Business considerations of FFCRA and CARES Acts
Last updated March 30, 2020
Just a month ago we were in the middle of tax season, seemingly unphased by the reality of what was to transpire in the coming weeks. Now, it seems each day we are inundated with information and responses to the impact of COVID-19 on our community. We have been working to keep current with this information so that we can provide you with resources and knowledge you need to in order to make decisions and move forward.
We are encouraging our clients to upload all of your documents through our secure client portal. If you are not already set up, please email Dakota at email@example.com and she will respond with access and instructions. We have implemented the use of DocuSign for the e-file forms in order to continue processing and finalizing returns remotely.
Our office will remain closed while the Governor’s Shelter in Place mandate is being enforced. Our team is working remotely to the best of their abilities without jeopardizing their health and safety. Please reach out to our team if there is anything we can assist with, including answering questions on the matters discussed in the letter, being a sounding board for contemplated business decisions, or if you are seeking advice on tax or business issues. Our commitment to service remains unchanged.
In this letter, we are covering the following:
- Families First Coronavirus Response Act
- CARES Act
- Other tax matters to be aware of
- Other local (San Diego) resources
We are currently analyzing the information on the SBA loans (Disaster Loan and Payroll Protection Loan) and working to send out more information later this week.
Please note the following information is based on our understanding of the initial Acts signed into Law. The IRS is releasing guidance and clarification as it processes. We strongly recommend seeking advice from knowledgeable professionals before making significant decisions as a result of these Acts.
Families First Coronavirus Response Act
On March 18, 2020, President Trump signed the Families First Coronavirus Response Act. The act contains provisions for:
- Mandatory paid family leave;
- Mandatory medical and emergency paid sick time;
- Employer tax credits for employers who must pay for mandatory paid family leave and mandatory medical and emergency paid sick time; and
- Credits for self-employed taxpayers to provide them with comparable benefits against their self-employed income.
Generally speaking, these rules apply for all businesses with fewer than 500 employees.
The small business exemption for businesses with fewer than 50 employees applies only to child-care related paid sick leave and family leave benefits, and only if paying the benefits would jeopardize the viability of the business’s going concern. Currently the DOL is only asking small businesses to retain documentation regarding their qualification for the small business exemption.
This letter focuses on the last two items in the list above: the employer and self-employed tax credits. Covered employers are required to post this notice in a conspicuous place on its premises (email is sufficient for teleworkers).
You will be eligible to receive two payroll tax credits for wages paid to employees when you are required to pay for family leave or medical and emergency sick time. The payroll taxes that are available for retention by the employer (they don’t have to be paid over to the IRS) include federal income taxes withheld from employee gross pay, as well as the employer and employee’s share of Social Security and Medicare taxes. Any excess credits will be refunded after filing your quarterly payroll tax returns.
It will be imperative for employers to maintain detailed payroll records regarding paid time off due to the coronavirus. You will need them when preparing your payroll tax returns.
Mandatory paid family leave
The employer credit for wages paid for mandatory paid family leave is equal to 100% of the wages paid to each employee, limited to $200 per day per employee with a maximum credit of $10,000 per employee.
Credit for wages paid for medical and emergency paid sick time
The employer credit for wages paid for medical and emergency paid sick time is equal to 100% of wages paid to each employee, limited to $511 per day for employees who are sick and $200 per day if the employee is caring for a sick family member or a child who is at home due to a school closure. The credit for emergency paid sick time per employee is limited to 80 hours in total.
If you are self-employed, you are also eligible to reduce your self-employment tax. The provisions for self-employed taxpayers are designed to mimic the provisions applicable to the employer payroll tax credits, and we will be able to compute these credits for you when we file your personal income tax return.
The effective date for providing these benefits is April 1, 2020, and applies to employer-paid leave taken between April 1, 2020, and December 31, 2020. It does not apply retroactively.
