Coronavirus (COVID-19) Resources
Owner-operator businesses usually start out as sole proprietorships, which is fine until your business starts to grow, and your family status changes. Life can throw your business a curve ball when you least expect it. Retirement, divorce, illness, even irreconcilable differences with a new partner or staff. Whatever life pitches, you should have a plan for possible risks and choose the right structure to protect both the business and your family. There are also important tax considerations!
Here are some insights into the choices you have regarding business structure:
Smaller owner-operator businesses are usually structured as sole proprietorships with no legal separation between the owner and the business. All properties and liabilities are in the owner’s name and the owner is liable for any legal or financial issues in the business. Startup and compliance requirements are minimal, and profits and losses are passed down to the owner and claimed on the owner’s personal tax form using Schedule C (Form 1040).
Here’s a common scenario: one day you get married, and before you know it your spouse and your children now work hand in hand with you. Your sole proprietorship is now a family business. What choices do you have?
1. The business can stay a sole proprietorship with your spouse and children hired as employees. You get a bit of a tax break because if one spouse is employed by another, the wages of the spouse are not subject FUTA, and wages of your kids under age are not subject to Social Security and Medicare taxes and not subject to FUTA if the kids are under age 21. WOW!
2. If you and your spouse run the business together while sharing both profits and losses, the business is now considered a partnership even if there is no formal partnership agreement. Business income and loss are no longer reported on a Schedule C, Form 1065 is now required.
3. Another option for a married couple owning and operating a business together is to elect treatment as a “qualified joint venture,” in order to continue filing as sole proprietors for federal tax purposes. In this case, each spouse must file a separate Schedule C to report their share of profits and losses.
There is no legal separation between the owner and the business in a sole proprietorship, so should the owner die, the business will terminate, and its assets will become part of the owner’s estate. The business does not necessarily get passed down to the remaining family members. A sole proprietor must include a provision in their will directing that the business be sold or a successor is appointed.
If a divorce between the sole proprietor and the spouse occurs, unless the spouse is a co-owner, there is no automatic sharing of the assets and the details are decided in the divorce proceedings.
In a partnership there is more than one owner. That could mean two spouses, two siblings or a parent and child. In a partnership the owners share legal, financial, and management responsibilities. Profits and losses are passed down to the partners, and each partner is equally taxed. For the family’s sake, be sure there is a partnership agreement in place. Without predetermined resolution methods, any argument over who works harder or disagreement about how to run the business can wreak havoc.
A partnership is like a sole proprietorship in the sense it has no legal separation from the owners. We highly recommend putting a buy-sell agreement in place for how to handle the business in the event of a partner’s death, retirement, divorce or departure.
C Corporations are legal entities separate from the owners. Owners and shareholders have a substantial amount of protection from personal liability and those operating the corporation are employees. Family members in the business are also employees and may also be shareholders. If the business wants to sell stock to raise money for growth, the C Corp structure is a good choice.
A corporation files its own tax return, IRS Form 1120. The corporation claims deductions for business expenses and a flat corporate rate of 21%. The disadvantage is the “double taxation” factor where the company is not only taxed on its profits but then the owners are taxed again when they receive dividend distributions which are taxed on their personal income tax return. There are compliance requirements and fees, but the advantages of tax saving deductions, liability protection and the ability to sell shares may make the C Corp worth it.
Incorporating a business involves filing Articles of Incorporation with the state. The corporation bylaws dictate how the company deals with divorces, deaths, succession and whether or not the company must stay in the family or can be sold to an outside party. There must also be rules on what happens to the shares in case of death, divorce, or company buy-out. Some family members may run the business and others may serve on the board. If the family corporation goes public, the board of directors governs decision-making. By creating bylaws mandating only family members can be on the board, a family can retain better control. Families can also decide to limit the number of shares going to non-family members.
The S Corp is a special election which allows owners/members to pass business income, losses, deductions, and credits through to their member shareholders for federal tax purposes. Shareholders of S Corps are then required to report the income and losses on their personal tax returns. Many family-owned businesses choose to elect S Corp status because of the treatment of employment taxes. Only wages are subject to self-employment taxes and other business profits can be distributed as dividends, which are only subject to income tax, but no payroll taxes are required. To elect S Corp status, the business must file IRS Form 2553 by March 15th, and meet ongoing filing requirements such as:
- Reporting financial activity (Form 1120S, Schedule K-1s for shareholders),
- Withholding federal income tax, Social Security and Medicare taxes from employees’ wages,
- Filing IRS Form 941 each quarter to report these withholdings, and
- Filing a Federal Unemployment Tax Return annually (IRS Form 940).
Family Limited Liability Company (LLC)
The LLC structure offers the liability protections of a corporation without the stringent compliance regulations. In a Family LLC, owners are called members and must be related by blood or marriage, and one family member acts as the managing member. LLCs are required to have an operating agreement which defines the rights related to ownership, decision making, transferring of assets and what happens in the case of divorce, death, retirement, etc.
LLC member’s personal assets are protected if the company gets sued or can’t pay its debts. An LLC is a pass-through entity, and all income flows through to members and is reported on their personal tax returns. The LLC can choose to be taxed as a C Corp or an S Corp. For example:
- The LLC taxed as a sole proprietorship or partnership will pay payroll taxes on all profits, so paying an immediate family member makes no difference to the owner’s taxes.
- The LLC taxed as an S Corp can decide to split up profits as wages and shares so only part of the profits is subject to payroll taxes.
- The LLC taxed as a C Corp with be double-taxed, profits taxed at the corporation level and then wages taxed.
Reach Out to Us: Let our tax professionals and business consultants help you choose the right entity for your family businesses to put you on a straight path to success. Contact us at 855-666-4201 or email@example.com. More info on the benefits of the C corp vs the S corp, and small business structuring for tax efficiency HERE: Harless Blog >
The Consolidated Appropriations Act of 2021 is a long-awaited bill that combined individual stimulus payments and the expansion of the Paycheck Protection Program. The bill also has far-reaching tax consequences, it confirmed that “no amount shall be included in the gross income of the eligible recipient by reason of forgiveness,” and “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income.” This means that the forgiven amount from a PPP loan will have no effect on income or tax credits, and a company can now deduct expenses paid for with PPP funds.
“PPP 2” is a new, more targeted small-business assistance program. Here are the answers to the most frequently asked questions.
When will the new PPP loans will be available?
The application window for Paycheck Protection Program (PPP) forgivable loans was opened Friday, January 15, for lenders with $1 billion or less in assets, and applies for both first- and second-draw PPP loans. The program will begin accepting applications for first- and second-draw loans from large lenders on Tuesday, January 19.
For all types of PPP loans, no collateral or personal guarantee is required. For these new loans, any amount not forgiven becomes a loan at 1% for five years.
What kinds of PPP loans will be available?
- At the high level, there is funding for three categories of PPP loans in this legislation: 1st time PPP loans for businesses who qualified under the CARES Act but did not get a loan;
- 2nd draw PPP loans for businesses that obtained a PPP loan but need additional funding; and
- More funds for businesses that returned their first PPP loan, or did not get the full amount for which they qualified.
- Are there PPP loan maximum amounts?
The loans are capped at $10 million for first-time borrowers, and $2 million for second-time PPP borrowers.
In general, first- and second-time PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs (with a cap per employee of $100,000 annualized) in 2019, 2020, or the year prior to the loan. PPP borrowers with such as hotels and restaurants can receive up to 3.5 times their average monthly payroll costs on second-draw loans.
The maximum for a first-draw PPP loan is $10 million, the same as in the original PPP. Applicants must provide a Form 941, Employer’s Quarterly Federal Tax Return, and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever is used to calculate the loan amount), or equivalent payroll processor records, along with evidence of any retirement and health insurance contributions.
The maximum loan amount for second draw loans is $2 million. In all the examples below, the loan amount caps out at $2 million. Businesses that are part of a single corporate group can’t receive more than $4,000,000 of second draw PPP loans total. An eligible entity may receive only one second draw loan.
As before, a business may qualify for up to 2.5 times average monthly payroll costs. You can arrive at this figure either by one of two methods— your choice (except hospitality businesses see below):
- Multiply average gross monthly payroll cost for the 1-year period before the date the loan is made by 2.5, or
- Multiply average gross monthly payroll cost for 2019 or 2020 (borrower’s choice) by 2.5.
New companies not yet in business for the 1-year period preceding February 15, 2020, will use a slightly different formula to arrive at the average monthly payroll costs. They will divide the payroll costs paid or incurred by the date they apply by the number of months in which those costs were incurred and multiply the result by 2.5 (or 3.5 for hospitality businesses). Again, new businesses must have been in business by February 15, 2020 in order to be eligible.
Seasonal businesses may apply based on the average monthly payroll costs for any 12-week period between February 15, 2019 and February 15, 2020. A seasonal employer is defined as one that:
- “Does not operate for more than 7 months in any calendar year; or
- During the preceding calendar year, had gross receipts for any 6 months of that year that were not more than 33.33 percent of the gross receipts of the employer for the other 6 months of that year.”
Businesses with a NAICS code beginning in 72 (generally hospitality and restaurant businesses) may receive up to 3.5 times average monthly payroll cost using their choice of these two methods:
- Multiply average gross monthly payroll cost for the 1-year period before the loan is made by 3.5 or
- Multiply average gross monthly payroll cost for 2019 or 2020 (borrower’s choice) by 3.5.
Note that all of these methods allow the business to use payroll costs incurred or paid during the applicable time period. (You may incur a payroll cost but not actually pay it until the pay period.)
What are eligible costs? Anything new?
PPP borrowers can have their first- and second-draw loans forgiven if the funds are used on eligible costs. As with the first round of the PPP, the costs eligible for loan forgiveness in the revised PPP include payroll, rent, covered mortgage interest, and utilities. To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period between eight or 24 weeks.
In addition, the following costs are now eligible:
- Covered worker protection and facility modification expenditures, including PPE, personal protective equipment, to comply with COVID-19 federal health and safety guidelines, including:
- a drive-through window facility;
- an indoor, outdoor, or combined air or air pressure ventilation or filtration system;
- a physical barrier such as a sneeze guard;
- an expansion of additional indoor, outdoor, or combined business space;
- an onsite or offsite health screening capability.
- Covered property damage costs related to property damage and vandalism or looting due to public disturbances in 2020, that were not covered by insurance or other compensation.
- Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
- Covered operating expenditures, and a number of back-office functions, including accounting. Payments for any business software or cloud computing service for business operations; product or service delivery; the processing, payment, or tracking of payroll expenses; human resources; sales and billing functions; or accounting or tracking of supplies, inventory, records, and expenses.
Who is eligible for “simplified” forgiveness?
Borrowers that receive a PPP loan of $150,000 or less shall receive forgiveness if the borrower signs and submits to the lender a certification that includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount.
The SBA has yet to create the simplified application form which includes all PPP loans, both under the first round and the new ones, by late January. The form may not require additional materials unless necessary to substantiate revenue loss requirements. Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.
We recommend considering opening a separate bank account to deposit your PPP funds and track expenditures.
What if I didn’t get a PPP loan before?
