The COVID Sick leave credit that is a often overlooked item during this pandemic.
Employers can claim a credit for up to 80 hours of time while an employee is quarantined (100% of regular pay) or has a family member quarantined (2/3 of regular pay). Included is gross payroll, the employers share of Medicare tax plus health insurance paid. For more information about the credit, go to .
If you have any questions, please feel free to contact one of our CPA's for more information.
Wednesday, June 17th, we aired a webinar to show you how to document forgiveness for the PPP loan. To get a copy of the slides, click here.
Did you miss the webinar? You can watch the webinar below.
The SBA just released today (June 16th) a new forgiveness application. Click this link to get the new application!
The forgiveness applications are in the middle of the page and include a full application plus an EZ application.
If you would like to watch the webinar regarding PPP 101 - including the changes as signed into law on June 5th, feel free to watch here!
Would you like to see how the PPP forgiveness application works?
Click here to download the spreadsheet.
*Note this spreadsheet is prepared with the SBA forgiveness application as released May 16, 2020. No changes have been made for recent law changes.
In guidance issued May 3, 2020, the Treasury department posted FAQ 40 which states as follows:
40. Question: Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?
Answer: No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.
With this guidance, I believe the Treasury department mentioned a few things that need to be done.
Offers to rehire employees should be done in writing - When an employer is ready to call an employee back to work, this should be done in writing either by email or formal letter. The letter should include at a minimum the date of the rehire request, the date the employee is to start back to work, and the need to respond to the rehire request in writing.
In good faith - The employer doing the rehire request should make the request in good faith. This likely means that rehire requests made at the last moment on the last day that rehires are allowed to be made, will not be allowed in good faith unless there is a valid business reason for doing so.
If you have any questions on this or other items related to PPP forgiveness, please see the FAQ's at https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf or contact our office.
After you received your PPP loan you may have a few more questions on what to do next. Here are a few items to consider:
How can you use loan proceeds?
The 8 week period to determine the amount of the forgiveness begins on the date the lender makes the first disbursement of the loan. The following are acceptable uses of the PPP funds:
· Payroll costs for your employees, whether they’re able to work or not – For example, your business may be unable to open due to government restrictions. But if you continue to pay your workers, those costs are included in the eligible payroll costs. – This can include employee benefits for vacation, sick leave, health care benefits including insurance premiums and retirement benefits.
· Interest on mortgage loans
· Rent obligated under a leasing agreement in force before February 15, 2020.
· Utilities including payment for a service for the distribution of electricity, gas, water, transportation, telephone or internet access for which service began before February 15, 2020.
· Interest payments on other debt (incurred before Feb. 15, 2020)
· Refinancing an SBA EIDL loan made between Jan. 31 and April 3, 2020
How much of the loan will be forgiven?
The goal of this program is to keep employees paid during the eight weeks beginning with the date of your loan. Any reduction in the number of employees or the wages you paid affects the forgiveness of the loan. The amount that is forgiven is the amount spent on the costs incurred as outlined in the previous section “How can you use loan proceeds?”
However, if there is any reduction in the number of full-time employees or a decrease in wages paid by more than 25%, the loan forgiveness is reduced. Here’s a closer look at what triggers a reduction in the forgiveness:
· If you decrease salaries and wages by more than 25% for any employee who made less than $100,000 annualized in 2019, your loan forgiveness will be reduced.
· If the number of Full Time Equivalents (FTEs) decreases, the forgiveness will be reduced.
· At least 75% of the loan proceeds must be used for payroll costs.
To request the loan forgiveness, you’ll submit a request to the lender that is servicing the loan. That request will include documentation on payroll and other expenses. Don’t worry — we can provide a calculation worksheet to help with this.
Have you already laid off employees or cut pay? The loan amount can still be forgiven for the full amount of your payroll cost if you rehire your employees by June 30, 2020 and restore your FTEs and wage levels for any changes made between Feb. 15 and April 26, 2020.
Is the forgiveness of the loan taxable income?
No, the forgiveness of the loan does not constitute taxable income.
Are these expenses tax deductible if the loan is ultimately forgiven?
