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Secure Act 2.0 – PROPOSED LEGISLATION

On March 29, 2022, the United States House of Representatives passed the “Securing a Strong Retirement Act of 2022” (SSRA) – better known as “SECURE Act 2.0” with a vote of 414 to 5 – almost a unanimous decision.  This proposed legislation builds on prior legislation passed in The Secure Act of 2019.  This new proposed legislation is expected to become law before the end of 2022 after passing the Senate and being signed into law by President Biden.  The Senate just released their revisions to the House’s legislation on May 26th.

This Act and most recent Senate revision provide the following:

  1. Auto-Enrollment – The bill would require all new (not existing plans which are exempt from these provisions) 401(k) plans to automatically enroll employees and would require deferrals between 3% to 10% of compensation. The bill does allow for participants to opt out of the plan.  However, among plans that already require automatic enrollment, more than 90% of the employees stayed enrolled.  Businesses with 10 or fewer employees or companies who have only been in business for less than three years would be excluded from this mandate.  Plans implemented prior to the Act becoming law, will be exempt from the auto-enrollment requirement. 
  2. Tax Credit for Small Business (up to 50 employees) who start a retirement plan – Increases the three-year retirement plan start-up credit from 50% of costs to 100% with a $5,000 annual cap.
  3. Matching Student Loan Payments – Employers who provide a “match” for employees can designate the match to pay down their student loan debt. This is allowed even if the employee does not defer any funds into the retirement plan.  Approximately 3.4 million people who cannot currently save for retirement due to their student loan obligations can begin saving if for nothing else to reduce their outstanding loan obligations.
  4. Matching Contributions – The employee can designate that the company matching contribution be a Roth contribution.
  5. Delays the Require Minimum Distributions – The Secure Act of 2019 provided that the age for required minimum distributions is to begin at age 72 (not the 70-1/2 original age). This new provision increases the starting age to 73 on 1/1/23, age 74 on 1/1/2030 and age 75 on 1/1/2033.  The Senate version would waive required minimum distributions for individuals with less than $100,000 in their retirement savings.  The penalty for not taking the required minimum distribution is also reduced to 25% from the current 50%.
  6. Part-Time Employees provided quicker access – Part-time employees will be allowed to participate after completing 500 hours per year for a minimum of 2 years. The original measurement period was 3 years.
  7. Catch-Up Provisions – The House bill increases the amount of the contributions for catch-up provisions to $10,000 (up from $6,500) for 401(k) plans for individuals aged 62, 63, and 64. Employees in SIMPLE plans would be allowed $5,000 in catch-up contributions (up from the current $3,000). The Senate revision allows the increased catch-up provision to begin at age 60 and does not limit it to the ages of 62 through 64.
  8. Catch-up Provisions Must be Post Tax – Any catch-up provision must go into a Roth account which requires the tax to be paid up front instead of at retirement. This will allow the government to receive tax now instead of later.  However, a trade-off in favor of the taxpayer will allow any income generated from these funds to be excluded from future income tax.
  9. Qualified Charitable Distributions – Indexes the annual amount for withdrawals to charity from your IRA for RMD purposes (currently $100,000).
  10. Pension Lost and Found – A National online database will be established to help participants track down lost retirement accounts.

If you have further questions or would like to discuss how this new legislation will impact you or your business, please give us a call. 

Qualified Charitable Distributions

For many taxpayers, the increased standard deduction has all but eliminated any tax benefit once derived from charitable contributions. Considering this, one strategy is to utilize Qualified Charitable Distributions or QCDs.  

If you are age 70.5 (70 and one-half) or older by the end of 2022, you can make a distribution to charity directly from your traditional IRA(s). Directly is an important part of this process; The contribution must go directly from your IRA. In other words, the money cannot hit your “hands” or bank account. Your IRA fiduciary should create a check payable to the charity of your choice.

This has many benefits! First, the charitable distribution is not included in your income (Adjusted Gross Income or AGI). Keeping your AGI lower has many benefits such as the taxability of social security, Medicare Part B premiums, the ability to deduct rental losses, and many others. A QCD will also count towards your required minimum distribution (RMD) for the year!

Now, since you were not required to include the distribution in income, you cannot take a charitable deduction for that contribution. However, since many individuals cannot itemize anyway, you have essentially created a charitable deduction by not including the withdraw in income!