There is funding for “first draw” PPP loans and you can apply on terms similar to the original CARES Act. You do not have to demonstrate the 25% revenue loss for a first-time loan, and your business may qualify if it has more than 300 employees, provided it qualifies based on the previous CARES Act rules.
First time PPP loans are available to borrowers that were in operations on February 15, 2020, and are from one of the following groups:
- Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
- Sole proprietors, independent contractors, and eligible self-employed individuals.
- Not-for-profits, including churches.
- Accommodation and food services operations with NAICS codes starting with 72 that have fewer than 500 employees per physical location.
- 01(c)(6) business leagues, such as chambers of commerce, visitors’ bureaus, etc., and “destination marketing organizations” that have 300 or fewer employees and do not receive more than 15% of receipts from lobbying. The lobbying activities must comprise no more than 15% of the organization’s total activities and have cost no more than $1 million during the most recent tax year that ended prior to Feb. 15. 2020. Sports leagues are not eligible.
- News organizations that are majority-owned or controlled by an NAICS code 511110 or 5151 business or not-for-profit public broadcasting entities with a trade or business under NAICS code 511110 or 5151. The size limit for this category is no more than 500 employees per location.
PPP applicants must submit documentation sufficient to establish eligibility and to demonstrate the qualifying payroll amount, which may include, as applicable, payroll records; payroll tax filings; Form 1099-MISC, Miscellaneous Income; Form 1040, Schedule C, Profit or Loss From Business, or Schedule F, Profit or Loss From Farming; income and expenses from a sole proprietorship; or bank records.
Who is eligible for second draw PPP loans?
Many small businesses and independent contractors may be eligible for second draw PPP loans if they received a PPP loan previously and qualify. First, similar to the first rounds of PPP, eligible small businesses may include:
- Small businesses, nonprofit organizations, organizations for veterans, tribal business concerns, and small agricultural cooperatives.
- Sole proprietors, self-employed individuals or independent contractors.
- Certain small news organizations, destination marketing organizations, housing cooperatives, and 501(c)(6) nonprofits may now also be eligible.
Borrowers are eligible for a 2nd-draw PPP loan of up to $2 million, provided they have:
- 300 or fewer employees. Businesses with multiple locations that qualified under the CARES Act may qualify for a second draw provided they employ fewer than 300 people in each location. Affiliation rule waivers from the CARES Act still apply.
- Used or will use the full amount of their first PPP loan on or before the expected date for the second PPP loan to be disbursed to the borrower. The borrower must have spent the full amount of the first PPP loan on eligible expenses.
- Experienced a revenue reduction of 25% or more in all or part of 2020 compared with all or part of 2019. This is calculated by comparing gross receipts in any 2020 quarter with an applicable quarter in 2019, or, a borrower that was in operation for all four quarters of 2019 can submit copies of its annual tax forms that show a reduction in annual receipts of 25% or greater in 2020 compared with 2019.
Gross receipts defined to include all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Forgiven first-draw PPP loans are not included in the 2020 gross receipts.
Certain types of businesses are not eligible including most businesses normally not eligible for SBA loans, businesses where the primary activity is lobbying, and businesses with certain ties to China. The CARES Act made an exception for certain non-profits and agricultural cooperatives which are not normally eligible for SBA 7(a) loans. Publicly traded companies are not eligible to receive second draw PPP loans.
How is the 25% reduction in revenues calculated?
Business owners will compare gross receipts of the business before expenses are subtracted. They will compare those for any quarter in 2020 to the same quarter in 2019 to determine if revenues decreased by at least 25%.
Businesses must have been in operation by February 15, 2020 to be eligible. What if you weren’t in business all of 2019?
- If you were not in business during the first or second quarter of 2019 but you were in business in the third and fourth quarter of 2019, then you may compare any quarter in 2020 with the third or fourth quarter of 2019 to determine whether gross receipts were reduced by at least 25%.
- If you were not in business during the first, second or third quarter of 2019, but you were in business in the fourth quarter of 2019, then you may compare any quarter in 2020 with the fourth quarter of 2019 to determine whether gross receipts were reduced by at least 25%.
- A business that wasn’t in business in 2019 but was in business before February 15, 2020 will compare gross receipts from the second, third or fourth quarter of 2020 to that first quarter of 2020 to determine whether gross receipts were reduced by at least 25%.
The periods are now comparing any of the 4 quarters of 2020 to the corresponding quarter in 2019 –or – the entire 2020 year compared to 2019.
Note that according to the legislation, for loans of up to $150,000 you can simply certify your revenue loss when you apply, but on or before you apply for forgiveness you will have to produce documentation of that revenue loss. We won’t know exactly what the SBA will consider acceptable until it provides guidance.
Does it matter if the company is cash or accrual based? The application must be made on the same basis as the company’s tax return.
What counts as payroll?
Payroll is the same as defined in the CARES Act with one new addition: Group benefits are defined to include group life, disability, vision, or dental insurance.
Payroll does not include:
- The compensation paid to an employee in excess of $100,000 on an annualized basis;
- Any compensation of an employee whose principal place of residence is outside the United States;
- Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.
Do not include amounts paid to 1099 contractors; they may apply on their own!
Self-employed? Independent contractors and the self-employed with no employees will still qualify based on 2.5 months of net profit (capped at $100,000) on their Schedule C tax form for 2019 or 2020. Businesses with a NAICS code beginning in 72 qualify for 3.5 times average monthly payroll.
Partnerships will qualify by using the sum of:
- Net earnings from self-employment of individual general partners in 2019 or 2020 (borrower’s choice), as reported on IRS Form 1065 K-1, reduced by section 179 expense deduction claimed, unreimbursed partnership expenses claimed, and depletion claimed on oil and gas properties, multiplied by 0.923537, that is not more than $100,000, divided by 12;
- The average total monthly payment for employee payroll costs incurred or paid by the borrower during the same year elected by the borrower;
- Multiplied by 2.5 or 3.5 for businesses with a NAICS code beginning in 72.
Can I reapply for a loan if I returned my first one?
Yes! If you returned all or part of your PPP loan, you may apply for an “amount equal to the difference between the amount retained and the maximum amount applicable.” Or, if you did not accept the full amount you may request a modification to allow you to borrow the full amount for which your business is eligible.
Is there loan forgiveness for second draw PPP loans?
Just like the first round of PPP, these loans may be entirely forgiven if spent for primarily payroll during the proper time period. Currently there are three PPP loan forgiveness applications: Form 3508, Form 3508EZ, and Form 3508S. Borrowers can continue to use those forms for PPP loans they received earlier in 2020, unless and until new applications are released. However, we expect Treasury and the SBA to release new loan forgiveness applications.
In addition, there is also simplified (but not automatic) forgiveness for loans of $150,000 or less.
Will an EIDL Grant be subtracted from my PPP for loan forgiveness?
No. The legislation repeals the requirement that an EIDL grant (advance) be deducted for purposes of PPP forgiveness. In addition, the SBA Administrator is required within 15 days of when this legislation is enacted to “ensure equal treatment” for borrowers whose loans have already been forgiven and who had their grants subtracted from the forgiven amount.
How do I apply for one of these PPP loans?
Not all lenders who offered PPP loans in the first round will participate this time around. Lenders approved by the SBA will make these loans. You’ll need to submit the following information with the application:
- If you are self-employed with no employees, your IRS Form 1040 Schedule C (whichever was used to calculate loan amount); documentation that you are self-employed (such as IRS Form 1099-MISC detailing nonemployee compensation received (box 7), invoice, bank statement, or book of record that establishes that the applicant is self-employed); and a 2020 invoice, bank statement, or book of record to establish that the applicant was in operation on or around February 15, 2020.
- If you are not self-employed, Form 941 (or other tax forms containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever was used to calculate payroll), as applicable, or equivalent payroll processor records, along with evidence of any retirement and employee group health, life, disability, vision and dental insurance contributions. A partnership must also include its IRS Form 1065 K-1s.
- If you are self-employed with employees, your 2019 or 2020 IRS Form 1040 Schedule C (whichever was used to calculate loan amount), Form 941 (or other tax forms or equivalent payroll processor records containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever was used to calculate loan amount), as applicable, or equivalent payroll processor records, along with evidence of any retirement and employee group health, life, disability, vision and dental insurance contributions, if applicable. A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish the applicant was in operation on February 15, 2020.
For all of these borrowers, you do not have to include documentation of your reduction of revenues if the loan amount is less than $150,000, but you will have to submit it when you apply for forgiveness.
If the loan amount is greater than $150,000, then you will have to submit documentation of the reduction in revenues, which may include documentation sufficient to establish that your business experienced a 25% reduction in revenue, which may include relevant tax forms (including annual tax forms), or if not available, a copy of the quarterly income statements or bank statements.
If you are applying for a second draw PPP loan with the first lender that processed your first draw loan you don’t need to include duplicate information already submitted.
REACH OUT TO US: Our accountants played a large role in helping many of our clients receive Paycheck Protection Program loans last year. Now, the PPP is back and better, and clients will again need advice and assistance in accessing the 2nd program. We can help you figure out if you are eligible and should apply, whether a 1st time or 2nd time borrower, and how to maximize your forgiveness. We do have the recently released PPP applications and can review them with you. We will continue to delve into this legislation and will provide additional insights by updating this article.We are available for your questions at 855-666-4201.
A survey by the Physicians Foundation estimated that 8% of all physician practices nationally — around 16,000 — have closed under the stress of the pandemic. Many physicians are leaving medicine entirely because of the pandemic. According to a survey from Medscape, almost 25% of doctors are considering retiring early.
Practices operating with thin margins, especially primary care practices, are bearing the brunt of patients staying away due to pandemic fears. As revenues drop, overhead remained the same, and the cost of PPE has been added on top of it all. Telehealth services have not been able to completely replace dollars that were lost.
According to the AMA the average physician has experienced a 32% drop in revenue since February of 2020. Some who had emergency reserves to weather the storm has seen those reserves depleted. Many eligible for government loans have little or nothing left moving into 2021. More worrisome is that the fear of catching COVID is preventing folks from getting the care they need for chronic conditions.
Even dental practices are feeling the squeeze. Patient visits are halved, and staggered. Now air purifiers and sneeze guards are de rigueur, as is PPE for staff. Rent and utility bills still come due, but PPP money is mostly gone. Some patients that need treatment are nervous about finances and out of work so they are looking for lower cost alternatives to expensive implants and dental work.
Burnout is taking even more of a toll on healthcare providers than before the pandemic, and financial stress is certainly a contributor.
The COVID crisis has affected short term revenue, but if your financial position is solid, chances are you will emerge stronger in the long term. There are strategies physician practices can pursue to weather the financial storm associated with the coronavirus pandemic.
1. Avoid spending right now, personally and professionally. You can probably do without that new car for the time being, and you probably don’t really need that Peloton bike no matter how much you want it. There may come a time when those dollars that you spent will be greatly needed. Physician practices should limit new spending to practice enhancements. Patient traffic is unpredictable, so it’s better to save for the unknown and wait for more stability. There are expenses required during COVID-19 pandemic, but do not go beyond special air purifiers, sneeze guards, PPE, and required expenses.
