PPP Loan and Business Deductions

The IRS has issued a ruling (Notice 2020-32) stating that normal business expenses paid with funds from a Paycheck Protection Program loan (PPP) are not deductible business expenses on a federal tax return.

Congress has issued a statement responding to IRS Notice 2020-32, reflecting that Congress intends expenses paid with Paycheck Protection Program (PPP) funds to be deductible for federal tax purposes. We will update as further guidance is issued.

IRS guidance may limit deductions for PPP expenses

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Update for CARES Act – Actions to Take

The CARES Act was signed into law by President Trump on March 27, 2020, containing several provisions to aid small businesses during the COVID-19 crisisAt this time, we are still waiting for guidance and clarification of many items in the law 

 We recommend the following actions at this time: 

1. Apply for an Economic Injury Disaster Loan (EIDL) at the SBA website. You will need to provide information for your gross receipts and cost of goods sold for the period 2/1/19 – 1/31/20. The SBA will use this information to compute your loan amount. Be sure to check the box to receive an advance of up to $10,000. The $10,000 advance is a grant which will not have to be repaid. 

Apply at https://covid19relief.sba.gov/#/. Please contact our office if you would like assistance in completing the initial loan application process. 

Once the initial application process is complete, the SBA will likely need additional information to determine your eligibility and to calculate your total loan amount. 

2. Begin gathering information to apply for a Paycheck Protection Program (PPP) loan. These loans will be administered by banks and credit unions. The PPP funds may be used for payroll costs, rent, utilities, and interest expense. The loan will be forgiven to the extent the funds are used for qualified funds during an eightweek period. The Treasury is expected to release additional information by Friday, April 3, 2020. If you have worked with an SBA lender in the past, be sure to contact your lender to let them know of your interest in the program. Many lenders are creating mailing lists to disseminate information as quickly as possible once additional rules and regulations have been released. 

Note that the loans/grants are intended to assist in paying operating expenses that are impacted by the COVID-19 pandemic. The PPP funds cannot be used to pay the same funds as the EIDL funds, but it is important to start with the EIDL application in order to receive the emergency grant as soon as possible. 

Our office is working hard to learn about these new laws and are staying updated as additional guidance is issued. We are available to assist wherever needed. Please contact us for additional information. 

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Federal Response to COVID-19 Part 1

The information below is a summary of the first legislation passed, which we received from Paychex.  It is a summary of relevant information so far.  This is not reflective of the second bill passed early this morning.

In general, the Families First Coronavirus Response Act dedicates tens of billions of dollars for paid sick and family leave, unemployment insurance, free COVID-19 testing, and other measures to help Americans impacted by the crisis. The final bill, which takes effect for most covered employers no later than 15 days after enactment and sunsets on December 31, 2020, contains numerous provisions affecting businesses and individuals.

Here is an overview of the key elements, which generally apply to private employers with fewer than 500 employees:

Emergency Family Medical Leave (FML) Expansion Act: Temporarily expands the provisions under the Federal Family and Medical Leave Act specifically to address COVID-19-related absences.

  • Eligible employees, who have worked for their employer for 30 days, who qualify for leave under the expanded reasons for leave, would be paid by their employer after the first 10 days of leave at a rate of no less than two-thirds of their current rate of pay.
    There is cap of $200 per day, up to a maximum $10,000, for up to 12 weeks in the benefit year.
  • Employees are permitted to take but employers cannot require the use of any other paid time off during their leave.
  • Employees covered under a multi-employer bargaining agreement are addressed separately in the legislation.

Some exemptions apply for employers of health care workers.

Payroll Credit for Required Paid Family Leave: This refundable tax credit is designed to reimburse 100 percent of wages paid by the employer under the new Emergency FML expansion for each calendar quarter.

  • The tax credit is allowed against the employer portion of the tax-imposed Social Security rate of 6.2 percent and the Medicare rate of 1.45 percent.
  • The amount is capped for each employee at $200 per day and $10,000 for all calendar quarters.
  • If the credit exceeds the employer’s total liability of the employer portion of Social Security and Medicare in any calendar quarter, the excess credit is refundable to the employer.

