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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. 

ECONOMIC IMPACT PAYMENTS

Many of our clients have questions regarding the Economic Impact Checks that are being issued by the U. S. Treasury as a result of the Coronavirus Pandemic.  The following was released by the Treasury Department and the IRS regarding these payments. For most individuals, no action will be required.  However, if you have questions, please feel free to give us a call.  We will continue to keep you updated as the information becomes available to us.

In an Information Release, the Treasury Department and IRS have announced that distribution of economic impact payments, made as part of the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136, 3/27/2020, the Act), will begin in the next three weeks and will be distributed automatically, with no action required for most people. However, people who did not file 2018 or 2019 federal income tax returns will need to submit “a simple tax return” to receive the stimulus payment.

The Information Release answers the following questions:

Who is eligible for the economic impact payment? Tax filers with adjusted gross income up to $75,000 for individuals and up to $150,000 for married couples filing joint returns will receive the full payment. For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds. Single filers with income exceeding $99,000 and $198,000 for joint filers with no children are not eligible.

Eligible taxpayers who filed tax returns for either 2019 or 2018 will automatically receive an economic impact payment of up to $1,200 for individuals or $2,400 for married couples. Parents also receive $500 for each qualifying child.

How will the IRS know where to send a payment? The vast majority of people do not need to take any action to provide IRS with a way to send them their payment. The IRS will calculate and automatically send the economic impact payment to those eligible.

How will the IRS calculate the amount of payment? For people who have already filed their 2019 tax returns, the IRS will use information from those returns to calculate the payment amount. For those who have not yet filed their return for 2019, the IRS will use information from their 2018 tax filing to calculate the payment. The economic impact payment will be deposited directly into the same banking account reflected on the return filed.

What should a recipient do if IRS doesn’t have his direct deposit information? In the coming weeks, Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online, so that individuals can receive payments immediately as opposed to checks in the mail.

If a potential recipient is not required to file a 2018 or 2019 tax return, can that person still receive a payment? Yes. People who typically do not file a tax return will need to file a simple tax return to receive an economic impact payment. Persons who are otherwise not required to file a tax return will not owe tax.

How can a person in the groups listed in the above question file the tax return needed to receive an economic impact payment? IRS.gov/coronavirus will soon provide information instructing people in these groups on how to file a 2019 tax return with simple, but necessary, information including their filing status, number of dependents and direct deposit bank account information.

If a person required to file a 2018 or 2019 retun has not yet filed either return, can the person still receive an economic impact payment? Yes. The IRS urges anyone with a tax filing obligation who has not yet filed a tax return for 2018 or 2019 to file as soon as they can to receive an economic impact payment. Taxpayers should include direct deposit banking information on the return.

How long are the economic impact payments available? For those concerned about visiting a tax professional or local community organization in person to get help with a tax return, these economic impact payments will be available throughout the rest of 2020.

Where can one get more information? The IRS will post all key information on IRS.gov/coronavirus as soon as it becomes available.

PAYCHECK PROTECTION PROGRAM & EIDL LOANS

 

Economic Injury Disaster Loan (EIDL Loans)

The SBA is providing loans to small businesses to help with the economic downturn. Up to $10,000 of the loan can be considered a grant that will not need to be repaid if used for specific purposes. These loans can be applied for directly through the SBA website and up to $10,000 can be advanced to you within 3 days. For more details and to apply, please click the following link:

https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/economic-injury-disaster-loan-emergency-advance

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117 S. Bedford St.
Georgetown, DE 19947

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