Over the last week, several important items related to COVID-19 relief for individuals and businesses have unfolded. Most notably, individuals have begun to receive economic impact payments, and the forms, timeline, and related guidance for additional Paycheck Protection Program (PPP) loans have been issued.
This legislation provided many changes that affect 2020 tax filings, though did not provide for extensions for the filing of 2020 returns. Tax organizers are in the mail, and we urge you to complete and return them as soon as possible.
Additional guidance beyond what is displayed here has been issued related to PPP and other COVID-19 related tax issues. If you have questions about your business’ eligibility for PPP or any other tax issue, please call our office.
ECONOMIC IMPACT PAYMENTS
These payments are on their way to recipients. Most recipients will receive their payments via direct deposit. For Social Security and other beneficiaries who received the first round of payments via Direct Express, you will receive this second payment the same way. To check the status of your economic impact payment, consider using the IRS’ Get My Payment Tool.
Who is eligible for the economic impact payment and how much will it be?
As the first round of economic impact payments, all U.S. residents or citizens with adjusted gross income (AGI) under $75,000 for single filers or married filing separately filers and $150,000 for married filing jointly filers, are eligible for the full $600 ($1,200 for married filing jointly) stimulus payment. There is also $600 for each dependent child under the age of 17 (no payment is available for an adult-dependent). The credit phases out starting at $75,000 of modified adjusted gross income ($112,500 for heads of household and $150,000 for married taxpayers filing jointly). The issued payments were based on a taxpayer’s 2019 tax return, but 2020 income is what is formally used for the payment. Thus, if your 2019 return disqualified you for part of the payment, but your 2020 return indicated you would have qualified for it entirely, you will receive the difference when the 2020 tax return is filed. If it is the other way around, your 2020 tax return would have meant you were disqualified for part or all of the payment, you will not be required to make a payment back to the IRS.
PAYCHECK PROTECTION PROGRAM LOANS
The new PPP loan application process will re-open the week of Jan. 11 with community financial institutions exclusively allowed to make first-draw PPP loans on starting Jan. 11 and second-draw PPP loans starting Jan. 13. The PPP will open to all participating lenders at an unspecified date shortly thereafter and remain open through March 31. The first two days are intended to target applications from community financial institutions that serve minority- and women-owned businesses.
As noted in our previous communication (reproduced below), to be eligible for a second draw loan you must have a 25 percent gross receipt decline in any quarter in 2020 compared to the same quarter in 2019. The following regarding the calculation for eligibility of second draw loans has been clarified:
- Gross receipts are defined as all revenue in whatever form received or accrues in accordance with the entities accounting method from whatever source (including sales of products or services, interest, dividends, rents, royalties, fees, commissions) and reduced by returns and allowances
- EIDL and PPP are not included in gross receipts
- Appears to be based on the calendar quarter (not a 3-month period or fiscal quarter). SBA/Treasury will determine.
- Comparison periods will differ for borrowers who were not in operation the entire year of 2019.
- A borrower that was in operation all four quarters of 2019 can compare total annual receipts in 2019 rather than doing a quarter-by-quarter comparison.
Hospitality businesses such as restaurants and hotels are eligible for a larger PPP loan amount at 3.5 x average monthly payroll (rather than 2.5 x) for these PPP2 second draw loans.
If your business is eligible for PPP loan funding, we recommend getting in touch with your banker as soon as possible as the funding will likely be expended very quickly.
Additionally, if you have received a PPP loan, we recommend waiting until the new application is available and further guidance is issued before finalizing your application for forgiveness.
Have questions? Our staff is here to help! Contact us or call our office.
TEACHERS & EDUCATORS
Educators who have expenses for equipment such as personal protective equipment and other supplies used for the prevention of the spread of COVID-19 shall be treated as an eligible expense for purposes of the educator expense deduction (currently $250). The regulations or guidance will apply retroactively to March 12, 2020.
The refundable payroll tax credits for paid sick and family leave under the Families First Coronavirus Response act was extended through the end of March 2021. Note that after December 31, 2020, providing the leave to employees is voluntary. Also, individuals can elect to use their average daily self-employment income from 2019, rather than 2020, to compute the credit.
The $300 charitable deduction for nonitemizers has been extended through 2021 and the maximum amount that may be deducted has been increased to $600 for married couples filing jointly. Note that for the tax year 2020, $300 is the maximum allowed per tax return, regardless of filing status.
For purposes of the foreign earned income exclusion, the IRS indicated that the individual will be considered a qualified individual with respect to the period during which that individual was present in, or was a bona fide resident of, that foreign country if the individual establishes a reasonable expectation that he or she would have met the requirements of Sec. 911(d)(1) but for the COVID-19 emergency.
The new regulation allows taxpayers to roll over unused amounts in their health and dependent care flexible spending arrangements from 2020 to 2021 and from 2021 to 2022. This provision also permits employers to allow employees to make a 2021 midyear prospective change in contribution amounts.
The repayment period for the deferral of employees’ portion of payroll tax has been extended through Dec. 31, 2021, on employees’ share of certain payroll taxes deferred from Sept. 1, 2020, through Dec. 31, 2020, through Dec. 31, 2021.