On Tuesday, April 21, 2020, the U.S. Senate approved a $484 billion coronavirus relief package to appropriate funds for the Paycheck Protection Program and increase authorization for Emergency Economic Injury Disaster Loan (EIDL) grants, in addition to providing funds for hospitals and coronavirus testing. The U.S. House is expected to vote on the bill Thursday, and if approved, will be sent to the President to sign. This fourth round of emergency coronavirus legislation is not the last, as negotiations take place on billions in federal assistance for infrastructure, security, and state and local governments.
Since the Coronavirus Preparedness and Response Supplemental (CPPRS) (passed March 5, 2020), the Families First Coronavirus Response Act (FFCRA) (passed March 18, 2020), followed by the Coronavirus Aid, Relief, and Economic Security (CARES) Act (passed March 27, 2020), we have responded to many questions from clients and friends regarding emergency loans, new tax credits and tax provisions, and how to plan around the impact of the various tax relief programs, in order to keep businesses functioning through this unprecedented health emergency. Congress is currently addressing Bill 4.0 to add supplemental funds for CARES Act programs.
Many of our friends and clients have received emergency funding from the SBA, EIDL, and/or Paycheck Protection Program (PPP) loans, have been faced with furloughing employees, and have already implemented paid sick leave under the FFCRA. We are awaiting guidance from the IRS and legislators on unanswered questions regarding PPP loan forgiveness and how to plan for the implications of meeting the requirements, yet having unclear guidance, in conjunction with making decisions on other tax incentives designed to free-up cash flow.
The next steps include tax planning related to COVID-19 legislation for 2020 through 2021, in addition to potential amended prior-year tax returns to realize benefits of the Acts.
- Does the definition of rent subject to a lease include leases of tangible personal property for PPP loan forgiveness?
- Does the definition of state taxes mean state unemployment insurance (SUI) imposed on the employer for PPP loan forgiveness?
- Does mortgage interest include payments to existing SBA mortgage loan interest that is forgiven by the SBA for a period six months for PPP loan forgiveness?
- How do shuttered businesses meet the requirements to restore full time equivalent numbers by June 30, 2020, when a date to reopen is still an unknown for PPP loan forgiveness?
If a business used an EIDL loan for payroll costs and then incurs a PPP Loan, the business must use the PPP Loan to refinance its EIDL loan. Businesses that receive a PPP Loan may not use the EIDL loan for the same purpose (e.g., payroll). Businesses that have used EIDL loan proceeds for payroll may be able to refinance that loan into the PPP Loan, which may be forgiven if the business has sufficient qualifying payroll, utility, and rent/mortgage expenses during the covered period. Additionally, advances up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP Loan.
Businesses may benefit from creating a forecast of their eight-week covered period and qualifying expenses, with the understanding that as new information is released regarding qualifying expenses and loan forgiveness requirements, the forecast can be adjusted. The forecast can help you plan for meeting the SBA guidance that no more than 25% of the forgiven amount may be for non-payroll costs.
Main Street Lending Program
Low-interest loan through the Federal Reserve Bank for mid-sized companies to help retain at least 90 percent of their workforce with full compensation and benefits. The Main Street Lending program is targeted specifically at non-profit organizations and businesses between 500 to 10,000 employees and is subject to additional loan criteria and obligations.
Employee Retention Credit
The CARES Act created a refundable payroll tax credit for qualifying employers equal to 50% of qualifying wages paid to employees during the COVID-19 crisis, resulting in a maximum potential net credit of $5,000 per employee, if:
- Operations were fully or partially suspended due to a COVID-19-related government shutdown order (and only during periods in which its operations are fully or partially suspended), or
- Gross receipts for a given quarter beginning after December 31, 2019 declined by more than 50 percent when compared to the same quarter in the prior year.
An eligible employer may receive both the tax credits for the qualified leave wages under the FFCRA and the Employee Retention Credit under the CARES Act, but not for the same wages.
An eligible employer may not receive the Employee Retention Credit if the eligible employer receives a Small Business Interruption Loan under the Paycheck Protection Program.
Presumably, an eligible employer may receive the EIDL loan and the employee retention credit, if the EIDL loan is not used for payroll.
Delay of Payment of Employer Payroll Taxes
Employers and self-employed individuals may defer payment of the employer share of the Social Security tax they are responsible for paying on employee wages.
- The employer payroll tax deferral does not apply to any taxpayer that has loan forgiveness under the Cares Act.
- Employers can defer the tax due from the date of enactment of the Act through December 31, 2020.
- The deferred employment tax must be paid – with half of the amount required to be paid by December 31, 2021, and the other half by December 31, 2022.
Modification of Net Operating Losses
The Tax Creation and Jobs Act (TCJA) set a limit of 80% of taxable income on Net Operating Losses (NOL) carryovers is suspended for 3 years. The limit will not apply to tax years beginning in 2018, 2019 and 2020.
A 5-year carryback for NOLs incurred by taxpayer in 2018, 2019 and 2020 taxable is allowed (excluding repatriated income and REITs), and retroactively suspends the excess business loss provision for certain taxpayers. Taxpayers may file a quick refund claim form and amend prior period tax returns.
Corporate Alternative Minimum Tax (AMT)
Companies may claim a refund now, accelerating the refund period for AMT credits, to obtain additional cash flow during the COVID-19 emergency.
Modification of Limitation on Losses for Taxpayers Other Than Corporations
This provision retroactively increases the section 163(j) limitation on business interest expense deductions from 30% of adjusted taxable income to 50% for tax years beginning in 2019 and 2020, and applies to partners in partnerships for tax years beginning in 2020.
For partners who don’t elect out, any excess business interest of the partnership for any tax year beginning in 2019 that is allocated to the partner will be treated as follows:
- 50% of the excess business interest will be treated as paid or accrued by the partner in the partner’s first tax year beginning in 2020 and isn’t subject to any limits in 2020; and
- 50% of the excess business interest will remain suspended until the partnership allocates excess taxable income or excess interest income to the partner.
Qualified Improvement Property
This section enables businesses to immediately expense costs associated with improving facilities instead of depreciating improvements over the 39-year life of the building. Amended tax returns may be required for qualified improvement property already placed in service.
Barnes Dennig COVID-19 Advisory Team Leaders:
- Scott Cress – firstname.lastname@example.org
- Cheryl Ganim – email@example.com
- Andy Bertke – firstname.lastname@example.org
- Matt Rosen – email@example.com
- Jennifer Wesselman – firstname.lastname@example.org
Given the size and complexity and scale of the government’s response to the pandemic and the fact that the legislation was passed quickly, more guidance is needed and being published almost daily. The information on this page is subject to change.