Things to note and keep in mind:

  • At present, you are limited to an annual QCD of $100,000. A spouse can also make use of the $100,000 limit.
  • You will need to keep good records for each QCD executed. At year end, the tax document sent to you will include all distributions. Your tax preparer will “net” the qualified charitable distributions against the gross amount.
  • A QCD will count towards your required minimum distribution (RMD) for the year.
  • Any amount donated above your RMD does not count towards a future year’s RMD.
  • The funds must go directly to the charity. Any funds distributed to you and then sent to charity, will not qualify as a QCD.
  • The charity must be a 501(c)(3) to qualify. (I.e. No private foundations or donor advised funds)

If you still have questions, we would be happy to setup a time to discuss this further.

Electronic Payments

As the IRS continues to experience back logs, we are recommending that all income tax payments be made electronically. Many of our clients are experiencing issues with uncleared checks and even lost payments when utilizing paper checks. The process to pay your balance due or estimated tax payments electronically is very easy. We have outlined the steps below. 

Federal Payments – Have a recent tax return as well as your routing/account number available and use the following link:  

https://www.irs.gov/payments/direct-pay

  1. Click on “Make a Payment”
  2. Under the first dropdown box “Reason for Payment” select “Balance Due” OR “Estimated Tax Payment” depending on the type of payment being made.
  3. Under Apply Payment To, a balance due should generally be applied to “Income Tax –  Form 1040” and an estimated tax payment should be applied to “1040ES”.
  4. Under tax period, make sure the correct tax year is selected. (Hint – A balance due is probably the prior year and estimated tax payments are the current year)
  5. Click on “Continue”.
  6. Step 2 will verify your identify. This is where your prior return will be helpful – Fill in the required information and click “Continue”.
  7. Step 3 will require you to enter your payment amount as well as your routing and account number. 
  8. Step 4 & 5  Will review and verify the information entered. We recommend printing the confirmation number when complete. 
  9. All Done!

The IRS FAQ for their direct pay system can be very helpful. https://www.irs.gov/payments/direct-pay-help

 

Delaware Payments – Have your routing/account number available and use the following link:

https://revenue.delaware.gov/payment/

  1. Under Individuals – Select either “Pay your current return with balance due” or “Pay your quarterly estimated tax”.
  2. The next screen will talk about payment options. After review, click next towards the bottom. 
  3. From here, and depending on the options selected, the website will ask for basic information in regards to your payment.
  4. Fill in the requested information to submit your payment
  5. All Done!

 

 

PPP Loan Update

PPP LOAN UPDATE –

If you applied for and received a PPP loan, the original bill created by Congress inadvertently made the proceeds taxable. GOOD NEWS – The new bill recently signed into law, called the Consolidated Appropriations Act, corrected the original bill by clarifying that a forgiven PPP loan will NOT be counted as taxable income.

The new bill also created a simplified application for forgiveness. If your PPP loan amount was under $150,000, a new form will be available that allows you to self certify that you have met all of the requirements necessary for full forgiveness. You, the loan recipient, are still responsible for all of the supporting documents in case of an audit, but you will not be required to submit that documentation at the time of application. Application for forgiveness must be submitted within 10 months of the end of your covered period. Please note – The application is filed with your lender, not as part of your tax return.

Under the original bill, PPP loan forgiveness was required to be reduced by the amount of any EIDL grant received. In other words, you would have been required to repay your PPP loan to the extent of any EIDL grant received, even if you qualify for full forgiveness. The new bill removed that requirement so that you could receive full forgiveness even if you received an EIDL grant. If you already applied for forgiveness and your forgiveness amount was reduced by the amount of an EIDL grant you received, please contact your lender immediately to discuss how to go about amending your application.

In addition, due to a retroactive change by the new bill, employers who received an original PPP loan can now also apply for the employee retention credit. To be eligible for the 2020 employee retention credit, the employer must:

  1. Be able to show that their gross revenue dropped by at least 20% during any calendar quarter in 2020 compared to the same calendar quarter in 2019 or;
  2. Be an employer whose business is fully or partially suspended by a government order related to COVID-19 during the calendar quarter.