2. Speak with your Fuoco Group accountant about taxes. Believe it or not, there are opportunities that can arise during economic crises. Find out if you fall into a lower tax bracket due to reduced income. Is this the year you look at a Roth Conversion to take advantage of lower tax rates? The partnership model creates more control for physicians over their taxable income, individually they can expense a lot more than their corporate counterparts. If you consider the likelihood of future tax increases, the new Secure Act permits physician partners to really reduce their tax savings during retirement with Mega Backdoor Roth 401(k). Beyond those opportunities, partnerships permit highly paid partners to incorporate and implement additional tax savings options.
3. Don't rush to pay down debt. Medical professionals should be careful about taking cash and paying down debt for the next 90 to 180 days. If there is a vaccine in the fall, your practice business is good, and you have saved a lot of money by being ultraconservative, then look at paying debt down. The Federal Reserve System has been taking actions to promote lending, but medical practices cannot count on finding a lender if they experience a cash crunch.
4. Take advantage of the second round of the Paycheck Protection Program (PPP). You have an interest-free period for 24 weeks, and if you follow the rules, such as spending 60% of your funds on payroll, and you get the loan forgiven at the end of 24 weeks, it is a home run. Even if a medical practice cannot get a PPP loan forgiven, remember it is a 1% interest rate loan. So, it may make sense to do the 30-month payback and carry the loan if you can't financially afford to bring your staff back. If you have gotten PPP assistance, keep the funds in a dedicated account to pay for expenses such as payroll and rent. When the practice pays for insurance or for payroll, reimburse out of the separate PPP account for the exact, specific payments to have the proof for the bank and for SBA that the PPP funds were used for the purposes outlined.
Keep in mind The Consolidated Appropriations Act, 2021, has made additional PPP Loan money available, streamlined forgiveness, and extended many tax breaks for medical groups. Let us help guide you if you missed round one, or would like to dip into the well a second time.
5. Develop a new financial plan for your practice. While you are working on a new budget, expense evaluation, cash flow projection, tax estimate etc., don’t forget to do your personal tax planning as well. You may wish to review your retirement plan contributions, and review asset allocations and rebalance your portfolio too.
6. Take the long view. The pandemic has shown that reimbursement for primary care services must be reformed, and fee-for-service is a failure. It is a system that is based on face-to-face visits, which obviously does not work in a pandemic. During the pandemic, the CMS as well as private health plans have moved in the right direction on advance payments which will help primary care practices keep their doors open. This could be a step forward on the road to prospective payments, but that conversation has been a long time coming. In addition, government and private payers need to provide appropriate reimbursement for innovative care delivery models like telemedicine.
REACH OUT TO US: You have to have a passion for caring for your patients but don’t be ashamed to run a profitable business. Money should not be your primary motivator, but you have to run a profitable business so you can practice great medicine. Talk to us about your viable options for 2021. A new financial action plan or restructuring may help you and your practice weather the economic pressures on the medical field right now. Call us toll free at 855-666-4201 or email firstname.lastname@example.org.
December 16, 2020 – By Matthew D. Lee and Marissa Koblitz Kingman. Read Original Article Here >
This month’s court-ordered release of Paycheck Protection Program (PPP) loan data is expected to result in intense scrutiny of the loan forgiveness process, highlighting the need for recipients to proceed with caution when filing forgiveness applications.
Multiple news organization sued the Trump administration in May demanding that it release information on the businesses that benefited from federal pandemic relief programs. A federal judge ordered the administration to disclose the information and on the evening of December 1, 2020, the Small Business Administration (SBA) released data on every “small” business that received a loan from the more than $700 billion forgivable loan package approved by Congress.
The Original Purpose of the Loans
The loans were designed to help small businesses cover explicit allowable expenses such as payroll, rent and mortgage payments. In a statement that accompanied the data release, the SBA stated “small businesses are the driving force of the American economy and are essential to America’s economic rebound from the global pandemic.”
The Problems Exposed by the Data
As discussed in our prior article, PPP Loan Fraud Enforcement 2.0: Preparing for the Next Round of Scrutiny, a Senate subcommittee’s September 1, 2020 analysis of the more than 5.2 million PPP loans issued suggested a high risk for fraud, waste and abuse. The analysis cited issues including missing information on applications, incorrect information on applications, companies receiving more than one PPP loan, loans going to companies that had been debarred or suspended from contracting with the federal government and companies with known performance and integrity issues.
Much like the data that was released in September, this new round of data again revealed that many loan applicants omitted vital information about the borrower, including company names. For some companies that received over $150,000 in loans, the business name was listed as “Not Available.” Addresses were also omitted. Answers to questions regarding race, gender and veteran status were also left unanswered. In its statement accompanying the release of the December 1 data, the SBA appeared to blame the lenders for the missing information: “PPP loan data reflects the information submitted by lenders to the SBA for PPP loans. Approximately 75% of all PPP loans did not include any demographic information at the time of loan application. The loan forgiveness application expressly requests demographic information for borrowers so that SBA can better understand which small businesses are benefiting from PPP loans.”
The data released disclosed the exact amounts received by the top recipients, revealing that many large companies appeared to have gotten $10 million in loans despite the PPP’s original goal of helping small businesses in need of emergency relief. Some of the big businesses that received the large loans have ties to President Trump, according to media reports. Popular restaurant chains, large law firms and hotel operations also received millions of dollars in loans.
The troubling patterns revealed in the analysis of the December 1 and September 1 data releases mean businesses should expect a wide variety of government agencies to engage in more intense and far-reaching enforcement activity than previously expected.
Importantly, as businesses are gearing up to apply for loan forgiveness, they must proceed with caution. The December 1 SBA statement that was released with the new data explained that the listed borrowers were not necessarily eligible for loan forgiveness, despite lender approval: “However, the lender’s approval does not reflect a determination by SBA that the borrower is eligible for a PPP loan or entitled to loan forgiveness. All PPP loans are subject to SBA review and all loans over $2 million will automatically be reviewed. Eligibility and compliance will be reviewed during the loan forgiveness process. Further, a small business’s receipt of a PPP loan should not be interpreted as an endorsement of the small business’ commercial activity or business model.”
The loan application process was riddled with confusion. Borrowers may have been approved for loans by their lenders and received the funds, despite being ineligible. The loan forgiveness process may trigger audits for companies that were unaware they were not entitled to the funds they received. The PPP forgiveness process will most certainly lead to further investigations of fraud and abuse. Borrowers should work closely with their counsel when applying for forgiveness to ensure that they have the correct supporting documentation, accurately calculated the qualified payroll costs, and appropriately used the PPP funds.
Election Day often brings out the wanderlust in people dissatisfied with the results; the 2020 election is no different. After a tough year, Americans are once again looking into living abroad.
There are currently 9 million U.S. expats living all over the world, a number that stands to grow after this election season as online searches on expat life surge 300 percent above the average. With rising coronavirus numbers in the U.S., combined with the new flexibility offered by remote work, Americans are more inclined than ever to give expat life a try.
While living abroad brings a new lifestyle and a rush of opportunities, it’s important to do the proper research, and consider the logistics and the tax consequences of living abroad, according to Katelyn Minott, a CPA, managing partner of Bright!Tax and currently a resident of Rio de Janeiro.
"The pandemic has created a situation in which many are finding they can work from wherever their computer might be," she said. "And it’s created a global business environment that allows people to travel and follow their heart’s desire to live abroad. But beyond the lifestyle implications of a move abroad, there are financial and tax considerations of a move that many don’t plan for before they pull the trigger on moving."
The most common misunderstanding is the idea that you don’t have to file a tax return from abroad, according to Minott. "Many who live abroad assume that leaving the U.S. and living outside its jurisdiction means no tax returns," she said. "But once they have the basic understanding that U.S. taxes are going to follow them wherever they may be, there are certain mechanisms to reduce and often eliminate U.S. tax. It’s also important to consider that the new country may also have local tax requirements that need to be met."
Many of the countries that are attractive to those looking to relocate have little to no tax, making for significant tax savings overall, Minott observed: "Someone in the British Virgin Islands or the Cayman Islands will be able to take advantage of the low taxes to achieve overall tax savings."
There is quite a bit of recordkeeping involved in properly preparing a U.S. tax return, Minott indicated. "For example, one of the mechanisms utilized to lower U.S. taxable income is the requirement that the taxpayer report their travel to and from the U.S. each year," she said. "There are a couple of ways to qualify for the foreign earned income exclusion. One involves being absent from the U.S. for 330 days during the year. It’s important to keep track of travel, foreign housing expenses, and income earned stateside versus offshore."
A big issue, with possible extremely negative unexpected consequences, is the obligation to report the maximum account balance held in foreign bank and financial accounts to the Treasury Department. The report is made on a Report of Foreign Bank and Financial Accounts, or FBAR, on FinCEN Form 114. A United States "person," including a citizen, resident, corporation, partnership, limited liability company, trust and estate must file an FBAR.
"There are big penalties for failure to do this," said Minott. "The penalties start at $10,000. There’s no reason to miss filing — it’s just a disclosure, it doesn’t yield a tax liability."
State residency is an issue that needs to be carefully examined, according to Minott. "Every U.S. state has different rules surrounding what would be a tax residence," she said. "Some, like California and New York, make it very challenging to break state residency when you’re moving abroad."
"As a result, many taxpayers choose to relocate to a different U.S. state before moving abroad," she said. "Many taxpayers relocate to a non-income-tax state prior to relocation abroad. Texas and Florida are the most popular as interim relocation states."
Not every taxpayer moves to a low or no-tax jurisdiction such as the British Virgin Islands or the Caymans, Minott observed. "Many taxpayers find themselves moving to countries where they do, in fact, have a tax obligation. In those circumstances where they do have a foreign tax obligation, there are also mechanisms to reduce U.S. tax, based on the foreign tax they already paid. More often than not, they won’t be in a double-tax situation thanks to the foreign earned income exclusion, foreign tax credit or a tax treaty in effect with their country of residency."
But for the many freelancers that are taking advantage of the ability to work from anywhere, the self-employment tax does not go away, Minott cautioned. "Unless the country has a totalization agreement with the U.S., the U.S. taxpayer will continue to pay self-employment tax to the IRS," she said.
"Many taxpayers choose to set up a business in their new country," Minott remarked. "This can generate a number of international disclosure requirements with the IRS. Holding a foreign corporation or a partnership interest can create a complex filing situation on the U.S. side. It’s vital that the expat understand the implications of those business interests prior to incorporating or setting up a foreign entity."
The SBA recently issued more new guidance relating to tax-favored loans under the Paycheck Protection Program – this notice concerns responsibilities and procedures when there is a change of ownership for a business entity that has received a PPP Loan.
According to the new SBA guidance, there is a change of ownership for these purposes when at least one of the following occurs:
- At least 20% of the common stock or other ownership interest of a PPP borrower is sold or transferred, whether in one or more transactions, including to an affiliate or an existing owner of the entity;
- The PPP borrower sells or otherwise transfers at least 50% of its assets (measured by fair market value), whether in one or more transactions; or
- The PPP borrower is merged with or into another entity.
