Tax and financial advice from the Silicon Valley expert.

Due date for property tax statements for California businesses extended

After I spent the day on May 7, 2020 preparing the 2020 property tax statement (Form 571-L) for my business, I learned that Governor Newsom issued an Executive Order on May 6, 2020 extending the date on which penalties can be assessed for late filing from May 7 to May 31, 2020.

Here is a URL for the Order.  https://www.gov.ca.gov/wp-content/uploads/2020/05/5.6.20-EO-N-61-20-text.pdf

So, if you haven’t filed the statement yet for your business, you still have a few days to take care of it.

The county assessors weren’t happy with this decision because they will be scrambling to get the property tax bills out after the information is received.

The governor’s order also suspends penalties and interest for certain real estate taxes paid after April 10, 2020 for California residential real estate occupied by the taxpayer and California real estate owned and operated by a small business until May 6, 2021.  The following requirements must be met to qualify for the waiver :

  • The taxes owed on the property must not have been delinquent as of March 4, 2020;
  • The taxpayer must timely file a claim for relief in a time and manner prescribed by the tax collector; and
  • The taxpayer must demonstrate to the satisfaction of the tax collector that the taxpayer has suffered economic hardship, or was otherwise unable to pay the taxes on time due to the COVID-19 pandemic, or any local, state or federal response to COVID-19.

If the taxes owed on a property are being paid on an installment plan and the payments were made on time as of March 4, 2020, the balance of the taxes due under the installment plan will not be considered to be delinquent for this purpose.

Real estate taxes being paid using an impound account aren’t eligible for this relief.

If you have questions about this matter, consult with your tax advisor or call your county tax collector.

IRS explains some CARES Act retirement plan provisions

The IRS has posted Frequently Asked Questions relating to CARES Act Retirement Plan Provisions.

According to Q & A 7, a taxpayer who elects to repay a COVID-19 related distribution would pay the tax on the three-year schedule and then amend the tax returns and request refunds when the distribution is repaid.

According to Q & A 9, employers may optionally amend their retirement plans to permit loans and distributions permitted under the CARES Act, so some employers might not allow the increased loans and distributions.

Here is a URL for the FAQs.  https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers

Some SSI and VA recipients must register by May 5 to receive bigger Economic Impact Payment

The IRS says Supplemental Security Income (SSI) and Department of Veterans Affairs (VA) beneficiaries must act by Tuesday, May 5 if they didn’t file a federal income tax return for 2018 or 2019 and they have qualifying dependents to increase their Economic Impact Payment.

$500 is added to the payment for a child that would qualify for the child tax credit.

Just go to IRS.gov and click “Non-Filers: Enter Payment Information Here.”

(IR-2020-86 https://www.irs.gov/newsroom/va-ssi-recipients-with-eligible-children-need-to-act-by-tuesday-may-5-to-quickly-add-money-to-their-automatic-economic-impact-payment-plus-500-push-continues)

Expenses paid with forgiven PPP loans aren’t tax deductible

The IRS has issued guidance relating to the tax deductibility of expenses paid with a Paycheck Protection Loan that is forgiven.  (Notice 2020-32.  https://www.irs.gov/pub/irs-drop/n-20-32.pdf)

According to the CARES Act, the forgiveness of indebtedness is not taxable income.  (CARES Act Section 1106(i).)

The CARES Act doesn’t specify whether the expenses are tax deductible.

A Paycheck Protection Loan is eligible for forgiveness when the proceeds are used for the following expenses during the 8-week “covered period” beginning on the the loan’s origination date (CARES Act Section 1106(b)):

  1. Payroll costs
  2. A payment of interest on a covered mortgage obligation
  3. A payment on a covered rent obligation
  4. A covered utility payment

The IRS reminds taxpayers that, according to Internal Revenue Code Section 265(a)(1), no deduction is allowed for any item that is allocable to tax-exempt income.

