Americans Begin to Receive Second Round of COVID-19 Stimulus Checks

Dec 30, 2020

Tuesday afternoon, U.S Treasury Secretary Steven Mnuchin took to social media announcing the disbursement timeline for the second round of stimulus checks. He noted the following:

  • Direct Deposit – Individuals who have direct deposit set up with the IRS can start looking for their second stimulus payments as early as last evening (12/29) and continue into next week.
  • Paper Checks – The IRS will begin sending out paper checks today, Wednesday (12/30/20), which means people should begin receiving those checks within the next two weeks.*
  • Status of Payment – Mnuchin also stated later this week, you can check the status of your payment here

*To speed up delivery, a limited number of people will receive their second stimulus payment by debit card. But the form of payment for your second stimulus check may be different than your first payment. Some people who received a paper check last time might receive a debit card this time, and some people who received a debit card last time could receive a paper check. The pre-paid cards will come in white envelopes that “prominently displays the U.S. Department of the Treasury seal,” the IRS said. The card will bear the Visa name on the front and the name of the issuing bank, MetaBank, will be on the card’s back. The information included with the card will explain that this is your Economic Impact Payment. There’s more information on the pre-paid cards here.

While Congress remains in discussion about an increase to a $2,000 stimulus amount, what we know for now is:

  • As it currently stands, the checks will be for $600 for eligible adults, and $600 per dependent, meaning a family of four could receive $2,400.
  • Individuals who earned less than $75,000 and those married filing jointly who earned less than $150,000 in 2019 are eligible for the full amount.
  • Those who made more are eligible for reduced stimulus checks at a rate of $5 per $100 of additional income.
  • The checks phase out completely for individuals that earned $87,000 and couples that made $174,000 in 2019.

If you have questions regarding your stimulus check, please contact your William Vaughan Company advisor or contact us at 419.891.1040. We’d be happy to help!

Categories: COVID-19

Looking for Additional COVID-19 Relief Funds?

Nov 02, 2020

Main Street Lending Program

On Friday, October 30, the Federal Reserve Board adjusted the terms of the Main Street Lending Program to better support smaller businesses that employ millions of workers and are facing continued revenue shortfalls as a result of the pandemic. The program supports lending to small and medium-sized for-profit businesses and nonprofit organizations that were in sound financial condition before the COVID-19 pandemic but lack access to credit on reasonable terms.

Yet so far the program has made just 400 loans for a total of $3.7 billion — far below the $600 billion in total funding that the Fed has said it is willing to lend. In an effort to boost participation in the program, the Federal Reserve Board made the following changes to ease lending stipulations along with waiving fees.

  • Minimum loan amount lowered – The minimum loan size for three Main Street facilities available to for-profit and non-profit borrowers has been reduced from $250,000 to $100,000 and the fees have been adjusted to encourage the provision of these smaller loans.
  • Prior loan assistance rules modified – The Fed also tweaked rules about the degree to which prior loan help from the federal government (PPP loans) can be counted in a company’s application, with an eye toward trying to make the Main Street lending program more accessible to small and midsized businesses.

Additional detail about this program can be found at https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm

For assistance with considering your options under the Main Street Lending Program or with finding a participating lender, contact your WVC advisor.

Economic Injury Disaster Loan (EIDL) – Request a Loan or Increase to Your Existing Loan

When the COVID-19 related EIDL loans were announced, they were capped at $2 million. The SBA was quickly inundated with EIDL applications and capped the loan amount to $150,000. Additionally, the SBA stopped accepted applications for all but agricultural businesses for several months.
EIDL applications were re-opened in June 2020.

Additionally, since EIDL loans are no longer capped at $150,000, you may request an increase to your existing COVID-19 EIDL. To request an increase to your EIDL, log into your EIDL account or send an email that states your need for an increase to the loan amount to pdcrecons@sba.gov with the word “INCREASE” in the subject line. Include any additional information that may assist the SBA in considering an increase in your application such as:

  • Your most recent Federal income tax return for your business along with a signed IRS Form 4506-T, and /or
  • Updated financials (Gross Revenue, Cost of Goods Sold, cost of operation, or other sources of compensation) submitted on SBA Form 3502, and
  • An explanation of how COVID-19 has negatively impacted your business and why the additional funds are necessary.

