A Message from Method CPA–
The Coronavirus is certainly altering the everyday lives of all Americans. Our hope for our clients and their families is that they remain healthy and minimally affected. Our small business clients are now faced with some hard decisions regarding how to stay viable and ensure the safety and continuity of their workforce. What do we do next? How do we keep all the pieces together in the aftermath of this crisis? While the duration of this disruption is still unknown, we as small business owners ourselves, are trying to figure out how to proceed in this uncertain world. The financial well-being of our clients and our staff is of the utmost importance and we will do our very best to guide our small business clients through the logistical and financial pitfalls that are likely to result from this pandemic.
We are working diligently to stay abreast of all the new information coming from the Federal Government and Virginia Government. Once official guidance and implementation is provided, we will provide more information.
As we are in a constant state of flux with changes in laws and intent of leaders to change the laws, we expect further guidance on all of these items below. The information summarized below is an interpretation from our tax professionals based on the guidance and rulings coming from the Federal and State authorities. We have tried to include links so our clients can see the sources of this information. For non-clients, please consult your tax professional before making any decisions.
SBA Backed Loan Programs for Businesses
The Families First Coronavirus Response Act passed on March 19, 2020 provided for “Economic Injury Disaster Loans (EIDL).” The CARES Act passed on March 27, 2020 provides for an additional loan program, “Paycheck Protection Program Loans (PPPL).”
1. Paycheck Protection Program Loan
- The amount of this loan is determined by taking the average monthly payroll for the year prior to the loan and multiplying that average monthly payroll amount by 2.5. For seasonal businesses, you can use the period from 2/15/19 to 6/30/19 (or elect to use 3/1/19 to 6/30/19) to determine your average monthly wages that will be multiplied by 2.5.
- You can refinance an EIDL into a Paycheck Protection Loan. You can have an EIDL loan in addition to a Paycheck Protection Loan (PPPL) as long as the PPL is not for the same operating costs.
- The loan proceeds can be used for payroll, group health benefits, interest on mortgage loan obligations, rent, and utilities.
- The business had to exist on or before 2/15/20 to be eligible.
- This loan is nonrecourse and does not require a personal guarantee.
- The loan is for a maximum of 10 years at a rate not to exceed 4% interest. Recent guidance indicated a 2 year loan at 0.5% interest. The latest guidance appears to be a 2 year loan at 1%.
- Payments can be deferred for 6 months to 1 year, depending on lender.
- A portion of this loan can be forgiven (principal portion only). The forgiven amount is excludable from income. The forgivable portion is based on the allowabe expenses for an eight week period. However, this amount is reduced for reductions in full-time equivalent employees during the covered period as compared to the period from 2/15/19-6/30/19 (or 1/1/20-2/29/20). The loan forgiveness amount will also be reduced by the amount of any reduction in the salary or wages of any employee during the covered period that is in excess of 25% of the total salary or wages of the employee during the most recent full quarter before the covered period.
The Small Business Administration releases The Interim Final Rule announcing the Paycheck Protection Program information in advance of the Federal Register. This interim final rule announces many of the details of this Loan Program.
2. Economic Injury Disaster Loan
- U.S. Small Business Administration website
- March 20, 2020: The small business loan application is now available on their website, Disaster Loan Assistance. The application can be completed online or by paper.
- March 26, 2020: The Disaster Loan Assistance website continues to be down and is very slow during normal business hours due to the high volume. Traditionally, an applicant will create an account with a username/password & complete the various pages online and upload those documents that need signatures. This is the only method that allows you to track the status of your loan application. We have been in contact with the SBA and they have recommended utilizing this site from 7pm – 7am when there is less volume.
- Other options we would recommend to remit your loan application:
- Mail the completed application and other required forms.
- Fax the completed application and other required forms to 202-481-1505.
The CARES Act also added the Emergency EIDL Grant. This grant of up to $10,000 is based solely on credit score and can be provided within 3 days of the Administrator receives the application. The funds may be used for providing paid sick leave, maintaining payroll, rent, mortgage payments, and repaying other obligations that cannot be met due to decreased revenue. The loan forgiveness amount above will be reduced by the amount of this grant received.
