COVID-19 Legislative Updates

If you are feeling overwhelmed and are experiencing "information overload" consider watching the following presentation by our Tax Partner, Jon Rausch. In this presentation, Jon discusses the recent legislation around COVID-19 and how it may impact your business.

Transcript

1. COVID-19 Legislative Updates: What You Should Know 4/3/2020
2. Agenda  IRS Notices  IRS Notice 2020-18  IRS Notice 2020-20  IRS Notice 2020-59  Coronavirus Aid, Relief, and Economic Security (CARES) Act Families First Coronavirus Response Act (FFCRA)
3. IRS Notices
4. IRS Notice 2020-18  Certain taxpayers automatically qualify to defer their federal income tax filings and payment of income tax until July 15, 2020.  This applies to any individual, trust, estate, partnership, association, company, or corporation with federal income tax filing or payment deadline of April 15, 2020.  For eligible taxpayers, the due date for filing a federal income tax return and making any federal income tax payment due April 15, 2020, is automatically postponed to July 15, 2020. Applicable extension forms do not need to be filed to obtain the extension.
5. IRS Notice 2020-18 Continued  The filing and payment deadline relief applies to any federal income tax filing (Forms 1040, 1065, 1120, 1041) and any amount of federal income tax payment (including payments of tax on self-employment income) and federal estimated income tax payments (including payments of tax on self- employment income) due on April 15, 2020.  The relief does not apply to the payment or deposit of any other type of federal tax or to the filing of any federal information return unless so provided in the Notice.  IRS Notice 2020-18 does not exempt all federal tax return filings and payments. For example, it does not apply to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Returns, or Forms 941, Employer’s Quarterly Federal Tax Return, nor payments associated with those returns.  The Notice does not specifically indicate that it exempts foreign information reporting returns, such as IRS Form 3520.
6. IRS Notice 2020-20  Certain taxpayers automatically qualify to defer their gift or generation-skipping transfer tax returns and payment of associated tax until July 15, 2020.  This applies to any person with a federal gift tax or generation-skipping transfer tax payment due or the requirement to file Form 709 on April 15, 2020.  For eligible taxpayers, the due date for filing the Form 709 and making any associated gift or generation- skipping transfer tax is automatically postponed to July 15, 2020. Applicable extension forms do not need to be filed to obtain the extension.  The filing and payment deadline relief applies to any gift or generation-skipping transfer tax return and payment of associated tax due on April 15, 2020.
7. IRS Notice 2020-59  On March 25, 2020, the IRS unveiled its new People First Initiative, which is a “sweeping series of steps to assist taxpayers by providing relief on a variety of issues ranging from easing payment guidelines to postponing compliance actions.”
8. IRS Notice 2020-59 Continued  Installment Agreements – Taxpayers under an existing installment agreement, the IRS is suspending any payments due between April 1, 2020, through July 15, 2020. The IRS has agreed not to default any installment agreements during this period.  Offers-in-Compromise – For pending OIC applications, the IRS is permitting taxpayers until July 15, 2020, to provide requested additional information to support a pending OIC. The IRS has agreed not to close any pending OIC request before July 15, 2020, without the taxpayer’s consent. Taxpayers with accepted OICs, such taxpayers may request the suspension of all payments until July 15, 2020.
9. IRS Notice 2020-59 Continued  Field and Automated Collection – The IRS has indicated it will stay all collection actions (liens and levies) until July 15, 2020. However, field revenue officers may continue to pursue high-income non-filers and perform other similar activates where warranted.  Passport Certifications – The IRS will suspend new certifications to the State Department for taxpayers who are “seriously delinquent” until July 15, 2020.  Audits – The IRS will generally not start any new field, office, and correspondence examination unless deemed necessary to protect the Government’s interests in preserving the applicable statute of limitations on assessment. The IRS will continue to work on refund claims.  Appeals – Appeals employees will continue to work their cases; however, they will not be in-person. Taxpayers are urged to promptly respond to any outstanding requests for information for all cases in Appeals.
10. Coronavirus Aid, Relief, and Economic Security (CARES) Act
11. On March 27th the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law by President Donald Trump. The Act includes assistance for struggling businesses, several tax policy changes, and rebates for individuals.