To receive tax-exempt income from the federal government and to be allowed a tax deduction paid using the income would be a double benefit.

Taxpayers and their tax return preparers should note that these items won’t be tax-deductible on their 2020 income tax returns.

 

Joint Committee on Taxation explains Tax Provisions in CARES Act

The Joint Committee on Taxation has issued a description of the tax provisions in the CARES Act.

Here is a URL to download the report.  https://www.jct.gov/publications.html?func=startdown&id=5256

Due date to complete some IRA rollovers is extended

Notice 2020-23 includes an extension to July 15, 2020 of a host of administrative acts.

“The Secretary of the Treasury has also determined that any person performing a time-sensitive action listed in either § 301.7508A-1(c)(1)(iv)-(vi) of the Procedure and Administrative Regulations or Revenue Procedure 2018-58, 2018-50 IRB 990 (December 10, 2018) which is due to be performed on or after April 1, 2020 and before July 15, 2020 (Specified Time-Sensitive Action), is an Affected Taxpayer.”

Two of the specified acts include:

(1) An eligible rollover distribution that may be rolled over to an eligible retirement plan, including an IRA no later than the 60th day following the day the distribute received the distributed property (Rev. Proc. 2018-58, Section 8, item 23), and

(2) An individual with excess deferrals for a taxable year must notify a plan not later than March 1 following the taxable year that excess deferrals have been contributed to the plan for the taxable year.  A distribution of excess deferrals identified by the individual, plus income attributable to the excess through the end of the taxable year, must be made no later than the first taxable year of the excess (Rev. Proc. 2018-58, Section 8, item 25.)

Therefore, rollovers of IRA distributions made after January 31, 2020 to May 16, 2020 may be completed by July 15, 2020.  (Watch for more IRS announcements relating to retirement plan distributions.)  (Remember distributions from inherited IRAs that have a nonspouse beneficiary aren’t eligible for rollovers.)

Excess deferrals for 2019 contributed to a qualified retirement plan or IRA should be distributed by the plan by July 15, 2020.

Here is a URL for Notice 2020-23.  https://www.irs.gov/pub/irs-drop/n-20-23.pdf

Here is a URL for Revenue Procedure 2018-58.  https://www.irs.gov/pub/irs-drop/rp-18-58.pdf

Here is a URL for Regulations § 301.7508-1. https://www.govinfo.gov/content/pkg/CFR-2012-title26-vol18/pdf/CFR-2012-title26-vol18-sec301-7508A-1.pdf

Funds For SBA Coronavirus Loans Are Exhausted

Here is an update just in case you are unaware of the status of SBA PPP loans and EIDL loans.

On April 16, 2020, the Small Business Administration announced that the entire amount designated by Congress for Paycheck Protection Program loans, $349 billion, has been exhausted.  Republicans are seeking another $250 billion.

The Small Business Administration also announced that all of the funds allocated by Congress for Economic Injury Disaster Loans have been exhausted.  Congress is also negotiating providing more funds for that program.

Companies who received a loan number from their banks for their loans should eventually get funding.  Check with your bank.

More than 25% of the funding went to under 2% of the firms that got relief.  These companies include at least 60 publicly traded companies with thousands of employees and hundreds of millions of dollars in annual sales.

Shake Shack, Inc., Ruth Hospitality Group Inc. (Ruth’s Chris Steak House), Potbelly Corp. and Fiesta Restaurant Group’s Texas Taco Cabana all borrowed $10 million.  (Shake Shack, Inc. has announced it will return its $10 million PPC loan.)

The three biggest state economies – California, Texas and New York – accounted for 23% of the loans.  Businesses in small, rural states received a bigger share.

The business sector receiving the most money was construction, with 13% of the total.