For additional information on how EIDL loan terms and how the funds can be used, view our WVC Short on the topic.

Categories: COVID-19

Restaurant Employee Relief Fund

Mar 31, 2020

The National Restaurant Association has created the Restaurant Employee Relief Fund to help aid employees who are experiencing hardship during the COVID-19 outbreak. This fund will offer grants to restaurant industry employees who have experienced financial hardship from either loss of employment or a decrease in wages. The grants will be awarded to individuals on a first-come, first-served basis while funds are available. Restaurant employees can apply for the grants beginning on April 2, 2020.

Employees that are eligible to receive grants must meet the following criteria:

  • Individuals must have worked on a part or full-time basis in the restaurant industry for at least 90 days in the past year; and
  • Individuals must have had their primary source of income be from working in the restaurant industry for the last year; and
  • Individuals must have experienced a decrease in wages or a job loss on or after March 10, 2020; and
  • Individuals must live in the United States, an overseas U.S. military base, or a U.S. territory; and
  • Individuals must be over the age of legal majority in their U.S. state or territory.

The $500 on-time grants are meant to help offset the financial burden that many restaurant employees are experiencing during the COVID-19 outbreak. Listed below are many of these expenses:

  • Home rent or mortgage
  • Car payments or other transportation costs
  • Utility bills
  • Student loan payments
  • Child Care expenses
  • Groceries
  • Medical bills

The National Restaurant Association, in conjunction with Guy Fieri, kicked off this relief campaign on Friday, March 27, 2020. The campaign has already raised $5.5 million for restaurant employees and 100% of the funds will be used to help these employees. There are numerous other founding partners of this relief effort including, PepsiCo and Uber Eats to name just a few. It is estimated between 5 to 7 million restaurant workers may become unemployed as a result of the COVID-19 outbreak. The restaurant industry, with over 1 million restaurants in the U.S., employs approximately 15 million people. Eligible workers can apply for aid by clicking here.

If you want to help make a difference in the lives of these workers? You can donate to the fund here.

Categories: Restaurant & Hospitality

The CARES Act: What You Need to Know

Mar 28, 2020

Late Friday, the President signed a bipartisan relief bill entitled the “Coronavirus Aid, Relief, and Economic Security Act” or the CARES Act. The $2 trillion coronavirus response Act is intended to provide relief across America and to keep businesses and individuals afloat during the unprecedented freeze on most American life.

Key Provisions for Businesses

$10,000 Grant awarded within three days under Expansion of SBA Disaster Loan Program (SBA 7(b))
For eligible applicants, small businesses with 500 or fewer employees, sole proprietors, and independent contractors, the CARES Act makes changes to the SBA Disaster Loan program by waiving: 1) rules related to personal guarantees on loans of up to $200,000, 2) the 1 year in business requirement and 3) the requirement that an applicant is unable to find credit elsewhere; and allows lenders to approve applicants based solely on credit scores or other appropriate methods to determine ability to repay.

Applicants can request an emergency advance of up to $10,000 which does not have to be repaid, even if the loan is later denied. Advances are to be awarded within three days of application.

Forgivable Loans under SBA 7(a) Payroll Protection Program
For small businesses, one of the more important sections of the CARES Act is the Paycheck Protection Program. This program gives the SBA the ability to guarantee $350 billion in loans to small businesses via a network of more than 800 banks. The program provides eight weeks of cash-flow assistance to small businesses with 500 employees or fewer, and administration will be handled by banks. Businesses would be well advised to communicate with their lending institutions soon, and all qualifying businesses are eligible without regard to entity type, including sole proprietors and independent contractors.

