The US Senate has passed and sent to the House for their consideration a massive Federal financial relief program to provide emergency assistance to individuals, families, and businesses as a result to the coronavirus pandemic. House passage is expected within the next few days but we wanted to get to you as quickly as possible a summary of the provisions in this relief program so you may begin the process of determining a course of action.
COVID-19 FEDERAL FINANCIAL RELIEF
By: Blaine Hawkins
Our comments below are based only on an initial reading of the Bill and as we learn more about the provisions these comments and suggestions could be altered. Please contact us with any specific questions.The Bill offers four major avenues of relief –
- Direct payments to individuals and families
- Favorable SBA loan arrangements for business
- Deferral of Federal tax payments and due dates
- Additional benefits to be claimed on income tax returns
Direct Payments for Individuals and Families
Payment of $1,200 or $2,400 in the case of a joint income tax return are to be made in the weeks ahead. Eligibility phases out at $75,000 of adjusted gross income or $150,000 in the case of a joint income tax return. These payments are to be treated as advanced income tax payments and a credit will be allowed on the 2020 income tax return.
Action Item: No action is required to receive these payments.
Small Business Interruption Loans
During the period March 1, 2020 to December 31, 2020 any business with 500 or fewer employees may be eligible for an SBA approved loan. The maximum loan amount is four times the average monthly expenditures for payroll, mortgage payments, rent payments and payments on any other debt obligation incurred during the one-year period before the date the loan is made. The total loan amount may not exceed $10,000,000.
During the period March 1 to December 31, 2020 the loan proceeds may be used for employee compensation, mortgage payments, rent, utilities and other debt obligations in addition to any other uses permitted under the loan agreement.
Eligibility only requires that the company was in operation on March 1, 2020 and had employees for whom the borrower paid salaries and payroll taxes. The Bill also provides a wavier of fees that might normally be charged for an SBA backed loan. The lender may provide complete payment deferral for up to one year.
The recipient of the loan may be also be eligible for loan forgiveness for payroll costs, subject to some limitations, during the period March 1 to June 30, 2020. To receive the loan forgiveness the borrower will need to submit to the lender required documentation of the amount of payroll expenditures. Loan forgiveness is normally taxable to the borrower, but the Bill specifically excludes this canceled indebtedness from taxation.
Action Item: Any company potentially eligible for this loan should contact their bank or other lending institution to begin the application process. BGW is available to assist.
Deferral of Tax Payments and Due Dates
The following changes have been made to the payment of Federal taxes.
- The filing deadline for 2019 returns originally due April 15 is now July 15
- Amounts due with a 2019 return are now due July 15
- 2020 Quarterly Estimated Tax Payments for both individuals and corporations are now due on October 15, so no payments are due on the normal due dates in April, June and September
- Individual Retirement Account contributions for 2019 are now due July 15
- Employer payroll taxes due for the period beginning with Bill enactment date and ending before January 1, 2021 may be made in two installments, one due December 31, 2021 and the balance December 31, 2022. Note that this deferral is only for the employer’s share of payroll taxes and not for the employee’s share or for taxes withheld. Further, if an employer claims the SBA loan debt forgiveness described above, this payment deferral is not available.
Action Items: These deferrals are automatic, so no action is required.
Income Tax Reporting Modifications
Retirement Plan Withdrawals – individuals who are diagnosed with the coronavirus, or have a family member so diagnosed, or suffer a hardship due to the virus may withdraw up to $100,000 from their retirement plan and not be subject to any early withdrawal penalty. Any income is recognized over three years and the amount may be repaid to the plan without being subject to other annual contribution limitations.
Net Operating Losses – The 2017 Tax Act modified the treatment of net operating losses to eliminate any carry back and to limit the use in future years to only 80% of taxable income. These rules are modified to allow a five-year carry back for net operating losses arising in a taxable year beginning after December 31, 2017 and before January 1, 2020 and eliminated the 80% limitation for these same losses.
Limitation on Deduction for Business Interest – The 2017 Tax Act placed a limit on the deduction for business interest at an amount equal to 30% of taxable income (as defined). This increases that limit to 50% for taxable years beginning in 2019 or 2020.
Qualified Improvement Property – The 2017 Tax Act contained a drafting error which resulted in qualified improvement property having a 39-year depreciation life rather than the intended 15-year life. The Bill corrects this drafting error retroactively.
Charitable Contributions – If an individual uses the standard deduction, they may now claim up to $300 for charity donations as a deduction in arriving at adjusted gross income for tax years beginning in 2020. In addition, the normal 50% of adjusted gross income limit for cash contributions is increased to 100% for charity contributions made in 2020. Similarly, the corporation limitation on charity donation deductions is increased to 25%.
Action Items: No action is required for items to be reported on a 2020 income tax return or a 2019 income tax return that has not already been filed. Otherwise, amended returns should be considered for reporting/utilization of net operating losses, the change to 15-year depreciation life for qualified improvement property and the interest expense limitation.