SBA Releases Updates On PPP Forgiveness

This week, the Small Business Administration (SBA) and the U.S. Department of the Treasury released new information for recipients of loans through the Paycheck Protection Program (PPP). A recent article from the Journal of Accountancy offers helpful details on the revised loan forgiveness application, the new EZ application, and the new interim final rule on calculating compensation for loan forgiveness.

The Revised PPP Loan Forgiveness Application

The author notes three key items included in the updated application for PPP loan forgiveness:

  1. Clarification that S corporation owners may not include health insurance costs in their payroll cost calculation, but they may include retirement costs
  2. Guidance regarding the use of safe harbors in conjunction with loan forgiveness
  3. The option to use either the 8-week or the 24-week coverage period for borrowers that received PPP loans prior to June 5

Click here to view the revised PPP loan forgiveness application.

Click here to view the instructions for completing the application.

The New EZ PPP Loan Forgiveness Application

The EZ application was created for use by PPP borrowers with relatively straightforward cases (e.g., fewer calculations and less documentation). In order to be eligible to use the EZ application, borrowers must fit one or more of the following criteria:

  • Be self-employed and have no employees
  • Not have reduced salaries or wages by more than 25% and not have reduced hours or employees
  • Both experienced a reduction in business due to COVID-19 health directives and did not reduce salaries or wages by more than 25%

Click here to view the EZ PPP loan forgiveness application.

Click here to view the instruction for the EZ application.

New Interim Final Rule

Just prior to releasing the revised and new applications for loan forgiveness, the SBA issued a new interim final rule. The rule addresses the fact that the Paycheck Protection Program Flexibility Act (PPPFA) increased the covered period for PPP funds from eight weeks to 24 weeks. The rule increases the cap on salaries and compensation to account for the increase in the covered period. For borrowers using the 8-week period, PPP loan forgiveness is allowed for up to $15,385 for each individual employee ($100,000 annualized to an eight-week period). For borrowers using the 24-week period, PPP loan forgiveness is allowed for up to $46,154 for each individual employee ($100,000 annualized to a 24-week period).

Additionally, the rule addresses owner compensation in light of the increase in the covered period for PPP fund from eight weeks to 24 weeks. The calculation for owner compensation is more complex than that for individual employee compensation in order “to prevent owners from reaping PPP windfalls that Congress did not intend.” For borrowers using the eight-week period, PPP loan forgiveness is allowed for up to $15,385 of owner compensation. For borrowers using the 24-week period, PPP loan forgiveness is allowed for up to $20,833 of owner compensation.

Lastly, the interim final rule also adjusted previous guidance in order to account for changes made by the PPPFA. For loans made on or after June 5, 2020, the minimum term is five years. For loans made prior to June 5, 2020, the two-year minimum remains, unless the borrower and lender agree upon an extension. The portion of PPP funds that are required to be used on payroll costs in order for a borrower to qualify for forgiveness is reduced from 75% to 60%.

For further details, click here to read the article in full at the Journal of Accountancy.

Senate Passes Paycheck Protection Flexibility Act

On Wednesday night, the Senate voted unanimously in favor of the Paycheck Protection Flexibility Act. This new legislation makes key adjustments to the timeline for spending Paycheck Protection Program (PPP) funds and revises how loan recipients are required to allocate the money.

Here is a brief overview of the key provisions contained in the bill:

  • Loan recipients now have 24 weeks to spend the funds. Previously, they had to use all the money within eight weeks.
  • The percentage of the loan money required to be devoted to payroll expenditures has been reduced from 75% to 60%. This item does come with a new catch—if a borrower fails to spend at least 60% of the loan money on payroll, then the entire loan becomes unforgivable.
  • The minimum term period for PPP loans is extended from two years to five years.
  • PPP loan recipients whose loans are forgiven may delay payroll tax payments (the employer’s share of FICA payroll taxes) for two years. Half of the taxes are due in 2021 and the other half in 2022.
  • The deadline for rehiring employees and restoring wages to pre-pandemic levels is extended from June 30, 2020 to December 31, 2020.
  • Loan recipients have more leeway on loan forgiveness if they can provide evidence that they were unable to recall a portion of their workforce or that it was not possible to reopen their business in a way that complies with safety standards.

