Dear VRS Clients,
It has been a busy few days with additional guidance on the Phase 2 bill, and now we have the Phase 3 bill signed into law. This update will focus entirely on the impacts of the Phase 3 bill, but it is by no means a complete summary – we are only hitting the high points of the 850+ page bill.
- If you have been laid off or seen a reduction in hours, the bill boosts unemployment benefits by up to $600 per week. If you have not yet applied for unemployment, here are some resources to get you started:
- Recovery Rebates: the IRS has not released any formal information other than telling us there is nothing you need to do – the money will go out automatically. The rebate amounts will be $1,200 ($2,400 if filing a joint return) plus $500 for each qualifying child. The rebate phases out at a rate of $5 per $100 of Adjusted Gross Income over:
- $150,000 in the case of joint returns
- $112,500 in the case of head of household
- $75,000 in all other cases (single, married filing separate, etc)
- WARNING: This is actually an advance payment on a 2020 credit. It is anticipated that if your 2018/2019 return does not qualify you for the full payment, we will be able to capture the credit on your 2020 return. Conversely, we are uncertain at this time whether there will be a payback for overpayment situations where income goes up in 2020. We will get that information out as soon as we have concrete answers.
- If you have a qualifying event (diagnosed with COVID-19, caring for spouse/child with COVID-19, or loss of job/furlough due to COVID-19) you can take up to $100,000 out of a retirement account without paying the 10% penalty, and there will be a mechanism for you to put the money back in within three years.
- Possible waiver of required minimum distributions for 2020, thus allowing you to forego needing to pull money out of the stock market while it is suppressed.
- If you do not itemize, you will be allowed to deduct up to $300 of qualified charitable contributions in determining taxable income.
- Unemployment – If you need to put employees on furlough or reduce hours, please feel free to contact firstname.lastname@example.org or email@example.com to request a sample employee notice. Most states are expected to waive the waiting periods and pass legislation to not charge claims against the employer’s unemployment account for COVID-19 related claims. While historically owner/employees have paid into the unemployment system with the understanding that they will never qualify for benefits, these are unprecedented times and VRS is going to attempt to apply for unemployment benefits on owner/employees in situations where the owner/employee is truly out of work due to COVID-19 events. Stay tuned . . .
- SBA Loans
- Businesses can apply for SBA loans under the Economic Injury Disaster Loan Program by visiting their local banks that underwrite SBA loans, or by visiting www.sba.gov. These loans are the usual loan with standard repayment provisions.
- The Phase 3 bill created a new SBA loan option under the “Paycheck Protection Program” as follows:
- Eligibility: in general 500 or fewer employees (but there are certain exceptions) and certification that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations.
- Max Loan: in general, 2.5 times average monthly payroll costs incurred in the 1-year period prior to the loan being made, not to exceed $10 million.
- Fee: waived
- Forgiveness: up to 100% forgiven if during the 8-week period after funding ALL proceeds are used to cover payroll, rent/mortgage, and utilities so long as you do not reduce your workforce (certain exceptions apply and partial forgiveness would still apply in reduced workforce situations)
- Remaining Amounts: if the loan is only partially forgiven, the business can elect to term out the remaining balance over 10 years at a rate not to exceed 4%.
- Timing of Application: under the bill these loans are available immediately. However, we are waiting on information from the SBA and local banks on when they will be ready to start accepting applications. We are encouraging business owners to discuss this loan program with their bankers and review the current 7(a) loan application to start gathering information so that as soon as banks are ready to accept applications – you can ready to go.
- Employee retention credits – a credit up to 50% of qualifying wages paid during specified periods subject to COVID-19 events. There are complicated mechanics to this provision that we will not detail here, as this credit is not available to any business that avails themselves of the forgivable SBA loan provisions. It is our anticipation that most businesses will go after the SBA loan option first, and in the event they do not qualify, this employee retention credit will come into play. We will discuss this credit on a business-by-business basis and/or release more information as it becomes available.
- Deferral of payroll taxes – if your business is experiencing a cash flow crunch, you will be given the ability to defer the remaining 2020 payroll tax deposits with eventual payment of 50% by December 31, 2021, and the other 50% by December 31, 2022. This provision is also unavailable to any business that utilizes the forgivable SBA loan provision.
- Other – modifications were made to the rules on Net Operating Losses, the Limitation on Business Interest, and various other provisions. More information will come out on these items at a later date, as these primarily deal with things that VRS can deal with on your tax return and do not require immediate action on your part. We are focusing our resources right now on items that require immediate action by either you or VRS.
As always, VRS is here to help you through these difficult times. Please reach out to your tax preparer with any specific questions, and we will do our best to answer promptly. However, we continue to ask that you recognize that we are needing to prioritize our workload based upon immediate needs versus items that can be dealt with at a later date. All of our clients are important to us, and we will continue to serve all of our clients through this situation – we just may need more time to deal with non-emergent situations and questions.