protection Program is part of the larger government stimulus package. Loans through the Paycheck Protection Program are meant to minimize the number of unemployed persons by helping eligible business and organization owners cover payroll costs and certain operating expenses.

If borrowers meet certain requirements, their loans may be forgivable, in whole or in part. One of those requirements has to do with rehiring employees who’ve been laid off. Here are a few things you’ll want to know if you’ve laid off employees recently as a result of COVID-19.

How your PPP loan forgiveness may be affected

Your potential loan forgiveness may be reduced if you employ fewer people on average in the eight weeks after you receive a PPP loan compared to specific lookback periods set by the CARES Act.

Specifically, to calculate your potential reduction in forgiveness, you will be asked to compare the average number of monthly full-time equivalent (FTE) employees you employ during the eight-week period after you receive your loan with the average number of monthly full-time equivalent employees you employed during one of the following lookback periods:

• February 15, 2019, to June 30, 2019
• January 1, 2020, to February 29, 2020

Most businesses can select which lookback period they prefer to use for the comparison, but seasonal businesses have to use February 15, 2019, to June 30, 2019.

For example, if you employ on average eight people a month during the eight-week period after you receive your loan, but you employed on average 10 people a month between February 15, 2019, and June 30, 2019, your potential loan forgiveness would be reduced by 20%. That’s because you currently employ on average 20% fewer workers than the lookback period.

The amount of loan forgiveness will not be reduced based on a reduction in employees between February 15 and April 26, 2020, if the reduction is reversed by June 30, 2020.

4 tips for rehiring employees by June 30

1. Communicate as much as possible.You might not know what will happen after June 30, and that’s OK. You may find your employees would rather their employer be transparent, even if they don’t have all the answers.
2. Accommodate health restrictions. If an employee is ill or caring for a family member who is ill, you can still rehire them. Just be flexible with their time until they can come back in good health. If an employee is concerned about contracting COVID-19 at work, consider alternative work arrangements. You may also allow the employee to go negative on their sick time.
3. Continue to observe city and state mandates.If your city or state has enacted a shelter-in-place order, you might be wondering where and how your employees will work. If you can, explore creative solutions that involve working from home. It may be advisable to allow employees to use sick leave and other paid time off if remote work is not possible.
4. Consult the experts.If you’re hoping to apply for loan forgiveness, it might help to talk to your lender, HR personnel, or an employment law expert. Find out if you need any specific forms or paperwork when rehiring employees.

Further explanation of PPP Loan Forgiveness

Recipients of a Paycheck Protection Program (PPP) loan may apply for loan forgiveness from their lender after the eight-week period following disbursement of their loan. The amount of loan forgiveness, if any, a PPP loan recipient may receive will depend on a variety of factors discussed below, but will not exceed the loan principal amount plus accrued interest.

Certain uses of your PPP loan count towards how much forgiveness may be allowable, including:

• Payroll costs (which are defined in the statute)
• Mortgage interest payments on mortgages incurred in the ordinary course of business before February 15, 2020
• Rent payments under leases dated before February 15, 2020
• Utility payments for electricity, gas, water, transportation, telephone, or internet access under service agreements dated before February 15, 2020
• For certain employers identified in the statute, additional wages paid to tipped employees

The uses listed above are ones that may be covered by loan forgiveness (“covered uses”), and are not the only allowable uses of a PPP loan.

Only loan proceeds spent on covered uses during the eight-week period following disbursement of your PPP loan are forgivable – You don’t have to use all of your loan proceeds in the first eight weeks. However, amounts you spend after this eight-week period won’t be forgivable.

Reductions in staffing may impact your forgivable amount – Your allowable forgiveness may be reduced if the average number of full-time equivalent employees* you employ during the eight-week period after receiving your PPP loan is less than the average number of full-time equivalent employees you employed between either February 15, 2019, and June 30, 2019, or January 1, 2020, and February 29, 2020. Most employers can choose which of these two time periods to use for comparison, but seasonal employers have to use February 15, 2019, to June 30, 2019.

You will not be penalized for any reduction in the number of full-time equivalent employees occurring between February 15, 2020, and April 26, 2020, as long as you eliminate the reductions by June 30, 2020.

