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Member of Russell Bedford International, a global network of independent professional service firms.
On December 27, 2020, President Trump signed a number of bills, including one that breathes new life into the Employee Retention Credit (ERC). While the headline was that employers receiving Payroll Protection Program (PPP) loans could now also claim the ERC, did you know the credit was significantly enhanced? Especially in 2021, we see the expanded credit as an incredible opportunity for employers.
Established by the CARES Act, the Employee Retention Credit was designed to incentivize employers to maintain their payroll during the coronavirus pandemic. For the period from March 13, 2020 to December 31, 2020, eligible employers could claim a 50% retention credit for qualified wages. Eligible employers included:
Qualified wages for employers of less than 100 full time equivalent employees consisted of any wages paid, assuming the business met one of the above tests. For employers of more than 100 full time equivalent employees, qualified wages were only those wages paid to employees for not working.
Annual qualified wages per employee were capped at $10,000, meaning a potential annual credit of $5,000 per employee. It should be noted that any payroll costs used on the PPP loan forgiveness application cannot be claimed as ERC creditable wages.
Effective from January 1, 2021 to June 30, 2021, the eligibility requirements have changed. Now, businesses that had a reduction in gross receipts of 20% or more during a calendar quarter as compared to a prior quarter will qualify for the ERC. The comparison is between 2021 results and 2019; additionally, the immediately preceding quarter results can be used to determine eligibility. For example, for the first quarter of 2021, an employer could compare fourth quarter 2020 results to fourth quarter 2019 results for determination of the reduction in gross receipts.
The good news doesn’t stop there! The 100 full time equivalent employee rule noted above was changed to a 500 full time equivalent employee requirement. This means employers of between 100 to 499 full time equivalent employees can include any qualified wages paid, not just wages paid for not performing services. Qualified wages are also clarified to include qualified health plan expenses.
Finally, the credit has been expanded. Qualified wages per employee are now $10,000 per quarter, instead of per year. The credit rate is now 70% of qualified wages, instead of 50%.
It’s important to note that similar to the prior provisions, payroll costs used on a PPP loan forgiveness application cannot be claimed as ERC creditable wages.
As a business owner, we expect that you are already aware of the heightened urgency in closing your accounting books in a timely manner to prove a reduction in gross receipts. Both the second round of PPP loans and the ERC require you to show a precipitous drop in your gross receipts. Timely financials will allow you to determine your eligibility more quickly, and perhaps speed up the receipt of additional loan funds and/or tax credits.
As the ERC is based on qualified wages that are not also claimed on the PPP loan forgiveness application, care should be taken in determining the costs deemed paid with PPP funds. However, for those businesses that have already filed for forgiveness, there continue to be questions on the interplay of the ERC and PPP. We will look out for developments as it relates to the payroll costs used for both ERC and PPP, as well as how to claim retroactive credits.
The Employee Retention Credit is an exciting development for businesses. Please contact us if you’d like to discuss the potential credit to your business.
Please note that this blog is based on tax laws effective in December 2020, and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
On January 19, 2021 additional guidance was released to assist borrowers in applying for the second round of PPP loans. These loans became available based upon legislation passed by Congress and signed by President Trump in late December and included in the Consolidated Appropriations Act of 2021. The first round allowed loans to businesses with 500 or fewer employees and to certain businesses with multiple locations, for which each location could not have more than 500 employees. Congressional intent with the second round of PPP loans was to put additional requirements in place to specify a more targeted group of eligible businesses.
Unlike the prior loan program, this round will be limited to small businesses that incurred revenue losses. Eligibility is limited to businesses that satisfy the following:
The eligible entities include for-profit businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives. Churches and religious organizations are eligible for loans if they otherwise meet the requirements, and the legislation prevents future administrations from making them ineligible.
The legislation establishes a maximum loan size of 2.5 times the average monthly payroll costs for the twelve months prior to the loan, or the calendar year 2019, up to $2 million. Since loan applications are being prepared in January, borrowers are able to use calendar year 2020 for the twelve-month prior clause. There is an exception for borrowers in the hospitality or food services industries, who may receive PPP Second Draw Loans of up to 3.5 times average monthly payroll costs. Only a single PPP Second Draw Loan is permitted to an eligible entity.