Specific rules apply that prevent a double tax benefit.

Emergency Paid Sick Leave (PSL) Act: Employers are required to provide paid sick time, available for immediate use, to each employee requiring such time for specific reasons associated with the COVID-19 pandemic, including quarantines, currently seeking a diagnosis due to symptoms, or caring for an individual who is under quarantine or for a child whose school/care is closed due to COVID-19.

  • Provide up to 80 hours of paid sick leave (PSL) to eligible full-time employees and pro-rate part-time employee paid sick time based on the average number of hours regularly scheduled in a two-week period.
  • The calculation and caps for compensation vary dependent on the reason for leave with a maximum of $511 per day if the employee is the individual directly impacted and up to $200 per day if it is for care of someone else. Aggregate caps exist as well.
  • Employees may not be required to use other available paid time off before using paid sick time under this Act.
  • Employees covered under a multi-employer bargaining agreement are addressed separately in the legislation.
  • Some exemptions apply for employers of health care workers.
  • Employers will be required to post a notice of employee rights; the U.S. Secretary of Labor will provide a model notice within seven days of enactment.
  • Paid sick time provided under this Act is not preempted by other federal, state, or local law.

Payroll Credit for Required Paid Sick Leave (PSL): This refundable tax credit is designed to reimburse 100 percent of wages paid by the employer under the new Emergency PSL for each calendar quarter.

  • The tax credit is allowed against the employer portion of the tax imposed Social Security rate of 6.2 percent and the Medicare rate of 1.45 percent.
  • The amount is capped at the maximums of $511 or $200 per day, depending on the reason.
  • If the credit exceeds the employer’s total liability of the employer portion of Social Security and Medicare in any calendar quarter, the excess credit is refundable to the employer.
  • Specific rules apply that prevent a double tax benefit.
    Other General Provisions:

Emergency Unemployment Insurance Stabilization and Access Act of 2020: The bill provides $1 billion in emergency grants to states for activities related to facilitating unemployment insurance benefits, under certain conditions.

  • $500 million will be used to provide immediate additional funding to all states for staffing, technology, systems, and other administrative costs, provided certain requirements are met.
  • The remaining $500 million would be set aside in reserve for emergency grants to states which experienced at least a 10 percent increase in unemployment. Those states would be eligible to receive an additional grant, if certain conditions are met.
  • The U.S. Secretary of Labor will also work with states that want to implement work-sharing programs.
  • Coverage of Testing for COVID-19: Diagnostic testing and provider visits related to COVID-19 testing, including office visits, urgent care visits, and emergency room visits, must be provided without any co-pays, coinsurance, or deductibles.
    Additionally, no prior authorizations may be required for testing.
  • These provisions would apply to any health insurance plans, including individual and group health plans, Medicare, and Medicaid.
    Additionally, federal funding will be provided for uninsured individuals to receive reimbursement for COVID-19 testing and related services.
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Tax Deadline Extensions

Many payment and filing deadlines are being extended as a result of the Coronavirus. The following has been extended as of March 24, 2020. We will update as more information becomes available: 

  • Federal income tax returns and payments (including estimate payments) due between April 1st and July 15th are now due July 15th 
  • First quarter federal payroll due dates have not been extended. 
  • Michigan state and city income tax returns and payments (including estimate payments) due April 15th have been extended until July 15th. City tax returns normally due April 30th have been extended until July 31st. 
  • Michigan payroll filing due dates have not been extended. 

For our out-of-state employers, please ask for details. Many states have announced their own extensions, and most indicate that they will follow the federal income tax extensions. The AICPA is monitoring all state tax announcements and updating their summaries daily. 

