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We understand that in this time of uncertainty you may have growing concerns for the financial health of yourselves and your businesses, employees, and families. We are closely monitoring federal and state updates that impact our clients and their businesses and will continue to update our COVID-19 Resources page with articles and information as these issues rapidly develop and change.
Tax Newsletter - January Newsletter
2020 Year-End Tax Letter - 2020 Letter
SBA and Treasury Announce PPP Re-Opening; Issue New Guidance
WASHINGTON – The U.S. Small Business Administration (SBA), in consultation with the Treasury Department, announced today that the Paycheck Protection Program (PPP) will re-open the week of January 11 for new borrowers and certain existing PPP borrowers. To promote access to capital, initially, only community financial institutions will be able to make First Draw PPP Loans on Monday, January 11, and Second Draw PPP Loans on Wednesday, January 13. The PPP will open to all participating lenders shortly thereafter. Updated PPP guidance outlining Program changes to enhance its effectiveness and accessibility was released on January 6 in accordance with the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act.
This round of the PPP continues to prioritize millions of Americans employed by small businesses by authorizing up to $284 billion toward job retention and certain other expenses through March 31, 2021, and by allowing certain existing PPP borrowers to apply for a Second Draw PPP Loan.
“The historically successful Paycheck Protection Program served as an economic lifeline to millions of small businesses and their employees when they needed it most,” said Administrator Jovita Carranza. “Today’s guidance builds on the success of the program and adapts to the changing needs of small business owners by providing targeted relief and a simpler forgiveness process to ensure their path to recovery.”
“The Paycheck Protection Program has successfully provided 5.2 million loans worth $525 billion to America’s small businesses, supporting more than 51 million jobs,” said Treasury Secretary Steven T. Mnuchin. “This updated guidance enhances the PPP’s targeted relief to small businesses most impacted by COVID-19. We are committed to implementing this round of PPP quickly to continue supporting American small businesses and their workers.”
Key PPP updates include:
• PPP borrowers can set their PPP loan’s covered period to be any length between 8 and 24 weeks to best meet their business needs;
• PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures;
• The Program’s eligibility is expanded to include 501(c)(6)s, housing cooperatives, direct marketing organizations, among other types of organizations;
• The PPP provides greater flexibility for seasonal employees;
• Certain existing PPP borrowers can request to modify their First Draw PPP Loan amount; and
• Certain existing PPP borrowers are now eligible to apply for a Second Draw PPP Loan.
A borrower is generally eligible for a Second Draw PPP Loan if the borrower:
• Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses;
• Has no more than 300 employees; and
• Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
The new guidance released includes:
• PPP Guidance from SBA Administrator Carranza on Accessing Capital for Minority, Underserved, Veteran, and Women-owned Business Concerns;
•Interim Final Rule on Paycheck Protection Program as Amended by Economic Aid Act; and
•Interim Final Rule on Second Draw PPP Loans.
For more information on SBA’s assistance to small businesses, visit sba.gov/ppp
Key Tax Provisions in New Relief Law
Roundup of significant tax changes
The new economic relief law passed by Congress at the end of the year—which was signed on December 27—includes a second round of economic stimulus checks, extended unemployment benefits and eviction protections, and much more. Following is a brief summary of several key tax provisions in the new law.
Economic stimulus payments: Under the new law, qualified individuals are entitled to receive a maximum tax-free payment of $600 per individual, plus $600 for each qualified child under age 17, based on information provided on 2019 tax returns. Payments begin to phase out at an adjusted gross income (AGI) of $75,000 for single filers and $150,000 for joint filers.
Charitable donations: The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed earlier last year authorized an above-the-line deduction for monetary charitable donations made by non-itemizers in 2020. The new law extends this tax break to 2021 and doubles it to $600 for joint filers.
Paycheck Protection Program loans: The new law extends and modifies the Paycheck Protection Program (PPP). As before, loans may be forgiven without tax consequences if certain requirements are met. Furthermore, the new law clarifies that a business may deduct expenses paid with PPP loan proceeds, contrary to prior IRS guidance.
Medical deductions: The new law retains the lower medical deduction threshold based on 7.5% of AGI—permanently. The lower threshold, which was reduced by the Tax Cuts and Jobs Act (TCJA) and subsequently extended through 2020, was scheduled to revert to 10% of AGI in 2021.
Employee retention credit: Under the CARES Act, an employer could claim an employee retention credit (ERC), up to $5,000 per employee, for qualified wages paid in 2020. The new law increases the maximum ERC to $14,000 per employee, among other changes, for wages paid in the first two quarters of 2021.
Family and medical leave credit: Another new law enacted last year—the Families First Coronavirus Response Act (FFCRA)—provided employers with a tax credit for family and medical leaves paid in 2020 due to COVID-19. The credit has been modified and extended through March 31, 2021.