Other Resources regarding SBA Loans:
March 18, 2020: The Small Business Administration (SBA) provides low-interest, long-term loans to businesses for physical and economic damage caused by a declared disaster. Governor Ralph Northam declared a State of Emergency for the Commonwealth of Virginia in response to the pandemic. SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance for each affected business. These loans may be used to pay fixed debts, payroll, accounts payable and other bills that cannot be paid because of the disasters impact. The interest for small business will be 3.75%. Refer to their website for details.
SBA Release Number 20-26: SBA Updates Criteria on States for Requesting Disaster Assistance Loans for Small Businesses Impacted by Coronavirus (COVID-19)
Governor Northam’s Declaration: Governor’s letter to SBA to provide for Economic Injury Disaster Loans for Virginia businesses.
Restaurants – Virginia ABC
March 25, 2020: Virginia ABC has adjusted the regulations to support Licensed Establishments during the COVID-19 Pandemic. The rules have been relaxed to help support restaurants that are now limited to curbside pickup and delivery.
U.S. Department of Labor :
March 25, 2020: The U.S. Department of Labor has provided many resources related to helping employers deal with COVID-19. This is a good website to answer some common issues for employers.
March 27, 2020: Congress has passed the CARES Act (Coronavirus Aid, Relief, and Economic Security Act). This Act provides for the following.
The US. Senate Committee on Small Business & Entrepreneurship has put together a great guide on the CARES Act. Small Business Owner’s Guide to the CARES Act
- Payroll Tax Credit Refunds: The bill provides for advance refunding of payroll tax credits related to required paid sick leave and required paid family leave. The I.R.S. will be issuing forms and instructions. Form 7200, Advance Payment of Employer Credits Due to COVID-19. Form 7200 Instructions.
- Employee Retention Credit: 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 whose business operation is fully or partially suspended due to orders from an appropriate governmental authority related to the COVID-19 outbreak. Eligible employers also include businesses whose gross receipts are less than 50% of their gross receipts for the same quarter in the prior year until their gross receipts exceed 80% of their gross receipts for the same calendar quarter in the prior year. The Department of the Treasury has issued some additional guidance and that can be found here. This credit is not available to employers receiving assistance through the Paycheck Protection Program.
- Payroll Tax Delay: The bill delays payment of 50% of 2020 employer taxes (employer portion of Social Security and Medicare) until December 31, 2021 and the remaining 50% until December 31, 2022. This delay in payments also applies to one-half of self-employment taxes.
- Net Operating Losses: The bill temporarily suspends the 80% income limitation for net operating losses for years beginning before 2021. For losses arising in 2018, 2019, and 2020, taxpayers are now allowed a 5 year carryback.
Families First Coronavirus Response Act
March 19, 2020: The Families First Coronavirus Response Act was passed by the Senate and signed into law by President Trump.
The IRS has compiled a very informative summary of this bill and they provide some examples. We highly recommend referring to this link: IR 2020-57.
Additionally, we have highlighted some of the more important points below:
Emergency Family and Medical Leave Expansion Act:
FMLA has been temporarily broadened to include employers with less than 500 employees through December 31, 2020 in relation to a public health emergency. Eligible employees include those that have been on payroll for at least 30 days. The first two weeks can be unpaid, then the employer is required to offer FMLA paid leave for 10 weeks. This leave can be utilized for an employee’s COVID-19 quarantine or treatment, care of an at-risk family member, or care of a child due to school closings.
The U.S. Secretary of Labor has the authority to exempt a small business with fewer than 50 employees from this section when the imposition of these requirements would jeopardize the viability of the business.
Emergency Paid Sick Leave Act:
This Act provides that an employer with less than 500 employees is required to provide two weeks of paid sick leave to an employee who has COVID-19, has been advised by a healthcare professional to self-quarantine due to concerns over COVID-19, is experiencing COVID-19 symptoms, is caring for an individual who has COVID-19 or is self-quarantined, or is caring for a son or daughter who’s school has closed. This paid leave is for two weeks (80 hours) if full time and two-week hourly average if part-time at the regular rate of pay not to exceed $511 per day. If leave is to take care of a family member or child, leave is paid at two-thirds the normal rate, up to $200 per day.
Employers will receive a 100% tax credit for all wages that are paid, capped at the maximum allowable amounts per eligible employee ($511 per day / $5,110 OR $200 per day / $2,000).
