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Stimulus Bill - Cares Act

April 16, 2020

PAYCHECK PROTECTION PROGRAM LOAN

RECOMMENDATIONS OF MANAGEMENT OF THE LOAN

April 15, 2020

Clients,

From the day you sign the loan and 8 weeks following you have to prepare for a reconciliation of the loan to the expenses you used for the loan.  The financial institutions will require within 30 days of the maturity of the loan information provided to them to support that use. 

What can I use these loans for? You should use the proceeds from these loans on your:

· Payroll costs, including benefits;

· Interest on mortgage obligations, incurred before February 15, 2020;

· Rent, under lease agreements in force before February 15, 2020; and

· Utilities, for which service began before February 15, 2020.

What counts as payroll costs? Payroll costs include:

· Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);

· Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for     separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;

· State and local taxes assessed on compensation; and

· For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

Does the PPP cover paid sick leave?

Yes, the PPP covers payroll costs, which include employee benefits such as costs for parental, family, medical, or sick leave. However, it is worth noting that the CARES Act expressly excludes qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (FFCRA) (Public Law 116–127). Learn more about the FFCRA’s Paid Sick Leave Refundable Credit.

How much of my loan will be forgiven?

You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.

You will also owe money if you do not maintain your staff and payroll.

· Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.

· Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.

· Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

How can I request loan forgiveness?

You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.

What is my interest rate?

1.00% fixed rate.

When do I need to start paying interest on my loan?

All payments are deferred for 6 months; however, interest will continue to accrue over this period.

When is my loan due?

In 2 years.

Can I pay my loan earlier than 2 years?

Yes. There are no prepayment penalties or fees.

Once you Sign the Loan Documents, immediately notify your payroll processor. 

The processor cannot continue to treat Covid 19 wages under the First Corunavirus Act the same as prior to the loan.  As a result, they need to be aware of this loan so adjustment can be made.

You are eligible to retain your 941 deposit up to the wages paid under the Covid Act.  However, when the loan is secure, you no longer can retain the 941 deposit.  It must be submitted. 

What accounting processes should I implement to account for the loan proceeds?

  1. Begin this procedure on the date you sign the loan, not prior.

  1. We recommend that you track this money either in a separate bank account or retain a ledger so that you can identify specifically how the money was utilized. 

  1. If a separate bank account:

  1. Transfer the money as used for the following purposes to the operating account or write checks directly out of the separate bank account.

  1. Maintain a ledger through excel or manual of the loan and the draw down on the loan for each of the purposes to foot to the physical records.

  1. For payroll costs. 

  1. Make a copy of the payroll ledger/payroll summary for the pay cycle and place in a folder named PPP Loan support. 

  1. If a draft from the account, place in the folder a copy of the payroll provider reflecting the draft amount.

  1.  If checks written, place the pay check employer stubs, if any in the loan

  1. For Retirement.

  1.  A copy of the calculation of the pension expense and a copy of all forms placed in the folder and calculations of the pension expense.
  2. For Health Insurance
    1. A copy of the invoice and check you submitted

  1. For Rent:

  1. A copy of the check placed in the folder.

  1. If a lease agreement, I would place a copy of the agreement in the folder.

  1. A copy of the ledger of the “rent Expense” account if you have one.

  1. For Mortgage Interest

  1. A copy of the check – principal and interest paid to the bank

  1. A copy of the voucher paid.

  1. Request from the bank a loan history for the payments paid during the 8 week period.  The bank will have an amortization to provide you of the division of principal and interest.

  1. For Utilities
    1. A copy of your phone Bills (cell phones and land lines). 

  1. A copy of the check you paid the bill with.

  1. A copy of your electric and gas bill and copy of the check you remitted payment with.

  1. A copy of your water and sewer bill and a copy of the check you remitted payment with.

If you have questions of creating a strong audit trail please call.  Remember, the company has some risk of owing a portion of this loan as the amount funded exceeded your payroll costs by 25% to assist with the limited operating costs.  Therefore, not all of the loan may be forgiven. 

If you have questions please call.

Sincerely,

Randy D. Fry, CPA, CVA, CGMA

March 28, 2020

Paycheck Protection Loan and EIDL Loan.   

This link is an explanation of the two SBA loan options being offered.  The presentation does a great job explaining the differences in the loan and we believe the sponsor of the material is reputable, but encourage you to utilize a lender locally for this credit extension.  Stay informed so that you maximize your benefit.

https://www.youtube.com/watch?v=xfGppFWrp6M&feature=youtu.be

March 28, 2020

Paycheck Protection Program - Employer

This hyper link from the AICPA puts together information on the purpose of the Paycheck Protection program and why as an employer you need to have conversation with your CPA and your bank. Please take 15 minutes and watch this video.  

m.youtube.com/watch?v=-bhFvqPMWTE&feature=youtu.be

March 25, 2020

Journal of Accountancy

CARES Act tax provisions aim to stabilize pandemic-ravaged economy

By Alistair M. Nevius, J.D.