The low-interest loans are meant to cover payroll costs, paid sick leave, employee salaries, health-insurance premiums, utilities, and rent or mortgage payments. The maximum loan amount is $10 million, maximum maturity is 10 years, and the interest rate on the loans can’t surpass 4%. There is $17 billion available to cover six months of payments for small businesses already using SBA loans. Requirements and further details:

  • A borrower can get an SBA 7(a) forgivable loan and add the outstanding amount of a loan made under the SBA’s Disaster Loan Program (SBA 7(b)) between January 31, 2020, and the date on which such loan may be refinanced as part of this new program.
  • Increased eligibility is eligible for certain small businesses that employ less than 500 employees per physical location of the business. Generally speaking, this provision applies to accommodation and foodservice businesses.
  • Loans are calculated on a formula of the average monthly payroll costs times 2.5 plus any outstanding amount made under the SBA’s disaster loan program as referenced above.
  • SBA will waive the guarantee fee required for a 7(a) loan.
  • SBA will eliminate the requirement that a small business concern is unable to obtain credit elsewhere.
  • A good faith certification from the eligible recipient will be required, stating that the uncertainty of the economic conditions make the loan request necessary to support the ongoing operations of the recipient, acknowledge that the funds will be used to retain workers and maintain a pre-crisis level of full-time equivalent employees or make mortgage payments, lease payments and utility payments.
  • The new program provides a process to allow borrowers to be eligible for loan forgiveness in the amount equal to their payroll costs, health benefits, the interest portion of mortgage payments, rent and utility costs during the 8-week period that begins on the origination date of the 7(a) loan.
  • The amount of debt forgiveness will be reduced proportionally by the number of employees laid off during this time. Any staffing reductions made after February 15, 2020, that are remedied no later than June 30, 2020, shall not impact the amount forgiven.
  • Any amount forgiven shall be excluded from gross income. For most borrowers, these provisions will convert the loan into a tax-free grant upon certification of the incurred costs.

Employee Retention Credit

  • A 50 percent employee retention payroll tax credit for wages paid to employees during the COVID-19 emergency. The fully refundable credit would be available to any business or non-profit that has a furloughed or reduced workforce as a result of forced closure due to a federal, state or local government directive or as a result of quarantining of employees. The credit would also be available to any business that has seen a 50 percent drop in gross receipts.
  • The credit is equal to 50% of “qualified wages,” which includes both actual wages paid plus qualified health plan expenses allocable to those wages.  However, the credit ceases when qualified wages exceed $10,000 per employee.  The maximum credit per employee then is $5,000.
  • The Treasury Department would provide advance payments to get money to businesses more quickly.
  • A special rule applies to eligible small employers (those with 100 employees or less) that provides a 50 percent credit for all wages paid, regardless of whether employees are furloughed or not.
  • The credit would be available to businesses that do not receive the 7(a) payroll protection Small Business Administration loan described above. Business owners would be able to choose whether that SBA loan or employee retention credit is better suited to their situation. Disaster loans under 7(b) are still able to be received in conjunction with the credit.

Delayed Payment of Employer Payroll Tax and Self-Employment Tax
For those businesses who do not receive a 7(a) payroll protection loan from the SBA, a delay of employer Social Security tax (6.2%) and one-half of the self-employment tax (6.2%) is available. Payments that would have been due from the date of the law’s enactment through December 31, 2020, are delayed and split into two equal payments due December 31, 2021, and December 31, 2022.

Net Operating Losses
Firms may take net operating losses (NOLs) earned in 2018, 2019, or 2020 and carry back those losses five years. The NOL limit of 80 percent of taxable income is also suspended, so firms may use NOLs they have to fully offset their taxable income. The Act also modifies loss limitations for non-corporate taxpayers, including rules governing excess farm losses, and makes a technical correction to the treatment of NOLs for the 2017 and 2018 tax years.

Alternative Minimum Tax (AMT)
Firms with tax credit carryforwards and previous alternative minimum tax (AMT) liability can claim larger refundable tax credits than they otherwise could.

Qualified Improvement Property
The CARES act contains a technical correction to a drafting error within the Tax Cuts and Jobs Act (TCJA). This correction changes the life of Qualified Improvement Property (QIP) from 39 years to 15 years and now eligible for 100% bonus depreciation, or immediate expenses. This retroactive for 2018 tax years. This is a substantial retroactive change for any business that had these additions.