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Michigan Temporary Unemployment Expansion

On March 16th, Michigan Governor Whitmer announced temporary expansions to Michigan’s unemployment laws. These expansions are effective immediately and continue through April 14, 2020 and allow workers to claim unemployment benefits if they are impacted by closures or quarantines as a result of COVID-19: 

  • An employer will not be charged for unemployment benefits if their employees become unemployed because of an executive order requiring them to close or limit operations. 
  • An employee is considered to leave work involuntarily for medical reasons if they leave work because of self-isolation or self-quarantine in response to elevated risk from COVID-19 due to being immunocompromised, displaying the symptoms of COVID-19, having contact in the last 14 days with someone with a confirmed diagnosis of COVID-19, the need to care for someone with a confirmed diagnosis of COVID-19, or a family care responsibility as a result of a government directive. 
  • An individual must be deemed laid off if they became unemployed because of self-isolation or self-quarantine in response to elevated risk from COVID-19 due to being immunocompromised, displaying the symptoms of COVID-19, having contact in the last 14 days with someone with a confirmed diagnosis of COVID-19, the need to care for someone with a confirmed diagnosis of COVID-19, or a family care responsibility as a result of a government directive. The employer of an individual covered by this subsection must seek a registration and work search waiver from the Unemployment Insurance Agency. 
  • An individual on a leave of absence due to displaying the symptoms of COVID-19, having contact in the last 14 days with someone with a confirmed diagnosis of COVID-19, the need to care for someone with a confirmed diagnosis of COVID-19 must be considered to be unemployed, or a family care responsibility as a result of a government directive, unless the individual is already on sick leave or receives a disability benefit. 
  • An individual who becomes unemployed because self-isolation or self-quarantine in response to elevated risk from COVID-19 due to being immunocompromised, displaying the symptoms of COVID-19, having contact in the last 14 days with someone with a confirmed diagnosis of COVID-19, the need to care for someone with a confirmed diagnosis of COVID-19, or a family care responsibility as a result of a government directive, and files a claim for unemployment benefits within 28 days of the last day worked must be considered to have filed on time. 
  • For each eligible individual filing an initial claim until April 14, 2020 at 11:59pm, not more than 26 weeks of benefits are payable to an individual in a benefit year. 
  • The unemployment insurance agency may approve a shared-work plan, regardless of whether the employer’s reserve in the employer’s experience account as of the most recent computation date preceding the date of the employer’s application is a positive number.
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Families First Coronavirus Response Act

On March 18th, President Trump signed the Families First Coronavirus Response Act (FFCRA), to ease the economic burden faced by many businesses and individuals as a result of the novel coronavirus disease (COVID-19). The information below is a summary of the provisions included: 

  • Family and medical leave. The Act includes the Emergency Family and Medical Leave Expansion Act (EFMLEA)which requires employers with fewer than 500 employees to provide both paid and unpaid public health emergency leave to certain employees through December 31, 2020. The emergency leave generally is available when an employee who has been employed for at least 30 days is unable to work or telework due to a need for leave to care for a son or daughter under age 18 because a school or place of care has been closed, or a childcare provider is unavailable, due to an emergency with respect to COVID-19 that is declared by a federal, state, or local authority. The first 10 days of leave may be unpaid and then paid leave is required, calculated based on an amount not less than two-thirds of an employee’s regular rate of pay and the number of hours the employee would otherwise be normally scheduled to work, not to exceed $200 per day and $10,000 in the aggregate. Certain exemptions and special rules apply. 
  • Emergency paid sick time. Under the Emergency Paid Sick Leave Act (EPSLA), private employers with fewer than 500 employees, and public employers of any size, must provide 80 hours of paid sick time to full-time employees who are unable to work (or telework) for specified virus-related reasons. Part-time employees are entitled to sick time based on their average hours worked over a 2-week period. This amount is immediately available regardless of the employee’s length of employment. The maximum amounts payable vary based on the reason for absence. Employees who are (1) subject to a quarantine or isolation order, (2) advised by a health provider to self-quarantine, or (3) experiencing symptoms and seeking diagnosis, must be compensated at their regular rate, up to a maximum of $511 per day ($5,110 total). Employees caring for an individual described in category (1), (2), or (3), caring for a son or daughter whose school is closed or child care provider is unavailable, or experiencing a “substantially similar condition” specified by the government must receive two-thirds of their regular rate, up to a maximum of $200 per day ($2,000 total). Employers cannot require employees to find a replacement worker or use other sick leave before this sick time. Employers may exclude health care providers and emergency responders 

The sick leave mandate takes effect not later than 15 days after March 18, 2020 (the date of the Act’s enactment) and expires December 31, 2020.  