The SBA issued new guidelines last Friday (after the limit was already reached) requiring self-employed persons, partnerships and limited liability companies to file their income tax returns before applying for PPP loans.  The reason filing the income tax returns is required is to document self-employment income treated as wages.  The requirement will penalize companies that haven’t filed their income tax returns yet because of the extended July 15, 2020 due date for 2019 federal income tax returns.

 

How to get your rebate when you didn’t file an income tax return or you receive Social Security and have a dependent

The IRS has set up a web page for non-filers to request advance rebate payments.  (IR-2020-69)

Individuals who receive social security payments or Railroad Retirement benefits should receive their payments without having to apply for them, but the payments will be limited to the $1,200 for the recipient.  Individuals who didn’t file income tax returns for 2018 or 2019 can apply for payments for spouses who aren’t receiving the benefits and for dependent children under age 17 who would qualify for the child credit using the IRS web page.

These individuals should apply for the advance rebate at the IRS web page:

  • Individuals who didn’t file a 2018 or 2019 income tax return because their income was below the filing threshold;
  • Veterans beneficiaries and SSI recipients; and
  • Social security, social security disability income, and Railroad Retirement beneficiaries with qualifying dependents.

Here is the URL for the web page.  https://www.irs.gov/coronavirus/non-filers-enter-payment-info-here

Which employees qualify for employer leave payments under the Families First Coronavirus Response Act?

Congress enacted and President Trump signed legislation requiring employers to make employee leave payments as a coronavirus relief measure on March 18, 2020.  The title of the legislation is the Families First Coronavirus Reponse Act (P.L. 116-127)  (the Family First Act, FFA or the Act.)  Employers are reimbursed for these payments through tax credits that they can apply against their payroll tax liabilities.

Here is a URL to the text of the Act. https://www.congress.gov/116/plaws/publ127/PLAW-116publ127.pdf

The Department of Labor recently published questions and answers that provide important information about which employees are covered and the amounts that employers are required to pay those employees.  Here is a URL to the questions and answers.  https://www.dol.gov/agencies/whd/pandemic/ffcra-questions

The Department of Labor has also issued a poster that employers are required to use to notify employees of their rights.  Here is a URL to the poster.  https://www.dol.gov/sites/dolgov/files/WHD/posters/FFCRA_Poster_WH1422_Federal.pdf

According to the Department of Labor Questions and Answers, the FFA’s paid leave provisions are effective on April 1, 2020 and apply to leave taken between April 1, 2020 and December 31, 2020.

The IRS has published FAQs about the payroll tax credits for required employee leave under the FFA.  Here is a URL to the FAQs. https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs

The employee leave requirements of the FFA do not apply to private sector employers that have 500 or more employees.

Employers with fewer than 50 employees and compliance with the requirements would threaten the viability of the business as a going concern may qualify for a small business exemption.  These businesses should document the reason the business viability is threatened.  There currently isn’t a form or application procedure for the exemption.

According to guidance issued by the Department of Labor, employees who take paid leave under the Act are required to provide the employer with documentation supporting the reason for leave.  The employer should keep copies of federal and local quarantine orders.  The employee should give a statement with the employee’s name, qualifying reason for requesting leave, a statement that the employee is unable to work, including telework, for that reason, and the date(s) for which leave is requested.  If leave is requested under a doctor’s orders, a letter from the doctor should be kept by the employer.

If expanded family leave is requested because a child’s school is closed, documentation should be kept for that event.

According to guidance issued by the Department of Labor, you are unable to work if your employer has work for you and one of the reasons listed below for the Emergency Paid Sick Leave Act prevents you from being able to perform that work, either under normal circumstances at your normal worksite or by teleworking.

According the Department of Labor guidance, if an employer closed its worksite before April 1, 2020, the employee isn’t entitled to paid sick leave because there isn’t any work for the employee to do.  This is true whether the employer closes the worksite for lack of business or because it’s required to close because of a Federal, state or local directive.  In this case, the employee should apply for state unemployment insurance benefits.