For 2020, this credit can provide up to $5,000 per employee. Please note – This credit must be claimed on form 941 as part of your quarterly payroll filings. In addition, if you feel you qualify for this credit, it is important to specifically allocate which expenses you claim for PPP Loan forgiveness and which expenses you claim for the employee retention credit. You CANNOT use the same expense for both purposes. 

Lastly, the new bill also created a new round of funding for initial and second PPP loans. Individuals who received a PPP loan under the original bill are eligible to apply for second loan providing they meet all of the following criteria.

  1. Be able to show that their business’s gross receipts dropped by at least 25% during any calendar quarter in 2020 as compared to the same quarter in 2019. Alternatively, as long as your total income for 2020 is down 25% when compared to 2019, you will qualify.
  2. Employ no more than 300 employees per physical location.
  3. Have already used 100% of their initial PPP loan.

If you need assistance applying for a PPP loan, PPP loan forgiveness or think you may qualify for the employee retention credit and would like our help, please contact us immediately to setup an appointment.

PANDEMIC UNEMPLOYMENT ASSISTANCE

The Coronavirus Aid, Relief, and Economic Security (CARES) act passed in late March included a provision to provide unemployment insurance to workers who are not ordinarily eligible for unemployment benefits. This includes self-employment individuals such as sole proprietors, single member LLCS, partners in a partnership and multi-member LLCs. Since the bills passing, most states have been scrambling to get the new provision implemented. Starting today, May 11, 2020, the State of Delaware will begin accepting applications from those workers. If you are one of those listed individuals and have been affected, you should consider applying. The following link can provide you with additional details on how the application process will work and how to apply:

https://news.delaware.gov/2020/05/04/new-system-to-support-applications-for-pandemic-unemployment-announced/ 

PAYCHECK PROTECTION PROGRAM – WARNING

PPP LOAN – WARNING

The Payroll Protection Program is a loan and is expected to be repaid at 1% interest over a 2-year term.

A portion of the loan may be forgiven provided certain requirements are met.  We want to make sure that you understand not all borrowers will qualify for this loan forgiveness. Before accepting, you should not assume that you will qualify for loan forgiveness and will, therefore, be required to repay the entire amount.

WARNING – our initial research indicates that the loan forgiveness requirements may be more difficult to qualify for and prove than originally understood.

We have recently received notification of acceptance from several clients regarding the Payroll Protection Program loans through the Small Business Administration and their local lenders. We would like to extend our concern about acceptance and the ultimate forgiveness of these loan proceeds.

From our initial research, we have determined that there are several requirements that must be met in order for the loan to be forgiven.  First, in order to qualify for forgiveness, 75% of the loan amount must be spent on Payroll (not subcontractors) in the 8 weeks that follow the deposit of the loan proceeds.  The remaining 25% must be spent on rent, mortgage interest and utilities.  Assuming the first test is met, there are two additional tests that could reduce or eliminate the forgiveness of your loan. 

  1. You must maintain the number of employees on your payroll. Hopefully, there will be substantive guidance on the calculation of employees.  Currently, the wording indicates “full-time equivalent employees when compared to a prior period”.  However, there is no link or support for this requirement on the SBA website or other authoritative sources that we can locate. 
  2. You must maintain at least 75% of total salary when compared to a recent period. This test will be applied for each individual employee in the 8-week period of the loan. If the employee’s pay over the 8 weeks is less than 75% of the pay they received during the most recent quarter in which they were employed, the eligible amount for forgiveness will be reduced by the difference between their current pay and 75% of the original pay.

We understand that you probably have questions as to whether you qualify for forgiveness.  At this time, we encourage you to contact your lender for specific details for determination.  At this time, we cannot guarantee or express an opinion as to whether the loan will be forgiven.  Please proceed with caution.  

DELAWARE HOUSING ASSISTANCE PROGRAM

Due to the COVID-19 health crisis, we have received a notification from the Delaware State Housing Authority regarding a Housing Assistance Program for Delawareans who are facing financial hardships.  Households are eligible for up to $1,500 is assistance, with payments made directly to land or property owners for rent or utility company payments. 

