Pandemic Unemployment Assistance (PUA)/Compensation Programs

The CARES Act provides for federal funding for unemployment assistance to individuals directly and indirectly affected by COVID-19, and expands coverage to include individuals who are not typically eligible for unemployment assistance such as independent contractors, the self-employed and those with limited work histories.

Who is a covered individual?

The law covers individuals who cannot work because: they have been diagnosed with Covid-19 and cannot work; they need to care for a family member who has been diagnosed with Covid-19; they need to care for a family member whose school, day care or care facility has been shut down because of Covid-19; they are in a self-quarantine, health provider-ordered quarantine or cannot get to work because of a quarantine; they were about to start a new job and cannot because of Covid-19; or they had to quit because of the above situations. It will also cover employees whose employer shut down because of Covid-19. Workers are not eligible for PUA if they can either telework with pay or are receiving paid sick days or paid leave.

Who is eligible due to the program expansion?

The program has been expanded to include self-employed individuals, part-time employees, freelancers, gig workers, and independent contractors. Individuals already receiving unemployment benefits are eligible for an increase in benefits for up to 18 weeks. Individuals who have exhausted their unemployment insurance benefits and are not eligible for emergency unemployment compensation are eligible. Individuals who are able to telework with pay and who are receiving paid sick leave or other paid benefits are not eligible for assistance.

How much?

Under this provision, the benefit is equal to the amount that would normally be provided under state law plus an additional $600 through July 31, 2020. For self-employed and individuals not normally eligible, the benefit amount is equal to one-half of the state's average weekly UI benefit. The extra $600 per week provided by the government will last up to 4 months.  This benefit will be taxable like regular unemployment benefits.

Is there a waiting period?

No; the federal government will provide temporary funding of the first week of regular unemployment for states with no waiting period.

How long will I receive benefits?

Most states provide 26 weeks of benefits. This bill will provide an additional 13 weeks for participating states, a sum of up to 39  weeks in most states. Benefits cannot exceed 39 weeks.

When will I receive it?

Benefits are available immediately (i.e., no one-week waiting period). The increased (extra $600) benefit would be available from the date the state enters into an agreement until July 31, 2020.

How do I apply?

In order to apply for unemployment, you should fill out an application through your state's unemployment website.  

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Families First Coronavirus Response Act: Employer Paid Leave Requirements

The Families First Coronavirus Response Act (FFCRA or Act) requires covered employers to provide their employees with paid sick leave or expanded family and medical leave for specified reasons related to COVID-19. This Act is effective April 1, 2020. Each covered employer must post in a conspicuous place on its premises a notice of FFCRA requirements. We have provided an image of the poster the Department of Labor has provided below which provides the FFCRA requirements. This poster can be found at: https://www.dol.gov/sites/dolgov/files/WHD/posters/FFCRA_Poster_WH1422_Non-Federal.pdf

A covered employer is defined as certain public employers, and private employers with fewer than 500 employees. Small businesses with fewer than 50 employees may qualify for exemption from the requirement to provide leave due to school closings or child care unavailability if the leave requirements would jeopardize the viability of the business as a going concern. 

As always, please contact us if you have any questions.

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The New COVID-19 Law Provides Businesses with More Relief

On March 27, President Trump signed into law another coronavirus (COVID-19) law, which provides extensive relief for businesses and employers. Here are some of the tax-related provisions in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). 

Employee retention credit

The new law provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis.

Employer eligibility. The credit is available to employers with operations that have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also provided to employers that have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.

The credit isn’t available to employers receiving Small Business Interruption Loans under the new law.

Wage eligibility. For employers with an average of 100 or fewer full-time employees in 2019, all employee wages are eligible, regardless of whether an employee is furloughed. For employers with more than 100 full-time employees last year, only the wages of furloughed employees or those with reduced hours as a result of closure or reduced gross receipts are eligible for the credit.

No credit is available with respect to an employee for whom the employer claims a Work Opportunity Tax Credit.

The term “wages” includes health benefits and is capped at the first $10,000 paid by an employer to an eligible employee. The credit applies to wages paid after March 12, 2020 and before January 1, 2021.

The IRS has authority to advance payments to eligible employers and to waive penalties for employers who don’t deposit applicable payroll taxes in anticipation of receiving the credit.

Payroll and self-employment tax payment delay

Employers must withhold Social Security taxes from wages paid to employees. Self-employed individuals are subject to self-employment tax.

The CARES Act allows eligible taxpayers to defer paying the employer portion of Social Security taxes through December 31, 2020. Instead, employers can pay 50% of the amounts by December 31, 2021 and the remaining 50% by December 31, 2022.

Self-employed people receive similar relief under the law.

Temporary repeal of taxable income limit for NOLs

Currently, the net operating loss (NOL) deduction is equal to the lesser of 1) the aggregate of the NOL carryovers and NOL carrybacks, or 2) 80% of taxable income computed without regard to the deduction allowed. In other words, NOLs are generally subject to a taxable-income limit and can’t fully offset income.

The CARES Act temporarily removes the taxable income limit to allow an NOL to fully offset income. The new law also modifies the rules related to NOL carrybacks.

Interest expense deduction temporarily increased

The Tax Cuts and Jobs Act (TCJA) generally limited the amount of business interest allowed as a deduction to 30% of adjusted taxable income.

The CARES Act temporarily and retroactively increases the limit on the deductibility of interest expense from 30% to 50% for tax years beginning in 2019 and 2020. There are special rules for partnerships.