If an employer closes its worksite after April 1, 2020 but before the employee goes on leave, the employee isn’t entitled to paid leave under the Act and should apply for unemployment insurance benefits.

If an employer closes its worksite after April 1, 2020 when an employee is on paid sick leave under the Act, the employee is no longer eligible for paid leave under the Act and should apply for unemployment insurance benefits.

If an employer remains open and furloughs an employee after April 1, 2020 because there isn’t work for the employee, the employee isn’t eligible for paid leave under the Act and should apply for unemployment insurance benefits.

If an employer remains open and reduces an employee’s scheduled work hours because of a reduced workload, the employee isn’t entitled to paid leave under the Act, even if the reduced hours are a result of the coronavirus shutdown.  The reason is the employee isn’t prevented from working those hours because of a coronavirus-related reason.

An employee may take paid sick leave or expanded family and medical leave intermittently while teleworking.

Unless you are teleworking, paid sick leave for qualifying reasons related to coronavirus must be taken in full-day increments.

Unless you are teleworking, once you begin taking paid sick leave for one or more of the qualifying reasons, you must continue to take paid sick leave each day until you either (1) use the full amount of paid sick leave or (2) no longer have a qualifying reason for taking paid sick leave.  This requirement is imposed to avoid having other employees be exposed to the coronavirus.

The rules are different when a parent is taking sick leave to care for a child whose school or place of care is closed.  In that case, the employer and employee can agree for the employee to take paid sick leave intermittently, such as taking leave on Mondays, Wednesdays and Fridays and working on Tuesdays and Thursdays.

Employees may not receive unemployment benefits when they are receiving paid sick leave.

According to Department of Labor guidance, employers aren’t allowed to require employees to supplement or adjust the pay mandated under the Act with paid leave under the employer’s paid leave policy.  The employee must choose one or the other.

Wages paid for employee leave under the FFA are taxable wages for employees, but aren’t subject to the employer shares of Social Security tax (6.2%).

There are two sections of the FFA relating to employee leave:  The Emergency Family And Medical Leave Act and The Emergency Paid Sick Leave Act.

The Emergency Family And Medical Leave Expansion Act

The Emergency Family And Medical Leave Act relates to employees who are unable to work or telework due to a need to take leave to care for a son or daughter under 18 years of age of such employee if the school or place of care has been closed, or the child care provider of the son or daughter is unavailable due to a public health emergency (the coronavirus shutdown declared by a Federal, state or local authority.)

In order to be eligible, the employee must have been employed for at least 30 calendar days by the employer from whom leave is being requested.

The first 10 days for which an employee takes leave may be unpaid leave.  An employee may elect to substitute accrued vacation leave, personal leave, or medical or sick leave for unpaid leave.  According to guidance issued by the Department of Labor, the employee may be entitled to paid leave under the Emergency Paid Sick Leave Act for the initial 10 days, which is a higher rate of pay.  (See below.)

After the first 10 days, the employer is required to pay the employee not less than two-thirds of the employee’s regular rate of pay, based on the number of hours the employee would normally be scheduled to work.  The maximum required paid leave is $200 per day, or $10,000 total for the ten-week period.

According to guidance issued by the Department of Labor, the employee initially uses up to 10 days under the Emergency Medical Leave Act, and then may use up to ten weeks expanded leave after that under the Emergency Family And Medical Leave Expansion Act.

If the employee has an irregular schedule, the employer should determine an average of hours worked per week and average rate of pay per hour over a six-month period ending on the date the employee starts taking leave.  If the employee worked less the six months, the employer may estimate the hours expected the employee to be scheduled to work.  According to guidance issued by the Department of Labor, if the employee hasn’t been employed for at least six months, use the number of hours that the employer and the employee agreed the employee would work when the employee was hired.  If there wasn’t such an agreement, calculate the appropriate number of hours of leave based on the average hours per day the employee was scheduled to work over the entire term of his or her employment.