March 25, 2020

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, H.R. 748, which passed the Senate by a 96-0 vote late on Wednesday, contains a host of tax measures as part of a $2 trillion aid package designed to help the economy as it suffers from the effects of the coronavirus pandemic. While the focus of the legislation is not tax, a large number of tax provisions are included in the over-600-page bill.

Recovery rebates: The bill provides for payments to taxpayers — “recovery rebates” — which are being treated as advance refunds of a 2020 tax credit. Under this provision, individuals will receive a tax credit of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child. The credit is phased out for taxpayers with adjusted gross income (AGI) above $150,000 (for joint filers), $112,500 (for heads of household), and $75,000 for other individuals. The credit is not available to nonresident aliens, individuals who can be claimed as a dependent by another taxpayer, and estates and trusts. Taxpayers will reduce the amount of the credit available on their 2020 tax return by the amount of the advance refund payment they receive.

Payroll tax credit refunds: The bill provides for advance refunding of the payroll tax credits enacted last week in the Families First Coronavirus Response Act, P.L. 116-127. The credit for required paid sick leave and the credit for required paid family leave can be refunded in advance using forms and instructions the IRS will provide. The IRS is instructed to waive any penalties for failure to deposit payroll taxes under Sec. 3111(a) or 3221(a) if the failure was due to an anticipated payroll tax credit.

Employee retention credit: The bill creates an employee retention credit for employers that close due to the coronavirus pandemic. Eligible employers are allowed a credit against employment taxes equal to 50% of qualified wages (up to $10,000 in wages) for each employee. Eligible employers are employers who were carrying on a trade or business during 2020 and for which the operation of that business is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to the COVID-19 outbreak. Employers that have gross receipts that are less than 50% of their gross receipts for the same quarter in the prior year are also eligible, until their gross receipts exceed 80% of their gross receipts for the same calendar quarter in the prior year. For employers with more than 100 employees, wages eligible for the credit are wages that the employer pays employees who are not providing services due to the suspension of the business or a drop in gross receipts. For employers with 100 or fewer employees, all wages paid qualify for the credit.

Retirement plans: Taxpayers can take up to $100,000 in coronavirus-related distributions from retirement plans without being subject to the Sec. 72(t) 10% additional tax for early distributions. Eligible distributions can be taken up to Dec. 31, 2020. Coronavirus-related distributions may be repaid within three years. For these purposes, an eligible taxpayer is one who has been diagnosed with SARS-CoV-2 virus or COVID-19 disease or whose spouse or dependent has been diagnosed with SARS-CoV-2 virus or COVID-19 disease or who experiences adverse financial consequences from being quarantined, furloughed, or laid off, or who has had his or her work hours reduced, or who is unable to work due to lack of child care. Any resulting income inclusion can be taken over three years. The bill also allows loans of up to $100,000 from qualified plans, and repayment can be delayed.

The bill temporarily suspends the required minimum distribution rules in Sec. 401 for 2020.

The bill delays 2020 minimum required contributions for single-employer plans until 2021.

Charitable deductions: The bill creates an above-the-line charitable deduction for 2020 (not to exceed $300). The bill also modifies the AGI limitations on charitable contributions for 2020, to 100% of AGI for individuals and 25% of taxable income for corporations. The bill also increases the food contribution limits to 25%.

Payroll tax delay: The bill delays payment of 50% of 2020 employer payroll taxes until Dec. 31, 2021; the other 50% will be due Dec. 31, 2022. For self-employment taxes, 50% will not be due until those same dates.

Net operating losses: The bill temporarily repeals the 80% income limitation for net operating loss deductions for years beginning before 2021. For losses arising in 2018, 2019, and 2020, a five-year carryback is allowed (taxpayers can elect to forgo the carryback).

Excess loss limitations: The bill repeals the Sec. 461(l) excess loss limitation. Sec. 461(l) was added to the Code by the law known as the Tax Cuts and Jobs Act, P.L. 115-97, and it disallows excess business losses of noncorporate taxpayers if the amount of the loss exceeds $250,000 ($500,000 for married taxpayers filing jointly).

Corporate alternative minimum tax (AMT): The bill modifies the AMT credit for corporations to make it a refundable credit for 2018 tax years.

Interest limitation: For tax years beginning in 2019 and 2020, Sec. 163(j) is amended to increase the adjusted taxable income percentage from 30% to 50%. Also, taxpayers can elect to use 2019 income in place of 2020 for the computation.

Qualified improvement property: The bill also makes technical corrections regarding qualified improvement property under Sec. 168 by making it 15-year property.

Aviation taxes: Various aviation excise taxes are suspended until 2021.

Health plans: The rules for high-deductible health plans (HDHPs) are amended to allow them to cover telehealth and other remote care services without charging a deductible.

Over-the-counter menstrual care products are added to the list of items that can be reimbursed out of a health savings account, Archer medical savings account, or health reimbursement arrangement.

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the outbreak, visit the JofA’s coronavirus resources page.

— Alistair M. Nevius, J.D., (Alistair.Nevius@aicpa-cima.com) is the JofA’s editor in chief, tax.

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