114 Broad Street, Flemington, NJ 08822Phone (908) 782-7900

The CARES ACT, Payroll Related Benefits & Other Technical Changes

What We Know so FarBy: Edward P. Portice, CPA

39 State Route 12, Ste 2Flemington, NJ 08822

Oct-20

Background: The CARES Act provided for:▫ Individual Tax Benefits▫ Corporate Tax Benefits▫ Employer Payroll Tax Benefits▫ Employee Retention Credit (ERC)▫ Funding under the Paycheck Protection Program (PPP) Economic Injury Disaster Loan Program (EIDL)

▫ Tax Compliance & Other Issues

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Oct-20

Background: The Flexibility Act provided for:▫ Extending the spend period ▫ Reducing the payroll related cost spending ▫ Extending the spend date ▫ Relief from maintaining FTE’s▫ Extension of loan payback

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Oct-20

Corporate Tax Benefits Remaining AMT Credits▫ The AMT is now fully refundable beginning in the

tax year 2019, as compared to refundable ratably over a 4 year period of 2018 – 2021, under the TCJA

▫ Corporations may elect to have the credit fully refundable beginning in the tax year 2018. If Form 1139, Request for Tentative Refund, is filed to claim the credit in 2018, the refund request should be granted within 90 days of filing the form.

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Oct-20

Net Operating Losses TCJA, CARES ActTCJA CARES Act

5 year carryback of NOL’s in taxable years beginning after December 31, 2017 and before January 1, 2021.

For years beginning after December 31, 2020, NOL deduction is limited to 80% of taxable income following the deduction of any pre 2018 NOL’s before any Sec. 199A or 250 deduction.

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No Carryback, Indefinite carryforward of NOL’s generated in taxable years ending after December 31, 2017

For taxable years beginning after December 31, 2017, the losses are limited to 80% of taxable income computed without regard to NOL deduction.

Oct-20

Corporate Tax Benefits Changes to Corporate Charitable Contributions

▫ The former 10% of taxable income limit on deductions for charitable contributions is increased to 25%

▫ Excess contributions can be carried forward to the next five tax years

▫ To qualify, the contribution must be paid in cash during calendar year 2020

▫ The limit on deductions for contributions of food inventory is increased from 15% to 25% of taxable income

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Oct-20

Employer Payroll Tax Benefits Payment of Employer Payroll Taxes May Be

Deferred

▫ The Act permits employers to defer the 6.2% share of their payroll for payroll occurring after April 1st

through December 31, 2020.

▫ The deferral of the employer’ share is optional and not mandatory.

▫ The referred amounts are required to be repaid 50% on or before 12/31/2021 and the remaining 50% on or before 12/31/2022

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Oct-20

Employer Payroll Tax Benefits▫ During the period of deferral, the employer will be

treated as having made timely deposits of applicable taxes as long as payments are made when due under the schedule noted above

▫ Self-employed individuals would be eligible to defer 50% of self-employment Social Security tax payments

▫ Taxpayers who have small business loan debt forgiven under Sec. 1106 of this Act are ineligible for this deferral (PPP Loan Forgiven)

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Oct-20

Employer Payroll Tax Benefits Employers that received a PPP loan can continue

to defer the 6.2% share of the payroll tax until such time as the lender issues a letter of loan forgiveness.

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Oct-20

Employer Payroll Tax Benefits The Families First Coronavirus Response Act established

two mandatory paid leave programs with the government reimbursing 100% via payroll tax credits for days not worked from April 1, 2020 – December 31, 2020.

▫ Emergency paid sick leave provides 80 hours at two different pay scales depending on COVID-19 self care or care of others

▫ Expanded family and medical leave provides 12 weeks protected leave to care of children with closed schools/care providers; 10 of which must be paid at the rate of 2/3 regular wage up to $200 per day

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Oct-20

Employer Payroll Tax Benefits The Families First Coronavirus Response Act established two

mandatory paid leave programs with the government reimbursing 100% via payroll tax credits for days not worked from April 1, 2020 – December 31, 2020.

The IRS issued Notice 2020-21 covering:

▫ Emergency paid sick leave provides 80 hours at two different pay scales depending on COVID-19 self care or care of others

▫ Expanded family and medical leave provides 12 weeks protected leave to care of children with closed schools/care providers; 10 of which must be paid at the rate of 2/3 regular wage up to $200 per day

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Oct-20

Info Needed to Substantiate the Credit The employee’s name

The date or dates for which leave is requested

A statement of the COVID-19 related reason the employee is requesting leave and written support for such reason

A statement that the employee is unable to work, including by means of telework.