Reductions in employee salary or wages may impact your forgivable amount – Your allowable forgiveness may be reduced if there is a reduction in total salary or wages for any employee during the eight-week period that is more than 25% of the total salary or wages of that employee in the most recent full quarter they were employed before you received the PPP loan. For purposes of this calculation, don’t count any employee who had salary or wages higher than $100,000 in 2019.

You will not be penalized for any reduction in salary or wages occurring between February 15, 2020, and April 26, 2020, as long as you eliminate the reduction by June 30, 2020.

Your forgivable amount also may be reduced because:

• Not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs.
• You received an advance through the Economic Disaster Injury Loan program.

To apply for loan forgiveness, recipients of PPP loans will need to organize documentation of:

• The number of employees on the payroll
• Employee pay rates
• Payroll tax filings
• Payroll costs paid in the eight weeks following disbursement of the loan
• Mortgage interest payments in the eight weeks following disbursement of the loan
• Rent or lease payments in the eight weeks following disbursement of the loan
• Utility payments in the eight weeks following disbursement of the loan
• Any advance received under the CARES Act EIDL Emergency Grant program

Lenders are responsible for determining loan forgiveness eligibility. To apply for loan forgiveness, you can submit a request to your lender.

Wouldn’t you rather focus on careful and strategic planning opportunities to actually reduce your taxable income to the lowest LEGAL amounts possible?

A professional review of each situation can and should be the first course of action.

As an Enrolled Agent (America’s Tax Expert), Certified Tax Planner and a Certified Tax Coach, it’s my job to take a proactive approach with clients by performing a comprehensive and expert analysis of their tax situation and utilizing the current tax code to uncover opportunities which could potentially empower them to have a positive impact on future tax outcomes.

In depth planning is not something that can be done “after-the-fact” during tax season; that is to say – simply reviewing history.  My job is to help you “write history”.  I hope that the information provided to you encourages YOU to be proactive and inspire you to reduce your tax burden!  We love tax questions and look forward to sharing our knowledge and expertise with those that want to help themselves.

Don’t let the rules and regulations become your tax nightmare!  If you have questions on the above material, or would like to schedule an appointment to review how you may take advantage of the many tax-saving strategies and opportunities which are available, call me today!   I will be glad to schedule your personalized tax planning session. 

If you found this article useful, please do not keep it a secret.  Share it with a fellow business owner.  Remember, friends don’t let friends OVERPAY THEIR TAXES! I ask Better Questions – I provide Better Strategies!

For more information, visit our YouTube channel HERE.

*The average number of full-time equivalent employees is determined by calculating the average number of full-time equivalent employees for each pay period falling within a month.

**Above PPP information was collected from multiple sources including the SBA, IRS bulletins and notices, various software services and providers and is accurate as of this writing.

Due to the complex nature of the current economic situation, the extensive volume of law changes and the speed at which information is being distributed careful attention should be given to each taxpayer’s individual situation to review the most up-to-date laws and interpretations.

News You Can Use

As an Enrolled Agent, a federally licensed tax expert, Certified Tax Planner and a Certified Tax Coach, Lynn believes in keeping taxpayers informed with the most updated information available. Please review the information that has been provided and call our office at 863-295-9895 if you have questions or need professional assistance with tax planning or any IRS or other tax matters.

Business owners, workers, taxpayers – we’re all faced with a new set of decisions, choices and options as the coronavirus epidemic continues to evolve, slow consumer spending and suspend regular business operations.  Grants, Loans, Tax Credits, Tax Deferral, Stimulus Checks, Unemployment Assistance, Student Loan Relief, Health Care Coverage Changes – is your head ready to explode yet?

Small business owners are scrambling to apply for SBA emergency loans and grants created by the passage of the CARES ACT (Coronavirus Aid, Relief and Economic Security) and the FFCRA ACT (Families first Coronavirus Response Act. Among them are the Paycheck Protection Program (PPP), a loan intended to maintain employee payroll, and the Economic Injury Disaster Loan (EIDL).

Careful analysis is needed to review EACH business situation.  It may be beneficial for some business owners to take a look at the Employee Retention Credit (ERC).

What is the Employee Retention Credit?

All of the various loan and grant and loan programs authorized under new legislation passed thus far in 2020 were created to encourage business owners to keep their employees on the payroll and minimize the number of workers filing for unemployment.  The Employee Retention Credit (ERC) is a refundable tax credit intended to do the same, just in a different way.

