Families First Coronavirus Response Act

The President has signed the Families First Coronavirus Response Act (FFCRA), intended to ease the economic consequences stemming from the novel coronavirus disease (COVID-19) outbreak by providing family and medical leave, and sick leave, to employees and providing tax credits to employers and self-employeds providing the leave. Here are details:

Emergency paid sick time under the Emergency Paid Sick Leave Act (EPSLA):

Requires employers with fewer than 500* Eligible Employees (regardless of the employee's length of employment) to provide full-time employees up to two weeks of paid sick time (part-time employees are entitled to sick time based on their average hours worked over a 2-week period) to the extent that the employee is unable to work or telework due to: 

Employee Situation

Employee Benefit

  • The employee is subject quarantine or isolation order related to COVID-19; OR

Eligible Employee may receive 100% of their full pay or up to a maximum of $511 per day.

($5,110 total)

  • The employee has been advised by a health care provider to self-quarantine related to COVID-19; OR        
  • The employee is experiencing symptoms and seeking a medical diagnosis related to COVID-19.
  • The employee is caring for an individual who is affected by one of the three categories above; OR

Eligible Employee may receive up to 2/3 of their pay or up to a maximum of $200 per day.

($2,000 total)

  • The employee is caring for a son or daughter whose school is closed or child care provider is unavailable due to COVID-19 precautions;

OR

  • The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

  • Employers cannot require employees to find a replacement worker or use other sick leave before this sick time.
  • Employers may exclude health care providers and emergency responders.
  • The sick leave mandate takes effect not later than 15 days after March 18, 2020 (the date of the Act's enactment) and expires December 31, 2020.

*There may be an exemption for certain employers with fewer than 50 employees, but details have not yet been provided by the Department of Labor.

Family and medical leave under the Emergency Family and Medical Leave Expansion Act (EFMLEA): 

Requires employers with fewer than 500* Eligible Employees (employees employed for at least 30 days) to provide full-time employees up to ten weeks of paid sick time (Part-time employees are entitled to sick time based on their average hours worked over a 2-week period) to the extent that the employee is unable to work or telework through December 31, 2020 to:

Employee Situation

Employee Eligibility

An employee is unable to work or telework due to a need for leave to care for a son or daughter under age 18 because a school or place of care has been closed, or a childcare provider is unavailable, due to an emergency with respect to COVID-19 that is declared by a federal, state, or local authority.

The first 10 days of the employee's leave may consist of unpaid leave, after which paid leave is required to a maximum of 10 weeks. The paid leave is calculated based on an amount not less than two-thirds of an employee's regular rate of pay and the number of hours the employee would otherwise be normally scheduled to work, not to exceed $200 per day and $10,000 in the aggregate.


Employer Tax Credit:

Employers are eligible for a credit of social security taxes for any paid sick leave or family leave, along with any additional qualified health plan expenses incurred as a result of the leave.  To the extent the wages plus any additional qualified health plan expenses incurred exceed the social security taxes, the employer may be eligible for a refundable overpayment.  Employers don't receive the credit if they're also receiving the credit for paid family and medical leave.  The exact timing of when this is effective is not yet published, so it is unclear if the benefit can be claimed on 2020 first quarter filings.

Self-Employed Individuals

The Act also provides for similar refundable credits against the self-employment tax. It covers 100% of a self-employed individual's sick-leave equivalent amount, or 67% of the individual's sick-leave equivalent amount if they are taking care of a sick family member, or taking care of a child following the child's school closing for up to 10 days. The sick-leave equivalent amount is the lesser of average daily self-employment income or either (1) $511/day to care for the self-employed individual or (2) $200/day to care for a sick family member or child following a school closing, paid under the EPSLA.

As always, please consult a professional if you have any concern over your compliance with this new law.

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Tax Deadline Extended IRS Notice 2020-18

We finally received some additional reprieve from the Federal government.  The Treasury Department and Internal Revenue Service announced on Saturday that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020.

As we mentioned in our letter last week, taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest (IRS Notice 2020-17).  That notice only extended the payment date of amounts owed by individuals of $1 million or less in the aggregate and $10 million or less in the aggregate owed by corporations from April 15, 2020 to July 15, 2020.  This new notice removes the dollar limit previously stated under Notice 2020-17 and makes the relief available regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax.

Taxpayers do not need to file any additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the July 15 deadline, can request a filing extension by filing Form 4868. Businesses who need additional time must file Form 7004.

The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds are still being issued within 21 days.

