We continue to receive a number of calls and emails regarding the various programs that may be available to assist families during the COVID-19 crisis. C&D remains fully committed to serving and supporting our clients during these challenging times and we will continue to update you via our website and newsletter as new information is announced. We have compiled the links below as a resource to help you find information that may assist you in navigating these challenging times.
Treasury Department page dedicated to small business assistance – https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses
Small Business Administration Small Business Guidance and Loan Resources – https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources
California EDD Coronavirus Response – https://edd.ca.gov/about_edd/coronavirus-2019.htm
California EDD Guide to Unemployment Claims – https://edd.ca.gov/about_edd/coronavirus-2019/unemployment-claims.htm
IRS Coronavirus Tax Relief and Economic Impact Payments – https://www.irs.gov/coronavirus-tax-relief-and-economic-impact-payments
California FTB Coronavirus special tax relief and updates – https://www.ftb.ca.gov/about-ftb/newsroom/covid-19/index.html?WT.ac=COVID-19
Changes to Tax Deadlines
The US Treasury tax filing and payment deadline has been extended to July 15, 2020. This means taxpayers and businesses will now have an additional three months to file and make payments that would have been due on April 15, 2020, without interest or penalties. Penalties and interest will begin to accrue on unpaid balances as of July 16, 2020. This applies to all individual returns, including self employed individuals and all entities other than C-Corporations, such as trusts or estates.
C-Corporation tax returns and payments are automatically extended until July 15, 2020.
Payment relief also includes estimated tax payments for tax year 2020 that are due on April 15, 2020 and June 15, 2020.
On Friday, April 9, 2020 the IRS released additional guidance extending the due dates of the following to July 15, 2020:
- 2nd quarter individual estimate payments originally due June 15th
- Form 706 United States Estate (and Generation-Skipping Transfer) tax return and Form 8971 Information Regarding Beneficiaries Acquiring Property from a Decedent and any supplemental Form 8971 and estate tax payments of principal or interest due
- Form 709 United States Gift (and Generation-Skipping Transfer) tax return that are due on the date an estate is required to file Form 706
- Form 990-T Exempt Organization Business tax return and Form 990-PF Return of Private Foundation
Taxpayers who need additional time to file beyond the July 15, 2020 deadline will be able to request an extension.
The California Franchise Tax Board filing and payment deadline has also been extended to July 15, 2020. This applies to all individuals and business entities for: 2019 tax returns, 2019 tax return payments, 2020 1st and 2nd quarter estimate payments, 2020 LLC taxes and fees, and 2020 non-wage withholding payments. California taxpayers do not need to claim any special treatment to qualify for this relief.
If you have filing requirements in other states, the filing and payment deadlines in those states may vary.
The CARES Act
On Friday, March 27th President Trump signed the Coronavirus Aid, Relief and Economic Stimulus Act (CARES Act) which provides financial support to both individuals and businesses. There are a number of provisions included within the CARES Act and we have summarized the sections we believe are most applicable to our clients.
Economic Injury Disaster Loans
The Small Business Administration’s Economic Injury Disaster Loans are not new under the CARES Act. They have always been available in the event of a disaster, however this is the first time a pandemic event has qualified. Terms on disaster loans are favorable and include proceeds of up to $2 million, a term of 30 years, and interest rates at 3.75% for small businesses and 2.75% for non-profits. The first month’s payments are also deferred a full year from the date of the note.
The CARES Act expanded the provisions of these loans to make them easier for businesses to qualify. Additionally, $10,000 emergency cash grants are also available through the expanded provisions. These funds can be used for providing paid sick leave for employees impacted by COVID-19, maintaining payroll to retain employees, meeting increased costs to obtain materials due to supply chain interruptions, rent or mortgage payments, and repaying obligations that cannot be met due to losses in revenue.
Economic Injury Disaster Loans can be applied for directly through the Small Business Administration at www.sba.gov/disaster.
Paycheck Protection Program
The Paycheck Protection Program (PPP) is generally available to companies with not more than 500 employees and those with annual gross receipts under certain thresholds based on industry. Sole-proprietors, independent contractors and other self-employed individuals are also eligible for the loans. Loans are given up to a maximum of the lesser of $10 million or 2.5 times the average monthly payroll costs, including expenses for paid sick leave, healthcare and other benefits. These loans have a term of 2 years and an interest rate of 1%.
The primary benefit of the Paycheck Protection Program loan is the forgiveness of loan proceeds that are used during the first 8 weeks to cover operating expenses, including payroll, rent, utilities and health insurance premiums.
The final Payroll Protection Program loan application was released on Friday, April 3rd. The program is being administered by local banking institutions and the submission process varies by bank. If you are interested in applying for one of these stimulus loans make sure to reach out to your banking representative for details on their process.
Additional information continues to be released clarifying the calculations involved. Refer to the Treasury Department website for the application and frequently asked questions.
Pandemic Unemployment Assistance
The CARES Act creates a new program modeled on Disaster Unemployment Assistance that would provide benefits to individuals who do not qualify for regular unemployment and are unable to work because of COVID-19. Pandemic Unemployment Assistance will cover self-employed individuals, part-time workers and those with limited work histories. Pandemic Unemployment Assistance will be state administered but fully federally funded. Details are not yet available on the California Employment Development Department website but we will provide updates as they become available.
