Covid-19 Tax Updates For Business
Family and Medical Leave Act (FMLA)
Effective September 16, the U.S. Department of Labor’s Wage and Hour Division announced revisions to the expanded family and medical leave provisions of the Families First Corona Virus Response Act (FFRCA). The changes largely reaffirm but also clarify specific sections of the legislation regarding documentation required to support an employee’s request for FFCRA leave and provide a more restricted definition of “healthcare provider” exempted from leave eligibility.
Through December 31, 2020, the regulations allow:
- Employees to take 2 weeks of emergency leave in order to care for a family member stricken with COVID-19 or care for children who are quarantined at home during government-mandated school closures
- After taking the initial 2 weeks of emergency leave, employees may be eligible for another 10 weeks of paid leave. Small businesses with fewer than 50 employees may be exempted from this requirement if it would jeopardize the viability of the business as a going concern.
All employers must notify their employees immediately and in a conspicuous space of the FMLA updates, which are mandatory for all employers with fewer than 500 employees.
Employers can receive 100% credit for the cost of providing FFRCA leave via their 941 forms.
Economic Injury Disaster Loan (EIDL)
The SBA has been providing disaster assistance to small businesses for many years through its EIDL program. CARES Act legislation has made loan funds available to small businesses to cover general expenses, including rent, payroll, accounts payable and general operating expenses at a rate of 3.75% for a term of up to 30 years. Businesses that received loans through the Paycheck Protection Program may apply for EIDL funding as well. Note that December 31, 2020 is the deadline for applying for EIDL funds under the current authorization.
Information about EIDL is available here.
For more information visit SBA Disaster Assistance.
Paycheck Protection Program (PPP)
The Paycheck Protection Program has provided loans to small business affected by the global health crisis to help them retain employees. Cash in the hands of small business owners paid for ongoing operational expenses during a time of severe economic downturn. The CARES Act stipulated these loans would be forgiven if employers use at least 60% of the funds for payroll and associated expenses and benefits, interest on certain mortgage obligations, and for rent and utilities. Additionally, employers must have met requirements regarding employee retention during the period when loan proceeds were used to cover business expenses.
The catch comes at tax time, however, when business expenses for the year are tallied and subtracted from income. Regardless of Congressional leaders’ intent that covered expenses would be deductible, the IRS has ruled that a business expense that is otherwise deductible will be disallowed if its payment results in the forgiveness of a PPP loan.
Please contact us if you have questions about PPP loans and their effect on your 2020 taxes.
PPP Loan Forgiveness
Businesses may apply for forgiveness when they have spent their PPP loan proceeds. Before completing the forgiveness application, we recommend that business owners seek professional guidance. Forgiveness rules have changed a great deal since the program began, including the expansion of the period to claim covered expenses from 8 to 24 weeks. The choice of a covered period could have a significant impact on loan forgiveness and should be considered carefully.
The SBA has issued a revised PPP Loan Forgiveness Application, which includes an EZ application that many business owners may qualify for. Because lenders are responsible for submitting forgiveness applications to the SBA on behalf of borrowers, business owners should check with their bank for specific documentation required. You can download the revised PPP Loan Forgiveness Application from the Department of the Treasury website.
For help selecting the best forgiveness application strategy for your business, contact your tax advisor at Diamond & Associates, PC CPAs.
Employee Retention Credit
On March 27, 2020, Congress enacted The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which is designed to encourage employers affected by the global health crisis to keep employees on their payroll, even if they are experiencing financial difficulties due. The IRS will provide eligible employers with an employee retention tax credit (Employee Retention Credit) to cover qualified wages, including qualified health plan costs.
The Employee Retention Credit is a fully refundable tax credit for employers equal to 50 percent of qualified wages that eligible employers pay their employees. The credit will apply to qualified wages paid after March 12, 2020, through the end of this calendar year. The maximum credit for an Eligible Employer for qualified wages paid to any employee during this time period is $5,000.
For more information about the Employee Retention credit click here.