We hope that you are well in this tenuous time. There have been many recent changes in the law that will affect both business and individual taxpayers. We wanted to send a summary of some of these changes and give you the most up to date information that is currently available.
On March 27th President Trump signed the CARES Act into law. This legislation is intended to provide needed economic assistance to both individuals and business affected by COVID-19. This e-mail provides general information regarding the legislation. Due to the Columbia shelter in place order and the COVID-19 virus we are not conducting face-to face meetings. We will be working and are available to answer any specific questions that you have over the telephone.
Rebate Checks – The Act will send taxpayers an advance payment of a credit on your 2020 personal tax return. The rebate will be based on your 2019 return if it has been filed. If it has not been filed, the rebate will be based on your 2018 return. When your 2020 return is filed the credit will be recomputed based on the information contained on your 2020 tax return. Taxpayers who did not receive checks because they did not qualify based on their 2018 or 2019 returns could qualify for the credit on the 2020 return. The rebate will be:
$1,200 (if single/$2,400 if married filing jointly) PLUS $500 for each child under the age of 17.
The checks will be reduced by 5% of Adjusted Gross Income over $75,000 for individuals and $150,000 for married filing joint returns.
Expanded Unemployment – Unemployment insurance provisions now include an additional $600 per week payment to each recipient for up to four months. The act extends unemployment benefits to self-employed workers, independent contractors, and those with limited work history.
Retirement Account Distribution – Waives the 10 percent early withdrawal penalty on retirement account distributions up to $100,000 for taxpayers facing virus-related challenges. The distribution is taxable over a three year period and you can recontribute the withdrawn funds back into the account for three years without affecting contribution limits.
Required Minimum Distribution – required minimum distribution rules for 401k, 403b, 457b plans and IRAs are waived for calendar year 2020.
Extended deadline for 2019 IRA contributions – The deadline to contribute to an IRA to July 15, 2020
50 percent refundable payroll tax credit – Employers are eligible for a 50 percent refundable payroll tax credit on wages. The credit is available to employers whose businesses were disrupted due to virus shutdowns and those that had a decrease in gross receipts of 50 percent or more when compared to the same quarter last year. The credit can be claimed for employees who are retained but not currently working due to the crisis. The amount of the tax credit is 50% of the qualifying wages of the employer. Qualifying wages for each employee are limited to $10,000 for all quarters and wages paid to certain employees are subject to additional limitation or exclusions. In addition, the credit is not available if the employer is a borrower under the Payroll Protection Loan Program.
Paycheck Protection Program- Small businesses may take out loans to cover employee payroll. Loans may be forgiven if a firm uses the loan for payroll, interest payments on mortgages, rent, and utilities and would be reduced proportionally by any reduction in employees retained compared to the prior year and a 25 percent or greater reduction in employee compensation.
The loans are available for any business with 500 or fewer employees including sole proprietors, independent contractors, and eligible self-employed workers. Eligible recipients could receive loans for 250% of their average monthly payroll costs. Interest rates during the covered period are capped at 4%. Recipients can use the loans to cover eligible payroll costs — including salaries, commissions, regular paid leave, and health-care benefits — as well as rent, mortgage interest and utility payments and interest on other debt incurred before the covered period.
The funds can’t be used to compensate individual employees at an annual rate above $100,000, or to pay for emergency sick or family leave under the second coronavirus response package.
Loan Forgiveness – Recipients of SBA-guaranteed loans under the Paycheck Protection Program can apply for loan forgiveness over eight weeks for eligible payroll costs (including tipped employees) and for mortgage interest, rent, and utility payments. The SBA will pay lenders for any canceled debt plus accrued interest. Loan forgiveness is reduced for businesses that fire employees or cut their pay. Canceled debt is excluded from borrowers’ gross income for tax purposes.
Employer-side Social Security payroll tax payments delayed – The CARES Act permits employers and self-employed individuals (other than taxpayers who have had indebtedness forgiven under the CARES Act) to delay payment of the 6.2% employer share of the Social Security tax (but not the 1.45% employer share of the Medicare) until January 1, 2021, with 50 percent owed on December 31, 2021 and the other half owed on December 31, 2022.
Net operating losses (NOLs) – Firms may take NOL’s earned in 2018, 2019, or 2020 and carry back those losses five years.
Qualified Improvement Property – Taxpayers are now allowed to claim bonus deprecation for the costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of the building. Further, this provision states that taxpayers may treat the change in law as if it was always in the law. This means that the change applies to 2018 and 2019.
We will keep you updated on any additional changes that may affect your tax situation as information becomes available. Please stay well and don’t hesitate to call with your questions.
IRS Extension to file and pay – The Treasury Department and Internal Revenue Service announced that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020. Taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts, estates, corporations and other non-corporate tax filers.
South Carolina extension to file and pay – Corporate Income Tax, Sales and Use Tax, Admissions Tax, Withholding Tax, and other SC taxes due between April 1st and June 1st will now be due June 1, 2020. Penalty and interest will not be charged if payment is made by June 1st.
South Carolina individual income tax will now be due July 15th to conform to the Federal filing deadline as directed by the Governor on Saturday March 21st. Penalty and interest will not be charged if payment is made by July 15th .
South Carolina is automatically applying this tax relief for all applicable returns and payments; you don’t need to take any additional action.
SC unemployment Insurance – Governor McMaster directed the South Carolina Department of Employment and Workforce to waive the one-week waiting period for individuals who are otherwise eligible to receive unemployment benefits and to facilitate and expedite the processing of claims submitted by eligible individuals who have suffered an unanticipated separation from employment, or reduction of hours, as a result of COVID-19. Additionally, the Governor extended the deadline for employers to pay unemployment insurance taxes on first quarter (QI) 2020 wages until June 1, 2020, without interest.
Families First Coronavirus Response Act (Act) – Starting April 2nd small and midsize employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees. This relief to employees and small and midsize businesses is provided under the Families First Coronavirus Response Act.
The Act will help the United States combat and defeat COVID-19 by giving all American businesses with fewer than 500 employees funds to provide employees with paid leave, either for the employee’s own health needs or to care for family members. The legislation will enable employers to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus.
For COVID-19 related reasons, employees receive paid sick leave and expanded paid childcare leave when employees’ children’s schools are closed, or childcare providers are unavailable.
Employers receive 100% immediate dollar-for-dollar tax offset against payroll taxes.
Small Business Administration disaster loan – Working capital loans to help small businesses, small agricultural cooperatives, small businesses engaged in aquaculture, and most private, non-profit organizations of all sizes meet their ordinary and necessary financial obligations that cannot be met as a direct result of the disaster. These loans are intended to assist through the disaster recovery period. The interest rate is determined by formulas set by law and is fixed for the life of the loan. The maximum interest rate for this program is 3.75 percent.
Our office is currently operational, and we are diligently working to provide service to our clients. For now, we have elected to conduct telephone meetings in lieu of face to face meetings.
We will keep you updated on any additional changes that may affect your tax situation as information becomes available. Please stay well and don’t hesitate to call should you need to speak with me.