Emergency Increase in Unemployment Compensation
This provision adds an additional $600 in Federal Pandemic Unemployment Compensation to every weekly unemployment benefit through July 31, 2020. The additional $600 benefit will be taxable to the individual like regular unemployment benefits.
Individual Tax Provisions
To help individuals stay afloat during this time of economic uncertainty, the government will send up to $1,200 payments to eligible taxpayers and $2,400 for married couples filing joint returns. An additional $500 payment will be sent to taxpayers for each qualifying child dependent under age 17 (using the qualification rules under the Child Tax Credit).
Rebates are gradually phased out, at a rate of 5% of the individual’s adjusted gross income over $75,000 (singles or marrieds filing separately), $122,500 (head of household), and $150,000 (joint).
The rebates will be paid out in the form of checks or direct deposits. Most individuals won’t have to take any action to receive a rebate. IRS will compute the rebate based on a taxpayer’s tax year 2019 return (or tax year 2018, if no 2019 return has yet been filed).
Waiver of 10% Early Distribution Penalty
The additional 10% tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) is waived for distributions made between January 1 and December 31, 2020 by a person or family member who is infected with the Coronavirus or who is economically harmed by the Coronavirus. Penalty-free distributions are limited to $100,000, and may be re-contributed to the plan or IRA by the taxpayer to avoid a taxable distribution. Taxable income from the distributions is spread out over three years unless the person elects to recognize the income in the first year.
Waiver of Required Distribution Rules
Required minimum distributions that otherwise would have to be made in 2020 from defined contribution plans (such as 401(k) plans) and IRAs are waived. This includes distributions that would have been required by April 1, 2020, due to the account owner’s having turned age 70 1/2 in 2019.
The CARES Act makes four significant changes to the rules regarding charitable deductions:
(1) Individuals will be able to claim a $300 above-the-line deduction for cash contributions made, generally, to public charities in 2020. This rule effectively allows a limited charitable deduction to taxpayers claiming the standard deduction.
(2) The limitation on charitable deductions for individuals that is generally 60% of modified adjusted gross income doesn’t apply to cash contributions made to public charities in 2020. Instead, an individual’s qualifying contributions, can be as much as 100% of modified adjusted gross income. No connection between the contributions and COVID-19 activities is required.
(3) Similarly, the limitation on charitable deductions for corporations that is generally 10% of modified taxable income doesn’t apply to qualifying contributions made in 2020. Instead, a corporation’s qualifying contributions, reduced by other contributions, can be as much as 25% of modified taxable income. No connection between the contributions and COVID-19 activities is required.
(4) For contributions of food inventory made in 2020, the deduction limitation increases from 15% to 25% of taxable income for C corporations and, for other taxpayers, from 15% to 25% of the net aggregate income from all businesses from which the contributions were made.
Business Tax Provisions
Net Operating Losses
The Tax Cuts and Jobs Act (TCJA) modified several provisions related to net operating losses beginning with 2018 tax returns. First, under the TCJA net operating losses were limited to 80% of taxable income which prevented losses from fully offsetting income. Second, the TCJA disallowed the carryback of net operating losses except in the cases of farming losses and casualty insurance carriers.
Under the CARES Act both of these provisions have been modified. Net operating losses can be used to fully offset income starting with the 2018 tax year. Net operating loss carrybacks are also once again allowed for losses incurred in tax years beginning after 12/31/17 and before 1/1/21. These losses can be carried back five years.
Deductibility of Interest Expense Temporarily Increased
Under the Tax Cuts and Jobs Act the business interest deduction was generally limited to 30% of adjusted taxable income. The CARES Act temporarily and retroactively increases the deduction from 30% to 50% for the tax years 2019 and 2020. Special rules apply for partnerships which can impact the year in which the change applies.
Bonus Depreciation Technical Correction for Qualified Improvement Property
The TCJA eliminated several pre-existing definitions and created a new category called Qualified Improvement Property. The intention was that this new category have a 15 year depreciable life and be eligible for 100% bonus depreciation. However, the new Qualified Improvement property with a 15 year life was not reflected in the text of the TCJA. This caused the Qualified Improvement Property to be treated as 39 year depreciable property which is not eligible for the accelerated depreciation.
The CARES Act provides a technical correction to the TCJA to designate Qualified Improvement Property as 15 year property and eligible for bonus depreciation. Property purchased after 12/31/17 is eligible for this treatment.
Employee Retention Credit for employers
This provision provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis. This credit is available to employers whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also available to employers who have experienced a greater than 50% reduction in quarterly receipts. However, this credit is not available to businesses receiving small business interruption loans.
Delay of Payment of Employer Payroll Taxes
The CARES Act allows taxpayers to defer paying the employer portion of certain payroll taxes through the end of 2020. 50% of the deferred payroll taxes become due on 12/31/21 with the remaining 50% due on 12/31/22.
*This article reflects tax law as of April 8, 2020. Some material may be affected by subsequent changes in the laws or in the interpretation of such laws.