Loan amounts that are not forgiven will be subject to a 5-year maturity and will incur interest at 1%.
To apply for a second round of funding, please use Form 2483-SD.
Like the first PPP loan, full loan forgiveness is available if the borrower spends at least 60% of the second draw on payroll costs (this time including additional group insurance payments, including vision, dental, disability and life insurance), with allowable nonpayroll costs of 40%.
The allowable non-payroll expense category – which was originally limited to rent, mortgage interest, and utilities – has been expanded to include the following:
A few additional notes on the loan forgiveness:
Congress recently passed legislation that taxpayers whose PPP loans are forgiven are allowed deductions for deductible expenses paid using PPP loan proceeds. In addition, the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. This applies retroactively to the first round of PPP loans as well.
The legislation requires the SBA to prepare regulations and implement the second-draw PPP within 10 days after the bill was signed into law (December 27, 2020) and for the program to continue through March 31, 2021.
If you did not receive a PPP loan yet, you still have time. Use Form 2483 to apply for round one of the PPP loan. For this loan you would not be subject to the revenue reduction eligibility requirements and the rules governing would include those enacted under the first round of funding.
If you have any questions about the second round of PPP loans, please contact Cray Kaiser today. We’re here to help.
Please note that this blog is based on tax laws effective in January 2021, and may not contain later amendments. Please contact Cray Kaiser for most recent information.
In this audio blog, CK Principal Karen Snodgrass addresses some common questions surrounding potential future COVID-19 relief, including:
Of course, we don’t know exactly what will happen in the coming months. With a new administration and the pandemic still surging, there is a lot at play. Rest assured, as developments occur, we’ll be sure to keep you informed on our blog. In the meantime, you can listen to Karen’s current insights and predictions of future COVID-19 relief below:
If you have any questions about current or future COVID-19 relief, please don’t hesitate to contact Cray Kaiser today.
Please note that this blog is based on laws effective on Friday, January 15 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
Please note that this blog is based on laws effective on December 23, 2020 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
UPDATE 12/23/20: As you are probably aware, yesterday President Trump cast doubt on his willingness to sign the recently passed omnibus bill that includes long-awaited COVID-19 stimulus legislation. We want to assure you that we are aware of the ongoing situation and plan to stay fully alert to any developments, even during the Christmas holiday.
You can have full confidence that we will keep you apprised of any key developments, including whether the President signs the bill or not, if Congress makes any changes to the legislation, and, in the case of a presidential veto, whether Congress is expected to be able to override the veto.
On Monday, December 21, 2020 the House released the details of the $900 billion coronavirus relief package. The bill is expected to pass in short order.
This package includes a number of relief provisions specific to aiding individuals and businesses affected by the pandemic. Of particular interest to us, as tax advisors, was the inclusion of clarifying language as it relates to the deductibility of expenses paid with PPP loans. You may recall from our last update that the IRS believed that these expenses should not be deductible. The bill released today clarifies that these expenses are deductible. As the bill reads today, there is no limit to which taxpayers benefit from this treatment.
If you received a PPP loan, and expect to receive loan forgiveness, you can breathe a sigh of relief. The loan proceeds are not taxable and you will not have phantom income tax due to your not being able to deduct expenses paid with PPP loans.
The bill has many other provisions including another round of PPP loans for eligible businesses, stimulus checks for eligible taxpayers, and an extension of certain unemployment benefits and payroll credits. Please stay tuned to our blog for further updates. In the meantime, if you have any questions, contact us at 630-953-4900.
The IRS has warned taxpayers of a clever stimulus payment text scam by internet scammers that tricks taxpayers into revealing their bank account information under the guise of receiving the $1,200 Economic Impact Payment (EIP). The current scam is a text message that reads: “You have received a direct deposit of $1,200 from COVID-19 TREAS FUND. Further action is required to accept this payment into your account. Continue here to accept this payment…” The text includes a link to a fake phishing web address.