According to Department of Labor guidance, overtime hours are included when computing the hours the employee would normally work in a week when computing expanded leave.  Pay does not include a premium for overtime hours.

Employers with less than 25 employees are not required to pay leave provided:

  1. The employee takes leave to care for the employee’s child.
  2. The position held by the employee does not exist due to economic conditions or other operating conditions of the employer (a) that affect employment; and (b) are caused by a public health emergency during the period of leave.
  3. The employer makes reasonable efforts to restore the employee to a similar position, with equivalent pay and benefits.
  4. If the employer is unable to restore the employee to a similar position, the employer makes a reasonable effort to contact the employee during the 1-year period beginning on the earlier of (a) the date on which the qualifying need from a public health emergency concludes, or (b) the date 12 weeks after the date on which the employee’s leave commences.

The Emergency Paid Sick Leave Act

An employer is required to provide to each employee employed by the employer paid sick time to the extent that the employee is unable to work (or telework) and takes leave because:

  1. The employee is subject to a Federal, State or local quarantine order relating to the coronavirus.
  2. The employee has been advised by a health care provider to self-quarantine due to concerns relating to the coronavirus.
  3. The employee is experiencing symptoms of the coronavirus and seeking a medical diagnosis.
  4. The employee is caring for an individual who is subject to an order described at item 1 or has been advised as described at item 2.
  5. The employee is caring for a son or daughter of the employee if the school or place of care of the son or daughter has been closed, or the child care provider of the son or daughter is unavailable due to coronavirus precautions.
  6. 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 the Secretary of Labor.

An employer of an employee who is a health care provider or an emergency responder may elect to exclude the employee from eligibility from paid sick leave under this Act.

An employee that meets requirements 1, 2, or 3 above is entitled to paid sick time at the employee’s regular rate of pay for up to 80 hours for a full time employee or, for a part-time employee, the average number of hours the employee works during a two-week period.  According to guidance issued by the Department of Labor, the amount received will be based on the greater of (a) the employee’s regular rate of pay, (2) the federal minimum wage, or (3) the applicable state or local minimum wage, up to a maximum of $511 per day, or $5,110 for the entire sick leave period.

(According to guidance issued by the Department of Labor, once the employee takes 80 hours, the employee won’t qualify for additional sick leave under the Act for 2020.  Only sick leave received for the period on or after April 1, 2020 counts.)

According to guidance issued by the Department of Labor, commissions, tips, and piece rates must be included in the employee’s regular rate of pay.

An employee that meets requirements 4, 5, or 6 above is entitled to compensation based on 2/3 of the amounts for requirements 1, 2, or 3 to a maximum of $200 per day, or $2,000 for the two-week period.

The sick time under the Act isn’t eligible for carryover to a subsequent year.

Paid sick time under the Act ceases beginning with employee’s next workshift following the termination of the need described at items 1 – 6 above.

An employer may not require that an employee search for or find a replacement employee as a condition to receive sick pay under the Act.

If the employee is eligible for accrued sick pay from the employer, the employee uses sick pay under the Act first.

Employers are prohibited from discharging, disciplining, or in any other way discriminating against an employee who takes leave in accordance with the Act and files a complaint relating to the Act.

Tax Credits For Paid Sick and Paid Family and Medical Leave

Certain employers are eligible for a tax credit against the employer share of social security tax (6.2%.)  The credit is 100% of qualified sick leave wages paid by the employer for the calendar quarter.

The maximum sick leave wages for an individual is $200 per day, or $511 per day in the case of sick leave wages paid under the Emergency Paid Sick Leave Act.

In addition to the sick leave wages, the credit is increased for the employer’s qualified health plan expenses that are properly allocable to the qualified sick leave wages for which the credit is allowed.  The IRS is to define a procedure to prorate the qualified health plan expenses on the basis of period of coverage to to time periods of leave that the wages relate to.

