Harless Tax Blog

Harless Tax Blog

You can’t sue Pfizer or Moderna if you have severe Covid vaccine side effects. The government likely won’t compensate you for damages either

Friday, December 18, 2020

Read original article on CNBC >

If you experience severe side effects after getting a Covid vaccine, lawyers tell CNBC there is basically no one to blame in a U.S. court of law.

The federal government has granted companies like Pfizer and Moderna immunity from liability if something unintentionally goes wrong with their vaccines.

“It is very rare for a blanket immunity law to be passed,” said Rogge Dunn, a Dallas labor and employment attorney. “Pharmaceutical companies typically aren’t offered much liability protection under the law.“

You also can’t sue the Food and Drug Administration for authorizing a vaccine for emergency use, nor can you hold your employer accountable if they mandate inoculation as a condition of employment.

Congress created a fund specifically to help cover lost wages and out-of-pocket medical expenses for people who have been irreparably harmed by a “covered countermeasure,” such as a vaccine. But it is difficult to use and rarely pays. Attorneys say it has compensated less than 6% of the claims filed in the last decade.

Immune to lawsuits

In February, Health and Human Services Secretary Alex Azar invoked the Public Readiness and Emergency Preparedness Act. The 2005 law empowers the HHS secretary to provide legal protection to companies making or distributing critical medical supplies, such as vaccines and treatments, unless there’s “willful misconduct” by the company. The protection lasts until 2024.

That means that for the next four years, these companies “cannot be sued for money damages in court” over injuries related to the administration or use of products to treat or protect against Covid.

HHS did not respond to CNBC’s request for an interview.

Dunn thinks a big reason for the unprecedented protection has to do with the expedited timeline.

“When the government said, ‘We want you to develop this four or five times faster than you normally do,’ most likely the manufacturers said to the government, ‘We want you, the government, to protect us from multimillion-dollar lawsuits,’” said Dunn.

The quickest vaccine ever developed was for mumps. It took four years and was licensed in 1967. Pfizer’s Covid-19 vaccine was developed and cleared for emergency use in eight months — a fact that has fueled public mistrust of the coronavirus inoculation in the U.S.

Roughly 4 in 10 Americans say they would “definitely” or “probably” not get vaccinated, according to a recent survey by the Pew Research Center. While this is lower than it was two months ago, it still points to a huge trust gap.

But drugmakers like Pfizer continue to reassure the public no shortcuts were taken. “This is a vaccine that was developed without cutting corners,” CEO Dr. Albert Bourla said in an interview with CNBC’s “Squawk Box” on Monday. “This is a vaccine that is getting approved by all authorities in the world. That should say something.”

The legal immunity granted to pharmaceutical companies doesn’t just guard them against lawsuits. Dunn said it helps lower the cost of the immunizations.

“The government doesn’t want people suing the companies making the Covid vaccine. Because then, the manufacturers would probably charge the government a higher price per person per dose,” Dunn explained.

Pfizer and Moderna did not return CNBC’s request for comment on their legal protections.

Is anyone liable?

Remember, vaccine manufacturers aren’t the ones approving their product for mass distribution. That is the job of the FDA.

Which begs the question, can you sue the U.S. government if you have an extraordinarily bad reaction to a vaccine?

Again, the answer is no.

“You can’t sue the FDA for approving or disapproving a drug,” said Dorit Reiss, a professor at the University of California Hastings College of Law. “That’s part of its sovereign immunity.”

Sovereign immunity came from the king, explains Dunn, referring to British law before the American Revolution. “You couldn’t sue the king. So, America has sovereign immunity, and even each state has sovereign immunity.”

There are limited exceptions, but Dunn said he doesn’t think they provide a viable legal path to hold the federal government responsible for a Covid vaccine injury.

Bringing workers back to the office in a post-Covid world also carries with it a heightened fear of liability for employers. Lawyers across the country say their corporate clients are reaching out to them to ask whether they can require employees to get immunized.

Dunn’s clients who run businesses serving customers in person or on site are most interested in mandating a Covid vaccine for staff.

“They view it as a selling point,” Dunn said. “It’s particularly important for restaurants, bars, gyms and salons. My clients in that segment of the service industry are looking hard at making it mandatory, as a sales point to their customers.”

While this is in part a public relations tactic, it is legally within an employer’s rights to impose such a requirement.

“Requiring a vaccine is a health and safety work rule, and employers can do that,” said Reiss.

There are a few notable exceptions. If a work force is unionized, the collective bargaining agreement may require negotiating with the union before mandating a vaccine.

Anti-discrimination laws provide some protections as well. Under the Americans with Disabilities Act, workers who don’t want to be vaccinated for medical reasons are eligible to request an exemption. If taking the vaccine is a violation of a “sincerely held” religious belief, Title VII of the Civil Rights Act of 1964 would potentially provide a way to opt out.

Should none of these exemptions apply, employees may have some legal recourse if they suffer debilitating side effects following a work-mandated Covid inoculation.

Attorneys say claims would most likely be routed through worker’s compensation programs and treated as an on-the-job injury.

“But there are significant limits or caps on the damages an employee can recover,” said Dunn. He added that it would likely be difficult to prove.

Mandatory vaccination protocols, however, may not happen until the FDA formally approves the vaccines and grants Pfizer and BioNTech or Moderna a license to sell them, which will take several more months of data to show their safety and effectiveness.

