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04/10/2020 – See our latest updates on tax filing and the CARES Act

Over the last few weeks, we’ve all been watching and feeling huge amounts of change and disruption due to the coronavirus (COVID-19) pandemic.

If you’re a small business owner, these changes not only affect your own life, but also the lives of your employees and their families.

At Kregel & Company, our aim is to provide opportunity, peace of mind, and inspiration. That mission not only includes delivering accounting and tax services, but also helping you navigate difficult times like these so you can move from where you are today to where you want to be in the future. In our minds, that’s success.

While the path to success is rarely a straight line, recent events have presented obstacles few of us ever anticipated. Fortunately, new COVID-19 relief programs have been put together to alleviate some of the stress. We’re here to help you stay up to date on these programs, understand if and how you could benefit from them, and move forward toward your goals.

Right now, we’re all being called upon to think clearly and then act correctly amid a flood of new information and emotions. Our team is here to help you do exactly that.

With that, let’s dive into the latest COVID-19 resources.

The Families First Coronavirus Response Act (FFCRA)

Last week, we shared an update with you about the Families First Coronavirus Response Act (FFCRA), which includes components for Emergency Paid Sick Leave (EPSLA) and the Emergency Family and Medical Leave Expansion Act (EFMLEA). Now, we’ve created a simple flow chart to help you understand if and how FFCRA impacts owners and employees of small businesses.

Keep in mind that this new law applies to businesses with less than 500 employees. Businesses are required to post this notice in their place of work. For small businesses with less than 50 employees, the Department of Labor (DOL) provides for an exemption when providing these sick pay benefits would jeopardize the ongoing business viability of your company. The DOL instructs these small business to document their reasons for the exemption and look for more details coming later from the department.

VIEW FFCRA FLOWCHART

The Coronavirus Aid Relief and Economic Security (CARES) Act

The CARES Act was signed into law on Friday, March 27, 2020. There are hundreds of billions of dollars going in a number of different directions. Below are the most relevant ones for small businesses and individuals.

Paycheck Protection Program (PPP) Loans

Overview

  • PPP loans include a loan forgiveness aspect to cover up to eight weeks of eligible expenses (payroll, employee benefits, rent, utilities, and loan interest).
  • The loan amount is equal to 2.5 times your average monthly eligible expenses from March 1, 2019 – February 29, 2020.
  • Interest rate = not more than 4%
  • No loan repayments required until 6 months from the loan issue date.
  • No personal guarantees or collateral required by the business owner.
  • No SBA or local lender loan fees, and no prepayment penalties if you choose to pay down the loan early.

Eligibility

  • Businesses and non-profits that have fewer than 500 employees and eligible expenses incurred before February 15, 2020. (Venture-backed businesses are expected to be included as well.)
  • Businesses and non-profits with eligible expenses from February 15, 2020 – June 30, 2020.
  • Business must be impacted by COVID-19.

Next Steps

  • Over the next two weeks, begin building your baseline eligible expenses for March 1, 2019 – February 29, 2020. (We have a spreadsheet to help capture this important information. Email hello@kregel-cpa.com to request a copy. For each item contained in the spreadsheet, you will also want to include documentation verifying the number of employees, payroll reports, receipts for lease payments, utilities, and loan interest payments.)
  • Identify the local lender through whom you will apply for the SBA PPP loan. Get on their distribution list to learn when they’re ready to accept your application.
  • If you laid off any employees, you may want to consider re-hiring them since the loan forgiveness aspect of the PPP loan is designed to max out the forgiveness feature based on the number of full-time equivalent employees (FTEs) for an eight-week period during February 15 – June 30, 2020, compared with the average FTE during the 12-month period of March 1, 2019 – February 29, 2020. The higher this percentage, the higher the loan forgiveness amount.

VIEW FAQ ABOUT CARES

Unemployment benefits

Many employers have had or will have to make the difficult decision to terminate or furlough employees. As a matter of practicality and shared experience, we’ve seen where business owners have chosen to furlough employees for a period of time (up to four weeks) while maintaining the employees’ health insurance and preserving their already earned paid time off.

When a business chooses furloughs over termination, the employer is not required to pay out earned vacation or terminate health insurance coverage. Employees can then work through their state unemployment compensation claim processes. For Pennsylvania employers, visit this site to make that first claim. The average benefit amount in Pennsylvania is 50% of your average gross pay, with a maximum of $573 per week for up to 26 weeks. That means the maximum unemployment compensation benefit occurs when an employee earns about $50,000-$60,000 annually.

With the CARES Act, unemployment benefits are supplemented with an additional $600 per week for four months until July 31, 2020, plus a likely extension of regular state unemployment benefits for another 13 weeks.

Individuals, as well as 1099 contractors and self-employed workers, are also eligible for unemployment compensation plus the $600 add-on from the federal government. The state-computed benefit may be less than a typical employee claim, but with the current situation, these benefits have been opened up to self-employed workers.

If you operate as an S Corporation, your unemployment compensation benefits are based on your average wages. However, the loan programs through the SBA and other state and city based loan programs are viable options to help you make up for the shortfall in your business.

FILE AN INITIAL CLAIM IN PA

Individual stimulus checks

The CARES Act includes a one-time direct payment of up to $1,200 per taxpayer and $500 per child for those who reported an adjusted gross income of $75,000-$99,000 as a single taxpayer or $150,000-$198,000 as a married taxpayer filing jointly. The payment amount is reduced by $5 for every $100 earned over $75,000 or $150,000, respectively, then phased out completely for those with incomes over $99,000 (single) or $198,000 (joint filers) with no children. Here is a quick calculator to help you determine your estimated stimulus check.

To receive the $500-per-child benefit, children must be under the age of 17 at the end of 2020.

Income amounts are based off your 2018 or 2019 tax returns. If you have not yet filed your 2019 personal tax return, the IRS will use information from your 2018 return. If you have filed your 2019 personal tax return, they will use that return.

If your income falls in the phased-out or ineligible range based on the tax return they use, but your income in 2020 ends up being different, the IRS will reconcile your stimulus payments when you go to file your 2020 personal tax returns. This is an important point: These stimulus checks are an advance toward a refundable tax credit on your 2020 personal tax returns. If the IRS gives you too much of a stimulus check, you will need to pay that back. If the IRS gives you too little, the differences will be factored into your return for 2020, which is due in April 2021.

Stimulus checks are expected to begin arriving in late April. Those who have already provided direct deposit information during previous tax filings will receive their check via direct deposit. Others will receive a physical check or have the opportunity to provide their direct deposit information on a new web portal being developed by the IRS. The IRS will mail you a letter within 15 days of sending your payment. Please keep this letter as part of your 2020 personal tax documentation.

A word of caution about scams: The IRS will never call you to update your bank or address information. Save yourself the angst, calmly decline to speak about this, and simply hang up.

We’re in this together

We know it can be hard to keep up with all the new information coming out and how quickly it changes. Please read, reflect, pause, then reach out to us if you need clarification or support. We know there is a sense of urgency around this and we are working hard to keep things moving. Keep us posted with any actions you take here. This helps us know the things you are doing to confront these challenges before us.

We’re in this with you and would love to lend a hand. Get in touch with us at (215) 703-3098 or hello@kregel-cpa.com.