This fake phishing URL, which appears to come from a state agency or relief organization, takes recipients to a fraudulent website that impersonates the IRS.gov Get My Payment website. Individuals who visit the fraudulent website and then enter their personal and financial account information will have their information collected by the scammers.
The IRS is asking people that receive this stimulus payment text scam not to go to the fake website or enter their financial information. Instead, take a screenshot of the text message that was received and include it in an email to phishing@irs.gov with the following information:
Be aware that the IRS does not send unsolicited texts or emails. The IRS does not call people with threats of jail or lawsuits, nor does it demand tax payments on gift cards. If you encounter any such communication, you can forward it to phishing@irs.gov.
If you believe you are eligible for the EIP and have not already received it, you can go directly to IRS.gov and search for Get My Payment. Payments not received in advance can be claimed when you file your 2020 tax return next year.
If you have questions about any tax or financial text or email, please call Cray Kaiser at 630-953-4900 before taking action.
Please note that this blog is based on laws effective in November 2020 and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
When Congress initially authorized the Paycheck Protection Program (PPP), its intent was to provide loans that would be partially or completely forgiven if used for the intended purposes of helping businesses affected by COVID-19 stay afloat and maintain payroll. As part of the Small Business Administration’s (SBA’s) loan application, Form 2483 or the lender’s equivalent form, borrowers had to certify under penalty of imprisonment and monetary penalties to the following:
Needless to say, the contemplation of free money had businesses scrambling to take out PPP loans, whether they were impacted by economic effects of COVID-19 or not. Therefore, the Treasury had initially indicated the need for all PPP loans to be audited, but later specified only those of $2 million or more would be subject to an audit.
After a long wait, the SBA has initiated a compliance program to evaluate the good-faith certifications that borrowers made on their PPP Borrower Applications stating that economic uncertainty made the loan requests necessary. Accordingly, each borrower that, together with its affiliates, received PPP loans with an original principal amount of $2 million or greater will be required to participate in this compliance program, and will soon be receiving one of the following multi-page forms from their lender:
Sometimes referred to as a “loan necessity questionnaire,” the form and requested supporting documents must be submitted to the lender servicing the borrower’s PPP loan. The completed form is due to the lender within 10 business days of receipt. Among other things, the forms request:
The SBA is reviewing these loans to maximize program integrity and protect taxpayer resources. The information collected will be used to inform the SBA’s review of each borrower’s good-faith certification that economic uncertainty made their loan request necessary to support ongoing operations. Receipt of this form does not mean that the SBA is challenging that certification. After this form is submitted, the SBA may request additional information to complete the review. The SBA’s determination will be based on the totality of the borrower’s circumstances.
Failure to complete the form and provide the required supporting documents may result in the SBA’s determination that the borrower is ineligible for either the PPP loan, the PPP loan amount, or any forgiveness amount claimed, and the SBA may seek repayment of the loan or pursue other available remedies.
If you have any questions related to PPP loans over $2 million or need assistance completing the form and assembling supporting documentation, please contact Cray Kaiser today.
Please note that this blog is based on laws effective in November 2020 and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
Please note that this blog is based on laws effective in November 2020 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
The U.S. Treasury Department and Internal Revenue Service (IRS) released guidance on November 18th clarifying the deductibility of expenses where a Paycheck Protection Program (PPP) loan has not been forgiven by the end of the year the loan was received. Here are the key points from the announcement:
It is important to note the newly released guidance does not address taxpayers with a fiscal year.
CK’s tax department is keeping a close eye on these developments. It is possible that Congress will act to offset the Treasury’s decision on deductible expenses. As soon as we have more information we will post it on our website. In the meantime, if you have any questions about your PPP loan and the deductibility of expenses, contact us at 630-953-4900.
Please note that this blog is based on laws effective in September 2020 and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
Regardless of the type of business you’re running, it’s safe to say that you’ve likely already been impacted by the ongoing COVID-19 pandemic. With no complete end to the situation in sight, many have begun to try to settle into whatever this “new normal” actually is. This, of course, presents its own fair share of challenges. Once you get your doors opened back up again, if they’re not already, you may start to think about other important events down the line: valuations and appraisals, risk assessments, and succession planning.
