Author: Slattery & Holman, P.C.

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.

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.

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.