The maximum days for an individual for a calendar quarter is 10 minus the total days taken in preceding calendar quarters during 2020.

The credit is limited to the total employer portion of social security taxes and medicare taxes for the quarter, but any excess credit over that limit is treated as a refundable overpayment.

Qualified sick leave wages for the credit means compensation required to be paid under the Emergency Paid Sick Leave Act.

Any credit allowed increases taxable income and no credit is allowed for wages when another tax credit is based on them.

An employer may elect out of claiming the credit.

The credit is not available for employees of Federal, state, or local governments.

Tax credit for sick leave of self-employed individuals

Self-employed individuals may claim a credit for the qualified sick leave equivalent amount for the individual against the individual’s self-employment tax.

An eligible self-employed individual is covered if he or she would be entitled to receive benefits under the Emergency Paid Sick Leave Act if the individual was an employee of an employer (other than himself or herself.)

The “qualified sick leave equivalent amount” is an amount equal to the number of days during the taxable year (up to the applicable number of days) that the individual is unable to perform services in any trade or business referred to in IRC Section 1402 for a reason that individual would be entitled to receive sick leave under the Emergency Paid Sick Leave Act multiplied by the lesser of (a) $200 ($511 for any day of sick time for reasons 1, 2, or 3 above) or (b) 67% (100% for any day of paid sick time for reasons 1, 2, or 3 above) of the average daily self-employment income of the individual for the taxable year.

The average daily self-employment income is the net earnings from self-employment of the individual for the taxable year divided by 260.

The applicable number of days is the excess of 10 days over the number of days taken into account in all preceding taxable years.

Any credit in excess of the self-employment tax is treated as a refundable payment.

The taxpayer is required to document the reason why he or she is entitled to the credit.

If the individual also receives wages from an employer that are required to be paid under the Emergency Paid Sick Leave Act, the qualified sick leave equivalent amount is reduced by any paid leave amount received.

Payroll credit for Required Paid Family Leave

An employer may claim a tax credit to apply against the employer portion of social security taxes (6.2%) for each calendar quarter an amount equal to 100% of the qualified family leave wages paid by the employer with respect to the calendar quarter.

The qualified family leave wages for an individual are up to $200 per day, to a maximum of $10,000 for a calendar year.

Any credit in excess of the employment taxes is treated as a refundable overpayment.

In addition, qualified health plan expenses attributable to the wages are added to the credit, under rules similar to those described for Paid Sick and Paid Family Leave, above.

This credit also increases taxable income and any expenses for which another tax credit is allowed are disallowed for computing this credit.

Credit for Family Leave for Self-Employed Individuals

Self-employed individuals who would have been eligible for leave under the Emergency Family and Medical Leave Expansion Act if they were employees may claim a tax credit against their self-employment tax for amounts equivalent to Family Leave.

The individual may claim up to 50 days times the lesser of (a) 67% of the average daily self-employment income, or (2) $200.

The self-employed person is required to be able to document being entitled to the credit.

If the self-employed person receives leave compensation as an employee for another employer, the eligible self-employment income is reduced for any leave payments received.

The credit is refundable.

If any benefit is allowed for the income under another Code section, the credit is disallowed for that amount.

Expediting getting payroll tax credits

The employer can expedite getting the cash benefit of payroll tax credits under the FFA or the CARES Act by either

  1. Retaining these employment taxes instead of depositing them: (a) Federal income tax withheld for all employees; (b) The employee’s share of social security and medicare taxes (for employees who received paid leave benefits); and (c) the employer’s share of social security and medicare taxes for all employees or
  2. Employers may file Form 7200, Advance Payment of Employer Credits Due To COVID-19.  The IRS says it will try to issue refunds within two weeks for this form.  It can be filed several times during a quarter.

Here is a URL for Form 7200 with instructions.  https://www.irs.gov/forms-pubs/about-form-7200

Tax and financial advice from the Silicon Valley expert.