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Oct-20

Info Needed to Substantiate the Credit In the case of a leave request based on a

quarantine order or self-quarantine advice, the statement from the employee should include the name of the governmental entity ordering quarantine or the name of the health care professional advising self-quarantine, and, if the person subject to quarantine or advised to self-quarantine is not the employee, that person’s name and relation to the employee.

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Oct-20

Info Needed to Substantiate the Credit In the case of a leave request based on a school closing or

child care provider unavailability, the statement from the employee should include the name and age of the child (or children) to be cared for, the name of the school that has closed or place of care that is unavailable, and a representation that no other person will be providing care for the child during the period for which the employee is receiving family medical leave and, with respect to the employee’s inability to work or telework because of a need to provide care for a child older than fourteen during daylight hours, a statement that special circumstances exist requiring the employee to provide care.

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Oct-20

Info Needed to Substantiate the Credit The employer should create and maintain records that include

the following information:

▫ How the amount of the qualified sick and family leave wages were determined

▫ How the amount of the qualified health plan expenses were determined

▫ Copies of any completed Forms 7200

▫ Copies of the completed Forms 941

▫ The records should be kept for at least 4 years after the date that the tax becomes due.

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Oct-20

Reporting on Form 941

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Oct-20

New Worksheet 1 to Form 941

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Oct-20

Employee Payroll Tax Deferral Executive Order signed on 8/8/2020

▫ The E.O. allows employees to defer the 6.2% Social Security Tax on earnings from 10/1 –12/31/20.

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Oct-20

Employee Payroll Tax Deferral Not all employees will qualify for the payroll tax

deferral. In general, the deferral is limited to only employees that earn no more than $104,000 annually, broken down as follows:▫ $2,000.00 Per Week▫ $4,000.00 BI-Weekly▫ $4,333.33 Semi-Monthly▫ $8,666.67 Monthly

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Oct-20

Employee Payroll Tax Deferral On August 28th, Treasury released the long-

awaited guidance, indicating that any amount that is deferred will have to be paid back between January 1st through April 30th of 2021. In addition, employers are responsible for the collection and remittance of the taxes that their employees may defer.

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Oct-20

Employee Payroll Tax Deferral The deferral is voluntary, at the discretion of the

employer.

Employees can voluntarily opt out of the deferral.

Exception for Federal employees – the deferral is mandatory

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Oct-20

Employee Retention Credit (ERC) Employers that either did not qualify for or elected not to

apply for a PPP loan are eligible for the ERC. Government entities are not eligible for the ERC

Employers are eligible for the credit for any quarter in which they had to either fully or partially suspended operation of business because of governmental orders due to COVID-19 OR they have had more than a 50% decline in gross receipts, as compared to the same quarter a year ago.

Only employers with <500 employees are eligible for the ERC

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Oct-20

Employee Retention Credit (ERC) The credit is equal to 50% of qualified wages paid to

employees after March 12, 2020 and before January 1, 2021.

The maximum qualified wages cap at $10,000 per employee

Qualified wages include qualified health plan expenses

Qualified wages DO NOT include wages that are covered under the FFCRA

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Oct-20

Employee Retention Credit (ERC) Employers with <100 employees include all

qualified wages paid to calculate the credit.

Employers with >100 employees only include the wages paid for those employees NOTPROVIDING services.

Let’s take a look at the ERC Decision Tree

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Oct-20

Employee Retention Credit (ERC) The ERC is a refundable credit.

▫ The credit is first applied against the current quarter’s payroll tax liability.

▫ Excess credits can be refunded by filing Form 7200

▫ Form 7200 is faxed to the IRS to request the refundable credit.

▫ Form 7200 can be filed more than once per quarter, i.e. file after each pay cycle.

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Oct-20

Employee Retention Credit (ERC) Form 7200 CAN NOT be corrected. Any errors

will be corrected when either a subsequent Form 7200 is filed for the same quarter or when Form 941, 943, 944 or CT-1 is filed.

ERC that is not claimed during the current quarter, a claim for refund can be filed at a later date to obtain the refund.