Change of ownership does not absolve a borrower of responsibilities concerning their PPP loans. It continues to be responsible for:
- Performance of all obligations under the PPP loan;
- Certifications made under the PPP loan application, including the certification of economic necessity;
- Continued compliance with all other PPP loan requirements, and
- Obtaining, preparing and retaining the necessary forms and documentation and providing those forms and documents to the PPP lender, servicer or SBA upon request.
Under the procedural notice, a PPP borrower must notify its lender before it completes a change of ownership and provide documentation of the transaction. SBA approval may be required; the SBA has 60 days to review the submission and make a determination.
In addition, there are different procedures to be followed, depending on whether or not the PPP loan has been satisfied. If a loan hasn’t been satisfied, the borrower must establish an escrow account, controlled by the lender that includes the amount of the outstanding PPP loan balance. The escrow funds must be used first to repay any remaining PPP loan balance after forgiveness has been approved.
The new notice also addresses situations where the new business owner has a PPP loan of its own. It provides details for segregating PPP funds and expenses along with specifying the documentation required.
Recipients of Paycheck Protection Program (PPP) loans of $50,000 or less will be able to apply for forgiveness using a simplified application that was just released by Treasury and the U.S. Small Business Administration (SBA).
Under the interim final rules, PPP borrowers of $50,000 or less are exempted from any reductions in forgiveness based on:
- Reductions in full-time-equivalent (FTE) employees; and
- Reductions in employee salary or wages.
If you are an employee receiving PFL benefits, be aware the payments come from the state. If your employer participates in New York State’s Paid Family Leave program, you need to know the following:
The new application form, SBA Form 3508S, can be used by PPP borrowers applying for forgiveness on PPP loans with a total loan amount of $50,000 or less, unless those borrowers together with their affiliates received loans totaling $2 million or more. Instructions for Form 3508S also were released.
Of the 5.2 million PPP loans approved by the SBA, about 3.57 million were for $50,000 or less. Those loans accounted for about $62 billion of the $525 billion in PPP loans. About 1.71 million PPP loans of $50,000 or less were made to businesses that reported having zero employees or one employee.
The interim final rules streamline the forgiveness process for PPP borrowers of $50,000 or less because they will not be required to perform potentially complicated FTE or salary reduction calculations. Borrowers of $50,000 or less still will have to make some certifications and provide documentation to the lender for payroll and non-payroll costs.
For PPP loans of all sizes, the interim final rules also contain guidance on lender responsibilities with respect to the review of borrower documentation of eligible costs for forgiveness in excess of a borrower’s PPP loan amount.
According to the interim final rules, when a borrower submits Form 3508S or the lender’s equivalent form, the lender will be required to:
- Confirm receipt of the borrower certifications contained in the form; and
- Confirm receipt of the documentation the borrower is required to submit to aid in verifying payroll and non-payroll costs, as specified in the instructions to the form.
The borrower is responsible for providing an accurate calculation of the loan forgiveness amount. The borrower will attest to the accuracy of the reported information and calculations on the loan forgiveness application. Lenders are permitted to rely on borrower representations.
In addition, the guidance addresses what a lender should do if a borrower submits documentation of eligible costs that exceed the borrower’s PPP loan amount. According to the interim final rules, the amount of loan forgiveness that a borrower may receive cannot exceed the principal amount of the PPP loan.
Whether a borrower submits SBA Form 3508, 3508EZ, or 3508S, or a lender’s equivalent form, the lender is required to confirm receipt of the documentation the borrower is required to submit to aid in verifying payroll and non-payroll costs. If applicable, the lender also is required to confirm the borrower’s calculations on the loan forgiveness application, up to the amount required to reach the requested forgiveness amount.
Are medical expenses taking a bite out of your budget? This may be your last chance for deducting medical and dental expenses because the threshold for qualifying for deductions is set to revert to its higher level after 2020.
For 2020, the IRS allows all taxpayers to deduct the total qualified unreimbursed medical care expenses that exceeds 7.5% of their Adjusted Gross Income. Prior to that, ACA raised the bar to 10% of AGI (except for seniors). Subsequently, the Tax Cuts and Jobs Act returned the threshold to the 7.5% of AGI level for 2017 and 2018. Still with us? Extender legislation enacted by Congress late last year, called the Taxpayer Certainty and Disaster Tax Relief Act, restored the 7.5% of AGI limit for 2019 and 2020. And that’s where we stand now. There is no guarantee the threshold will not revert back to 10%, so try to take full advantage of the lower threshold for this year if you expect to itemize deductions. Make sure you count all the expenses that qualify for the deduction.
You can deduct payments for the diagnosis, cure, mitigation, treatment, or prevention of disease. You can also deduct payments for treatments affecting any structure or function of the body. Included are health insurance premiums and a portion of premiums paid for long-term care insurance (LTCI) policies based on the insured’s age. In addition:
- Fees for doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and other medical practitioners
- In-patient hospital care or nursing home services, including the cost of meals and lodging charged by the hospital or nursing home
- Acupuncture treatments or inpatient treatment at a center for alcohol or drug addiction, for participation in a smoking-cessation program and for drugs to alleviate nicotine withdrawal if they require a prescription
- Expenses to participate in a weight-loss program for a specific disease or diseases, including obesity, diagnosed by a physician
- Insulin and prescription drugs
- Payments for false teeth, reading or prescription eyeglasses or contact lenses, hearing aids, crutches, wheelchairs, and for guide dogs for the blind or deaf
- Transportation needed to obtain necessary medical treatment such as fares for taxis, buses, trains and ambulances. If you use your own vehicle, you can deduct the portion of actual costs attributable to medical-based travel or use a standard rate. The standard rate, which is adjusted annually, is 17 cents per mile in 2020.
To claim the medical expenses deduction, you must itemize your deductions, which means you do not take the standard deduction. If your itemized deductions are greater than your standard deduction then it makes sense to claim the medical expenses deduction. If appropriate, you may want to schedule doctor and dentist visits before year end to clear the 7.5% of AGI threshold or boost an existing deduction. More details on eligible medical and dental expenses here: https://www.irs.gov/pub/irs-pdf/p502.pdf
Is your organization or some of its key employees working remotely? By now, the work should be flowing well and your employees should be transitioning nicely to performing their jobs at home. Everything probably seemed ok, up until your employees realized that according to the TCJA if they are employed they are not allowed to take the home office deduction. So now, many are most likely asking about reimbursement for cell phones, computers, and internet. This leads to the question, with more employees working remotely, how much of their business expenses can employers reimburse tax-free?
Employers may need to pay employees back for some infrastructure improvements they had to make so they could work remotely. If an employee had to upgrade their home internet service to handle extra data requirements, they may be entitled to reimbursement for those costs. An employer may have to cover the cost of upgrading or replacing a worker’s laptop that is ok for entertainment but too slow for work.
Under federal law, employers only have to reimburse employees if job-related expenses reduce their pay below minimum wage. State laws, however, vary widely in their reimbursement requirements.
Some Background: Listed property (technically, tax code Section 280F) is luxury property. If luxury property is used for business, heightened substantiation requirements apply. At one time, cell phones and computers were both listed property. Cell phones were removed early in the last decade. The TCJA removed computers and peripherals.
After cell phones, tablets, etc., were removed from the listed property category, the IRS released guidance waiving the accountable plan rules requirements for employer-provided equipment. Employees don't have to keep track of their business use. Their personal use is considered a tax-free de minimis fringe benefit.
The only limitation is that employers must have a substantial non-compensatory reason for providing phones to employees. But even there, the bar is set pretty low. You have a substantial non-compensatory business reason if you need to contact employees in a work-related emergency. Conveniently, "work-related emergency” was never defined.
Importantly, the IRS applied the same rules to employees who use their own phones for business. So, you can reimburse employees for their substantiated basic monthly phone and data plan charges (i.e., employees have to submit their bills to you) and employees don't have to account to you for the percentage of their business use.
With so many EEs working from home right now, are there any reimbursement rules that apply when employers pick up the tab for employees' internet access? The IRS never released similar guidance after computers and peripherals were removed. That has left everyone to guess what rules apply when employers reimburse employees who use their home internet access for business.
Reimbursement rules for internet and cell phones
The IRS Small Business Division says you can reimburse employees' home internet access as a business expense, but the regular accountable plan rules apply. The accountable plan rules, which set the rules for tax-free reimbursements of employees’ business expenses, require that:
- Employees incur expenses in connection with their performance of services for their employers and have a business connection for accessing the internet (working at home would suffice),
- Employees must substantiate their business use by submitting an accounting of their internet use by providing you with their cable or phone bill and the percentage used for business.
- Employees substantiate their expenses within a reasonable period of time
Due to the pandemic, cellphones become more and more essential to everyday operations and work, so the question about reimbursement for usage is fair.
When it comes to reimbursing employees or providing a monthly stipend for the use of their personal cellphones for business purposes, yes, this a non-taxable fringe benefit - provided that your reimbursement is reasonably calculated to actually reimburse the employees for the actual costs of maintaining the phone.
The Internal Revenue Code provides that gross income includes compensation for services, including fees, commissions, fringe benefits, and similar items. A fringe benefit provided by an employer to an employee is presumed to be income to the employee unless it is specifically excluded from gross income by another section of the Code. Luckily, the Internal Revenue Code also permits an employer to take deductions for any "ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.
So an employer could deduct as a business expense the costs of providing telephone services to its employees. For this reason, the IRS has concluded that the value of cellphone services provided by an employer will not be taxable to the employee if there are substantial reasons relating to the employer's business, and the reimbursement is not simply a way to provide tax-free compensation to the employee.
If you would like to reimburse workers for the cost of their cellphones, you need to adhere to the regular accountable plan rules mentioned above. However, if you provide cellphone reimbursements to boost morale, promote goodwill, or for recruiting purposes, the IRS will consider the phone costs taxable wages.
Sensitive company material and client information should not be stored on employees' personal computers. That makes buying your telecommuters separate laptops a wise investment. These are working condition fringe benefits, which you can provide to employees tax-free. Employees must be told they can only use the new devices for work; any personal use of a laptop is taxable.
Can you reimburse employees who need to purchase computer desks and chairs in order to work from home? These items could qualify as fringe benefits, but employees would have to keep track of their business and personal use, which isn't reasonable.
Instead it would be better to buy those items for employees but keep the items on the company's books. Depreciate them, as you would any business property, or write them off. If this is a long term move to reduce office space, you could allow employees to take their office stuff home. You must normally value and tax items employees take home, but if the value is de minimis because the stuff is old or been depreciated down to $0, you probably won't have a problem.
The New York State Department of Taxation and Finance provided guidance regarding the tax treatment of deductions from employee wages used to finance paid family leave premiums, and the tax treatment of Paid Family Leave (PFL) benefits to be received by eligible employees.
Background: Paid Family Leave Benefits, available to employees as of January 1, 2018, may be financed by deductions from wages under a formula set by the New York State Superintendent of Finance. Employers were permitted, but not required, to begin taking deductions from employee wages shortly thereafter.
If you are an employer subject to state-mandated paid family leave, you were probably wondering if employee contributions are taxable? The current states that mandate PFL (except for Washington D.C.) require employees to pay into the fund.
- Deducting the employee’s portion before withholding taxes means their contributions are not taxable (e.g., pre-tax deduction).