Flexible spending accounts: Under the new law, you may roll over unused funds in a flexible spending account (FSA) from 2020 to 2021 and from 2021 to 2022. This applies to FSAs used for either health care or dependent care expenses.
Payroll tax deferral: If an employer chose this option, the deadline for employee payments of the Social Security tax component of payroll tax for part of 2020 was postponed to April 30, 2021. The new law now permits payments to be made as late as December 31, 2021.
Business meals: Previously, deductions for business meals were limited to 50% of the cost. The new law increases the deduction to 100% of the cost for 2021 and 2022.
Higher education expenses: The deduction for tuition and fees, which was due to expire after 2020, has been repealed. In addition, the new law adjusts the phaseout ranges for the Lifetime Learning Credit (LLC) to match those for the American Opportunity Tax Credit (AOTC), beginning in 2021.
Tax extensions: Finally, the new law extends a number of provisions that were scheduled to expire after 2020, including the Work Opportunity Tax Credit (WOTC), the tax exclusion for mortgage forgiveness, and tax incentives for empowerment zones, among others. The extensions for the most common provisions generally last for five years.
This article only summarizes some of the most important tax changes in the new economic relief law. Please contact your professional tax advisor to determine the impact for your family and business.
Can You Claim a Recovery Rebate Credit?
IRS issues guidance on EIP shortages
The massive law enacted by Congress last year in response to the COVID-19 outbreak—the Coronavirus Aid, Relief, and Economic Security (CARES) Act—authorized the distribution of Economic Impact Payments (EIPs) to qualified individuals. (Late in December, Congress authorized another round of payments.) But some eligible taxpayers were shorted or did not receive any payment at all.
Fortunately, you still have some recourse. If you qualify, you can claim a “recovery rebate credit” on your 2020 tax return. Generally, this credit will increase the amount of your tax refund or lower the amount of the tax you owe.
Background: Under the CARES Act, millions of Americans received EIPs in 2020. The maximum EIP was $1,200 for single filers and $2,400 for joint filers if both spouses were eligible. In addition, you were entitled to receive an extra $500 payment for each qualified child under the age of 17. Advance payments were made by direct deposit or check.
But not everyone received the full amount that they were supposed to collect. For example, the IRS may not have had all the information needed to provide the maximum economic stimulus payment or it may have failed to add $500 for a child born in 2020.
The IRS recently posted guidance reminding taxpayers that you may be able to claim the recovery rebate credit if—
• You are eligible but did not receive an EIP in 2020; or
• Your EIP was less than $1,200 ($2,400 for joint filers) plus $500 for each qualifying child you had in 2020.
To be eligible for the recovery rebate credit, you must have been a U.S. citizen or U.S. resident alien in 2020, you cannot have been a dependent of another taxpayer for the 2020 tax year and you must have a Social Security number (SSN) valid for employment issued before the due date of your 2020 tax return (including extensions).
You can take the recovery rebate credit for any recovery rebate amount that is more than the EIP you received by completing the required information on your 2020 tax return.
As was the case with the first round of EIPs handed out in 2020, the maximum recovery rebate credit is $2,400 if you file a joint return or $1,200 for all other eligible individuals. Those with qualified children will receive up to an additional $500 per child. The recovery rebate amount is phased out if your adjusted gross income (AGI) for 2020 exceeds $75,000 for single filers or $150,000 for joint filers.
Because the EIP received in 2020 was an advance payment, the IRS has included a worksheet in the tax return instructions to determine the amount of any recovery rebate amount. It can be tricky, so contact your professional tax advisor for assistance.
Reminder: Don’t procrastinate. This is especially true if you expect to receive a refund on your 2020 return.
Speed Up Corporate Tax Refund
If your C corporation overpaid its estimated tax in 2020 due to the pandemic or some other reason, you may be in line for some quick tax relief.
When you file Form 4466 with the IRS, you will receive a faster-than-usual refund. It may arrive within a matter of weeks. The fast corporate refund is available if—
• The overpayment is at least 10% of the estimated 2020 tax liability.
• The overpayment is at least $500.
The sooner you file for the refund, the better. Contact your professional tax advisor for more details.
Facts and Figures
Timely points of particular interest
Standard Mileage Rates—The IRS has announced the standard mileage rates that taxpayers may choose to use to deduct expenses in 2021. If you use a vehicle for business driving, the flat rate is 56 cents per mile, down from 57.5 cents in 2020. For travel for medical reasons (or moving by military personnel), the rate for 2021 is 16 cents per mile, down from 17 cents. Note: The rate for charitable driving, which is set by Congress, remains at 14 cents per mile.
New Tax Form—Your business may be required to file a new tax information form this year. Beginning with payments for the 2020 tax year, you must report compensation of more than $600 paid to nonemployees like independent contractors on Form 1099-NEC. Previously, Form 1099-MISC was used for this purpose. The new Forms 1099-NEC must be sent to both the IRS and recipients by February 1, 2021.