12. Business Assistance: Loans and Payroll Tax Credits
13. Paycheck Protection Program  Provides access to loans for businesses (including sole proprietorships) with fewer than 500 employees  Loans will have a maximum maturity of 10 years and an interest rate not to exceed 4%  The loans may be used to cover payroll, mortgage payments, rent, utilities, and other debt service requirements  Loans are generally limited to the lesser of (a) average payroll costs for the 1 year ending on the date the loan was made multiplied by 2.5 or (b) $10 million  A portion of the loans may be forgiven on a tax-free basis if the business meets certain criteria
14. Emergency Economic Injury Disaster Loan (EIDL) Grants  Expands SBA disaster loan program to sole proprietors and ESOPs  No personal guarantee required on loans below $200,000  Allows businesses that have applied for a disaster loan to get an immediate advance of up to $10,000, which is not required to be repaid (even if the borrower’s request for an EIDL grant is denied)
15. Refundable Payroll Tax Credit  Available to employers whose operations were fully or partially suspended due to a COVID-19-related shutdown order or whose gross receipts declined by more than 50% when compared to the same quarter in the prior year  Equal to 50% of wages paid to employees from March 31 through December 31, 2020
16. Deferred Payment of Employer Payroll Taxes  Allows employers and self-employed individuals to defer payment of the 6.2% employer share of social security tax that would be due through December 31, 2020  Requires the deferred employment tax to be paid over 2 years in 2021 and 2022
17. Tax Policy Changes
18. Business Interest Limitation  For tax years 2019 and 2020, temporarily increases the amount of deductible interest expense from 30% of adjusted taxable income to 50%
19. Technical Amendment for Qualified Improvement Property  Corrects an error in the Tax Cuts and Jobs Act of 2017 that increased the depreciable life of qualified improvement property to 39 years  Retroactive to January 1, 2018, qualified improvement property is now depreciated over 15 years and is eligible for bonus depreciation
20. Net Operating Losses  NOLs arising in 2018, 2019 and 2020 can be carried back 5 years and fully offset income (eliminating the 80% limitation)
21. Retirement Funds  Individuals may withdraw up to $100,000 from retirement accounts with no penalty if repaid over the next 3 years  Retirees have the option to waive required minimum distributions for 2020
22. Charitable Contributions  Allows taxpayers utilizing the standard deduction to claim an additional “above-the-line” deduction up to $300 for cash contributions to certain qualifying charities beginning in 2020  Suspends the limit on deductions for charitable contributions for taxpayers that itemize in 2020  Increases the corporate charitable deduction limit for 2020 to 25% (up from 10%)
23. Individuals Assistance: Rebates and Extended Unemployment
24. Individual Recovery Rebates  U.S. residents with adjusted gross income up to $75,000 ($150,000 for joint filters) are eligible for a $1,200 ($2,400 married) rebate PLUS $500 for each child, with phase-outs for AGI exceeding these thresholds. (Complete phaseout at $99,000 for individuals or $198,000 for joint filters.)  Rebates are based on income reported on 2019 tax returns (or 2018 returns if 2019 return hasn’t been filed yet)  Rebate checks will be going out between the date passed and December 31, 2020
25. Unemployment Insurance Provisions  Expands unemployment insurance so that jobless workers will receive an extra $600 per week through July 31 in addition to state benefits  Benefits are also available to independent contractors, the self- employed and gig workers
26. Families First Coronavirus Response Act (FFCRA)
27. On March 18th the Families First Coronavirus Response Act was signed into law by President Donald Trump. It includes the Emergency Family and Medical Leave Expansion Act and the Emergency Paid Sick Leave Act (collectively, the “FFCRA”). The FFCRA is effective for leave requested from April 1, 2020 through December 31, 2020.
28. Emergency Family and Medical Leave Expansion Act
29. Summary  The FFCRA amends the Family and Medical Leave Act of 1993 (“FMLA”) to include FMLA paid leave (“FMLA COVID-19 Leave”) for a “qualifying need” related to a COVID-19 emergency declared by Federal, State, or local authority.  For these purposes, a “qualifying need” means the employee is unable to work (or telework) due to the need for leave to care for a son or daughter under the age of 18 if the school or place of work has been closed, or the child care provider for the child is unavailable, due to a COVID-19 emergency declared by a Federal, State or local authority.
