Another month, another series of updates on COVID-19 relief funding and its tax implications. As I’ve been doing since March, below is the latest information available so you can make informed decisions about what is best for you, your family and your business. Keep in mind, any of this can change in the coming weeks or months too. If you are a client and have questions about your specific situation, email me, and I’ll be happy to help out in any way I can. Now for the news…
Economic Impact Payments (EIPs) aka Stimulus Payments
More than 140 million impact payments totaling around $239 billion have been issued and funds are continuing to be disbursed. Here’s the latest information on these payments. Many questions can also be answered by visiting the IRS Economic Impact Payment webpage and utilizing the Get My Payment tool.
- Mid-April, the IRS started issuing payments to qualifying recipients with direct deposit bank accounts on file. Shortly thereafter, the IRS created a tool allowing those without direct deposit information on file to provide it. For folks for whom the IRS still does not have banking information, the IRS is mailing checks, as well as prepaid debit cards.These cards are supposed to be secure, easy to use, and available to make purchases or transfer the funds into personal bank accounts without incurring any fees.
- Perhaps better late than never, the IRS is opening phone lines to answer EIP-related questions. The number is 800-919-9835. As you can expect, hold times may be lengthy. If you are a client and have questions regarding your payment, please reach out to me and I will let you know if it makes sense to call.
- If you’ve received an EIP in error, the IRS has guidance on how to return it. In the continually-updated FAQs, Q52 to be more specific, instructions are provided. If you are a client, please contact me before attempting to return any EIP amounts.
If you haven’t received a payment or you’ve received a payment that differs from what you expected, possible reasons include:
- Your 2019 individual income tax return has either not yet been filed or not processed by the IRS. If this is the case, the IRS looks to your 2018 tax return to determine a payment.
- Your claimed dependents are not eligible – an additional $500 is allowed for each dependent under age 17.
- You were in college but claimed by someone else as a dependent.
- Your payment was offset by past-due child support. A notice from the Bureau of the Fiscal Service should have been sent if this is the case.
Remember that these stimulus amounts are advance credits against 2020 tax and a true up will occur when you file your 2020 tax return in 2021. If the EIP amount calculated on your 2020 tax return is less than what you receive now, you don’t have to repay that difference. On the other hand, you will receive a benefit if the amount calculated on your 2020 tax return is more than what you receive now.
Paycheck Protection Program (PPP)
It’s All About Forgiveness
As a reminder, the forgiveness aspect of the PPP loans has made them sought after and controversial. Not helping matters has been the snail’s pace at which definitive guidance around obtaining this forgiveness has been made available. Last week, the SBA and Department of Treasury released the form and instructions for borrowers to apply for PPP loan forgiveness with their lenders. Highlights include:
- Flexibility in the 8-week period to pay or incur eligible expenses for forgiveness;
- Introduction of an alternative payroll covered period that aligns with a borrower’s regular payroll cycle;
- Implementation of exemptions for loan forgiveness reduction based on rehiring by June 30 and/or making good-faith written efforts to rehire that were declined by employees.
Further guidance is expected and it’s likely we’ll also see changes to the form and instructions. It’s a good start, but hang tight as we no doubt will see revisions and more questions answered.
You’re Safe Under $2M
The PPP FAQs (see question 46 for details) were updated to include a provision for borrowers who received PPP loans with an original principal amount of less than $2M. Such recipients will be deemed to have made the good-faith certification necessitating the loan. While many think the economic uncertainty determining factor is broad enough to cover most businesses who have applied, this safe harbor will bring peace of mind to many.
Missed Out on Max PPP? It’s not too late.
Another important development was a new interim final rule on PPP loan increases, important for partnerships who did not include partner self-employment income as payroll on an initial application. A previous interim final rule posted on April 14, well after many businesses submitted applications, clarified partners may not use such income to separately apply for a PPP loan.
To ensure that these businesses can obtain their maximum PPP loan, the rule authorizes lenders to increase existing PPP loans to cover partner compensation. Seasonal employers who may have missed out on funds related to alternate calculation criteria are allowed increases to their PPP loans as well.
The CARES Act suggested that PPP loan forgiveness would be tax-free. In contrast, the IRS released guidance stating that, while the forgiveness itself wouldn’t be considered taxable income, no tax deduction would be allowed for expenses paid for by PPP loans. This topic is still being debated and an ultimate outcome is uncertain. Until further guidance is released, plan for those expenses to be non-deductible for tax purposes.
HEROES Act Passes the House
The Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, the latest round of proposed COVID-19 relief legislation, passed the House last week. While many are suggesting the bill won’t make it through the Senate in its current form, some of its provisions could eventually become future law. Below are some of the tax-related highlights of the bill:
Economic Impact Payments
- Broader definition of dependents qualifying for an additional $500 payment would mean that households would receive $500 for every qualifying dependent, not only children under age 17.
- Recovery rebates would no longer be offset by past-due child support.
- Additional payment amounts of $1,200 per taxpayer ($2,400 for those married filing jointly), plus $1,200 for up to three dependents.
Enhanced Child Tax Credit for 2020
- Increase to $3,600 for children under age 6 and to $3,000 for other qualifying children.
- Expanded to children aged 17
- Become fully refundable.
- Paid in advance on a monthly basis.
Miscellaneous Individual Items
- Increased exclusion for employer-provided dependent care for 2020.
- Removal of the $10,000 itemized deduction SALT cap for 2020 and 2021.
- Double the amount of above-the-line deductions for teachers out of pocket expenses.
- New tax deductions for first responders and front-line employees for certain out of pocket expenses.
- New employer tax credit for qualified pandemic-related employee benefit expenses.
Employee Retention Credit
- Repeals the inability to take both the ERC and a PPP
- Increases the credit percentage from 50% of qualifying wages to 80%.
- Increases the per employee limitation on qualifying wages from $10,000 to $45,000
- Expands businesses eligible to claim the credit.
- Creates phase-ins of the credit for certain scenarios.
- Confirms health plan expenses are considered wages for the purposes of the ERC.
Paycheck Protection Program (PPP)
- Clarifies deductions paid with PPP funds are tax deductible.
- Extends the covered period through the end of the year.
- Removes the 75/25 requirements related to payroll and other allowed expenses.
- Removes the disallowance of the employer payroll tax deferral for businesses receiving PPP loan forgiveness.
- Creates a safe harbor for borrowers who cannot rehire in the prescribed timeframe
- Expands availability to
- Changes the loan term to a minimum 5 years.
Miscellaneous Business Items
- Provides new business credit for certain fixed expenses.
- Creates a new tax credit for self-employed individuals who have experienced significant declines in income, replacing up to $45,000 in income.
- Enhances the employer tax credits for mandatory paid sick and family leave.
- Reinstates the limitation on excess business loss deduction for tax years 2018-2020
- Modifies the CARES Act by limiting net operating loss carrybacks to tax years 2018-2020.
It’s a lot to take in, so as always, please reach out to me with any questions or concerns you have regarding how these changes may affect you.