As of August 4, 2020
PAYCHECK PROTECTION PROGRAM - Frequently Asked Questions (FAQs) on PPP Loan Forgiveness
The Small Business Administration (SBA), in consultation with the Department of the Treasury, is providing this guidance to address borrower and lender questions concerning forgiveness of Paycheck Protection Program (PPP) loans, as provided for under section 1106 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), as amended by the Paycheck Protection Program Flexibility Act (Flexibility Act).
Borrowers and lenders may rely on the guidance provided in this document as SBA’s interpretation, in consultation with the Department of the Treasury, of the CARES Act, the Flexibility Act, and the Paycheck Protection Program Interim Final Rules (“PPP Interim Final Rules”) https://home.treasury.gov/poli...
General Loan Forgiveness FAQs
1. Question: Which loan forgiveness application should sole proprietors, independent contractors, or self-employed individuals with no employees complete?
Answer: Sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form automatically qualify to use the Loan Forgiveness Application Form 3508EZ or lender equivalent and should complete that application.
2. Question: Can PPP lenders use scanned copies of documents, E-signatures, or Econsents for loan forgiveness applications and loan forgiveness documentation?
Answer: Yes. All PPP lenders may accept scanned copies of signed loan forgiveness applications and documents containing the information and certifications required by SBA Form 3508, 3508EZ, or lender equivalent. Lenders may accept any form of E-consent or E-signature that complies with the requirements of the Electronic Signatures in Global and National Commerce Act (P.L. 106-229).
If electronic signatures are not feasible, then when obtaining a wet ink signature without in-person contact, lenders should take appropriate steps to ensure the proper party has executed the document. This guidance does not supersede signature requirements imposed by other applicable law, including by the lender’s primary federal regulator.
3. Question: If a borrower submits a timely loan forgiveness application, does the borrower have to make any payments on its loan prior to SBA remitting the forgiveness amount, if any?
Answer: As long as a borrower submits its loan forgiveness application within ten months of the completion of the Covered Period1 (as defined below), the borrower is not required to make any payments until the forgiveness amount is remitted to the lender by SBA. If the loan is fully forgiven, the borrower is not responsible for any payments. If only a portion of the loan is forgiven, or if the forgiveness application is denied, any remaining balance due on the loan must be repaid by the borrower on or before the maturity date of the loan. Interest accrues during the time between the disbursement of the loan and SBA remittance of the forgiveness amount. The borrower is responsible for paying the accrued interest on any amount of the loan that is not forgiven. The lender is responsible for notifying the borrower of remittance by SBA of the loan forgiveness amount (or that SBA determined that no amount of the loan is eligible for forgiveness)
and the date on which the borrower’s first payment is due, if applicable.
Revised Form 941 for 2020 - Employer's Quarterly Federal Tax Return
As part of the FFRCA, and CARES Act, Congress has provided for various payroll tax credits and has revised Form 941.
Please see below for a copy of the draft form along with instructions for filling out the new form. Please note, an employer may NOT claim the employee retention credit, if the employer receives a Small Business Interruption Loan under the Paycheck Protection Program (PPP) that is authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act (“Paycheck Protection Loan”). An employer that receives a Paycheck Protection Loan should not claim an employee retention credit.
Instructions for Form 941: https://www.irs.gov/pub/irs-df...
Revised Form 941: https://www.irs.gov/pub/irs-df...
Harper Pearson has taken measures to achieve our first priority of protecting the health and safety of our employees, clients, and the community at large. Our office will remain open for business, but access to our office will be modified as follows:
1. We encourage clients to send information electronically or via a delivery service.
2. Please contact us at firstname.lastname@example.org or call our office directly at 713.622.2310 if you need assistance.
3. There will be someone at our office from 8:00 am to 5:00 pm to meet with you if necessary.
4. On January 11th, we will begin a phased return of employees to our offices. While we encourage our clients to continue communicating by telephone, email, or delivery service, we will have the ability to meet clients in our office as needed. We are requiring all employees, vendors, and clients to acknowledge a statement regarding COVID-19 and to wear a mask to gain access to our offices. Once in our conference room, the mask may be removed with the practice of social distancing.
For those Harper Pearson clients practicing social distancing, or you do not feel comfortable coming to our office in person, these options are available to you:
• Email remains the most effective option for electronic communication.
• Electronic document sharing may be arranged using Harper Pearson’s secure portal. If you would like to be set up on the firm’s portal, please contact Shannon Allison at email@example.com or your Harper Pearson contact. An electronic signature of tax returns is available using RightSignature.
Your Harper Pearson contact can also set-up a virtual meeting, conference call, and video conferencing with you as an alternative to in-person meetings. You can also send documents via FedEx, UPS, USPS, or any courier service. Please coordinate this with your Harper Pearson contact. For more information, please contact us at firstname.lastname@example.org or call our office directly at 713.622.2310.