To our Valued Clients and Friends,

As you know, President Trump signed the CARES Act (Coronavirus Aid Relief and Economic Security) on Friday afternoon. The CARES Act provides significant relief in terms of financial assistance to nonprofits, businesses, and individuals, among others. Highlights of the $2 trillion package and previous legislation that affects business owners are below.

Click on any item listed here for quick access:

Support for Individuals

For more information on each of these items, see below or click on the item to go directly to that chapter. A summary of the full act can be FOUND HERE. We will continue to monitor the impact of this bill and other regulatory changes, and will keep you updated.

If you have any questions about any of these areas or anything we did not cover fully, please feel free to call any of your Abacus CPAs contacts. We are still working for you during this uncertain time and would happy to help you any way we can!

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SUPPORT FOR INDIVIDUALS

DIRECT PAYMENT TO TAXPAYERS:

Each U.S. resident with adjusted gross income up to $75,000 ($150,000 for married persons), who is not dependent on another taxpayer, and has a work-eligible social security number, is eligible for the $1,200 ($2,400 married) rebate. The recovery rebate amount is increased by $500 for each dependent child. The recovery rebate is available to those with no income, and those whose income is derived from non-taxable means-tested benefit programs (i.e., SSI).

Generally, Americans will need to take no action to receive a rebate check. The IRS will use a taxpayer’s 2019 tax return, if filed, or alternatively, a 2018 tax return (or alternatively still, a Social Security Benefit Statement or Equivalent Benefit Statement, in the case of 2018 first-year filers). The recovery rebate includes many low-income individuals who file a tax return to claim the refundable Earned Income Tax Credit and Child Tax Credit.

The rebate amount is reduced by $5 for each $100 that a taxpayer’s income exceeds the phase-out threshold. The amount is completely phased-out for single filers with incomes exceeding $99,000, and for joint filers with incomes exceeding $198,000.

Within 15 days of the recovery rebate distribution, the Secretary will send notice to a taxpayer’s last known address to confirm receipt and include an IRS point of contact in case the payment was not received.

EXPANDED UNEMPLOYMENT:

Individuals qualifying for unemployment will get an extra $600 per week for up to four months, on top of state unemployment benefits. Unemployment claims are also climbing by the tens of thousands every day in states across the country, and congressional negotiators acknowledge that benefits may need yet another boost through additional relief packages. In some circumstances, the additional unemployment benefit may mean that individuals make more money on unemployment than they made employed.

WAIVER OF PENALTIES FOR EARLY DISTRIBUTIONS

Consistent with previous disaster-related relief, this proposal waives the 10-percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after January 1, 2020. In addition, income attributable to such distributions would be subject to tax over three years, and the taxpayer may recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions. Further, this provision provides flexibility for loans from certain retirement plans for coronavirus-related relief.

A coronavirus-related distribution is a distribution made to an individual: (1) who is diagnosed with the virus SARS-CoV-2 or with the coronavirus disease COVID-19, (2) whose spouse or dependent is diagnosed with SARS-CoV-2 or COVID-19, or (3) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to SARS-CoV-2 or COVID-19, closing or reducing hours of a business owned or operated by the individual due to SARS-CoV-2 or COVID-19, or other factors as determined by the Treasury Secretary.

EXPANSION OF TAX DEDUCTIONS FOR CHARITY

This provision increases the limitation on charitable contribution deductions. For corporations, the “10-percent of taxable income” limitation is increased to “25-percent of taxable income” for the 2020 tax year. Additionally, the limitation on deductions for contributions of food inventory is increased, from a 15-percent limitation to a 25-percent limitation.

SUPPORT FOR BUSINESSES

RETAINING PAYROLL TAX CREDIT:

Businesses will get a tax credit for keeping idled workers on their payrolls during the coronavirus pandemic, so long as the businesses meet certain criteria. They will get a refund for half of what they spend on wages, up to $5,000 per worker. To qualify, businesses have to prove they took a 50 percent loss compared to the same quarter in years past. And to keep companies from double-dipping on aid under the bill, employers won’t be able to get special SBA loans if they opt for the tax credit.

The act establishes new loans to help employers continue to cover payroll costs and other expenses during the coronavirus crisis. The loans will be administered by the Small Business Administration and cover expenses from Feb. 15 through June 30. The loans may be used for payroll costs, healthcare, rent, utilities and other debts incurred by the business. The definition of “payroll costs” excludes leave payments made under the new Families First Coronavirus Response Act (FFCRA). Reimbursement for those leave payments will be provide through tax credits.

PAID-LEAVE MANDATE

On March 18, Trump signed into law the FFCRA (H.R. 6201). This Act includes many provisions which apply to employers, such as paid sick leave for employees impacted by COVID-19 and those serving as caregivers for individuals with COVID-19. While the Act also contains several provisions to increase funding for familiar benefit programs, like WIC and SNAP, this section summarizes the key benefit provisions of the Act which affect employers.

There are two provisions providing paid leave to employees forced to miss work because of the COVID-19 outbreak: an emergency expansion of the Family Medical Leave Act (FMLA) and a new federal paid sick leave law.