In regards to paid sick time related to taking care of a child who’s school is closed, the U.S. Secretary of Labor has the authority to exempt the employer from this requirement if such sick paid leave would jeopardize the viability of the business as a going concern.
State of Virginia Updates:
March 23, 2020: Please read Executive Order 53, effective midnight March 24, 2020 through April 23, 2020 regarding non-essential businesses.
Virginia Unemployment Updates:
We continue to monitor the guidance put forth from the Virginia Unemployment Commission and will provide appropriate links below.
Based on the Governor’s Announcement, employers who reduce or cease operations will not be financially penalized for an increase in workers requesting unemployment benefits. We would presume this statement to mean that the employer’s VA Unemployment rate will not be increased due to Unemployment Benefits paid. We expect to see this Announcement made into law. See the Governor’s Announcement in the link below.
If your employees have been totally or partially separated from their job due to COVID-19, they cannot file a claim for unemployment insurance until an actual lay off from employment has occurred, or until there has been an actual reduction in hours worked.
Employees can refer to the link below for additional information related to COVID-19.
Federal Income Tax
March 27, 2020: Congress has passed the CARES Act (Coronavirus Aid, Relief, and Economic Security Act). This Act provides for payments to taxpayers labeled “recovery rebates.” Payments to be received are as follows.
- Individuals: $1,200 plus $500 for each qualifying child
- Joint Filers: $2,400 plus $500 for each qualifying child
These payments (credits) will be phased out for taxpayers with adjusted gross income above $150,000 for joint filers, $112,500 for head of household filers, and $75,000 for single filers.
Other provisions of the CARES Act include:
- Taxpayers can take up to $100,000 in coronavirus-related distributions from retirement plans by December 31, 2020 without being subject to the 10% penalty for early distributions. These distributions can be recognized as income over a 3 year period or they may be recontributed within 3 years to avoid tax. Eligible taxpayers include those who have COVID-19, those whose spouse or dependent has the virus, those who cannot work due to lack of child care, and those who have experienced a reduction in work hours. Consult your financial advisor for further details before taking any distribution to make sure you qualify and to understand the full details of this provision.
- The bill suspends the required minimum distribution requirements for certain retirement accounts for 2020. Consult with your financial advisor for further details.
- The bill allows for a charitable deduction up to $300 for those who do NOT itemize.
Filing Due Date
March 23, 2020: The IRS and Treasury Department has announced that the federal income tax filing due date has been extended from April 15 to July 15, 2020. Taxpayers can also defer federal income tax payments, without penalties and interest, to July 15, 2020. Taxpayers do not need to file any additional forms or call the IRS for this extension.
Easing Payment Guidelines & Postponing Compliance Actions
March 25, 2020: To assist taxpayers facing challenges related to COVID-19, the IRS has unveiled a new People First Initiative. From easing payment guidelines to postponing compliance actions, this inititative will encompass a variety of new provisions to ease the tax burden during these troubling times.
Virginia Income Tax
Filing & Payment Dates
March 19, 2020: Virginia Income Tax Filing – The Governor has requested that the Department of Taxation to extend the due date of payment of Virginia individual and corporate income taxes. The deadline remains the same, but the due date for tax payments will now be June 1, 2020. It is important to note that interest will still accrue during this time.
States Other Than Virginia :
March 23, 2020: The American Institute of Certified Public Accountants has developed several resources to help keep professionals up-to-date during these troubling times. If you are required to file taxes in a state other than Virginia, we wanted to share this link to assist with determining what is due and when is it due.
Employees can refer to the link below for additional information related to COVID-19.
Mortgage Information for Homeowners :
March 20, 2020: Homeowners who have lost income or their jobs because of the Coronavirus outbreak might be getting some relief. Federal regulators, through the mortgage giants Fannie Mae and Freddie Mac, are ordering lenders to offer homeowners flexibility. We recommend that you call your loan processor to see if any payments are allowed to be deferred or if any other help is available.
March 17, 2020: Governor Northam directs utility companies to suspend service disconnects for 60 days for residential and business customers.
STUDENT AID RELIEF
The US Department of Education has announced relief for student loan borrowers in light of the COVID-19 pandemic. The Education Department will halt collection actions and wage garnishments as well as reduced the interest rate to 0% for federal student loans and allow borrowers to suspend their payments for a 60-day period starting March 13, 2020.