The bill now heads to the President, who is expected to sign it.

Contact our office today if you have any questions or need assistance.

Important Tax Due Dates – June & July 2020

July 2020 Individual Due Dates

July 15 – Pay Federal Estimated Taxes for Both Q1 and Q2 2020

Individuals who are not paying their annual income tax through withholding should make quarterly estimated tax payments using Form 1040-ES or pay online at www.irs.gov/payments. In response to the coronavirus pandemic, both the first and second federal quarterly estimated tax payments were extended to July 15.

July 15 – File 2019 Federal Income Tax Return Form 1040

The April 15 deadline for filing and paying federal taxes was extended to July 15 in response to the coronavirus pandemic. In order to receive an automatic filing extension to October 15, file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. This will give taxpayers until October 15 to file their federal income tax returns, Form 1040. Please note, a filing extension is not a payment extension.

July 15 – Indiana Individual Due Dates

Originally due April 15, the following individual tax returns, payments, and estimated tax payments are due by July 15: IT-40, IT-40PNR, IT-40RNR, IT-40ES, ES-40, and SC-40. Both the first and second Indiana quarterly estimated tax payments are due July 15 use payment vouchers or pay online at https://dorpay.dor.in.gov

June 2020 Business Due Dates

June 15 – Employer’s Monthly Deposit Due

If you are an employer and the monthly deposit rules apply, June 15 is the due date for you to make your deposit of Social Security, Medicare, and withheld income tax for May 2020. This is also the due date for the non-payroll withholding deposit for May 2020 if the monthly deposit rule applies. See note below:

Note: Under the CARES Act, employers…

  • May be able to defer paying the employer’s 6.2% portion of the Social Security taxes through the end of 2020. The delay provisions apply to all employers regardless of the number of employees.
  • May be able to receive tax credits against payroll tax and withholding for employees who received mandatory COVID-10 sick and family leave payments.
  • May be able to receive tax credits against payroll tax for keeping employees on payroll under the Employee Retention Credit. This cannot be used in conjunction with a Paycheck Protection Plan loan so please consult your tax advisor. 

June 15 – Indiana Personal Property Tax Due

Governor Eric J. Holcomb, per Executive Order, suspended the deadline for submitting business personal property tax returns from May 15, 2020 until June 15, 2020.  A written extension request is not required.

July 2020 Business Due Dates

July 15 – Employer’s Monthly Deposit Due

If you are an employer and the monthly deposit rules apply, July 15 is the due date for you to make your deposit of Social Security, Medicare, and withheld income tax for June 2020. This is also the due date for the non-payroll withholding deposit for June 2020 if the monthly deposit rule applies. See note above.

July 15 – File 2019 Corporate Income Tax Return Form 1120

The April 15 deadline for filing and paying federal taxes was extended to July 15 in response to the coronavirus pandemic. Use Form 1120 to file a 2019 income tax return and pay any tax due.

July 15 – Pay Estimated Taxes

Corporations should make estimated tax payments for both the first and second quarters of 2020 by July 15. The standard deadlines were extended in response to the coronavirus pandemic. Form 1120-W can be used to help estimate a corporation’s tax for the year. In order to receive an automatic extension until October 15, file Form 7004, Application for Automatic Extension of Time To File.

July 15 – Indiana Corporate Due Dates

Originally due April 15, the following corporate tax returns, payments, and estimated payments are due July 15: IT-20, IT-41, IT-65, IT-20NP, T-20S, FIT-20, URT-1, IT-6, IT-6WTH, FT-QP, NP-20, and URT-Q. Please note: any payments originally due on May 15 are now due on August 17.

Employee Spotlight – Tatiana Sims

LINKEDIN_Tatiana Sims _Slattery & Holman DSC_2624 CROPPED

Tatiana Sims, CPA started her professional career with the Slattery & Holman team in 2014.  As a senior accountant, Tatiana provides expertise in accounting, tax, and general consulting services concentrated, but not limited to, dental practices and various medical specialty practices.