Thanks in no small part to COVID-19, many private enterprises and family-owned businesses have been forced to dramatically rethink their points of view on these strategies and other important wealth transition and succession planning topics. As a result, below are some things to take into consideration.
One of the more unfortunate impacts that COVID-19 has had in the last few months involves a decrease in small business values across the board. The fact that both actual and expected revenues and earnings have likely decreased for many organizations, coupled with an increase in interest-bearing debt and liquidity issues in the market at large, all have a lot to do with this issue.
At the same time, it is entirely possible to mitigate risk to that end by keeping a few key things in mind. First and foremost, focus your attention on cash flows, the cost of capital, and growth as much as possible. One of the most critical considerations for a proper business valuation in these times involves figuring out what a recovery from COVID-19 will look like for your organization.
Obviously, certain industries have bounced back faster than others. Likewise, there are certain things that we just cannot know right now – like when a vaccine will be available and what effect that will have on the world. But you can focus on a few key areas – like whether you will experience a full recovery or only a partial recovery, and how long that impact will last – to make better determinations about projected cash flow and other growth-related factors.
On the plus side, all of this represents a unique opportunity for many people to take advantage of low small business valuations to minimize things like estate and gift taxes. Lower business valuations allow business owners like yourself to transfer a greater portion of your business assets and reduce your taxable estate. So, from that perspective, you’ll be able to gift assets against your lifetime exemption that would have previously been considered a taxable event had COVID-19 not occurred at all.
In general, you need to remember that the major goals of wealth transition and succession planning are that you’re attempting to preserve as much of your wealth AND your business as possible. Yes, it’s about making a plan that you can follow over time. But it’s also about being flexible enough to evolve that plan as conditions can (and likely will) change.
This is true for COVID-19’s impact on the supply chain. Even if your small business isn’t being directly impacted right now, the same might not be true of your supply chain partners or even your largest customers. This could have a considerable impact on your own operations, and if your organization is particularly vulnerable to these types of issues, you need to start thinking about ways to mitigate them as soon as you can.
Likewise, you may be one of the lucky few businesses that wasn’t actually negatively impacted by COVID-19 at all. Some industries are absolutely thriving right now – with manufacturers of personal safety gear and even a lot of food and beverage manufacturers being among them. If this describes your situation, it’s likely that you’ve seen a short-term increase in sales and, in all likelihood, profitability. How will this impact the future of your organization? Is this what the “new normal” looks like for you, or will you eventually return to pre-COVID levels? Do you have a way to determine this right now, or is time going to have to tell the story? These are all critical questions that you need to try to answer to make the best possible decisions in terms of succession planning.
In the end, understand that wealth transition and succession planning were always complicated processes, and COVID-19 has not done anyone any favors. No matter what, you need to recognize that this is an inherently specific process. So much is impacted by your own unique circumstances and the facts surrounding your organization. Likewise, your end goals will play an important role in the decisions you make, along with how they may have changed in the last few months.
However, if you’re able to keep these core best practices in mind and look at things through this new pandemic lens, you’ll be able to create the right plan for your objectives with as few potential downsides as possible. If you’d like to discuss wealth transition and succession planning strategies for your business, please contact Cray Kaiser. We’d be happy to help you.
Please note that this blog is based on laws effective in September 2020 and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
During the COVID-19 pandemic, the Internal Revenue Service (IRS) furloughed many of its employees or had them work from home to mitigate the spread of the virus. Many IRS offices remained shuttered for months, thus a backlog of millions of pieces of unopened mail, including IRS checks, accumulated in trailers set up outside IRS facilities.
The unopened mail included payment checks, creating a problem for many electronically filed returns with tax due because the IRS computer shows a tax return filed but no payment made. Because the IRS utilizes a significant amount of automation, its computers began automatically generating tax-due notices to those who had mailed in payments. While most IRS facilities have reopened and IRS employees have returned to work, it will take them weeks, if not months, to get all of the backlogged mail opened and processed.