Net Interest Deduction
Currently, this limits businesses’ ability to deduct interest paid on their tax returns to 30 percent of earnings before interest, tax, depreciation, and amortization (EBITDA). The Act expands it to 50 percent of EBITDA for 2019 and 2020. This will help businesses increase liquidity if they have debt or must take on more debt during the crisis.

Key Provisions for Individuals

Recovery Rebate Checks
Most single individuals earning less than $75,000 can expect a one-time cash payment of $1,200, with “earning” defined as adjusted gross income. Married couples would each receive a check for $1,200 ($2,400 in total) and families would get $500 per child. That means a family of four earning less than $150,000 can expect a total payment of $3,400. The checks start to “phase down” in amount and disappear completely for single individuals with no children making more than $99,000 and couples without children making more than $198,000. A married couple with two children wouldn’t lose all of their payment until their adjusted gross income exceeded $218,000. The cash payments are based on either your 2018 or 2019 tax filings. People who receive Social Security benefits but don’t file a tax return are still eligible, too.

Extended Unemployment Program
Major changes have been made to unemployment assistance, increasing the benefits and broadening who is eligible. States will continue to pay unemployment to people who qualify. That amount varies state by state. So does the amount of time people can claim it. The Act adds $600 per week from the federal government on top of whatever base amount a worker receives from the state, without a cap based on what the worker actually earned prior to unemployment (meaning an unemployed individual could receive more on unemployment than they earned while working). That boosted payment will last for 4 months. In addition, a new, temporary Pandemic Unemployment Assistance program has been created through the end of this year to help people who lose work as a direct result of the public health emergency. This is designed to aid contractors and freelancers who typically are unable to apply for unemployment.

Retirement Relief
There are several provisions to help individuals who experience financial hardships and disruptions due to COVID-19 to access their own money without penalty. Taxpayers can now take a “coronavirus-related distribution” of up to $100,000 in the year 2020, free from penalty, from their retirement account. Amounts distributed may be repaid at any time over the 3-year period commencing on the date of the distribution. To the extent that amounts are not repaid, the income inclusion can be made ratably over three taxable years beginning with the year of the distribution. Plan participants should very carefully consider whether the use of this provision is in their best interest, particularly considering that a distribution would occur while retirement plan assets are likely at low market valuations. Plan sponsors will need to review plan documents to ensure that their hardship provisions are up-to-date and will allow for emergency withdrawals by individual participants.

In addition, there is a temporary elimination of required minimum distributions. By waiving the required minimum distributions from retirement accounts for individuals who are 72 and older, the CARES Act provides the opportunity for individuals who do not need their money now to hopefully recoup some of what they’ve lost when the markets recover.

Charitable Contributions
The CARES Act encourages individuals to contribute to churches and charitable organizations in 2020 by allowing a deduction of up to $300 of cash contributions regardless of whether they itemize deductions or not.

Student Loans
The Act allows student-loan borrowers to take a 6-month break from making payments on their federally backed student loans. Until Sept. 30, borrowers will not be penalized for late payments. If your employer pays student loans as an employee benefit, they can now provide up to $5,250 in tax-free student loan repayment benefits. That means an employer could contribute to loan payments and workers wouldn’t have to include that money as income. Finally, the Act also stops the involuntary collection of student loan debt during this period, including the garnishment of wages, tax refunds, and Social Security benefits.

Health Savings Accounts
Users of health savings accounts or flexible spending accounts will be able to use funds to cover over-the-counter medical products.

Delayed Tax Filings
Individuals have three additional months to file their taxes, with the April 15 deadline pushed back to July 15. No payments are required until July 15, 2020. Individuals who expect refunds would be wise to file quickly, without regard to the July 15 deadline.