Although the ERC is technically a credit against the employer’s liability for Social Security taxes on payroll, an employer does not need to wait until they actually file their quarterly payroll tax returns in order to receive the benefit of the credit. As described below, eligible employers can receive a current cash benefit either by reducing the employment tax deposits they are otherwise required to make or by filing a claim for “advance refund” (yes another new tax form has been created for this purpose).

How is the credit amount determined?

The amount of the credit is 50% of qualifying wages paid up to $10,000 in total. Wages paid after March 12, 2020, and before Jan. 1, 2021, are eligible for the credit. Wages taken into account are not limited to cash payments, but also include a portion of the cost of employer provided health care.

Here’s are two examples:  If an employer is entitled to a credit of $5,000 for qualified sick leave wages, certain related health plan expenses, and the employer’s share of Medicare tax on the leave wages and is otherwise required to deposit $8,000 in employment taxes, the employer could reduce its federal employment tax deposits by $5,000. The employer would only be required to deposit the remaining $3,000 on its next regular deposit date.

If an employer is entitled to an employee retention credit of $10,000 and was required to deposit $8,000 in employment taxes, the employer could retain the entire $8,000 of taxes as a portion of the refundable tax credit it is entitled to and file a request for an advance payment for the remaining $2,000 using the newly created IRS Form 7200.

Who is eligible for the Employee Retention Credit?

An eligible employer must “carry on a trade or business during calendar year 2020 and must meet one of two requirements:

1. The operation of the employer’s business is suspended fully or partially due to orders from a governmental authority limiting commerce, travel, or group meetings due to COVID-19; or
2. The employer’s business experiences a decline of more than 50% in gross receipts for a calendar quarter of 2020, compared to the same calendar quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.

For example, if your gross receipts were $210,000 in Q1 of 2019 but $100,000 in Q1 of 2020, you would meet the gross receipts test because your Q1 2020 gross receipts are equal to 48% of the comparable quarter in 2019. The test for full or partial suspension due to government order applies, regardless of the revenue impact.

Who is not eligible for the ERC?

Government employers are not eligible for the Employee Retention Credit. Small businesses who take small business loans and Self-employed individuals (since they do not file payroll tax returns on their earnings) are also not eligible for the ERC.

What are qualified wages?

The Internal Revenue Code defines wages in section 3121(a). In general, “wages” refers to payment for employment, including taxable benefits. The ERC also includes, as part of wages, the portion of group health insurance plans (including both employer contributions and pre-tax employee contributions) that is allocable to otherwise qualifying wages. The determination of which wages are qualified wages depends on the average number of full-time employees employed by the eligible employer in 2019.

Qualified wages for larger employers

This is not the same level of employees used for SBA Loans.  For employers that had an average of more than 100 full-time employees in 2019, qualified wages are those paid to an employee who did not work during the calendar quarter.

Qualified wages for smaller employers

For employers that had an average of fewer than 100 full-time employees in 2019, the credit is based on wages paid to all employees, regardless if they worked or not. If the employees worked full time and were paid for full time work, the employer still receives the credit.

The period of decline in gross receipts begins with the first quarter of 2020 in which there is a more than 50% decline in gross receipts (compared to the same quarter of 2019) and ends on the last day of the first subsequent quarter in which the employer’s gross receipts are more than 80% of those for the corresponding quarter of 2019. Many small businesses have employees who “wear many hats,” and the ERC rules give businesses with fewer than 100 employees more leeway in eligibility requirements. These businesses can claim the credit for wages paid to all employees, rather than just the employees who are not working due to a closure.

What wages do not qualify for the ERC?

Qualified sick and family leave pay for which the employer is eligible for tax credits under the Families First Coronavirus Response Act are not eligible for the ERC. Wages paid to an employee with respect to whom the employer is eligible for the work opportunity tax credit for a given period also cannot be included in computing the ERC.

How can eligible employers receive the Employee Retention Credit?

If you are eligible, you can receive an Employee Retention Credit in any of three ways.