The President signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act stimulus bill. Key tax provisions include:
- Tax credit rebates of up to $1,200 per individual and $500 per child that are phased out for taxpayers with AGI over $75,000 ($150,000 MJF and $112,500 HOH) and will be “rapidly advanced;”
- Expanded unemployment benefits to include self-employed works and extended the length;
- The delay of employer payroll tax deposits for 2020 (50% due by December 31, 2021, and 50% due by December 31, 2022);
- A refundable employer retention credit equal to 50% of qualified wages against quarterly employment taxes, to offset up to $10,000 of wages paid per employee in 2020
- Partially shutdown or experienced a decline of at least 50% in gross receipts for a 2020 calendar year quarter compared to the same quarter in 2019
- Not available to employers who take advantage of the forgivable SBA loan.
- Nonprofits must be experiencing a partial shutdown due to the government orders to qualify.
- The reinstatement of NOL carrybacks for the 2018–2020 taxable years, and repeal of the 80% taxable income limitation for the 2018–2020 taxable years;
- A TCJA technical correction that classifies qualified improvement property as 15-year recovery period, allowing the bonus depreciation deduction to be claimed for such property retroactive as if it was included in the TCJA at the time of enactment;
- Penalty-free withdrawals of tax retirement funds of up to $100,000 for coronavirus-related distribution (income recognized over a three-year period);
- A temporary waiver of RMD requirements in 2020;
- The suspension of charitable contribution limits for 2020;
- The deferral of excess business loss limitations until 2021;
- An increase in the business interest deduction limitations from 30% to 50% of adjusted taxable income for the 2019 and 2020 taxable year;
- An exclusion from income for employer-payments made on employee student loans paid before January 1, 2021;
- The acceleration of the corporate credit for prior-year minimum tax liability, allowing 100% of the credit to be claimed in 2019 (2018 at the election of the taxpayer); and
- A COD exclusion of small business loans forgiven under the Act
Other tax matters & updates
Income taxes: As previously noted, both the IRS and FTB have extended the 4/15 deadline to file and pay any taxes due (2019 tax liabilities and 2020 estimates) to July 15, 2020. The IRS has not changed the due date for the 6/15 estimates (the FTB has moved it to 7/15). This extension is for income tax returns due on 4/15 only. As of now, there is no change for due dates on fiscal year end returns (unless due 4/15) or other types of returns including estate, gift and exempt organization returns.
If you have already filed your returns and have set up payments for the 4/15 payments, you can cancel those payments. Contact our office for further instructions.
IRA & HSA Contributions: The due date for IRA and HSA contributions has also been extended to 7/15/20.
CA Sales & USE Taxes: You can request an extension for filing returns and making payments, relief from interest and penalties, and file a claim for refund for sales and use taxes by contacting the CDTFA office. The extensions are available through May 11, 2020.
CA Payroll taxes: Employers may request up to a 60-day extension to file state payroll reports and deposit state payroll taxes without penalty or interest. The written request for extension noting the impact of COVID-19 must be received within 60 days from the original delinquent date of the payment or return. Contact your payroll company for assistance.
IRS Enforcement Actions: On March 25th, the IRS unveiled its People First Initiative whereby the IRS is suspending certain enforcement actions. We are waiting for more details, but the following are just a few of the key points:
- Payments on existing installment agreements will be automatically suspended during the suspension period.
- The IRS will not default any installment agreement during the suspension period. However, by law, interest will continue to accrue on any unpaid balances;
- Taxpayers have the option of suspending all payments on accepted offers-in-compromise until July 15th (but interest will continue to accrue by law);
- The IRS will suspend liens and levies during the suspension period, nor will they forward delinquent accounts to collections.
- City of San Marcos is making small loans with low interest to local businesses based in San Marcos – see more details here.
- Check with your local utility companies regarding delaying payments due to hardship. See SDG&E’s guidance here
These laws are complex and there remain a lot of unanswered questions. We will continue to update you as more details are released. Please contact us if you have any questions and we will do our best to assist you with the information we have at that time.