Get to Know Tatiana

What year did you join Slattery & Holman?
2014

What is your favorite thing about living in Indiana?
Hoosier hospitality

Tell me a little about your family
My husband and I live in Carmel with our two kids, Henry (3 ½) and Emilia (7 months). We enjoy long family walks on the Monon Trail with our dog Aldo.

What fictional place would you most like to visit?
Hogwarts School

What is a new skill that you would like to master? 
Photography

What was the best compliment you’ve ever received?
When my 3 ½ year-old son told me, I look pretty in a dress. Until then he was refusing to use the word pretty or beautiful.

What is your favorite smell?
Flavored coffee brewing in the morning.

SBA Releases Application for PPP Loan Forgiveness

On Friday, May 15, the Small Business Administration (SBA) announced an important release for borrowers who received loans through the Paycheck Protection Program (PPP). The bureau made public a form and instructions for borrowers to use to apply for PPP loan forgiveness.

The application must be completed and submitted to the lender that serviced the borrower’s PPP loan. It includes the following four components:

  1. A form for calculating the PPP loan forgiveness amount
  2. A PPP Schedule A
  3. A PPP Schedule A worksheet
  4. An optional form for including demographic information about the borrower

To complete the forgiveness form in its entirety, borrowers must supply the following information:

  • The legal name of the business (the same name as used on the PPP application form)
  • Contact information (address, phone, primary contact, and email address—borrowers should use the same information as they used on their PPP application)
  • The PPP loan number assigned to the borrower by the SBA
  • The PPP loan number assigned to the lender
  • The total number of employees employed by the borrower at the time of the PPP loan application
  • The total number of employees employed by the borrower at the time of the loan forgiveness application
  • The date that the PPP loan proceeds were disbursed (if the borrower received more than one disbursement, the date of the initial disbursement)
  • Any economic injury disaster loan (EIDL) advance amount received by the borrower
  • The borrower’s EIDL application number, if applicable
  • The borrower’s payroll schedule
  • The beginning and ending dates of the eight-week period covered by the borrower’s PPP loan
  • The alternative payroll covered period, if applicable
  • An indication of whether the borrower received a PPP loan of more than $2 million

The form includes step-by-step instructions for borrowers on how to complete the calculations that it requires. The SBA has indicated that it plans to release additional regulations and guidance regarding completing the loan forgiveness application. Click here to view the loan forgiveness application and instructions in full.

Tax Credit Pays for Keeping Employees on Payroll

To help businesses retain employees and keep them employed during the COVID-19 crisis, Congress has provided a refundable employer retention credit available to all qualifying employers regardless of size, including tax-exempt organizations. To qualify for the credit, employers must fall into one of two categories:

  1. Business Operations Curtailed: Eligible employers were carrying out a trade or business during 2020, and the operation of that business is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to the COVID-19 outbreak.
  2. Gross Receipts Declined 50%: Eligible employers have gross receipts that are less than 50% of their gross receipts for the same quarter in 2019; employers remain eligible until their gross receipts exceed 80% of their gross receipts for the same 2019 calendar quarter.

However, an employer who secures an SBA Paycheck Protection Loan created by the CARES Act is ineligible for the employer retention credit, as a Paycheck Protection Loan can be forgiven for wages paid during an 8-week period, thereby leading to double-dipping on CARES Act benefits if the business tried to use both benefits.

The employer retention credit is a refundable payroll tax credit for 50% of qualified wages up to a maximum wage of $10,000 per employee. Wages taken into account are those paid starting March 13, 2020, through December 31, 2020, and include a portion of the cost of health care provided by the employer. No credit is available with respect to an employee in any period for which the employer is allowed a Work Opportunity Credit for that employee.

Qualifying wages are based on the average number of a business’s employees in 2019.

  • Employers with 100 or fewer employees: If the employer had 100 or fewer employees on average in 2019, the credit is based on wages paid to all employees, regardless of whether they worked. If the employees worked full time and were paid for full-time work, the employer still receives the credit.
  • Employers with more than 100 employees: An employer that had more than 100 employees on average in 2019 is allowed a credit only for wages paid to employees who did not work during the calendar quarter.