To be eligible, you must:

  1. Reside in Delaware
  2. Maximum household income at or below 80% of the Area Median Income (AMI) for the county in which you reside. (You will find the income levels on the website listed below)
  3. Provide documentation showing an impact on the employment or income beginning March 10, 2020 or later that is attributed to the COVID-19 pandemic. This includes layoff, reduced work hours, or needing to take unpaid leave due to childcare or other issues arising as a result of the health crisis. 

The following is the website with more information and the application for applying.

 

www.destatehousing.com/OtherPrograms/ot_dehap.php

(CARES) ACT IMPACT ON INDIVIDUALS

The Coronavirus Aid, Relief and Economic Security (CARES) Act was just signed into law on March 27, 2020.  It is a gigantic economic stimulus package with many provisions that will affect you financially.  Some of the key points are as follows:

  1. Recovery rebates for individuals – To help individuals stay afloat during the time of economic uncertainty, the government will send up to $1,200 payments for eligible taxpayers and $2,400 for married couples filing joint returns. An additional $500 payment will be sent to taxpayers for each qualifying child dependent under age 17.  These amounts will phase out based on your adjusted gross income over $75,000 (singles or married filing separately), $122,500 (head of household), and $150,000 (joint).  For singles, if your income is greater than $98,000, you will not be eligible for this payment.  For married filing jointly, the payment will be reduced to zero if you income exceeds $198,000.  We are forwarding another announcement with more details on the specifics of this rebate.
  2. Waiver of 10% early distribution penalty (no waiver of tax, just penalty). The additional 10% tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) is waived for distributions made between January 1 and December 31, 2020 by a person who (or whose family) is infected with the Coronavirus or who is economically harmed by the Coronavirus.  Penalty-free distributions are limited to $100,000, and may, subject to guidelines, be re-contributed to the plan or IRA.  Income arising from the distribution and the corresponding tax is spread out over three years unless the employee elects to turn down the spread out.
  3. Waiver of required distribution rules. Required minimum distributions that otherwise would have to be made in 2020 from defined contribution plans (such as 401(k) plans) and IRAs are waived.  This includes distributions that would have been required by April 1, 2020, due to the account owner’s having turned age 70-1/2 in 2019. 
  4. Charitable deduction liberalizations. The CARES Act makes significant liberalizations to the rules governing charitable deductions:
    • Individuals will be able to claim a $300 above-the-line deduction for cash contributions made, generally, to public charities in 2020. This rule effectively allows a limited charitable deduction to taxpayers claiming the standard deduction.
    • The limitation on charitable deductions for individuals that is generally 60% of modified adjusted gross income doesn’t apply to cash contributions made to public charities in 2020. Instead, an individual’s qualifying contributions, reduced by other contributions can be as much as 100% of the contribution base.  No connection between the contributions and COVID-19 activities is required. 

EMERGENCY PAID SICK LEAVE ACT & EMERGENCY FAMILY AND MEDICAL LEAVE EXPANSION ACT

The   Coronavirus Aid, Relief and Economic Security (CARES) Act was just signed into law on March 27, 2020.  It is a gigantic economic stimulus package with many provisions that will affect your business financially.  The following are for businesses with employees and are affected by the Coronavirus Pandemic:

There are several payroll credits available as well as sick leave benefit changes effective April 1, 2020. 

The Families First Coronavirus Response Act (FFCRA) was signed into law by the president on March 18, 2020.  This Act became effective on April 1, 2020 and applies to sick leave taken between April 1, 2020 and December 31, 2020.  It includes The Emergency Paid Sick Leave Act (EPSLA) and the Emergency Family and Medical Leave Expansion Act (EFMLEA).

The original Family Medical Leave Act only applied to employers with 500 or more employees.  This current act brings in all employers regardless of size and provides paid sick leave to employees through 12/31/2020.

The first Act – The Emergency Paid Sick Leave Act provides (this Act covers the first two weeks of sick leave):

  1. This Act covers the first two-week period the employee is out for the following three conditions:
    1. The employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19
    2. The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19
    3. The employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis.
  2. In this instance, the employer is required to pay 100% of the employee’s regular pay rate (up to $511 per day) for the first two-week period (80 hours maximum).
  3. If one of the conditions in the following three descriptions applies, the employer must pay its employee two-thirds of his or her regular pay rate up to $200 per day ($2,000 in total) in sick leave for 80 hours over a two-week period.
    1. The employee is caring for an individual who is subject to an order as described in one of the previous conditions or has been advised in (b) above.
    2. The employee is caring for his or her child if the school or place of care of the child has been closed or the childcare provider of such child is unavailable due to COVID-19 precautions.
    3. The employee is experiencing any other substantially similar condition specified by the secretary of health and human services in consultation with the secretary of the treasury and the secretary of labor.