Employer tax credits are available to cover all amounts paid under the EFMLEA and the EPSLA, as well as employer health plan expenses allocable to employees taking covered leave. These credits can be recovered immediately by reducing payroll tax deposits by the amount of leave paid out. 

Self-employed individuals can also receive a credit for as many as 50 days multiplied by the lesser of $200 or 67% of their average self-employment income paid under the EMFLEA.  

Small businesses with fewer than 50 employees may qualify for exemption from the requirement to provide leave due to school closings or child care unavailability if the leave requirements would jeopardize the viability of the business as a going concern.  

 

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Employer Layoffs amid COVID-19

Press Release from the State Department of Labor and Economic Opportunity

LANSING, MICH. The Department of Labor and Economic Opportunity today provided guidance to Michigan employers on how to avoid potential layoffs related to COVID-19.

“We know that many families and businesses are and will experience economic pain as a result of the COVID-19 pandemic,” said LEO Director Jeff Donofrio. “Through Governor Whitmer’s executive action and existing state programs, there are resources for employers affected by COVID-19. We are also strongly urging job providers facing work shortages to place their employees on temporary leave as opposed to termination, so that they may remain eligible for potential federal assistance.”

Work Share If employers are financially distressed but hope to continue operations by cutting back hours, they are encouraged to use the Unemployment Insurance Agency’s Work Share program that allows employers to maintain employment levels and business operations during declines in regular business activity rather than laying off workers. More information about the program can be found at www.michigan.gov/workshare.

Temporary Leave vs. Termination Due to the uncertainty regarding potential congressional action regarding whether and how furloughed workers will be able to access federal paid sick, family and medical leave resources, employers are strongly urged to place employees on temporary leave and advise the worker that they expect to have work available within 120-days as opposed to termination. There is no additional cost to employers, employees remain eligible for UI benefits through the state, and employees may remain eligible for potential federal assistance.

Steps for employers placing employers on temporary unpaid leave:
• Do not terminate the employee – specify a temporary/indefinite leave with return to work expected that is within 120 days.
• Do not create a contractual obligation to bring the employee back to work – Let the employee know that the situation is fluid and subject to change.
• Provide the employee with a formal Unemployment Compensation Notice. Employers will need to provide their Employer Account Number and Federal Identification Number.
• Communicate to the employee about their rights. Under Governor Whitmer’s recent Executive Order, workers are placed on leave, or are unable to work because they are sick, quarantined, immunocompromised, or have an unanticipated family care responsibility, are eligible for unemployment insurance benefits.
• Ensure employers are provided information on how to obtain unemployment insurance benefits. A factsheet can be found here.
• Get each employee’s up-to-date contact information.
• Let employees know if you will be putting updated information on the entity’s website or intranet, if applicable.
• Appoint a single, or limited number of individuals who will field questions, and communicate that information to employees.
• Keep a tally of all questions and answers. Periodically share with employees.

The state is monitoring issues related to continued medical insurance coverage and will update accordingly.

Elimination of Certain Unemployment Costs to Employers
Under the governor’s order, an employer or employing unit must not be charged for unemployment benefits if their employees become unemployed because of an executive order requiring them to close or limit operations.

Other Resources
The Michigan Economic Development Corporation’s call center stands ready to support businesses looking for assistance through other available state programs. For more information, visit the MEDC’s website: www.michiganbusiness.org or call 888.522.0103. The Michigan Small Business Development Center can also provide resources for small businesses impacted by COVID-19. Visit their website  for additional information.

Governor Whitmer is also seeking additional solutions for small businesses impacted by COVID-19. Earlier this month, Congress passed legislation that makes $1 billion available to the U.S. Small Business Administration (SBA) to provide low-interest loans to small businesses, small agricultural cooperatives, and nonprofits that have suffered substantial economic losses as a result of the COVID-19 pandemic.