“An emergency use authorization is not a license,” said Reiss. “There’s a legal question as to whether you can mandate an emergency observation. The language in the act is somewhat unclear on that.”

$50,000 a year

The government has created a way for people to recover some damages should something go wrong following immunization.

In addition to the legal immunity, the PREP Act established the Countermeasures Injury Compensation Program (CICP), which provides benefits to eligible individuals who suffer serious injury from one of the protected companies.

The little-known government program has been around for a decade, and it is managed by an agency under HHS. This fund typically only deals with vaccines you probably would never get, like the H1N1 and anthrax vaccines.

If a case for compensation through the CICP is successful, the program provides up to $50,000 per year in unreimbursed lost wages and out-of-pocket medical expenses. It won’t cover legal fees or anything to compensate for pain and suffering.

It is also capped at the death benefit of $370,376, which is the most a surviving family member receives in the event that a Covid vaccine proves to be fatal.

But experts specializing in vaccine law say it is difficult to navigate. “This government compensation program is very hard to use,” said Reiss. “The bar for compensation is very high.”

Also worrisome to some vaccine injury lawyers is the fact that the CICP has rejected a majority of the compensation requests made since the program began 10 years ago. Of the 499 claims filed, the CICP has compensated only 29 claims, totaling more than $6 million.

David Carney, vice president of the Vaccine Bar Association, said the CICP might deny a claim for a variety of reasons. “One reason might be that the medical records don’t support a claim,” said Carney, who regularly deals with vaccine injury cases. “We have to litigate a lot of really complex issues ... and provide a medical basis for why the injury occurred.”

Proving an injury was a direct result of the Covid vaccine could be difficult, according to Carney. “It’s not as simple as saying. ‘Hey, I got a Covid treatment, and now I have an injury.’ There is a lot of burden of proof there.”

There is also a strict one-year statute, meaning that all claims have to be filed within 12 months of receiving the vaccine.

“People who are harmed by a Covid vaccine deserve to be compensated fast and generously,” said Reiss. “The PREP Act doesn’t do that.”

Lawyers tell CNBC that it would make more sense for Covid vaccine injuries to instead be routed through another program under the HHS called the National Vaccine Injury Compensation Program, which handles claims for 16 routine vaccines. Known colloquially as “vaccine court,” the program paid on about 70% of petitions adjudicated by the court from 2006 to 2018.

And since it began considering claims in 1988, the VICP has paid approximately $4.4 billion in total compensation. That dwarfs the CICP’s roughly $6 million in paid benefits over the life of the program.

The VICP also gives you more time to file your claim. You have three years from the date of the first symptom to file for compensation.

“The VICP allows for recovery of pain and suffering, attorney’s fees, along with medical expenses and lost wages, if any,” said Michael Maxwell, a lawyer who practices in the areas of business litigation and personal injury. “Under the CICP, it’s only lost wages and out-of-pocket medical expenses. That’s it, unless there’s a death.”

The Covid-19 vaccines, however, aren’t on the list of eligible vaccines.

Reiss said the best fix would be to change VICP’s rulebook to add Covid vaccines to its list of covered inoculations. “That will require legislative change. I hope that legislative change happens.”

PPP Data Dump Places Loan Forgiveness Applications Under a Microscope

Thursday, December 17, 2020

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.

What’s Next

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 results could foster more expats

Wednesday, November 04, 2020

Original article Accounting Today >

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."

Guidance For PPP Borrowers With Ownership Changes

Tuesday, October 27, 2020

Original article by Fuoco.com >

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:

  1. Performance of all obligations under the PPP loan;
  2. Certifications made under the PPP loan application, including the certification of economic necessity;
  3. Continued compliance with all other PPP loan requirements, and
  4. 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.

PPP Forgiveness Simplified For Loans Less Than 50K

Monday, October 26, 2020

Original article by Fuoco.com >

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.

Lender responsibilities
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.

2020 May Be Your Last Chance For A Medical Expense Tax Deduction

Monday, October 26, 2020

Original article by Fuoco.com >

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.

What’s deductible?

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

Can Your Employer Pick Up The Tab For Your Cell Phone Or Internet

Monday, October 26, 2020

Original article by Fuoco.com >

YOU BET!

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

CELL PHONE
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.

COMPUTER
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.

MICELLANEOUS ITEMS
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.

Paid Family Leave Is Taxable

Friday, October 23, 2020

Original article by Fuoco.com >

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:

  1. 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.
  2. 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.
  3. An employee can request to have income taxes withheld by filing Form W-4V, Voluntary Withholding Request.
  4. You will receive either Form 1099-G or Form 1099-MISC from your employer showing your taxable benefits.
  5. Your employer will deduct premiums for the Paid Family Leave program from your after-tax wages.
  6. Your premium contributions will be reported to you by your employer on Form W-2 in Box 14 as state disability insurance taxes withheld.

Think Twice Before Making Interest Free Loans To Loved Ones

Thursday, October 22, 2020

Original article by Fuoco.com >

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 Issues Provider Relief Fund Reporting Requirements

Wednesday, October 21, 2020

Original article by Fuoco.com >

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:

    1. The amount of a provider’s 2019 net gain from healthcare related sources, or
    2. Up to a net zero gain/loss in 2020, if the provider reported negative net operating income in 2019.

In Addition:

  • 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.


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