Under this Act, the employer is able to take a refundable tax credit against the employer’s portion of Social Security taxes equal to 100% of the qualified sick leave the employer paid for each calendar quarter plus a pro-rata share of the employer’s qualified health plan expenses. The employer’s sick leave payments and the employer credit resulting therefrom offset one another dollar for dollar.

 

The second Act – the Emergency Family and Medical Leave Expansion Act (EFMLEA) provides: (this act covers the next 12 weeks of leave (after the above) for qualifying need related to COVID-19 and requires you return the employee to work at the end of the leave. 

  1. Following the first 10-day period (the period covered under the prior Act above), the employer must provide paid leave to an employee for each additional day of leave.
  2. The rate of pay for the next 12 weeks is calculated based on the rate of not less than 2/3 of the employee’s regular rate of pay the number of hours the employee would otherwise normally be scheduled to work. This benefit is capped at $200 per day or $10,000 in the aggregate.

Under this Act, the employer may claim a 100% credit against the employer’s share of payroll tax for each employee, limited to 2/3 of regular pay rate up to $200 per day, plus a pro rata share of the employer’s qualified health plan expenses.  The family leave payments and the employer credit resulting therefrom offset one another dollar for dollar.

 

In the event you lay-off the employee, you are not liable for these benefits and the corresponding payroll tax credits.  The employee is then entitled to claim the unemployment benefits provided by the State of Delaware.  As an employer, normally when an employee claims unemployment, the payroll tax rate for unemployment tax is increased as a result.  We have not heard any different as a result of this pandemic.  However, there is a re-hire credit available if you re-hire the employee at a point in the future.

 

The federal payroll credits are obtained by completing IRS Form 7200 along with your normal quarterly 941 payroll tax forms.  These credits will be available for the 2nd, 3rd and 4th quarter of 2020.  The Form 7200 is only available in draft form at this point but is available online at www.irs.gov

EMPLOYEE RETENTION CREDITS

The   Coronavirus Aid, Relief and Economic Security (CARES) Act was just signed into law on March 27, 2020.  It is a gigantic economic stimulus package with many provisions that will affect your business financially.  The following are for businesses with employees and are affected by the Coronavirus Pandemic:

There is an Employee Retention Credit for employers.  If you have retained employees during this difficult time, you may be eligible for this credit.  This credit is effective for wages paid after March 12, 2020 through December 31, 2020.  This credit will cover wages paid during the first quarter of 2020 for which your Form 941 will be due April 30, 2020. You would also need to complete IRS Form 7200 regarding the refundable portion of the credit.  It is still in draft form but is available on www.IRS.gov. 

Eligible employers can qualify for a refundable credit against, generally, the employer’s 6.2% portion of Social Security payroll tax for 50% of certain wages paid to employees during the COVID-19 crisis.

This credit is available to employers carrying on business during 2020 who meet one of the following criteria:

  1. The business operations for a calendar quarter have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings.
  2. Employers who have experienced a more than 50% reduction in quarterly receipts measured on a year-over-year basis relative to the corresponding 2019 quarter. You would use this same measurement until the company quarterly receipts are greater than 80% of the receipts of the corresponding 2019 quarter. 

For employers that meet one of the foregoing criteria and have 100 or fewer full-time employees in 2019, all employee wages are eligible, even if employees haven’t been prevented from providing services.  The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in eligible wages and compensation paid by the employer to an employer.  Thus, the credit is a maximum of $5,000 per employee.

Wages don’t include

  1. Wages taken into account for the Families First Coronavirus Response Act for required paid sick leave or required paid family leave;
  2. Wages taken into account for the employer income tax credit for paid family and medical leave; or
  3. Wages in a period in which an employer is allowed for an employee work opportunity credit.

The credit is not available to employers receiving Small Business Interruption Loans. 

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Georgetown, DE 19947

Phone: 302-856-4141
Fax: 302-856-3994