More guidance is needed on the treatment of the expenses related to the forgiveness portion of the loans. Based on what is known at this time, there is no specific provision in the CARES Act that makes these expenses nondeductible.
Please feel free to contact us if you have any questions regarding the PPP or any other COVID-19 issues.
Here is information on the SBA loans that are available to help small businesses during this time. There are two loans options available to businesses (that you must ultimately choose between).
PAYCHECK PROTECTION LOAN (“PPP”) – This loan is 100% guaranteed to be given based off 2.5 times average payroll from Feb/March 2019 to June 2019 (up to $10 million in loans).
This is forgiven (no payback required) when used to cover payroll costs, interest of mortgages, rent and utility payments.
There could be a reduction in the forgiveness based on reduced employees/salaries. There is also some risk of it not being forgiven because the forgiveness funds could run out.
This loan can be obtained from SBA lenders (banks).
SBA DISASTER ASSISTANCE LOANS - Since early March, this offering has been extended to small businesses across the nation that have had significant losses due to the coronavirus pandemic.
These loans have a 3.75% interest rate for small businesses and a 2.75% rate for nonprofits, and are usually capped at $2 million.
This loan is applied for on the SBA website and decisions come back usually in around 21 days. The application is at https://covid19relief.sba.gov/#/
The tax return and a personal financial statement needs done to apply for this loan.
We’ve been told by some banks that they suggest applying for the Disaster Assistance loan and then applying for the PPP loan when it’s available (in the end you’ll have to choose one). Then you can choose which loan program to go with after all the information is known.
Dear Clients and Friends,
Because of the coronavirus COVID-19 pandemic, McLain, Hill, Rugg and Associates Inc. is taking every precaution to ensure the health and safety of our employees, clients, families, and overall communities. We understand that this is an unpredictable situation that needs everyone’s cooperation.
At this time, our offices remain open, but out of abundance of caution, we’ve suspended all in -person face to face meetings until further notice. Please be assured that we are taking proactive steps to ensure that you experience the same high level of service and support via phone and email. Please do not hesitate to call us or contact your CPA by email, directly.
Please be advised that the tax filing due date for 2019 federal tax return and payments has been extended until July 15, 2020. We expect the same relief from the state of Ohio and cities.
As always, we value our relationships, and trust that you, your family, and fiends will stay safe and healthy.
McLain, Hill, Rugg & Associates, Inc.
A charitable organization is having a fundraising event and your business wants to support it. As has typically been the case, the business buys two tickets to the event for $100 each, attend the event and have a great time. Prior to the recent tax reform, the business would typically expense the $200 tickets as meals and entertainment and the expense would be 50% deductible or would call the tickets charitable contributions and get the deduction for the charitable contribution and should have reduced the amount of the contribution by the value of any goods or services received.
What would happen if the business thinks a lot of the charity and wants to sponsor the event? So instead of buying tickets, they sponsor the event for $1,000. In this case, if the business is listed on all tickets and the logo is included in printed material, the sponsorship is likely considered advertising (with an amount that should be allocated to meals). However, if the $1,000 gets the business listed as a ‘Platinum Donor’ on the printed material and no other advertising was done, the IRS could consider this a charitable contribution and not advertising.
If the business is a C corporation, the contributions are limited to 10% of taxable income, but advertising has no limitation. Therefore, if the C corporation has no income, they do not get to deduct charitable contributions in the current tax year but would get to deduct advertising.
If the business is a self-employed business or pass through entity, the income and deductions are picked up on the individual owner’s form 1040. Starting in 2018, the Tax Cuts and Jobs Act doubled the amount of standard deductions to $12,000 for individuals and $24,000 for married couples. With this increase, taxpayers are less likely to itemize and take deductions for charitable contributions starting in 2018 until the tax cuts expire in 2025. Also, if the business is a self-employed business, the taxpayer would also save on FICA taxes (social security and Medicare) by the sponsorship being considered advertising.
So, with all this said, does it matter if the sponsorship is considered advertising or charitable contribution? The answer is likely YES. A taxpayer will likely receive more tax benefit for advertising dollars than charitable contribution dollars.
For more information, feel free to contact one of our offices for more information.
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