30. Eligibility  Not all employees qualify under the FFCRA. Specifically, to qualify for FMLA COVID-19 Leave, the employee must have been employed with the business for at least 30 calendar days prior to the request for leave and the business must have less than 500 employees.  The Secretary of Labor has authority to exempt certain small businesses with fewer than 50 employees from the new FMLA requirements if the imposition of the new requirements would jeopardize the viability of the business as a going concern (“Small Business Exemption”).
31. Eligibility: Small Business Exemption  To qualify for the Small Business Exemption, the business must have fewer than 50 employees and an authorized officer of the business must determine that:  The provision of FMLA COVID-19 Leave or paid sick leave would result in the small business’s expenses and financial obligations exceeding available business revenues and cause the small business to cease operating at a minimal capacity;  The absence of the employee or employees requesting FMLA COVID-19 Leave or paid sick leave would entail a substantial risk to the financial health or operational capabilities of the small business of their specialized skills, knowledge of the business, or responsibilities; or  There are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee or employees requesting FMLA COVID-19 Leave and paid sick leave, and these labor or services are needed for the small business to operate at a minimal capacity.
32. FMLA COVID-19 Paid Leave  If the employee qualifies and elects FMLA leave for a COVID-19 emergency, the employer must provide paid FMLA COVID-19 Leave to the employee based on:  An amount not less than two-thirds of the employee’s regular rate of pay  The number of hours the employee would otherwise be normally scheduled to work
33. Duration  The employer is not required to pay FMLA COVID-19 Leave for the first 10 working days, although the employee may elect to substitute any accrued vacation leave, personal leave, or medical or sick leave for unpaid leave.  The employer is not required to pay FMLA COVID-19 Leave in excess of $200 per day and $10,000 in the aggregate.  FMLA COVID-19 Leave can continue for 12 weeks after the date the employee claims the leave unless the qualifying need ceases to exist.
34. Emergency Paid Sick Leave Act
35. Summary  The FFCRA mandates employer paid sick time (“COVID-19 Sick Leave”) to the extent an employee is unable to work (or telework) due to various prescribed events relating to COVID-19.
36. Eligibility  Not all employees qualify under the FFCRA. Specifically, to qualify for COVID-19 Sick Leave, the employee must work for a business with less than 500 employees.  Unlike FMLA COVID-19 Leave, there is no requirement that the employee have been employed with the employer for 30 days.  The Secretary of Labor has authority to exempt certain small businesses with fewer than 50 employees from the new COVID-19 Sick Leave requirements if the imposition of the new requirements would jeopardize the viability of the business as a going concern (“Small Business Exemption”), same as described above for FMLA COVID-19 Leave.
37. COVID-19 Paid Sick Leave  The FFCRA mandates employer paid sick time to the extent an employee is unable to work (or telework) due to the following:  The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19  The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19  The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis  The employee is caring for an individual who is subject to an order described in the above  The employee is caring for a son or daughter if the school or place of care has been closed, or the child care provider of such child is unavailable, due to COVID-19 precautions  The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and Secretary of Labor
38. Duration  Full-time employees are entitled to paid sick time for up to 80 hours of work and part-time employees are entitled to paid sick time equal to the number of hours in which the employee typically works, on average, over a 2-week pay period.  The employer is prohibited from requiring the employee to use other paid sick time available to the employee prior to using the COVID-19 Sick Leave.
39. Payroll Tax Credits
40. Summary  Because employers are required to pay FMLA COVID-19 Leave and COVID-19 Sick Leave where applicable, the Act provides payroll tax credits to employers.  Employers can obtain the payroll tax credits through a credit on their quarterly employment tax returns.  If the payroll tax credit exceeds the amount of payroll tax for the quarter, the excess is treated as an overpayment and will be refunded by the IRS to the employer.
41. Self-Employed Individuals  The FFCRA also provides relief for self-employed individuals with FMLA COVID-19 Leave and COVID-19 Sick Leave equivalents.  A self-employed individual is eligible for these equivalents if the individual regularly carries on any trade or business and would be entitled to FMLA COVID-19 Leave and/or COVID-19 Sick Leave if the individual were an employee of an employer (other than himself or herself).
42. Jon Rausch Partner Jon.Rausch@holtzmanpartners.com O: 512.610.7215 M: 281.507.0138