Wages do not include amounts for payroll credits provided for required paid sick leave or required paid sick leave or required paid family leave for which the government is reimbursing the employer.

Employers can be reimbursed for the credit immediately by reducing their required deposits of payroll taxes 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 of 2020. 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. Employers must carefully consider which tax benefit or combination of tax benefits works best for their particular set of circumstances, particularly the choice between the retention credit and the SBA paycheck protection loans since a business cannot qualify for both.

Please contact our office with questions to determine the best course of action for your business.

Congress Makes Charitable Giving Easier During the COVID-19 Crisis

To encourage charitable contributions to deserving qualified charities during these trying times, Congress has relaxed some of its restrictions related to how much a taxpayer can deduct as a charitable contribution in any given year.

Under normal circumstances, cash contributions are limited to 60% of a taxpayer’s adjusted gross income (AGI). However, as has happened in the aftermath of prior disasters such as 2017 hurricanes Harvey, Irma, and Maria, the CARES Act has increased the AGI limit to 100% for 2020. Any amount in excess of 100% can be carried over and deducted on subsequent years’ returns until the excess is used up or until five years have passed, whichever happens first.

The CARES Act also created an above-the-line charitable contribution for taxpayers who don’t itemize their deductions. This will allow for a charitable deduction for cash contributions to qualified charities of up to $300 made in 2020.

While generally, the increased charitable contribution limitations related to natural disasters have applied only to contributions to relief efforts specific to the disaster, the only requirement for the CARES Act provisions is that the donations be in cash.

Although not a special provision, if you are age 70.5 or older, you can make charitable contributions by transferring funds from your IRA account to a charity, which are referred to as qualified charitable distributions (QCDs). The only hitch here is that the funds must be transferred directly from the IRA to the charity, meaning your IRA trustee will have to make the distribution to the charity. No minimum amount needs to be transferred, but the maximum of all such transfers for the year is $100,000 per year per taxpayer.

This strategy allows you to make a charitable contribution without itemizing deductions; since these distributions are tax-free, you can’t also claim a deduction for them. Because QCDs are nontaxable, your AGI will be lower, and you can benefit from tax provisions that are pegged to AGI, such as the amount of Social Security income that’s taxable and the cost of Medicare B insurance premiums for higher-income taxpayers.

If you decide to make a QCD, check with your IRA custodian on the IRA’s rules for how to request the QCD, and be sure to give the IRA custodian ample time to complete the process if you are making the request toward the end of the year. Always get a written acknowledgment from the charity for tax-reporting purposes.

For these special 2020 provisions and a QCD, the contributions cannot be made to a private foundation or a donor-advised fund.

Don’t forget that cash contributions include those paid by cash, check, electronic fund transfer, or credit card. Taxpayers cannot deduct a cash contribution, regardless of the amount, unless they can document the contribution in one of the following ways:

1. A bank record that shows the name of the qualified organization and the date and amount of the contribution. Bank records may include:

  • A canceled check,
  • A bank or credit union statement, or
  • A credit card statement.

2. A receipt (or a letter or other written communication) from the qualified organization showing the name of the organization and the date and amount of the contribution.

3. Payroll deduction records.

Finally, be alert for scammers. These con artists often pop up after natural disasters, and they’ll no doubt attempt to take advantage of the current crisis by trying to coax people into making donations that will go into the fraudsters’ pockets—not to help victims of the coronavirus disease and those suffering during this time of economic emergency.