- Deducting the employee’s portion after withholding taxes means their contributions are taxable (e.g., post-tax deduction).
So, which is it? Are employee PFL contributions pre-tax or post-tax deductions?
After reviewing the paid family leave statute, the final regulations, applicable laws, case law and federal guidance, and after consulting with the Internal Revenue Service, the DOTF issued guidance stating essentially that employee PFL contributions are post-tax deductions, therefore their contributions are subject to taxes. Guidance for employers below:
- Premiums are to be deducted from employee's after-tax wages.
- Paid Family Leave Benefits paid to employees will be taxable, non-wage income that must be included in federal gross income.
- Taxes will not automatically be withheld from benefits. Employers should report employee contributions on an IRS Form W-2 using Box 14, State disability taxes withheld.
- Paid Family Leave Benefits should be reported by the New York State Insurance Fund (NYSIF) on IRS Form 1099-G and by all other payers (either private carriers or self-insured employers) on IRS Form 1099-Misc.
If you are an employee receiving PFL benefits, be aware the payments come from the state. If your employer participates in New York State’s Paid Family Leave program, you need to know the following:
- Any benefits you receive under this program are taxable and included in your federal gross income. However, PFL benefits are not subject to Social Security and Medicare taxes, or federal unemployment (FUTA) tax.
- Employers do not withhold taxes on an employee’s PFL benefits because they are not included in payroll. State governments do not automatically withhold paid family leave federal tax from an employee’s PFL benefits.
- An employee can request to have income taxes withheld by filing Form W-4V, Voluntary Withholding Request.
- You will receive either Form 1099-G or Form 1099-MISC from your employer showing your taxable benefits.
- Your employer will deduct premiums for the Paid Family Leave program from your after-tax wages.
- Your premium contributions will be reported to you by your employer on Form W-2 in Box 14 as state disability insurance taxes withheld.
These pandemic times have hit many family members hard. We all want to be generous to our kids and grandkids who are out of work, be helpful to that brother or sister that got the virus, and financially support our elderly parents in quarantine for their safety, BUT most folks do not realize what is involved in making a sizable loan to a loved one. Of course you expect to be repaid. But if there is no specific time for repayment and the loan carries no interest, are there tax consequences for giving cask to your kin? Yes indeed!
Some folks think they can give large amounts of money to their children and call it a loan to avoid the hassle of filing a gift tax return. The IRS is hard to fool. When you make a non-interest-bearing loan there are various tax consequences. The borrower is treated as having made interest payments to the lender, based on IRS-prescribed interest rates (around 2.35 to 2.70%) known as the Applicable Federal Rate. Unless the loan does not exceed $10,000, and the loan is not directly attributable to the purchase or carrying of an income-producing asset, then the interest rate can be below market and no imputed interest will be required to be calculated.
In the case of a parent-child loan, the imputed interest represents taxable income to the parent. Even though the parent will not actually receive any interest payments, the parent must nevertheless report the amount each year as taxable income on their personal income tax returns and pay tax on it. The parent has to file a gift tax return if the imputed interest exceeds the annual gift tax exclusion, which is $15,000 per donor. That can be doubled if a husband and wife each make such a gift, to $30,000 annually. Odds are you as the parent won’t have to pay a dime in gift tax, even if the loan amount—also known as a gift, for tax purposes—exceeds $15,000, or $30,000 if from a married couple. The amount is excluded from your lifetime gift tax exemption.
If gift tax consequences are a concern, have your child start paying interest to you each year until the loan is fully repaid. You can increase the loan amount to provide additional cash to your child to cover the interest payments. While the interest will still be subject to income tax, you can at least avoid the gift tax filing and any unintended use of your estate and gift tax exemption.
How to handle the paperwork for such loans and avoid tax traps? Appropriate documentation should be in place to establish the principal repayment obligation, otherwise the IRS might claim that the full amount of the loan you made was a gift.
- Create a promissory note or similar document setting up your loved one’s obligation to repay the loan to you.
- Set the rate at or above the Applicable Federal Rate (AFR) in effect when the loan is originated.
- Maintain records that reflect a true loan transaction, including timely payments.
If there is no specific repayment date, the promissory note can provide for payment to be made upon demand by you as lender. Hence, the debt will become due and required to be repaid when you choose. This way, you gain the flexibility of not being tied to a specific repayment schedule.
Do not have a prearranged schedule to forgive the loan. Forgiveness is okay as long as it is not expected or prearranged. If your loved one refuses to repay the loan to you, or dies before you, you can at least show you have a formal arrangement in place, and the transferred money was indeed a loan. That avoids complications.
One of the advantages of a loan contract is that if your child doesn’t pay, you can take a deduction for a non-business bad debt. Additionally, you don’t have to pay gift tax to the IRS on the amount like you would if you had gifted the money. To take a bad debt deduction, you must prove that you tried to collect the debt. The debtor should make a written statement that he or she cannot pay. The statement should also include a reason for why they are unable to make the payments.
HHS issued its long-awaited Provider Relief Fund (PRF) Reporting Requirements late in September. It specified the data that providers who received more than $10,000 in PRF payments will be required to submit as part of a post-payment reporting process. Providers should call their attention specifically to how HHS plans to calculate and limit the use of payments for lost revenues.
As part of the required reports, providers must report certain data for 2019 and 2020.
Healthcare related expenses attributable to Coronavirus: Providers will be expected to report expenses in two categories: general and administrative expenses, and healthcare related operating expenses. Providers are advised that only those expenses not reimbursed by other sources can be reported here. Providers who received between $10,000 and $499,999 in aggregate PRF payments can report their expenses in aggregate by category. However, providers receiving $500,000 or more in PRF payments will report their expenses in detail within each of the categories.
Lost revenues: This calculation becomes relevant if all PRF dollars received were not consumed by the COVID-19 healthcare related expenses. Lost revenues are defined as, “year-over-year net patient care operating income (i.e., patient care revenue less patient care related expenses for the Reporting Entity).” This approach is more limited than previous HHS guidance which permitted "any reasonable method of estimating lost revenue." Previously, providers could compare budgeted to actual, or use a year-over-year comparison. In addition, HHS appears to cap the application PRF payments toward lost revenues up to either:
- The amount of a provider’s 2019 net gain from healthcare related sources, or
- Up to a net zero gain/loss in 2020, if the provider reported negative net operating income in 2019.
- Calendar year expenses and revenues for each of the years;
- Other types of assistance received, such as Paycheck Protection Program funds, FEMA CARES Act dollars, state and local government assistance and other funds.
- Personnel Metrics such as total personnel by labor category, hire/re-hires, separations
- Patient Metrics including total number of admits, visits and residents.
- Facility Metrics like total available staffed beds.
Key dates to keep in mind:
- January 1, 2021: Opening the reporting system will not take place until early 2021.
- February 15, 2021: Deadline by which to submit a first report due for PRF expenditures through December 31, 2020
- July 31, 2021: Deadline by which to submit a second and final report for January 1 – June 30, 2021 revenues and expenditures.
The reporting guidance confirms that PRF payments can be used through June 2021. It is not clear if these timelines may shift should Congress appropriate additional dollars for the Provider Relief Fund. Note the public health emergency (PHE) has been extended another 90 days beyond October 23, 2020.
In addition to the reporting requirements, providers receiving more than $750,000 in federal awards, which include Provider Relief Funds, are subject to single audit requirements. More information here: https://www.hhs.gov/sites/default/files/post-payment-notice-of-reporting-requirements.pdf
Keep in mind: The IRS has confirmed that Provider Relief Fund payments cannot be excluded from taxation under a disaster relief exemption. Therefore, the payments do constitute gross taxable income, unless otherwise carved out under an existing exclusion, such as if the provider is a 501(c) nonprofit. Given that many healthcare providers may ultimately return unused payments from the Provider Relief Fund, taxpayers should be conscious of the tax consequences of payments received in one tax-year and returned in another year. Additionally, the guidance only applies for federal tax purposes so taxpayers should also consider the state and local tax treatment of the payments.
The financial challenges which Coronavirus brought forced companies to reimagine themselves and change how they do business to survive. Reducing your business income tax burdens has become more important than ever. Through the CARES Act, the government granted many forms of relief, so be sure that by December you are taking advantage of available tax changes that can provide liquidity.
- When the TCJA repealed the corporate AMT, it allowed corporations to claim all their unused AMT credits in the tax years beginning in 2018, 2019, 2020 and 2021. The CARES Act accelerates this timeline, allowing corporations to claim all remaining credits in either 2018 or 2019. The fastest method for many companies to get a quick refund will be filing a tentative refund claim on Form 1139, but you must file by December 31, 2020 to claim an AMT credit this way.
- The CARES Act also resurrected a provision allowing businesses to use current losses against past income for immediate refunds. Net operating losses (NOLs) arising in tax years beginning in 2018, 2019 and 2020 can be carried back five years for refunds against prior taxes. These losses can even offset income at the higher tax rates in place before 2018. Consider opportunities to accelerate deductions into a loss year to benefit, but remember any non-automatic changes you want to make effective for the 2020 calendar year must be made by the end of the year. The fastest way to obtain a refund is generally by filing a tentative refund claim, but these must be filed by December 31, 2020, for the 2019 calendar year. If your losses will be in 2020, start preparing to file early because you cannot claim an NOL carryback refund until you file your tax return for the year.
- The CARES Act fixed a technical problem with bonus depreciation, a generous provision that allows companies to immediately deduct the full cost of many types of business investments. The legislation expands bonus depreciation to apply to a generous category of qualified improvement property (QIP). QIP is commonly thought of as a retail and restaurant issue, but it is much broader and applies to almost any improvement to the interior of a building that is either owned or leased. The fix is retroactive, so you can fully deduct qualified improvements dating back to January 1, 2018, which may offer relatively quick refunds. Taxpayers who filed 2018 and 2019 returns before the law changed can amend both the 2018 and 2019 returns to apply bonus depreciation for QIP in each of those years.
- The CARES Act allows employers to defer paying their 6.2% share of Social Security taxes for the rest of 2020. Half of the deferred amount is due by December 31, 2021, with the other half due by December 31, 2022. This provides a great liquidity benefit, but taxpayers should consider the impact on deductions before the end of the year. Businesses generally cannot deduct their share of payroll taxes until paid.
- The Cares Act increases the ceiling for business interest deductions from 30% to 50% of adjusted taxable income for tax years 2019 and 2020. https://www.fuoco.com/component/content/article/596-cares-act-modifies-business-interest-deductions-
- Be sure you are fully taking advantage of Family Leave and Paid Sick Leave credits, as well as the Employee Retention Credit. If you need a credit “refresher” click the links below:
- https://www.fuoco.com/component/content/article/548-put-families-first-coronavirus-response-act-to-work-for-you (scroll to bottom of article for tax credit info)
You can’t predict the political future but you can plan for it! Here are some estate planning ideas for consideration based on uncertainty as to what proposed income tax law changes might be in 2021 and beyond. Keep in mind that due to fluctuating political winds there are also proposals on the table related to estate, gift and generation-skipping taxes. Many of these have been bandied about for a while now; we would be remiss if we did not mention them:
- Reduce the current estate and gift tax (and probably the generation-skipping tax) exemption from $11.58 million per person ($23.26 million for married couples) to an inflation adjusted $5.49 million per person ($10.98 million for married couples).
