Newsletter from
Steve Richardson & Company
Certified Public Accountants
March 31, 2020
The 4th COVID-19 Newsletter
To Our Clients and Friends:
If you’re wondering what happened to the promised 3rd letter, Todd, my associate, said it was confusing and misleading. When we looked at it together, he had a valid point. The mythical 3rd letter is being restarted from scratch.
This letter is a summary and a clarification of things I’ve learned thus far.
Individual help
All US residents with adjusted gross income up to $75,000 ($150,000 married), who are not a dependent of another are eligible for the full $1,200 ($2,400 married) rebate. In addition, they are eligible for an additional $500 per child. This is true even for those who have no income, as well as those whose income comes entirely from non-taxable benefit programs, such as Supplemental Security Income (SSI) benefits.
Note: These payments are based, in part, on data in the 2019 tax returns! Get your 2019 tax returns prepared and filed as soon as possible!
Key point: The rebate is treated like other refundable tax credits, such as the child tax credit and earned income tax credit, and is not taxable income. For the vast majority of Americans, no action on their part will be required to receive a rebate check since the Internal Revenue Service (IRS) will use a taxpayer’s 2019 tax return if filed (or their 2018 return if they haven’t filed their 2019 return).
Businesses have several benefits in the CARES Act
One is the employee retention tax credit.
This is a credit designed to prevent layoffs and keep workers on the job. Tax-exempt employers (including churches) are eligible.
Eligible employers are allowed a credit against employment taxes (FICA, income tax) based on a specific formula. The fully refundable credit would be available to any business or non-profit that has a furloughed or reduced workforce as a result of a forced closure or the quarantining of employees.
The credit would also be available to any business that has seen a 50 percent drop in gross receipts when compared to the same quarter last year. Many businesses, churches in particular, will be able to show this 50% drop in gross revenues.
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 is capped at $10,000 and is refundable against payroll taxes.
Key point: If an eligible employer receives a forgivable loan under the Paycheck Protection Program, it is not eligible for the employee retention credit under this section.
Paycheck Protection Program (PPP)
The Act establishes a new US Small Business Administration loan program called the Paycheck Protection Program for small employers (including nonprofits and churches) with 500 or fewer employees to help prevent workers from losing their jobs and small businesses from failing due to economic losses caused by the COVID-19 pandemic.
The program provides federally guaranteed loans to cover payroll and other operating expenses.
To be eligible, the small employer must have been harmed by the pandemic between February 15, 2020, and June 30, 2020. The Act requires eligible borrowers to make a good-faith certification that:
- The loan is necessary due to the current economic conditions caused by COVID-19;
- The funds will be used to retain workers and maintain payroll, lease, and utility payments; and
- They are not receiving duplicative funds for the same uses from another SBA program.
Principal amounts on the loan for the first eight-week period from the time the loan was made may be forgiven if used to pay:
- Compensation under $100,000 (per employee)
- Payment of interest on any obligation
- Rent
- Utilities
The amount of loan forgiveness is reduced based on an employer’s decline in workers or wages (declines between February 15, 2020, and April 26, 2020, do not reduce the amount of loan forgiveness provided the employer returns to pre-decline levels by June 30, 2020).
Any portion of a loan not forgiven is carried forward as an ongoing loan with a term of ten years at four percent interest.
The program is retroactive to February 15, 2020, to help bring workers who may have already been laid off back onto payrolls. The loan period ends on June 30, 2020.
Key point: If an eligible employer receives an employee retention credit (see above), it is not eligible for the Paycheck Protection Program.
Unemployment insurance provisions
The Act creates a temporary Pandemic Unemployment Assistance program through December 31, 2020, to provide payment to those not traditionally eligible for unemployment benefits (self-employed, independent contractors, those with limited work history, and others) who are unable to work as a direct result of the coronavirus public health emergency.
The Act provides an additional 13 weeks of unemployment benefits through December 31, 2020, to help those who remain unemployed after weeks of state unemployment benefits are no longer available.
Key point: The application of this provision to church employees is unclear. State and federal laws exempt from unemployment taxes “service performed in the employ of a church, a convention or association of churches, or an organization that is operated primarily for religious purposes and that is operated, supervised, controlled, or principally supported by a church or convention or association of churches.”
Church Clarification Needed!
Does the CARES Act’s temporary Pandemic Unemployment Assistance program apply to church employees on the ground that they “are not traditionally eligible for unemployment benefits”? This question needs clarification.
Sincerely,
Steve Richardson, CPA