Unfortunately, legitimate charities face competition from fraudsters, so if you are thinking about giving to a charity with which you are not familiar, do your research so that you can avoid swindlers trying to take advantage of your generosity. Here are tips to help make sure that your charitable contributions actually go to the cause that you support:

  • Donate to charities that you know and trust. Be alert for charities that seem to have sprung up overnight in connection with current events.
  • Ask if a caller is a paid fundraiser, who he/she works for, and what percentages of your donation go to the charity and the fundraiser. If you don’t get clear answers (or you don’t like the answers you get) consider donating to a different organization.
  • Don’t give out personal or financial information, such as your credit card or bank account number, unless you know for sure that the charity is reputable.
  • Never send cash. You can’t be sure that the organization will receive your donation, and you won’t have a record for tax purposes.
  • Never wire money to someone who claims to be from a charity. Scammers often request donations to be wired because wiring money is like sending cash: Once you send it, you can’t get it back.
  • If a donation request comes from a charity that claims to help a local community group (for example, police or firefighters), ask members of that group if they have heard of the charity and if it is actually providing financial support.
  • Check out the charity’s reputation using the Better Business Bureau’s (BBB) Wise Giving Alliance, Charity Navigator, or Charity Watch.

If you have any questions, please give our office a call.

Employers Can Defer Payroll Taxes

One of the benefits included in the COVID-19 epidemic stimulus package is the ability of an employer to defer payment of the employer’s share of certain federal payroll taxes. The deferral applies to the employer’s 6.2% share of the Social Security (OASDI) payroll tax.

The deferral does not apply to the employer’s 1.45% share of the hospital tax. The deferral is optional, applies to employers of any size, and applies to wages paid between March 27, 2020, and December 31, 2020.
The deferred payments will be due 50% before December 31, 2021, and the balance before the end of 2022.

For self-employed individuals, the deferral applies to 50% of the self-employment tax liability (including any related estimated tax liability).

Employers who receive Small Business Administration loans that are forgiven under the CARES Act (so that the Federal government effectively gave the employers loan funds that they did not have to repay in order to fund as much as eight weeks of their payroll costs) are not eligible for this payroll tax deferral. However, after that eight-week period is complete, deferral may resume.

If you have questions related to deferring a portion of your payroll taxes, please give our office a call.

Did You Take Your 2020 RMD Too Soon?

As part of the CARES Act, the requirement for older taxpayers to take required minimum distributions (RMDs) from their retirement plans has been waived for 2020. This is primarily due to the drop in value for most investments as a result of the economic effects of COVID-19.

RMDs are required distributions from qualified retirement plans and are commonly associated with traditional IRAs, but they also apply to 401(k)s and SEP IRAs. The tax code does not allow taxpayers to indefinitely keep funds in their qualified retirement plans. Eventually, these assets must be distributed, and taxes must be paid on those distributions. If a retirement plan owner takes no distributions, or if the distributions are not large enough, then he or she may have to pay a 50% penalty on the amount that is not distributed.

RMDs historically have needed to begin in the year when the retirement plan owner became age 70½, but a late 2019 tax law change (the SECURE Act) upped the starting age to 72 for years after 2019. The first year’s distribution can be delayed to no later than April 1 of the subsequent year. However, delaying the first distribution means taking two distributions in the subsequent year.

The CARES Act RMD waiver applies to:
• The 2020 RMD for taxpayers who turned 70½ before 2020.
• The 2019 RMD for taxpayers who turned 70½ in 2019 and chose to defer their first distribution to 2020.
• The 2020 RMD for taxpayers who turned 72 in 2020.
• The RMDs for beneficiaries.

RMD Rollover: The 2020 waiver for RMDs was not announced until the CARES Act was passed on March 27, 2020. Normally, an RMD cannot be rolled over, but the CARES Act essentially changed 2020 RMDs into eligible rollover distributions, which can be rolled over within 60 days of being received. Some individuals subject to the RMD requirements had already taken their RMD before the CARES Act was enacted and did not have the opportunity to roll the RMD back into their retirement account if the 60-day rollover period had already expired.

That issue was alleviated by the declared disaster provisions extending the rollover period. Thus, any 60-day rollover period that ends on or after April 1, 2020, and before July 15, 2020, is extended through July 15, 2020. This means that if you took a distribution after the end of January, you can roll it back into the retirement plan and avoid being taxed on it in 2020, if you do so by July 15, 2020.