- Increase the current estate, gift and generation-skipping tax rates from a flat 40% to a progressive scale with rates from 40% to 77%.… or more.
- Limit the number of $15,000 annual exclusion gifts.
- Eliminate the use, or reduce the effectiveness, of valuation discounts.
- Eliminate the use, or reduce the effectiveness, of Intentionally Defective Grantor Trusts (“IDGT”) and Grantor Retained Annuity Trusts (“GRAT”).
- Eliminate the basis step-up at death.
- Impose a capital gains tax at death on unrealized gains.
Not all of these will have the same impact on every TFGFA client, but if any of them might be of particular concern to you in your situation, you may want to discuss your options before the end of 2020 in order to mitigate the effect on your portfolio and estate:
- Make gifts to use up some or all of your $11.58 million exemption. The IRS has already said that gifts in excess of a future reduced exemption amount will NOT be “clawed-back” for purposes of computing the estate tax on your estate. If you are a NY resident and survive the gift by three years, the gift will not be taken into account in computing the NY estate tax on your estate.
- Make gifts in excess of your $11.58 million exemption and pay a gift tax at a 40% rate. Unless you believe that the gift and estate taxes will be repealed, or that rates will be reduced, paying a gift tax is less expensive than paying an estate tax.
- If you are married and concerned that the gifts would reduce cash flow to an unacceptable level, consider creating a Spousal Lifetime Access Trust (“SLAT”) where one spouse uses his/her gift tax exemption to create a trust for the other spouse.
- Make gifts of other than cash or marketable securities in order to take advantage of valuation discounts.
- With interest rates at historical lows (the September Applicable Federal Rates (“AFR”) are 1% or less), make AFR loans to family members and/or create GRATs. See our prior article HERE.
The suggestions above are just the tip of the iceberg. There are additional estate planning tactics like putting your gifts into Intentionally Defective Grantor Trusts (“IDGTs”), and other options we would be happy to discuss with you.
Reach Out To Us: There is no crystal ball. However waiting until after the election, and the myriad delays promised due to the pandemic and the counting of the mail-in ballots, may prevent you from accomplishing what financial moves you might want to make before December 31st. Now is the time to set up, review, or to finalize your estate planning documents with your attorney, Fuoco Group accountants and your TFGFA financial advisory team all working in tandem.
Feel free to contact me, Paul Wieseneck, CPA, Senior Financial Advisor, at 561-209-1102, with any questions regarding financial planning for your estate. At TFGFA, we believe in customized investment portfolio design and personalized asset management.
Many clients are waiting for their tax refunds, even though they were filed well in advance of the July 15th deadline. Electronic filing generally yields a refund check in about three weeks. However, this is no ordinary tax season.
Due to COVID and staffing shortages, the IRS is extremely backlogged. If you are using the Where's My Refund link, and getting a "still being processed" message - that is actually good news. Remember that tax returns, even those filed electronically, may need additional review for a number of reasons.
For example, if you filed on the early side and claimed the EITC or the additional child tax credit (ACTC), you will have to wait a bit longer for your refund. Often a return needs review because of an uncommon deduction, or the claim appears excessive, or there may be suspected identity theft. Owe back taxes, or made a mistake on your direct deposit info? These reasons may be why there is a delay. If the IRS has questions or needs more information, you will receive a letter explaining what it requires to move forward.
You can try to call 800-829-1954. If that doesn’t help and it’s been 21 days since the return was accepted by the IRS, then call the general toll-free number 800-829-1040. Under normal circumstances, it can take some time to get to a live IRS representative. It’s a frustrating experience. You will probably face a long wait or be steered to electronic messages that provide little insight into why your refund is delayed.
The good news is, since the original Tax Day was postponed due to the pandemic, the IRS will pay up to 5% interest on refunds issued after April 15. But you must have filed by July 15th.
Beyond the PPP loans and EIDL $$$ we now have the little known Main Street Lending Program. It is the best kept secret for mid-size businesses in need of financial relief.
The Main Street program is one of a series of programs the Federal Reserve announced in April to provide up to $2.3 trillion in loans to households, businesses, non-profits, and state and local governments struggling to deal with the COVID-19 pandemic. Specifically, the Main Street program supports loans to U.S. companies with less than $2.5 billion in 2019 revenue that were in good financial standing before the COVID-19 crisis and subsequent quarantines stalled the American economy.
Bolstered by $75 billion in equity provided by Treasury through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Main Street program supports lenders that register for the program by purchasing 95% of each loan that meets eligibility and documentation requirements.
The Main Street program’s minimum loan size is $250,000, but this loan program geared for midsize businesses is also very different from others that have come before it because the debt must be repaid, and banks must retain some of the credit risk. Companies have five years to pay back the loans, and principal and interest are initially deferred.
A number of changes have been made to the program since its debut, to make it easier to apply.
Coronavirus stimulus prepaid cards mailed in plain envelopes are not junk mail, IRS cautions 'Please do not throw it away,' government pleads
The cards will arrive in a “plain envelope” from "Money Network Cardholder Services," the IRS said.
Unsuspecting individuals could mistake the envelope for junk mail or even a credit card promotion, especially since many people are likely not aware their payment will be arriving on a prepaid card instead of in the form of a check.
People cannot choose to have their payments sent this way. These 4 million individuals, who did not have direct deposit information on file with the tax agency, were selected by the Bureau of the Fiscal Service.
The Visa name appears on the front of the card, and MetaBank – the Treasury Department’s financial agent – appears on the bank. That may further confuse individuals who do not hold an account with Visa and who are unfamiliar with MetaBank.
“If you receive a card that looks like this, please do not throw it away,” the Consumer Financial Protection Bureau requested in an informational web video.
One sign you may have missed your card in the mail is if you receive a letter from the IRS, signed by President Trump, which details how much money you should have received.
These letters were expected to be sent two weeks after the economic impact payments.
So what should you do if you think you may have mistaken your prepaid card for junk mail?
One way you might want to address the issue is by calling the number at the bottom of the IRS letter, 800- 919-9835. The agency has recalled some staff who will be available to take phone calls.
Further, if you believe you threw the card away or misplaced it, you can also follow directions specifically for the prepaid cards, which will allow you to block unauthorized transactions as well.
The government provides information for people whose card is lost or stolen, which directs them to log in at EIPCard.com to block unauthorized transactions and call 1-800-240-8100 to report it.
A spokesperson for the IRS directed FOX Business to the aforementioned web page for the cards, adding that the agency had nothing further to add at this time regarding what taxpayers should do if they think they may have accidentally trashed their payment.
Economic Impact Payments being sent by prepaid debit cards, arrive in plain envelope; IRS.gov answers frequently asked questions
IR-2020-105, May 27, 2020 Article from IRS.gov >
WASHINGTON – As Economic Impact Payments continue to be successfully delivered, the Internal Revenue Service today reminds taxpayers that some payments are being sent by prepaid debit card. The debit cards arrive in a plain envelope from "Money Network Cardholder Services."
Nearly 4 million people are being sent their Economic Impact Payment by prepaid debit card, instead of paper check. The determination of which taxpayers received a debit card was made by the Bureau of the Fiscal Service, a part of the Treasury Department that works with the IRS to handle distribution of the payments.
Those who receive their Economic Impact Payment by prepaid debit card can do the following without any fees.
- Make purchases online and at any retail location where Visa is accepted
- Get cash from in-network ATMs
- Transfer funds to their personal bank account
- Check their card balance online, by mobile app or by phone
This free, prepaid card also provides consumer protections available to traditional bank account owners, including protection against fraud, loss and other errors.
Frequently asked questions continually updated on IRS.gov
The IRS has two sets of frequently asked questions to help Americans get answers about their Economic Impact Payments, including those arriving on prepaid debit card. These FAQs include answers to eligibility and other many common questions, including help to use two Economic Impact Payment tools.
Get My Payment, an IRS online tool, shows the projected date when a direct deposit has been scheduled or date when the payment will be mailed by check or prepaid debit card. The Non-Filers Enter Payment Info Here tool helps taxpayers successfully submit basic information to receive Economic Impact Payments quickly.
The IRS regularly updates the Economic Impact Payment and the Get My Payment frequently asked questions pages on IRS.gov as more information becomes available. Taxpayers should check the FAQs often for the latest additions.
Here are answers to some of the top questions people are asking about the prepaid debit cards:
Maybe. It depends on your prepaid card and whether your payment has already been scheduled. Many reloadable prepaid cards have account and routing numbers that you could provide to the IRS through the Get My Payment application or Non-Filers: Enter Payment Info Here tool. You would need to check with the financial institution to ensure your card can be re-used and to obtain the routing number and account number, which may be different from the card number. If you obtained your prepaid debit card through the filing of a federal tax return, you must contact the financial institution that issued your prepaid debit card to get the correct routing number and account number. Do not use the routing number and account number shown on your copy of the tax return filed. When providing this information to the IRS, you should indicate that the account and routing number provided are for a checking account unless your financial institution indicates otherwise.
Some payments may be sent on a prepaid debit card known as The Economic Impact Payment Card The Economic Impact Payment Card is sponsored by the Treasury Department's Bureau of the Fiscal Service, managed by Money Network Financial, LLC and issued by Treasury's financial agent, MetaBank®, N.A.
If you receive an Economic Impact Payment Card, it will arrive in a plain envelope from "Money Network Cardholder Services." The Visa name will appear on the front of the Card; the back of the Card has the name of the issuing bank, MetaBank®, N.A. Information included with the Card will explain that the card is your Economic Impact Payment Card. Please go to EIPcard.com for more information.
Not at this time. For those who don't receive their Economic Impact Payment by direct deposit, they will receive their payment by paper check, and, in a few cases, by debit card. The determination of which taxpayers receive a debit card will be made by the Bureau of the Fiscal Service (BFS), another part of the Treasury Department that works with the IRS to handle distribution of the payments. BFS is sending nearly 4 million debit cards to taxpayers starting in mid-May. At this time, taxpayers cannot make a selection to receive a debit card. Please go to EIPcard.com for more information.
Watch out for scams related to Economic Impact Payments
The IRS urges taxpayers to be on the lookout for scams related to the Economic Impact Payments. To use the new app or get information, taxpayers should visit IRS.gov. People should watch out for scams using email, phone calls or texts related to the payments. Be careful and cautious: The IRS will not send unsolicited electronic communications asking people to open attachments, visit a website or share personal or financial information. Remember, go directly and solely to IRS.gov for official information.
Quick links to the Frequently Asked Questions on IRS.gov:
- While most states have yet to comment on whether taxpayers can deduct ordinary business expenses paid with Paycheck Protection Program (PPP) loan proceeds that are forgiven by the IRS, taxpayers should monitor state conformity to the CARES Act (P.L. 116-136) and the Internal Revenue Code.
- Rolling conformity states that conform to the CARES Act will not tax or include as gross income any forgiveness amount associated with the PPP. As such, it is likely that these states will also follow the federal treatment that disallows expense deductions associated with any forgiven PPP loan amount.