"Even with the filing deadline extended, we urge taxpayers who are owed refunds to file as soon as possible and file electronically," said IRS Commissioner Chuck Rettig. "Filing electronically with direct deposit is the quickest way to get refunds. Although we are curtailing some operations during this period, the IRS is continuing with mission-critical operations to support the nation, and that includes accepting tax returns and sending refunds. As a federal agency vital to the overall operations of our country, we ask for your personal support, your understanding – and your patience. I'm incredibly proud of our employees as we navigate through numerous different challenges in this very rapidly changing environment."

As we reiterated in our first letter on this topic, this extension of time to file and time to pay is for federal returns and payments only. Some states have followed suit, including Iowa (which has extended the April filing and payment date to July 31, 2020), but we have not received any notice that the State of Nebraska will be automatically extending the due date or payment date.  Additionally, the Treasury and the IRS have made no mention of extending the second quarter individual estimated tax payment for 2020, which is due June 15, 2020. We will continue to keep you posted as we receive more information.

As always, feel free to contact us if you have any questions.

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Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic

In an attempt to keep you up to date with recent developments that may affect the filing of your personal and business tax returns, we wanted to make you aware that the IRS has issued Notice 2020-17, Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic, yesterday in response to Treasury Secretary Steven Mnuchin's comments at a press conference on March 17, 2020.  The notice states that individuals can defer federal income tax payments otherwise due on April 15, 2020, up to $1 million in the aggregate (regardless of your filing status), until July 15, 2020. Corporations can defer up to $10 million of tax payments until July 15, 2020.  The relief is solely for federal income taxes due on April 15, 2020 and federal estimated income tax payments due on April 15, 2020.

This notice does not extend the tax filing due date. For individuals, the filing date is April 15; however, an automatic extension to file until October 15 is available.

We have not received any word on how most states will react to this payment extension as of the drafting of this notice.

Seim Johnson, LLP is continuing our process of preparing your various tax returns; however, we have had to take unprecedented steps to protect our professional staff as a result of the COVID-19 pandemic that will undoubtedly affect our ability to complete all returns by April 15, 2020.  As such, we are anticipating the need to extend more client returns than normal.  We appreciate your patience and understanding through this process.  We will continue to keep you informed as various federal, state and local governments implement changes that will affect you and your businesses. 

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Why you should keep life insurance out of your estate

If you have a life insurance policy, you probably want to make sure that the life insurance benefits your family will receive after your death won’t be included in your estate. That way, the benefits won’t be subject to the federal estate tax.

Under the estate tax rules, life insurance will be included in your taxable estate if either:

  • Your estate is the beneficiary of the insurance proceeds, or
  • You possessed certain economic ownership rights (called “incidents of ownership”) in the policy at your death (or within three years of your death).

The first situation is easy to avoid. You can just make sure your estate isn’t designated as beneficiary of the policy.

The second situation is more complicated. It’s clear that if you’re the owner of the policy, the proceeds will be included in your estate regardless of the beneficiary. However, simply having someone else possess legal title to the policy won’t prevent this result if you keep so-called “incidents of ownership” in the policy. If held by you, the rights that will cause the proceeds to be taxed in your estate include:

  • The right to change beneficiaries,
  • The right to assign the policy (or revoke an assignment),
  • The right to borrow against the policy’s cash surrender value,
  • The right to pledge the policy as security for a loan, and
  • The right to surrender or cancel the policy.

Keep in mind that merely having any of the above powers will cause the proceeds to be taxed in your estate even if you never exercise the power.

Buy-sell agreements

If life insurance is obtained to fund a buy-sell agreement for a business interest under a “cross-purchase” arrangement, it won’t be taxed in your estate (unless the estate is named as beneficiary). For example, say Andrew and Bob are partners who agree that the partnership interest of the first of them to die will be bought by the surviving partner. To fund these obligations, Andrew buys a life insurance policy on Bob’s life. Andrew pays all the premiums, retains all incidents of ownership, and names himself as beneficiary. Bob does the same regarding Andrew. When the first partner dies, the insurance proceeds aren’t taxed in the first partner’s estate.

Life insurance trusts

An irrevocable life insurance trust (ILIT) is an effective vehicle that can be set up to keep life insurance proceeds from being taxed in the insured’s estate. Typically, the policy is transferred to the trust along with assets that can be used to pay future premiums. Alternatively, the trust buys the insurance with funds contributed by the insured person. So long as the trust agreement gives the insured person none of the ownership rights described above, the proceeds won’t be included in his or her estate.

The three-year rule

If you’re considering setting up a life insurance trust with a policy you own now or you just want to assign away your ownership rights in a policy, contact us to help you make these moves. Unless you live for at least three years after these steps are taken, the proceeds will be taxed in your estate. For policies in which you never held incidents of ownership, the three-year rule doesn’t apply. Don’t hesitate to contact us with any questions about your situation.

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Important messages from our Managing Partner

A Follow-up Message

An Important Message

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