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Oct-20

Employee Retention Credit (ERC) Recordkeeping Requirements

All employment records should be kept for 4 years and be available for IRS review

Documentation to show how the credit was calculated

Documentation to how the amount of qualified health plan expenses was calculated and included in the qualified wages

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Oct-20

Employee Retention Credit (ERC) Documentation to show how you determined that

the employees were qualified to receive sick and family leave wages

Documentation to show how your eligibility for the employee retention is based on suspension of operations or a significant decline in gross revenue.

Copies of completed Form(s) 7200 that were filed with the IRS.

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Oct-20

Reporting on Form 941

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Oct-20

New Worksheet to Form 941

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Oct-20

Form 7200

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Oct-20

Tax Compliance & Other Issues Qualified Improvement Property (QIP), placed

in service after 12/31/17 is now treated as 15 year property and is eligible for Bonus Depreciation

Taxpayers that placed QIP property in service in 2018 can either file an amended return to correct the depreciation or file Form 3115

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Oct-20

Background The Flexibility Act was signed

into law on June 5, 2020.

The Act provided many positive changes to the PPP loans, which will benefit all businesses that have received the loans.

Businesses can elect to apply the original regulations.

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Oct-20

Use of PPP Loans – No Change The funds received under the PPP

loan requirements must be for the following expenses:

▫ Payroll (salaries, wages, vacation, parental, family, medical, or sick leave, severance, retirement benefits, and state or local taxes)

▫ PPP funds cannot be used to pay salaries over $100,000

▫ Costs for related group health care benefits▫ Employee commissions and tips▫ Interest on mortgage payments (not

applicable for principle portion of payments) and on additional debt incurred prior to obtaining the loan

▫ Rent and utilities

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Oct-20

Payment ForgivenessOriginal Regulations Flexibility Act

PPP eligible expenses must be spent within 8 weeks following the date that the loan was received, or June 30, 2020, which ever came first.

At least 75% of the PPP loan had to be spent on payroll related costs.

PPP eligible expenses must be spent within 24 weeks following the date that the loan was received, or December 31, 2020.

At least 60% of the PPP loan had to be spent on payroll related costs.

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Oct-20

Payment ForgivenessOriginal Regulations Flexibility Act

Up to 25% of the PPP loan could be spent on rent, utilities, mortgage interest or additional debt, that was in place as of 2/15/2020.

Up to 40% of the PPP loan could be spent on rent, utilities, mortgage interest or additional debt, that was in place as of 2/15/2020.

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Oct-20

Payment ForgivenessOriginal Regulations Flexibility Act

Full-time employee equivalents (FTE’s), as of 2/15/20 had to be maintained or restored by the end of the 8 week spend period or 6/30/20, which ever came first.

Full-time employee equivalents (FTE’s), as of 2/15/20 have to be maintained or restored by the end of the 24week spend period or 12/31/20 , which ever came first..

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Oct-20

Relief From Maintaining FTE’sOriginal Regulations Flexibility Act

None Inability to rehire individuals who were employees on 2/15/20 or hire similar qualified employees

The ability to document that the business has been unable to return to the same operating level prior to 2/15/20 due to governmental regulations restricting their operations

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Oct-20

Delay of Payment for Payroll Taxes

All businesses that receive PPP loans are now eligible to defer the 6.2% employer share of Social Security Tax from 4/1/20 – 12/31/20.

Individuals that are subject to the Self-Employment tax are also eligible for the deferral.

50% of the deferral is due on 12/31/2021 and the remaining 50% is due on 12/31/2022

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Oct-20

Loan Terms The minimum payback

period for PPP loan proceeds, that are not forgiven, has been extended from 2 years to 5 years.

Terms can be renegotiated with the lender for longer than a 5 year payback period.

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Oct-20

Loan Repayment The repayment date for PPP funds that are not

forgiven, does not begin until the lending institution has been reimbursed by the SBA.

The business has 10 months after their spending period ends before they are required to file the “Application for Loan Forgiveness”.

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Oct-20

Loan Repayment Failure to file for loan

forgiveness will result in payments of principal, interest and fees.

Payments will begin on the day following the 10th month of the spend period.

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Oct-20

PPP Loans Under $50,000 On October 8th, the Treasury released a new

simplified form for loan forgiveness.

Form 3508S is a 1 page application

Approximately 3.57 Million PPP loans were issued for $50,000 or less

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Oct-20 44