- Taxpayers should also be aware of the introduction of measure S.3612, which seeks to establish that coronavirus assistance, whether forgiven or repayable, will not affect the treatment of ordinary business expenses.
PPP Expense Deductions
As a part of the CARES Act (Sec. 1102), the Small Business Administration (SBA) made available PPP loans, for the purpose of helping businesses keep their workforce employed during the COVID-19 pandemic. The SBA would not require repayment of the loan if a business kept employees on its payroll for eight weeks and used the loan money for payroll, rent, mortgage interest, or utilities, with 75% of the loan amount forgiven being used for payroll. While loans that are forgiven would normally be considered cancellation of debt income, the CARES Act specifically states in Sec. 1106(i) that any forgiven loan amount will be excluded from gross income.
The IRS has issued Notice 2020-32 to provide guidance regarding the deductibility for federal income tax purposes of certain otherwise deductible expenses incurred in a taxpayer’s business when the taxpayer receives a PPP loan. Notice 2020-32 states that “no deduction is allowed under the Internal Revenue Code (Code) for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Public Law 116-136, 134 Stat. 281, 286-93 (March 27, 2020) and the income associated with the forgiveness is excluded from gross income for purposes of the Code pursuant to section 1106(i) of the CARES Act.”
Therefore, currently, to the extent that any PPP loan is forgiven and excluded from a taxpayer’s gross income, the taxpayer will not be entitled to deduct ordinary and business expenses that were paid by the forgiven loan proceeds.
Most states have been silent in regards to whether they conform to the CARES Act and follow the federal treatment of excluding forgiven loan proceeds as gross income and disallowing expense deductions associated with PPP loan proceeds. However, it is likely that rolling conformity states that automatically conform to the IRC, such as Massachusetts or New Jersey, will conform to the CARES Act and will also follow the federal treatment of excluding forgiven PPP loans from gross income and disallowing expense deductions associated with any forgiven PPP loan amount.
However, states that have static conformity provisions that do not conform to the CARES Act, such as California (conforms to the IRC as of January 1, 2015), will likely not follow the federal treatment regarding forgiven PPP loan proceeds and related expenses. In these non-conforming states, any forgiven loan proceeds will likely be included as income for state purposes. States that do include forgiven PPP loan proceeds as income will likely allow expense deductions for ordinary expenses funded by the PPP loans.
Small Business Expense Protection Act of 2020 (S. 3612)
On May 5, 2020, the Small Business Expense Protection Act of 2020 (S. 3612) was introduced to the Senate. This bipartisan legislation clarifies that ordinary expenses that are backed by PPP loan proceeds will be deductible as normal ordinary expenses. This bill, if passed, will reverse the federal treatment of disallowing ordinary expense deductions that are funded by PPP amounts as stated in Notice 2020-32.
The lawmakers that introduced S.3612 believe its passage is necessary to achieve the PPP’s true goal of providing relief to small businesses affected by the COVID-19 pandemic. Specifically, the lawmakers stated that, “Providing assistance to small businesses, only to disallow their business deductions as provided in Notice 2020-32, reverses the benefit that Congress specifically granted by exempting PPP loan forgiveness from income.”
If S.3612 is to become law, a rolling conformity analysis will likely not need to be conducted in order to determine if states will allow expense deductions funded by PPP loan proceeds, as federal preemption will require states to allow for the deduction. Currently S.3612 has been introduced to the Senate and assigned to the Senate Committee on Finance. The next step is for the Committee to send the bill to the Senate floor for debate or a subcommittee for further research. If it does go to the Senate floor and receives a majority vote, the bill will move to the House of Representatives for a similar process of committees, debate and voting. Once both houses approve the final bill, it will go to the President for signature or veto.
For specific guidance regarding state-specific treatment pertaining to the PPP and related expenses, see Armanino’s COVID-19 Relief Matrix.
Taxpayers who have received PPP loans and satisfied the conditions necessary to result in partial or full forgiveness of the loan amount must determine whether they are able to deduct the ordinary business expenses that they paid with their PPP loan proceeds. Absent any specific comment from the states regarding these expense deductions, a conformity analysis should be done to determine whether a state conforms to the CARES Act and the IRC generally.
If a state conforms to the CARES Act, the states will follow the current federal treatment to exclude any forgiven PPP amount from gross income and disallow any deduction for any associated expenses. While the federal treatment currently disallows PPP expense deductions associated with forgiven loan amounts, new measures and proposals will likely result in expense deductions associated with PPP being allowed at a later time.
Also keep an eye on S. 3612 to see whether it becomes law and thereby allows taxpayers to take the ordinary expense deductions paid for by PPP loans. This bill is just in the first stage of the legislative process – so stay tuned!
The House passed the Paycheck Protection Program (PPP) Flexibility Act (HR 7010) on May 28th with an overwhelming bipartisan vote. The Bill was sponsored by Rep. Chip Roy (R-TX) and included a few key changes:
- Extending loan repayment period from 2 to 5 years;
- Extending the Covered Period to 24 weeks or December 31, 2020 (which means any loan funded by July 17, 2020);
- Revising the percentage of forgivable spend on non-payroll costs; and
- Allowing payroll tax deferrals even with loan forgiveness.
It is important to note that passage of the law in the House does not mean these changes have become the law. Ultimately, the Senate will need to take up the matter, approve it and forward to the President for signature. Until those steps are taken, the PPP program and guidance remain unchanged despite the House bill.
The Senate is currently considering several bills to amend PPP, so the details of what, if anything, ultimately gets signed into law may change.
In addition, the House generally voted along party lines against the Public Disclosure of COVID Recovery Loans (Truth Act, HR 6782) that would have required the SBA to publish significant identifying information about borrowers and lenders.
We continue to monitor the ongoing PPP legislative proposals and will provide updates as they arise.
IR-2020-97, May 18, 2020 From IRS.gov >
WASHINGTON — Today, the Internal Revenue Service is starting to add 3,500 telephone representatives to answer some of the most common questions about Economic Impact Payments.
IRS telephone assistance and other services will remain limited, and answers for most of the common questions related to Economic Impact Payments are available on IRS.gov. The IRS anticipates bringing back additional assistors as state and local advisories permit.
Answers for most Economic Impact Payment questions are available on the automated message for people who call the phone number provided in the letter (Notice 1444). Those who need additional assistance at the conclusion of the message will have the option of talking to a telephone representative.
Americans are encouraged to use IRS.gov
The IRS regularly posts new and updated answers to the most frequently asked questions about Economic Impact Payments and the Get My Payment tool. Those who wish to know the status of their Economic Impact Payment are reminded to check Get My Payment regularly; the information is frequently updated as the IRS continues to process the remaining payments for delivery.
For those who are eligible for an Economic Impact Payment but aren't required to file a tax return, the IRS reminds them the Non-Filers tool also remains available in English or Spanish for them to register for a payment.
Tax Tip 2020-56, May 13, 2020 From IRS.gov >
Due to COVID-19, the IRS' People First Initiative provides relief to taxpayers on a variety of issues from easing payment guidelines to delaying compliance actions. This relief is effective through the filing and payment deadline, Wednesday, July 15, 2020.
- Existing Installment Agreements –Under an existing Installment Agreement, payments due between April 1 and July 15, 2020 are delayed. Those currently unable to meet the terms of an Installment Payment Agreement or Direct Deposit Installment Agreement may cancel payments during this period with no default. By law, interest will continue to accumulate on any unpaid balances.
- New Installment Agreements – People who can't pay all their federal taxes can establish a monthly payment agreement.
- Pending Offer in Compromise applications – Taxpayers have until July 15, 2020, to provide additional information for a pending OIC. The agency generally won't close any pending OIC request before July 15 without the taxpayer's consent.
- OIC payments – Taxpayers can delay all payments on accepted OICs until July 15, 2020. Interest may accrue, and missed payments are due when the suspension period ends. Taxpayers can call the number on their acceptance letter to address their needs.
- Delinquent return filings – The IRS will not default an OIC for taxpayers who are delinquent in filing their tax return for 2018. However, they should file any delinquent 2018 return and their 2019 return by July 15, 2020.
- Non-filers – More than 1 million households who haven't filed tax returns in the last three years are owed refunds. The deadline to get refunds on 2016 tax returns is July 15, 2020. Those who owe taxes on delinquent returns may visit IRS.gov for payment options. The longer the debt is owed, the more penalties and interest accrue.
- Field collection activities – IRS stopped field revenue officer enforcement actions, such as liens and levies. Revenue officers will continue to pursue high-income non-filers and perform other similar activities where necessary.
- Automated liens and levies – IRS delayed issuing new automated and systemic liens and levies. Taxpayers experiencing a hardship due to a levy should reach out to their assigned IRS contact or fax their information to 855-796-4524.
- Certifications to the State Department – IRS has delayed new certifications of taxpayers who are considered seriously delinquent. This affects a person's ability to receive a new or renewed passport. Existing certifications will remain in place unless their tax situation changes.
- Private debt collection – IRS will not forward new delinquent accounts to private collection agencies during this period.
May 12, 2020 From IRS.gov >
IRS.gov has answers to many questions people may have about their Economic Impact Payment. Here are answers to some of the top questions people are asking about these payments.
Is this payment considered taxable income?
No, the payment is not income and taxpayers will not owe tax on it. The payment will not reduce a taxpayer's refund or increase the amount they owe when they file their 2020 tax return next year. A payment also will not affect income for purposes of determining eligibility for federal government assistance or benefit programs.
Can people who receive a Form SSA-1099 or RRB-1099 use Get My Payment to check their payment status?
Yes, they will be able to use Get My Payment to check the status of their payment after verifying their identity by answering the required security questions.
If someone's bank account information has changed since they filed their last tax return, can they update it using Get My Payment?
To help protect against potential fraud, the tool also does not allow people to change direct deposit bank account information already on file with the IRS.
If the IRS issues a direct deposit based on the account information that the taxpayer provided on their tax return and the bank information is now invalid or the account has been closed, the bank will reject the deposit. The agency will then mail payment as soon as possible to the address they have on file. Get My Payment will be updated to reflect the date a payment will be mailed. It will take up to 14 days to receive the payment, standard mailing time.
Where can people get more information?
Taxpayers who are required to file a tax return, can go to IRS Free File to file electronically. If they aren't required to file, they should go to the Non-Filers: Enter Payment Info Here tool and submit their information to receive an Economic Impact Payment.
The IRS encourages people to share this information with family and friends.
May 11, 2020 From IRS.gov >
WASHINGTON — The IRS and Treasury have successfully delivered nearly 130 million Economic Impact Payments to Americans in less than a month, and more are on the way. Some Americans may have received a payment amount different than what they expected. Payment amounts vary based on income, filing status and family size.
See below for some common scenarios that may explain why you received a different payment amount than expected:
You have not filed a 2019 tax return, or the IRS has not finished processing your 2019 return
Payments are automatic for eligible people who filed a tax return for 2018 or 2019. Typically, the IRS uses information from the 2019 tax return to calculate the Economic Impact Payment. Instead, the IRS will use the 2018 return if the taxpayer has not yet filed for 2019. If a taxpayer has already filed for 2019, the agency will still use the 2018 return if the IRS has not finished processing the 2019 return. Remember, the IRS accepting a tax return electronically is different than completing processing; any issues with the 2019 return mean the IRS would've used the 2018 filing.