After receiving complaints from taxpayers and members of Congress, the IRS put information on its website about these outstanding payments. They stated that the payments will be posted as of the date when they were received by the IRS, not the date when they process them. In most cases, this will eliminate or minimize penalties and interest for late payments. So, if you mailed a check to the IRS that has yet to clear your bank, with or without a return, the IRS says that you should not cancel or put a stop-payment on the check. However, you should be sure that you have adequate funds in the account from which the check was written, so that the check will clear when the IRS does process it.
Normally, the penalty for a dishonored payment (a bounced check) of over $1,250 is 2% of the amount of the check, money order, or electronic payment. If the amount is $1,250 or less, the penalty is the amount of the check, money order, or electronic payment, or $25, whichever is lower.
To provide fair and equitable treatment during the COVID-19 emergency, the IRS is providing relief from bad-check penalties. The dishonored payment penalty will be waived for dishonored checks that the IRS received between March 1 and July 15 due to delays in processing. However, interest and other penalties may still apply.
The short answer: nothing. The IRS has decided to suspend mailing certain tax-due notices to taxpayers temporarily until the unopened mail backlog is cleared up. So, if you have received a tax-due notice but know that you already paid the tax, the IRS asks that you wait to contact it about any unprocessed paper payments that are still pending.
For now, it’s important to be patient. There’s no reason to send additional correspondence to the IRS as it would just be added to the mountains of unopened mail. And due to high call volumes, giving the IRS a call will be of little use at this time.
If you have any concerns about your uncashed IRS check, please contact Cray Kaiser.
Please note that this blog is based on laws effective in September 2020 and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
Are you one of the many people in the United States who started working from home this year as a result of the coronavirus pandemic? You’re not alone. And while it is unclear how much longer the nation will be in the grips of this crisis, social distancing practices are likely to remain in place for most organizations. Some of the country’s most recognizable brands, including Facebook and Google, have already announced a work-from-home option that will extend through July 2021 for all of their employees, while others have made the ability to work remotely permanent.
As more and more organizations make the decision that their staff members can work from home either permanently or on a long-term basis, they may need to take a closer look at how nexus laws will be addressed — especially as several state governments are beginning to address work-from-home employees in terms of nexus and on tax revenue.
Traditionally, a state tax obligation is established when a business has a physical presence within its borders. That is what creates nexus. For example, if a Floridian goes to New York for a temporary job placement, they have an income tax obligation in New York for the money that they earn there. And if a Californian company places employees in Texas, then the company would have an obligation to follow Texas laws and pay Texas sales tax.
While New York Governor Andrew Cuomo explicitly continued making temporarily remote employees in New York liable for state income tax when COVID-19 struck, several states (including Massachusetts and Pennsylvania) made clear that the virus-related remote work would not trigger nexus obligations, at least as long as official work-from-home orders or states of emergency lasted. Today, as mandates are being lifted but companies continue to allow or enforce work from home, those states are beginning to reconsider their position.
While not every state has begun to address the tax ramifications of working-from-home due to COVID-19, Congress has. On July 27, 2020 new legislation was introduced with the goal of limiting the amount of state income tax that could be charged on income earned in state to residents of another state. The proposal revises Section 403 of the American Workers, Families and Employers Assistance Act (S. 4318), which says in part:
“No part of the wages or other remuneration earned by an employee who is a resident of a taxing jurisdiction and performs employment duties in more than one taxing jurisdiction shall be subject to income tax in any taxing jurisdiction other than: (A) The taxing jurisdiction of the employee’s residence (B) Any taxing jurisdiction within which the employee is present and performing employment duties for more than 30 days during the calendar year in which the wages or other remuneration is earned.”
The revision would extend the 30 days in part (B) to 90 days for calendar year 2020 “in the case of any employee who performs employment duties in any taxing jurisdiction other than the taxing jurisdiction of the employee’s residence during such year as a result of the COVID-19 public health emergency.”
Although this legislation has not been acted upon, we are hopeful that the federal government can provide overriding guidance on this issue. Without uniform guidance, each state is free to set their own nexus standards.
Nexus is a complicated topic. If you’re looking for additional information on nexus, click here. And as always, Cray Kaiser is here to answer your questions. Please contact us today to discuss how nexus impacts you and your business during the pandemic.