Be aware, however, that any part of the distribution from a traditional IRA or qualified retirement plan that you don’t roll over will be taxed. This means that if federal and/or state income tax was withheld from the distribution and you want to roll over the distribution, you will need to use funds other than those from the distribution in order to fully roll it over. Regrettably, the withholding can’t be refunded when you make the rollover. Instead, the withheld tax will be claimed as a credit on your 2020 return. In this case, your 2020 estimated tax installments and/or withholding on other income can be adjusted.

One other caveat: only one IRA-to-IRA rollover is allowed within any 12-month period, so if you have already made an IRA rollover – even for a different account – during the prior 12 months, then you will need to carefully time the IRA RMD rollover so that it occurs beyond that period but is still within the extended time limit. Trustee-to-trustee transfers don’t count as rollovers, so, for example, if you moved your IRA from one brokerage to another by having the account directly transferred, that action won’t count as a rollover.

Unfortunately, those who took their RMD in January do not benefit from the extension to July 15, 2020 (unless the IRS provides additional relief).

And, unless further relief is provided, the RMD requirements will resume in 2021. If you have questions or wonder what the pros and cons are related to a rollover, please give our office a call.

Achieving PPP Loan Forgiveness

Businesses that have managed to secure financing through the Paycheck Protection Program (PPP) are fortunate, but still face deciphering the ambiguous definitions and requirements for determining loan forgiveness. Owners and managers must carefully adhere to the terms of the program in order to qualify for loan forgiveness.
In response to the coronavirus pandemic, Congress created the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The historic $2.2 trillion stimulus bills included $350 billion towards the PPP, a forgivable loan program to aid small businesses dealing with the financial impact resulting from the coronavirus pandemic. Unfortunately, the Small Business Administration (SBA) loan program was rapidly flooded with applications and the monies appropriated for relief and emergency loans were quickly extinguished. Congress has approved and President Trump signed on April 24 the additional $320 billion for the program.
While business owners who did secure a PPP loan are fortunate, they have a lot of work ahead of them. In order to qualify for loan forgiveness, the PPP funds must be used for certain allowable purposes, including:
  • Salaries, wages, commissions, or similar compensations (up to $100,000 per year per employee, prorated) should make up 75% of the money used;
  • Cash tips or equivalent;
  • Employee leave, including parental, family, medical, or sick (excluding family or sick leave under the Families First Coronavirus Response Act);
  • Allowances for dismissal or separation;
  • Group healthcare benefits, including insurance premiums;
  • Retirement benefits;
  • State or local taxes on employee compensation (not including the employer’s share of FICA payroll taxes, Railroad Retirement Act taxes, or other required U.S. income tax withholdings);
  • Continuation of group healthcare benefits during employee leave and insurance premiums;
  • Rent and utility payments;
  • Mortgage interest and interest on other debt obligations incurred prior to February 15, 2020;
  • Compensation and income of up to $100,000 per year (prorated) for sole proprietors and independent contractors.
Money used for any of the allowable purposes listed above will qualify for 100% forgiveness; loan money used for non-allowable purposes must be repaid. This means that businesses who take on PPP loans must shoulder the burden of new reporting requirements. Failure to keep thorough records of how the loan money is used could result in loss of forgiveness for some portions of the loan money. For detailed information specific to loan forgiveness, click here.
In order to qualify for loan forgiveness, recipients will need to provide banks with specific information, including up-to-date financials. Organizations should work closely with their financial team to better position themselves to comply with reporting regulations. Businesses without an internal team member would benefit greatly from securing outside help to adhere to the strict rules.
If your organization does not have the internal resources to prepare, or would just like help handling this task, consider reaching out to us at Slattery & Holman to discuss your options. Our team is prepared to help guide your organization in achieving successful PPP loan forgiveness and more. We can assist you with:
  • Bookkeeping catchup and cleanup for the first quarter of 2020
  • Preparation of payroll cost calculations needed for the PPP application
  • Assistance with PPP and other loan applications related to the coronavirus pandemic
  • Help with performing real-time reporting in order to adhere to loan forgiveness regulations
  • Advice and guidance for post-pandemic success
Our team is here to offer sound advice, clear guidance, and knowledgeable input to help you achieve financial relief during this uncertain time. Contact us today to discuss how we can accommodate your unique situation.