Emergency Family and Medical Leave Expansion Act

  • Expanded Coverage and Eligibility – The Act significantly amends and expands FMLA on a temporary basis. The current employee threshold for FMLA coverage would change from only covering employers with 50 or more employees to instead covering those employers with fewer than 500 employees. It also lowers the eligibility requirement such that any employee who has worked for the employer for at least 30 days prior to the designated leave may be eligible to receive paid family and medical leave. As a result, thousands of employers not previously subject to the FMLA may be required to provide job-protected leave to employees for a COVID-19 coronavirus-designated reason. However, the Act now includes language allowing the Secretary of Labor to exclude healthcare providers and emergency responders from the definition of employees who are allowed to take such leave, and to exempt small businesses with fewer than 50 employees if the required leave would jeopardize the viability of their business. The Act also provides an exception for employers of healthcare providers or emergency responders to exempt such employees at their election.
  • Reasons for Emergency Leave – Any individual employed by the employer for at least 30 days (before the first day of leave) may take up to 12 weeks of job-protected leave to allow an employee, who is unable to work or telework, to care for the employee’s child (under 18 years of age) if the child’s school or place of care is closed or the childcare provider is unavailable due to a public health emergency. This is now the only qualifying need for Emergency FMLA and a significant change from the prior version of the bill passed by the House over the weekend, which contained several other COVID-19-related reasons to provide Emergency FMLA.
  • Paid Leave – Another big change from the prior version passed from the House is the reduction of the unpaid period of Emergency FMLA. Now, the first 10 days (rather than 14 days) of Emergency FMLA may be unpaid. During this 10-day period, an employee may elect to substitute any accrued paid leave (like vacation or sick leave) to cover some or all of the 10-day unpaid period. After the 10-day period, the employer generally must pay full-time employees at two-thirds the employee’s regular rate for the number of hours the employee would otherwise be normally scheduled. The new Act now limits this pay entitlement to $200 per day and $10,000 in the aggregate per employee.
  • Calculating Pay for Non-Full Time Employees – Employees who work a part-time or irregular schedule are entitled to be paid based on the average number of hours the employee worked for the six months prior to taking Emergency FMLA. Employees who have worked for less than six months prior to leave are entitled to the employee’s reasonable expectation at hiring of the average number of hours the employee would normally be scheduled to work.
  • Job Restoration – Employers with 25 or more employees will have the same obligation as under traditional FMLA to return any employee who has taken Emergency FMLA to the same or equivalent position upon the return to work. However, employers with fewer than 25 employees are generally excluded from this requirement if the employee’s position no longer exists following the Emergency FMLA leave due to an economic downtown or other circumstances caused by a public health emergency during the period of Emergency FMLA. This exclusion is subject to the employer making reasonable attempts to return the employee to an equivalent position and requires an employer to make efforts to return the employee to work for up to a year following the employee’s leave.

Emergency Paid Sick Leave Act

Reasons for Paid Sick Leave – This Act allows an eligible employee to take paid sick leave because the employee is:

  1. subject to a federal, state or local quarantine or isolation order related to COVID-19;
  2. advised by a health care provider to self-quarantine due to COVID-19 concerns;
  3. experiencing COVID-19 symptoms and seeking medical diagnosis;
  4. caring for an individual subject to a federal, state or local quarantine or isolation order or advised by a health care provider to self-quarantine due to COVID-19 concerns;
  5. caring for the employee’s child if the child’s school or place of care is closed or the child’s care provider is unavailable due to public health emergency; or
  6. 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.

Of note, caring for another who is subject to an isolation order or advised to self-quarantine as described above is not just limited to family members.

Eligibility – This provision requires employers with fewer than 500 employees to provide full-time employees (regardless of the employee’s duration of employment prior to leave) with 80 hours of paid sick leave at the employee’s regular rate (or two-thirds the employee’s regular rate to care for qualifying reasons 4, 5, or 6 listed above). This section provides an exception for employers of healthcare providers or emergency responders to exempt such employees at their election. Like for the Emergency Family and Medical Leave Expansion Act (see above), the Secretary of Labor was given authority to exclude certain businesses from these requirements.

Cap on Paid Sick Leave Wages – This Act places limits on paid sick leave. Specifically, paid sick leave wages are limited to $511 per day up to $5,110 total per employee for their own use and to $200 per day up to $2,000 total to care for others and any other substantially similar condition.

Carryover and Interaction with Other Paid Leave – This paid sick leave will not carry over to the following year and may be in addition to any paid sick leave currently provided by employers.

Calculating Rate of Pay – Employees who work a part-time or irregular schedule are entitled to be paid based on the average number of hours the employee worked for the six months prior to taking paid sick leave. Employees who have worked for less than six months prior to leave are entitled to the average number of hours the employee would normally be scheduled to work over a two-week period. A business employing fewer than 500 employees is required, at the request of the employee, to pay a full-time employee for 80 hours of mandated emergency paid sick leave instead of the initial 10 days of unpaid leave permitted by the Emergency Family and Medical Leave Expansion Act (summarized above).