1. You can claim credits on your quarterly employment tax return (Form 941), beginning with the second quarter of 2020, by reporting your total qualified wages for the quarter (the Q2 return can also include qualified wages from Q1).
2. You can reduce the amount of employment taxes you are required to deposit with the IRS for each payroll cycle by the amount of the ERC to which you are entitled, without penalty.
3. You can submit Form 7200 to receive an advance refund of the ERC from the IRS. You can file Form 7200 any time during a quarter and request a refund of the ERC anticipated for that quarter (less any amounts received through reduction of payroll deposits). You can file multiple times for a quarter if the amount of ERC you anticipate increases. The last date to file Form 7200 for a given quarter is the end of the month following the quarter.

Does all of this seem like it is getting VERY complicated?  It is complicated.  If there was ever a time when business owners should seek professional guidance regarding their payroll processes, now would certainly be a good time.  This is not an area of tax law you want to be experimenting with.

Does the Employee Retention Credit work with the Paycheck Protection Program?

No, an employer is not eligible for the Employee Retention Credit if they receive a loan under the Paycheck Protection Program.

Which is better for my business, the ERC or PPP?

Both the Employee Retention Credit (ERC) and Paycheck Protection Program (PPP) are intended to keep Americans working and keep employees on payroll rather than collecting unemployment benefits. However, receiving a PPP loan renders your business ineligible for the ERC. So it’s important to weigh the pros and cons of each and make an educated decision.

Pros and cons of the Paycheck Protection Program

The Paycheck Protection Program offers small business owners loans up to $10 million to cover payroll costs and other qualifying business expenses. Business that meet specific requirement may be eligible for PPP forgiveness.  Amounts not forgiven, will convert to a low-interest loan.  Paycheck Protection Program loans may be a good solution for small to midsize businesses. The PPP can provide these businesses with critical cash that allows them to keep their doors open and pay their employees.

There is a very narrow window of time in which to apply for these funds.  Many lenders are overwhelmed with applications and unable to process them in a timely manner – in many cases, even before the funding runs out.  Some lenders are unwilling to accept applications from business owners who do not have a previous business relationship established prior to Covid-19.

Pros and cons of the Employee Retention Credit

The Employee Retention Credit allows business owners quick access to cash via a reduction in payroll tax deposits or an advance refund procedure. The Employee Retention Credit isn’t a loan, so it does not need to be repaid, however, specific criteria must be met and careful calculations must be made to utilize the ERC.

Because the ERC is not a loan, recipients don’t need to repay funds.

Comparing ERC and PPP loans

Generally, businesses with more than 500 employees or businesses with primarily low-wage workers may find greater benefit through the ERC than the PPP. Lenders calculate PPP loans using your average monthly payroll costs, while the ERC is driven more by employee headcount.

Wouldn’t you rather focus on careful and strategic planning opportunities to actually reduce your taxable income to the lowest LEGAL amounts possible?

A professional review of each situation can and should be the first course of action.

As an Enrolled Agent (America’s Tax Expert), Certified Tax Planner and a Certified Tax Coach, it’s my job to take a proactive approach with clients by performing a comprehensive and expert analysis of their tax situation and utilizing the current tax code to uncover opportunities which could potentially empower them to have a positive impact on future tax outcomes.

In depth planning is not something that can be done “after-the-fact” during tax season; that is to say – simply reviewing history.  My job is to help you “write history”.  I hope that the information provided to you encourages YOU to be proactive and inspire you to reduce your tax burden!  We love tax questions and look forward to sharing our knowledge and expertise with those that want to help themselves.

Don’t let the rules and regulations become your tax nightmare!  If you have questions on the above material, or would like to schedule an appointment to review how you may take advantage of the many tax-saving strategies and opportunities which are available, call me today!   I will be glad to schedule your personalized tax planning session. 

If you found this article useful, please do not keep it a secret.  Share it with a fellow business owner.  Remember, friends don’t let friends OVERPAY THEIR TAXES! I ask Better Questions – I provide Better Strategies!

For more information, visit our YouTube channel HERE.

The resources described above are made available to businesses within the United States of America.

COVID-19 relief programs are evolving regularly. Please visit SBA.gov for the most up to date information.

IRS is providing Covid-19 related Q&A on the tax credits

IRS Reference for New Employer Tax Credits

**Above PPP and tax credit information was collected from multiple sources including the SBA, IRS bulletins and notices, various software services and providers and is accurate as of this writing.

Due to the complex nature of the current economic situation, the extensive volume of law changes and the speed at which information is being distributed, careful attention should be given to each taxpayer’s individual situation to review the most up-to-date laws and interpretations.