We were originally asked to write about the tax changes to employee business expenses under the Tax Cuts and Jobs Act of 2017 but we would be remiss to not provide an update on the tax law changes and the CARES Act due to the impact of COVID 19. With the growing uncertainty we are facing in this unusual business and health disruption, it is important to stay up to date as the information is changing daily.
COVID-19 Tax Update
On March 23rd, the IRS extended the filing date for 2019 federal income tax returns and 2020 federal income tax estimates that would otherwise be due on April 15, 2020 to July 15, 2020. It is important to note that this is in addition to the postponement of the tax payment deadlines announced on March 19th. Notice 2020-17 put limits on the amount of tax payments that could be postponed from April 15 until July 15. However, a later notice amended that rule to provide that there is no limitation on the amount of the payment that may be postponed. The deadline postponement will apply for all individuals, trusts, estates, partnerships, associations, companies or corporations.
Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
On Friday March 27, 2020 the president signed the $2 trillion CARES stimulus package into law on Friday. There are a couple key components of the act that can and will affect you and your business.
CARES Paycheck Protection Program:
The CARES Act authorizes the Small Business Administration (SBA) to fully guarantee almost $350 billion in Section 7(a) loans.
The business automatically qualifies if there are less than 500 employees. However, there are other ways you may qualify if you have more than 500 employees. The number of employees is based on a twelve-month average. All employees, including independent contractors and part-time employees count as one employee.
Loans will be administered by banks and other SBA approved lenders and are 100% guaranteed by the SBA. No collateral or personal guarantees are required, and the lenders must approve all loan applications within fifteen days.
The maximum loan amount is the lesser of your twelve-month average payroll expenses multiplied by 2.5 or $10million. Payroll expenses include salaries and wages, commissions, sick leave, health care benefits, retirement benefits and severance. Payroll expense will exclude the compensation of any individual exceeding $100K annually, employees whose principal residence is outside of the U.S., sick leave and family leave wages paid under the Families First Coronavirus Response Act and the employers share of SSA taxes.
The permissible uses of the loan proceeds are payroll expenses (as defined above), payments of interest on any debt obligation secured by real or personal property, rent and utilities and interest on any debt obligation. There is no collateral requirement and no personal guarantees.
The loan recipients are eligible for loan forgiveness in an amount equal to all payroll expenses, payments of interest, rent for a lease and utilities incurred over the first eight weeks from the date of the origination of the loan. The loan forgiveness amount will be reduced by the percentage of full-time equivalent employees that were eliminated during the 8 week period with certain exceptions.
CARES Act Payroll Tax Deferral:
The new CARES Act allows certain taxpayers to defer payment for the employer portion of certain social security taxes under IRC §3111(a) through December 31, 2020. The typical payroll social security taxes are composed of an employee portion withheld from the employee check and an employer portion. Only the employer portion is deferred. Any payroll taxes deferred will be considered timely deposited if 50% of the applicable taxes are deposited by December 31, 2021 and the remaining balance deposited by December 31, 2022. This provision of the act does not apply to any taxpayer which has had indebtedness forgiven under other provisions of the CARES Act (Act Sec. 1102 paycheck protection program or 1109 US Treasury Management Authority)
About BKM Sowan Horan
BKM Sowan Horan is a professional accounting firm based in Texas with offices in Dallas and Austin. We have a national practice specializing in mortgage banking, real estate, professional services and other small to mid-size businesses. Our commitment is to being a strategic, innovative and responsive partner, distinguishing us from other accounting firms. We desire to make a difference in the lives of our clients and the careers of our employees through interaction with those clients. We will seek out appropriate solutions and options for our clients with the objective of creating long-term professional relationships. To learn more, please visit www.bkmsh.com.
For any questions on or more information on how it will impact your company, please contact Dustin Pfluger, Partner at [email protected], Brad Marckx, Partner at [email protected], or Tony DeYoung, Senior Manager at [email protected].