DEFERRAL OF SPECIFIC EMPLOYER PAYMENTS ON PAYROLL TAXES

Businesses may defer the 6.2 percent tax they pay on wages that is used to fund Social Security. The deferred tax would have to be paid over the following two years: half by Dec. 31, 2021, and the other half by Dec. 31, 2022.

Additional Guidance Specific to Retailers, Restaurants, Hotels, Farmers and Ranchers

Retailers, restaurateurs and hotels will be able to immediately deduct from their taxes what they spend on property improvements. They were supposed to get the write-off in the 2017 tax overhaul, but a glitch actually made them worse off. While the fix will help by letting businesses file amended refunds from prior years, it isn’t enough on its own to dig out those industries, which are among the hardest hit by mandatory shutdowns and social distancing directives.

For farmers and ranchers, nearly $24 billion, including $14 billion for an obscure Depression-era financial institution that USDA has wide discretion to use to stabilize the farm economy. Another $9.5 billion would be set aside for emergency aid for the agriculture sector, including cattle ranchers and fresh fruit and vegetable growers. More aid might be on the way. Republican senators from major cattle producing states, like Sen. John Hoeven (R-N.D.), initially sought to replenish the Depression-era program with $20 billion, as well as increase USDA’s borrowing authority from the institution to $50 billion.

MODIFICATION OF NET OPERATING LOSS (NOL) and LIMITATION ON LOSSES RULE

Act provides that NOLs arising in a tax year beginning after December 31, 2018 and before January 1, 2021 can be carried back to each of the five tax years preceding the tax year of such loss. It temporarily removes the taxable income limitation to allow an NOL to fully offset income. It will also temporarily modify the loss limitation for non-corporate taxpayers so they can deduct excess business losses arising in 2018, 2019, and 2020.

The Act temporarily and retroactively increases the limitation on the deductibility of interest expense under Code Sec. 163(j)(1) from 30% to 50% for tax years beginning in 2019 and 2020.

MODIFICATION OF THE EXCESS BUSINESS LOSS RULE

This provision temporarily suspends the “excess business loss” limitation that limits current losses attributable to trades or businesses for non-corporate taxpayers to $250,000 ($500,000 in the case of joint filers), so they can benefit from the NOL carry-back rules described above.

EXPANSION OF SBA PROGRAMS AND ASSISTANCE TO SMALL BUSINESS

If your business has been negatively affected by the shutdown, there are two options for SBA Loans. Please call us so we can help you make the decision of which option will be best for you.

SBA Paycheck Protection Program

The Paycheck Protection Program is the newest SBA loan program made law on March 27th. Unlike the Economic Injury Disaster Loan program, these will be made by SBA approved lenders. Please let us know if we can help you through this process with a lender. The original SBA Loan program that was announced, The Economic Injury Disaster Program, and application, can be found below.

The Paycheck Protection Program includes loan forgiveness provisions, that the other does not. In this program, you can refinance previous SBA loans. You can borrow a maximum of $10 million or your average monthly payroll from the previous year times 2.5 plus other approved refinancing, which ever is the less. The interest rate will be maxed at 4%. SBA lending fees will be waived and they are not requiring collateral.

To be eligible for forgiveness in this program, the money must be spent in the first 8 weeks after the loan is approved. The funds must be spent on payroll, interest on mortgage payments, rent and utility payments. Forgiven amounts are not included as taxable income. There are other provisions to qualify for forgiveness that we can help talk through with you and the lender.

Deadline to apply is June 30, 2020. Please keep in mind that you cannot combine this and the 50% tax credit.

SBA Economic Injury Disaster Loan Program

The program provides low-interest rate loans for working capital to businesses suffering economic injury from COVID-19. The program will loan up to $2 million for up to 30 years, based on the borrower’s ability to repay. SBA says these loans will be based on the borrower’s needs and not lost sales. You will not actually enter a loan amount. You will enter your financials, including potential losses, and the SBA will calculate the loan amount for you. Rates are 3.75% for for-profit businesses and 2.75% for non-profit businesses. This product is a line of credit that can be advanced and paid back as the business sees fit.

We believe the SBA will be underwriting loans differently based on size, credit score, and the borrowers need. Reportedly, loans of $25,000 or less will be processed very promptly and funds disbursed within 30 days. Loans of up to $500,000 will be turned quickly, assuming adequate credit scores (mid-600’s+) and the amount requested does not exceed half of the borrower’s annual revenue. Requests that do not meet these conditions will be underwritten as usual and take longer to process. Banks may be able to give you a bridge loans to borrowers to be paid off with Disaster Funds.

Churches, farmers/ranchers, marijuana businesses and sole proprietorships do not quality. All other industries qualify if they meet the SBA size restrictions and aren’t too large. This link will get you to their Size Standards table: https://www.sba.gov/document/support–table-size-standards

To apply, click the SBA LOAN APPLICATION BUTTON BELOW. Fill out the application then go to sba.gov, create and account and upload your application.

APPLICATION DOWLOAD

To stay in compliance, please download and print the Employee Rights poster and display it in an employee area with your other employee rights posters.

POSTER DOWLOAD

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