COVID-19 Update

We are now  living in a different world with events changing everyday. I have put together the best summary I can to help guide you through all of the tax and business programs available through the CARES Act.
The written procedures coming out of Washington D.C. and the IRS are constantly being revised. The following is the latest information I have on the CARES Act, including the stimulus checks an unemployment benefits.
 
INDIVIDUAL IMPACT: As many of you are asking about when the issuance of  the stimulus check will begin, it appears the IRS will begin this week. Remember, the stimulus payment will be first sent to those valid taxpayers that have valid bank information on file, i.e. if your 2019 tax return (2018 if you have yet filed your 2019 tax return) included your bank information you stimulus payment should be directly deposited to the same account.
 
Second, I understand that the IRS will be establishing a website by Wednesday, April 15th, 2020 which will allow taxpayers to login and update or provide their bank information, if for some reason the information the IRS has is incorrect or missing. This website is not live as yet, but Wednesday is the estimated date.
 
Unemployment, the federal government has funded each state with the ability for each state to add $600 to your state calculated unemployment benefit. This additional $600 is not part of the state unemployment own payment system, In other words, you may not see the $600 if you log in to your unemployment account.
 
A side note; there could legislation passed by Congress, much later in the year, that “may” exclude a certain amount of unemployment benefits from federal income tax. This was the case in 2008, when Congress allowed up o $2,500 of unemployment benefits exempt from federal income tax. There is no such discussion now on this issue and may not happen, mainly because Congress is working on cortical legislation now. Note: Massachusetts would have to pass its own bill to exempt unemployment benefits from state income tax.
 
Unemployment benefits for the self-employed is still pending, however the Massachusetts Department of Unemployment  Assistance has now indicated a platform should be up and running by April 30th. Keep in mind eligible claimants will be retroactively compensated beginning February 2, 2020.
 
Under the current tax code, Unemployment Benefits ARE TAXABLE. I recommend requesting that 15% federal income tax and 5% (Massachusetts) income tax be automatically withheld to avoid possibly owing a tax balance when you 2020 tax return is filed. Or, please set aside 20% of your benefits into a saving account to be used to pay the taxes later.
 
Estimated tax payments due on April 15th and June 15th have now been both extended to July 15th.
 
BUSINESSL IMPACT:
Several federal loans have been established to help small business through this difficult time. The following is an out loan of two of the most important loan programs I have researched

Emergency Grant
Immediate $10,000 (via SBA.GOV)
Short description:

  • Fastest way to get financial assistance AND this does not have to be repaid (if used correctly).
  • $10,000 must be used for specific broad purposes (payroll, mortgage/lease, other obligations)
  • If using the Paycheck Protection Program (PPP), explained later, PPP loan forgiveness will be reduced by this $10,000 grant
  • Directly deposited into your business account
  • Available RIGHT NOW!
  • Congress expanded access to the EIDL (Economic Injury Disaster Loan) program and created an Emergency Grant to allow a small business to apply for an IMMEDIATE ADVANCE of up to $10,000.
  • This ADVANCE is for paying your any and all operating expenses (including payroll) AND
  • YOU DO NOT HAVE TO REPAY THE $10,000EVEN IF YOUR REQUEST FOR AN EIDL LOAN IS DENIED
  • Time of arrival of the funds: 3 days after the SBA receives your application

TIME NEEDED FOR THE APPLICATION: Plan for about 10 minutes to get through the application. However, expect waiting times and long processing times as the program has been overwhelmed with claimants

INFORMATION NEEDED FOR THE APPLICATION:

  • Most Recent Business Tax Return (This will save you time since it contains quite a bit of the information you will need such as your business name, EIN (Employer Identification Number), date business opened, etc.
  • Gross Revenue for last 12 months prior to the disaster
  • Cost of Goods Sold for last 12 months prior to the disaster (If applicable)

o   NOTE: You DO NOT have to submit or upload any documents for the information above, you only need to enter the figures from your financials and attest “under penalty of perjury” that they are true and correct.

  • Business Bank Information to Direct Deposit the $10,000 Grant
  • Bank Name
  • Account Number
  • Routing Number

The PPP (Payroll Protection Program) Loan via your lender

Short description:

  • Short term loan to help you pay for 8 weeks of payroll, rent/mortgage and utilities that is faster to get then an EIDL and for a bonus, some of the PPP loan can be FORGIVEN.
  • REMINDER: If you take the $10,000 immediate cash ADVANCE in under the Emergency Grant, the amount of the PPP loan that could be FORGIVEN will be reduced by the $10,000 grant advance.
  • You will apply through lending institutions (a bank) and applications start:

Program began:
o   Friday, April 3 for Small Business via EXISTING SBA lenders
o   Friday, April 10 for Sole Proprietors and Independent Contractors

  • Expect to get funds in 30 to 45 days from today (might be sooner but nothing definite yet)
  • The intent of the PPP is to:
  • Keep employees on payroll,
  • Rehire employees you laid off, and
  • Pay for specific expenses that keep the business doors open:

o   Rent, Utilities, Mortgage interest (Note: Only the interest)

  • The intent is key to how you will later apply for FORGIVENESS.
  • WHAT LENDING INSTITUTIONS CAN YOU APPLY TO

o   Any SBA (Small Business Administration) approved lenders

o   Also, the SBA is trying to make it easy to add additional lenders as fast as possible in order to add on more approved lenders to handle the incredible volume of applications.

  • APPLICATION PERIOD WITH A LENDING INSTITUTION

o   February 15, 2020 to June 30, 2020 NOTE: This period has nothing to do with the eligible period to spend the funds.

o   The eligible period to spend the funds is 8 weeks from the loan origination date.

o   This period means you must apply for the funds before June 30, 2020 or you will be too late to apply

  • DETAILS ON THE TERMS FOR ALL PPP (Payroll Protection Program) LOANS:

o   2-year Max Maturity (as of Tuesday evening, March 31, 2020)

o   Max rate 0.5% rate (as of Tuesday evening, March 31, 2020)

o   Fees are waived

o   No collateral AND no personal guarantee

o   No prepayment penalties

o   Payments are DEFERRED for 6 months

  • WHO QUALIFIES?

o   Small Businesses with fewer than 500 employees

o   Sole Proprietors & Independent Contractors

o   Non-Profits (501-c3 only)

  • WHO/WHAT COMPENSATION IN THE SMALL BUSINESS CAN BE PAID WITH THESE FUNDS?

o   Employees (not exceeding $100,000)

o   Independent Contractors, Sole Proprietors and Self-Employed Individuals, 1099 staff, Gig workers

  • CLARIFICATION: At the time of this writing, it is not clear if each Independent Contractor must make their own PPP application or can they be included under an application of business that pays the Independent Contractor.

o   As I understand the current process:

  • 1099s with SSN –Employers can include in their application
  • 1099s with EIN –Need to apply for their own PPP
  • Please watch for more guidance on this distinction
  • AMOUNT YOU CAN APPLY FOR

o   If you are a business that has 500 or less employees, you will receive the LESSER OF:

  • Calculate your AVERAGE MONTHLY PAYROLL costs for the 1-year period prior to the loan.
  • Multiply that AVERAGE MONTHLY PAYROLL by 2.5

o   Example:

  • Average monthly payroll is 10,000 * 2.5 = $25,000 loan

Yes, there is my disclaimer:

Because this is a new program, there may be changes or updates to the requirements once the lending process begins. Advocates for the banking industry, including the Consumer Bankers Association and the Independent Community Bankers of America, already have voiced concerns that the individual banks that might issue PPP loans have not yet received enough guidance from the SBA.