COVID-19 Update 3/31/2020
To The Valued Clients and Business Partners of Bertz, Hess & Company:
As promised in the last Bertz, Hess & Company message to our clients and business partners, we wanted to update you on some developments over the last few days. These items may apply to you, your family, your business and/or non-profit entity. Many of the details have yet to be finalized, but we expect many of the provisions below will be in the final version of these legislative actions. Some of the highlights are as follows:
CARES ACT OVERVIEW
Everyone seems to be talking about the new CARES Act (The Coronavirus Aid, Relief, and Economic Security Act, H.R. 748), which passed the Senate by a 96-0 vote late on Wednesday and was voted on, and signed into law on Friday.
There will likely be changes to the CARES Act, but currently, it contains a variety of items affecting individuals, businesses and non-profits as part of a $2 trillion aid package designed to help the economy. Some details of the CARES Act in its current form are covered in a Journal of Accountancy article that you can access here.
Some highlights from that article are as follows:
Recovery rebates: Providing individuals with a tax credit of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child. The credit is phased out for taxpayers with adjusted gross income (AGI) above $150,000 (for joint filers), $112,500 (for heads of household), and $75,000 for other individuals.
Payroll tax credit refunds: The bill provides for advance refunding of the payroll tax credits enacted last week in the Families First Coronavirus Response Act.
Employee retention credit: This is a credit for employers that close down as a result of the coronavirus pandemic. Eligible employers are allowed a credit against employment taxes equal to 50% of qualified wages (up to $10,000 in wages) for each employee. Eligible employers are employers who were carrying on a trade or business during 2020 up until the operations were fully or partially suspended due to orders from an governmental authority limiting commerce, travel, or group meetings due to the COVID-19 outbreak. Employers that have gross receipts that are less than 50% of their gross receipts for the same quarter in the prior year are also eligible, until their gross receipts exceed 80% of their gross receipts for the same calendar quarter in the prior year. For employers with more than 100 employees, wages eligible for the credit are wages that the employer pays employees who are not providing services due to the suspension of the business or a drop in gross receipts. For employers with 100 or fewer employees, all wages paid qualify for the credit.
Retirement plans: Taxpayers can take up to $100,000 in coronavirus-related distributions from retirement plans without being subject to the Sec. 72(t) 10% additional tax for early distributions. Eligible distributions can be taken up to Dec. 31, 2020. Coronavirus-related distributions may be repaid within three years. For these purposes, an eligible taxpayer is one who (or that taxpayer’s spouse or dependent) has been diagnosed with SARS-CoV-2 virus or COVID-19 disease, or who experience adverse financial consequences from being quarantined, furloughed, or laid off, or who has had his or her work hours reduced, or who is unable to work due to lack of child care. Any resulting income inclusion can be taken over three years. The bill also allows loans of up to $100,000 from qualified plans, and repayment can be delayed.
Charitable deductions: The bill creates an above-the-line charitable deduction for 2020 (not to exceed $300). The bill also modifies the AGI limitations on charitable contributions for 2020, to 100% of AGI for individuals and 25% of taxable income for corporations. The bill also increases the food contribution limits to 25%.
Payroll tax delay: Employers can delay payment of 50% of 2020 employer payroll taxes until Dec. 31, 2021; the other 50% will be due Dec. 31, 2022. For self-employed individuals, the payment of self-employment taxes falls under the same timeline.
Pennsylvania has provided some guidance on unemployment compensation for employees and self-employed individuals in the COVID-19 guidance which you can access here. At the time of this e-mail, Pennsylvania has not issued guidelines for filing for unemployment if you are self-employed, but has indicated that special instructions are forthcoming.
LOANS AVAILABLE TO BUSINESSES AND NON-PROFITS
Here’s what we are hearing from some of our more reliable sources about loans and grants under CARES:
SBA Disaster Assistance for Businesses and Not-For-Profit Entities
- The SBA has approved disaster relief funds.
- These funds are provided directly from the SBA and bypass the banks entirely. The best resource for these requests would be to reach out to your SBA district office for guidance. The website SBA.gov will also have up to date information.
- A quick primer on these funds: up to $2MM to a borrower that is able to show direct hardship and a fixed interest rate of 3.75% for up to 30 years if that amortization makes sense. One big change is that these funds will also be available to non-profits at a fixed interest rate of 2.75%.
- The quickest path to approval is to assemble as complete a package as possible.
- Businesses should be prepared with the documentation needed to apply. For example, they will be asked for federal business and personal tax returns, and historical and projected revenue. All businesses are able to review the SBA Disaster Business Loan Application paper forms and requirements at https://disasterloan.sba.gov/ela/Information/PaperForms. A complete and thorough application will be eligible for funding (an incomplete application will delay the process.)
- The most up-to-date website on SBA’s Disaster Assistance in response to Coronavirus (COVID-19)is: https://www.sba.gov/disaster-assistance/coronavirus-covid-19
Paycheck Protection Program under CARES
- This program will be administered by the banks, not direct like the SBA Disaster Assistance program.
- The program is designed to help keep your workers on the payroll. If you have gone through layoffs, you will be able to hire them back.
- The dollar amount you will receive will be based on the average monthly payroll using the previous 12 months then multiplied by 2.5. Payroll means payroll and direct expenses related to payroll such as 401k contributions from the employer, employer contribution for healthcare, and other expenses that have a direct tie in. Other aspects of monthly overhead is(we are being told by the SBA) not a part of that calculation. Those expense are covered under the SBA’s disaster relief fund. SO YOU MAY WANT TO START TO GATHER THAT INFORMATION NOW!
- This program refers to the product as a loan but is in essence a grant. There is a possibility that some could be a grant and a combo of a loan. For example, if the formula above leads you to ask for $500,000 and for whatever reason, application not completed correctly, inadequate information supplied, the SBA could say your $500,000 will come as a $420,000 grant and an $80,000 loan at 3.25% over a yet to be determined timeframe.
- We hope to have details and more clarity on this program by next week.
THREE THINGS TO REMEMBER AS IT RELATES TO THE SBA DISASTER LOANS AND THE PAYCHECK PROTECTION PROGRAMS:
First, as noted several times above, the information is changing and is being updated constantly
Second, if you think the two loan/grant programs above would apply to your business, we would recommend you start compiling the payroll information noted above now, or as soon as possible. Documentation will be key in the process.
Third, some of the CARES Act relief programs are mutually exclusive, meaning that if you take advantage of one program, you might be excluded from another, so please be careful as you evaluate your options.