The governor has informed SBA that she is seeking an Economic Injury Disaster Loan Declaration for the state and has initiated the process to receive the declaration from SBA. Once granted, small businesses in qualifying areas will be able to access low-interest loans through the SBA. In the interim, we are encouraging small businesses that could benefit from SBA loans to start collecting the information they’ll need to complete and submit their application. Examples of information needed can be found here. For additional information or to obtain help preparing the loan application in advance of the declaration, please contact the Michigan SBA offices in Detroit or Grand Rapids.

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Michigan Unemployment Update – COVID 19

UIA, Michigan Works! Urge Residents to Avoid Offices and Use Online Resources

LANSING, MICH. To mitigate the COVID-19 outbreak, the Unemployment Insurance Agency and Michigan Works! Agencies are strongly urging workers to avoid visiting their statewide offices and utilize user-friendly online resources for unemployment assistance. Eligible employees should apply for unemployment benefits at Michigan.gov/UIA or by calling 1-866-500-0017. A factsheet on how to apply for benefits can also be found here. Michigan Works! resources can be found at MichiganWorks.org or by calling 1-800-285-WORKS.

UIA and Michigan Works! statewide offices will remain open, but the agencies will be limiting the amount of people within the offices at one time.
“In an effort to protect the health and safety of our residents and promote social distancing, Michigan workers needing assistance from the UIA are strongly urged to avoid visiting our offices. The fastest and best method is online at Michigan.gov/UIA. You can also connect with our agency by calling 1-866-500-0017,” said UIA Director Steve Gray.

UIA online resources include:
• File a claim for unemployment benefits
• Chat with a customer service agent (M-F, 8am to 5pm)
• Send a message to a customer service agent (weekdays after 5pm and before 8am and weekends)
• Manage your account 24 hours a day, 7 days a week

The Michigan Works! Agencies are also encouraging people to avoid public spaces and will be limiting in-person visits. Impacted workers were formerly required to appear in-person at a Michigan Works! service center but that requirement has been waived because of the public health emergency. The agencies are encouraging all individuals to connect with their local Michigan Works! office by call 1-800-285-WORKS or visiting MichiganWorks.org to set up an appointment. Virtual and phone appointments will be prioritized.

Yesterday, Governor Whitmer signed Executive Order 2020-10 to temporarily expand eligibility for unemployment benefits.
Under the governor’s order, unemployment benefits would be extended to:
• Workers who have an unanticipated family care responsibility, including those who have childcare responsibilities due to school closures, or those who are forced to care for loved ones who become ill.
• Workers who are sick, quarantined, or immunocompromised and who do not have access to paid family and medical leave or are laid off.
• First responders in the public health community who become ill or are quarantined due to exposure to COVID-19.
Access to benefits for unemployed workers will also be extended:
• Benefits will be increased from 20 to 26 weeks.
• The application eligibility period will be increased from 14 to 28 days
• The normal in-person registration and work search requirements are suspended.

Under the order, an employer or employing unit must not be charged for unemployment benefits if their employees become unemployed because of an executive order requiring them to close or limit operations.
The order also expands the State’s Work Share program. Employers are encouraged to implement the program that permits employers to maintain operational productivity during declines in regular business activity instead of laying off workers. More information about Work Share can be found here.
Additional unemployment resources for employees can be found here and for employers here.

Updates will be posted to http://Michigan.gov/Coronavirus and CDC.gov/Coronavirus.

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Tax Season Opening Day

Personal filers can begin filing their 2019 tax returns with the IRS on January 27, 2020.

Read the full bulletin here: https://www.irs.gov/newsroom/irs-opens-2020-filing-season-for-individual-filers-on-jan-27

In addition,…

The IRS also encourages taxpayers to file electronically. While a person can choose direct deposit whether they file their taxes on paper or electronically, a taxpayer who e-files will typically see their refund in less than 21 days. Taxpayers can track their refund using “Where’s My Refund?” on IRS.gov or by downloading the IRS2Go mobile app.

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IRS Sending Education Letters to Virtual Currency Owners

The IRS is sending letters to virtual currency owners with the intention of educating them about their tax and filing obligations.  The letters indicate that the taxpayer may owe taxes because of improper reporting of virtual currency transactions,

If you receive one of these letters, please contact our office and speak to one of our tax professionals.

Here is a link to the IRS announcement

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