If the IRS used the 2018 return, various life changes in 2019 would not be reflected in the payment. These may include higher or lower income or birth or adoption of a child.
In many cases, however, these taxpayers may be able to claim an additional amount on the 2020 tax return they file next year. This could include up to an additional $500 for each qualifying child not reflected in their Economic Impact Payment.
Claimed dependents are not eligible for an additional $500 payment
Only children eligible for the Child Tax Credit qualify for the additional payment of up to $500 per child. To claim the Child Tax Credit, the taxpayer generally must be related to the child, live with them more than half the year and provide at least half of their support. Besides their own children, adopted children and foster children, eligible children can include the taxpayer's younger siblings, grandchildren, nieces and nephews if they can be claimed as dependents. In addition, any qualifying child must be a U.S. citizen, permanent resident or other qualifying resident alien. The child must also be under the age of 17 at the end of the year for the tax return on which the IRS bases the payment determination.
A qualifying child must have a valid Social Security number (SSN) or an Adoption Taxpayer Identification Number (ATIN). A child with an Individual Taxpayer Identification Number (ITIN) is not eligible for an additional payment.
Parents who are not married to each other and do not file a joint return cannot both claim their qualifying child as a dependent. The parent who claimed their child on their 2019 return may have received an additional Economic Impact Payment for their qualifying child. When the parent who did not receive an additional payment files their 2020 tax return next year, they may be able to claim up to an additional $500 per-child amount on that return if they qualify to claim the child as their qualifying child for 2020.
Dependents are college students
Pursuant to the CARES Act, dependent college students do not qualify for an EIP, and even though their parents may claim them as dependents, they normally do not qualify for the additional $500 payment. For example, under the law, a 20-year-old full-time college student claimed as a dependent on their mother's 2019 federal income tax return is not eligible for a $1,200 Economic Impact Payment. In addition, the student's mother will not receive an additional $500 Economic Impact Payment for the student because they do not qualify as a child younger than 17. This scenario could also apply if a parent's 2019 tax return hasn't been processed yet by the IRS before the payments were calculated, and a college student was claimed on a 2018 tax return.
However, if the student cannot be claimed as a dependent by their mother or anyone else for 2020, that student may be eligible to claim a $1,200 credit on their 2020 tax return next year.
Claimed dependents are parents or relatives, age 17 or older
If a dependent is 17 or older, they do not qualify the additional $500. If a taxpayer claimed a parent or any other relative age 17 or older on their tax return, that dependent will not receive a $1,200 payment. In addition, the taxpayer will not receive an additional $500 payment because the parent or other relative is not a qualifying child under age 17.
However, if the parent or other relative cannot be claimed as a dependent on the taxpayer's or anyone else's return for 2020, the parent or relative may be eligible to individually claim a $1,200 credit on their 2020 tax return filed next year.
Past-due child support was deducted from the payment
The Economic Impact Payment is offset only by past-due child support. The Bureau of the Fiscal Service will send the taxpayer a notice if an offset occurs.
For taxpayers who are married filing jointly and filed an injured spouse claim with their 2019 tax return (or 2018 tax return if they haven't filed the 2019 tax return), half of the total payment will be sent to each spouse. Only the payment of the spouse who owes past-due child support should be offset.
The IRS is aware that a portion of the payment sent to a spouse who filed an injured spouse claim with his or her 2019 tax return (or 2018 tax return if no 2019 tax return has been filed) may have been offset by the injured spouse's past-due child support. The IRS is working with the Bureau of Fiscal Service and the U.S. Department of Health and Human Services, Office of Child Support Enforcement, to resolve this issue as quickly as possible. If you filed an injured spouse claim with your return and are impacted by this issue, you do not need to take any action. The injured spouse will receive their unpaid half of the total payment when the issue is resolved. We apologize for the inconvenience this may have caused.
Garnishments by creditors reduced the payment amount
Federal tax refunds, including the Economic Impact Payment, are not protected from garnishment by creditors by federal law once the proceeds are deposited into a taxpayer's bank account.
What if the amount of my Economic Impact Payment is incorrect?
Everyone should review the eligibility requirements for their family to make sure they meet the criteria.
In many instances, eligible taxpayers who received a smaller-than-expected Economic Impact Payment (EIP) may qualify to receive an additional amount early next year when they file their 2020 federal income tax return. EIPs are technically an advance payment of a new temporary tax credit that eligible taxpayers can claim on their 2020 return. Everyone should keep for their records the letter they receive by mail within a few weeks after their payment is issued.
When taxpayers file their return next year, they can claim additional credits on their 2020 tax return if they are eligible for them. The IRS will provide further details on IRS.gov on the action they may need to take.
The EIP will not reduce a taxpayer's refund or increase the amount they owe when they file a tax return early next year. It is also not taxable and is therefore should not be included in income on a 2020 return.
Act by Wednesday for chance to get quicker Economic Impact Payment; timeline for payments continues to accelerate
May 8, 2020 From IRS.gov >
WASHINGTON – With a variety of steps underway to speed Economic Impact Payments, the Treasury Department and the Internal Revenue Service urged people to use Get My Payment by noon Wednesday, May 13, for a chance to get a quicker delivery.
The IRS, working in partnership with Treasury Department and the Bureau of Fiscal Services (BFS), continues to accelerate work to get Economic Impact Payments to even more people as soon as possible. Approximately 130 million individuals have already received payments worth more than $200 billion in the program's first four weeks.
Starting later this month, the number of paper checks being delivered to taxpayers will sharply increase. For many taxpayers, the last chance to obtain a direct deposit of their Economic Impact Payment rather than receive a paper check is coming soon. People should visit Get My Payment on IRS.gov by noon Wednesday, May 13, to check on their payment status and, when available, provide their direct deposit information.
"We're working hard to get more payments quickly to taxpayers," said IRS Commissioner Chuck Rettig. "We want people to visit Get My Payment before the noon Wednesday deadline so they can provide their direct deposit information. Time is running out for a chance to get these payments several weeks earlier through direct deposit."
After noon Wednesday, the IRS will begin preparing millions of files to send to BFS for paper checks that will begin arriving through late May and into June. Taxpayers who use Get My Payment before that cut-off can still take advantage of entering direct deposit information.
How Get My Payment works
The Get My Payment tool provides eligible taxpayers with a projected Economic Impact Payment deposit date. The information is updated once daily, usually overnight. There is no need to check more than once a day. Taxpayers who did not choose direct deposit on their last tax return can use this tool to input bank account information to receive their payment by direct deposit, expediting receipt.
Non-Filers portal remains available
For those not required to file a federal tax return, the Non-Filers: Enter Payment Info Here tool helps them submit basic information to receive an Economic Impact Payment quickly to their bank account. Developed in partnership between the IRS and the Free File Alliance, this tool provides a free and easy option for those who don't receive Social Security retirement, survivor or disability benefits (SSDI), Railroad Retirement benefits, Supplemental Security Income (SSI) and VA Compensation and Pension (C&P) benefits. The Non-Filers tool is also available in Spanish.
Eligible taxpayers who filed tax returns for 2019 or 2018 will receive the payments automatically. Automatic payments will also be sent to those receiving Social Security retirement, disability benefits, Railroad Retirement benefits, Veterans Affairs benefits or Supplemental Security Income soon.
Watch out for scams related to Economic Impact Payments
The IRS urges taxpayers to be on the lookout for scams related to the Economic Impact Payments. To use the new app or get information, taxpayers should visit IRS.gov. People should watch out for scams using email, phone calls or texts related to the payments. Be careful and cautious: The IRS will not send unsolicited electronic communications asking people to open attachments, visit a website or share personal or financial information.
Stay informed with Economic Impact Payment FAQs; Social Media platforms
Taxpayers should check the Frequently Asked Questions (FAQs) for more information.
COVID Tax Tip 2020-53, May 7, 2020 From IRS.gov >
Small and midsize employers can claim two new refundable payroll tax credits. The paid sick leave credit and the paid family leave credit are designed to immediately and fully reimburse eligible employers for the cost of providing COVID-19 related leave to their employees.
Here are some key things to know about these credits.
Paid sick and family leave
For COVID-19 related reasons, employees receive up to 80 hours of paid sick leave when they are sick or caring for someone else who is, and up to 10 weeks of paid family leave when their children's schools or place of care are closed, or child care providers are unavailable due to COVID-19.
- Employers receive 100% reimbursement for required paid leave.
- Health insurance costs are also included in the credit.
- Employers do not owe their share of social security tax on the paid leave and get a credit for their share of Medicare tax on the paid leave.
- Self-employed individuals receive an equivalent credit.
- Reimbursement will be quick and easy.
- The credit provides a dollar-for-dollar tax offset against the employer's payroll taxes
- The IRS will send any refunds owed as quickly as possible.
To take immediate advantage of the paid leave credits, businesses should use funds they would otherwise pay to the IRS in payroll taxes. If those amounts are not enough to cover the cost of paid leave, employers can request an expedited advance from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
For details about these credits and other relief, visit Coronavirus Tax Relief on IRS.gov.
May 7, 2020 From IRS.gov >
WASHINGTON — The Internal Revenue Service today reminds employers affected by COVID-19 about three important new credits available to them.
Employee Retention Credit:
The employee retention credit is designed to encourage businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.
The credit is available to all employers regardless of size, including tax-exempt organizations. There are only two exceptions: State and local governments and their instrumentalities and small businesses who take small business loans.
Qualifying employers must fall into one of two categories:
- The employer's business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
- The employer's gross receipts are below 50% of the comparable 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.
Employers will calculate these measures each calendar quarter.
Paid Sick Leave Credit and Family Leave Credit:
The paid sick leave credit is designed to allow business to get a credit for an employee who is unable to work (including telework) because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis. Those employees are entitled to paid sick leave for up to 10 days (up to 80 hours) at the employee's regular rate of pay up to $511 per day and $5,110 in total.
The employer can also receive the credit for employees who are unable to work due to caring for someone with Coronavirus or caring for a child because the child's school or place of care is closed, or the paid childcare provider is unavailable due to the Coronavirus. Those employees are entitled to paid sick leave for up to two weeks (up to 80 hours) at 2/3 the employee's regular rate of pay or, up to $200 per day and $2,000 in total.
Employees are also entitled to paid family and medical leave equal to 2/3 of the employee's regular pay, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave can be counted towards the family leave credit.
Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees' wages by the amount of the credit.
Eligible employers are entitled to immediately receive a credit in the full amount of the required sick leave and family leave, plus related health plan expenses and the employer's share of Medicare tax on the leave, for the period of April 1, 2020, through Dec. 31, 2020. The refundable credit is applied against certain employment taxes on wages paid to all employees.
How will employers receive the credit?
Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees' wages by the amount of the credit.
Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns or Form 941 beginning with the second quarter. If the employer's employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Eligible employers can also request an advance of the Employee Retention Credit by submitting Form 7200.
PDF download of a comprehensive 15 page FAQ regarding questions about the PPP program. Download the below document to read.
The Paycheck Protection Program provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities.
The Paycheck Protection Program (“PPP”) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for everyone. Download for more information.