Bonus depreciation for qualified improvement property

The TCJA amended the tax code to allow 100% additional first-year bonus depreciation deductions for certain qualified property. The TCJA eliminated definitions for 1) qualified leasehold improvement property, 2) qualified restaurant property, and 3) qualified retail improvement property. It replaced them with one category called qualified improvement property (QIP). A general 15-year recovery period was intended to have been provided for QIP. However, that period failed to be reflected in the language of the TCJA. Therefore, under the TCJA, QIP falls into the 39-year recovery period for nonresidential rental property, making it ineligible for 100% bonus depreciation.

The CARES Act provides a technical correction to the TCJA, and specifically designates QIP as 15-year property for depreciation purposes. This makes QIP eligible for 100% bonus depreciation. The provision is effective for property placed in service after December 31, 2017.

Careful planning required

This article only explains some of the relief available to businesses. Additional relief is provided to individuals. Be aware that other rules and limits may apply to the tax breaks described here. Contact us if you have questions about your situation.

© 2020

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Keeping American Workers Paid and Employed Act

Paycheck Protection Program (Loans)

The CARES Act bill includes language to provide small businesses the 'Paycheck Protection Program', which would provide cash-flow assistance to eligible businesses to help pay operational costs like payroll, rent, health benefits, insurance premiums, utilities, etc. during this emergency. This would be accomplished through a government-guaranteed small business (SBA) loan program with relaxed terms and the possibility of loan forgiveness according to stipulated criteria.

Who Qualifies?

Under this provision, a small business, 501(c)(3) nonprofit, or a 501(c)(19) veteran's organization could qualify, provided it does not have more than 500 employees, or has a number of employees consistent with the applicable size standard for the industry per the Small Business Act. The provision includes sole-proprietors, independent contractors, and other self-employed individuals as parties eligible for the loan program. Businesses in the hospitality and dining industries with more than one physical location that employ no more than 500 employees per physical location in the "accommodation and food services" sector are eligible, but must not exceed a gross annual receipts threshold. Organizations must make a good faith certification that the uncertainty of current economic conditions makes it necessary for the loan request to support ongoing operations. Furthermore, the organization must acknowledge that the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments.

What is the covered loan period?

The covered loan period is February 15, 2020 through June 30, 2020.

What are the loan terms and amounts?

The provision establishes the loan amount based on a formula of the average total monthly payments for payroll costs incurred during the 1-year period before the date on which the loan is made multiplied by 2.5, up to a maximum amount of $10 million. Repayment of the loan is up to 10 years; however lenders are required to defer payment of principal, interest and fees for a period of at least 6 months, but not exceeding one year. The government guarantee of loans made is increased to 100 percent through December 31, 2020, at which point the guarantee percentage returns to 75 percent for loans exceeding $150,000 and 85 percent for loans equal to or less than $150,000.

What are the allowable uses?

Under the provision, loans are eligible to be used for payroll support, including employee salaries (which includes compensation to sole proprietors and independent contractors), paid sick or medical leave, insurance premiums, mortgage, rent and utility payments. Employee salaries, commissions and tips may not exceed $100,000 on an annual basis per employee or $45,000 for the covered period.

What are the associated costs?

There is no fee to the borrower and the provision sets a maximum interest rate of four percent. In addition, the provision ensures borrowers are not charged any prepayment fees. No collateral or personal guarantee is permitted to be required for a loan.

What is the loan forgiveness?

Recipients are eligible for forgiveness of the loan in an amount equal to the sum of payroll costs, interest payments on mortgage obligations, rent and utilities incurred during the covered period. Forgiveness will not exceed the loan principal amount. The amount of loan forgiveness will be reduced in accordance with any reduction in the number of employees or employee salaries during the covered period.

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Recovery Rebates

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which passed the Senate by a 96-0 vote late Wednesday, provides for a one-time payment to taxpayers - "recovery rebates" - which will be treated as advance refunds of a 2020 tax credit. The House will vote on the Act Friday and, once approved, forward it to the President for signature into law.

How much?

Under this provision, individuals will receive a tax credit payment of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child (16 years of age or younger). 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 singles. Taxpayers with AGI above $198,000 (for joint filers with no children) and $99,000 for singles with no children would not be eligible for the payment. The credit is not available to nonresident aliens, individuals who can be claimed as a dependent by another taxpayer, and estates and trusts.

How is it determined?

The IRS will look at your 2019 tax return for your filing status, AGI, and information about your children. If you haven't filed your 2019 return, the IRS will look to your 2018 return. If your income was below filing requirements and a return wasn't filed for 2018 or 2019 it isn't known yet if you will get a check. If this is the case, you may want to file a 2019 tax return. It is possible that the IRS will look to social security records for 2019 income if a return was not filed.

How is it paid?

If you have had your tax refunds directly deposited into your bank account the IRS has your bank account information and your rebate payment will be directly deposited into your bank account.  If the IRS does not have your banking information, or if that information is no longer valid, a check will be issued.

When will I receive it?

Payments are expected by mid-May.

Tax treatment?

The payment is to be an advance payment of a tax credit for the 2020 tax year. Taxpayers will reduce the amount of the credit available on their 2020 tax return by the amount of the advance refund payment they receive. Conversely, if you were eligible for the payment, but did not get it, you will be able to recover it when your 2020 tax return is filed. Overpayments of rebates due to a higher income in 2020 will not be clawed back.

Do young adults get payments?

Young adults (children 17 to 19 years of age, or under age 24 if a full time student) still living at home will not get a check if they can be claimed as a dependent on someone's return.

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