Categories: Other Resources, Tax Compliance, Tax Planning

Employers Can Provide Tax-Free Qualified Disaster Payments To Employees

Mar 24, 2020

Employers are scrambling to find ways to help their employees who are impacted by the novel coronavirus (COVID-19). Help is available. Now that the COVID-19 has been declared a national emergency,[1] Internal Revenue Code Section 139 can be used to allow employers to make tax-free payments or reimbursements to employees as “qualified disaster payments.” Below are some frequently asked questions about how employers can use Section 139 immediately to help employees cope with COVID-19.

Q1: What is a “qualified disaster payment”?
A1: Qualified disaster payments are payments that are not otherwise reimbursed by insurance made by an employer to an employee that are reasonably expected by the employer to:

  • Reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster; and
  • Reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence or repair or replacement of its contents to the extent that the need for such repair, rehabilitation, or replacement is attributable to a qualified disaster.

The payments should not include non-essential, luxury, or decorative items or services.

Insight

Wage replacement (such as paid sick or other leave) would not be covered by Section 139, so such payments would still be taxable wages and would remain subject to income and payroll tax withholding and reporting.

Q2: What expenses might be considered to be eligible as a qualified disaster payment with respect to COVID-19?
A2: With respect to COVID-19 circumstances, it appears that employers can pay for, reimburse, or provide in-kind benefits reasonably believed by the employer to result from the COVID-19 national emergency that are not covered by insurance. For example, it appears that employers could pay for, reimburse or provide employees with tax-free payments for over-the-counter medications, hand sanitizers, home disinfectant supplies, child care or tutoring due to school closings, work-from-home expenses (like setting up a home office, increased utilities expense, higher internet costs, printer, cell phone, etc.), increased costs from unreimbursed health-related expenses and increased transportation costs due to work relocation (such as taking a taxi or ride-sharing service from home instead of using public mass transit).

Q3: What is the federal tax treatment of qualified disaster payments?
A3: Qualified disaster payments are federal tax-free to employees and are fully deductible to the employer. Such payments are not considered “gifts.” There is no federal reporting or disclosure, so such payments are not reported on Form W-2 or 1099 and are not subject to federal income or payroll tax withholding.

Q4: What is the state tax treatment of qualified disaster payments?
A4: Generally, state treatment for income tax withholding purposes will mirror the federal treatment of qualified disaster relief payments. That is, states generally exclude qualified disaster relief payments from the definition of wages for state income tax withholding purposes, either expressly or by applying the federal definition of “wages” for state income tax withholding purposes. However, qualified disaster relief payments may still be considered “wages” for purposes of state unemployment insurance tax. Employers should determine on a state-by-state basis whether certain income tax withholding and/or unemployment insurance tax contribution obligations may arise in connection with such payments.

Q5: Is there a cap on how much an employer can provide to an employee as a qualified disaster payment?
A5: No. Section 139 does not impose any limit on the amount or frequency of qualified disaster payments that an employer can make to any individual employee or to all employees in the aggregate.

Q6: Must employers have a written plan to make qualified disaster payments to employees?
A6: No. Employers are not required to have a written program for qualified disaster payments. But having such a program is recommended, so employers can inform employees about the parameters of the employer’s program in the COVID-19 context. Such a program might include a description of who is eligible, what expenses will be reimbursed (perhaps up to a “per employee” maximum), how and when payments will be made, etc.

Q7: Are employees required to substantiate their expenses to prove that they are eligible for qualified disaster payment treatment?
A7: No. Employees are not required to provide receipts or other proof supporting their expenses. However, employers could require such proof as part of its written program, perhaps using rules similar to the long-standing IRS “accountable plan” rules.

[1] COVID-19, was designated as an emergency under the Stafford Act on March 13, 2020. Although there is some debate over the legal technicalities of that declaration, it appears that Section 139 relief has been triggered. Specifically, Rev. Rul. 2003-29 says that for Section 165(i) (which is cross-referenced in Section 139), an “emergency” is treated as a “disaster.” In addition, an IRS Chief Counsel Memorandum dated June 28, 2019, states “A Federally declared disaster includes a major disaster declaration under section 401 of the Stafford Act and an emergency declaration under section 501 of the Stafford Act.”

Categories: Other Resources