RESOURCES

PPP Loan Forgiveness

Dear Clients,

 

PAYCHECK PROTECTION PROGRAM (PPP)

With Paycheck Protection Program (PPP) loans being funded across our community, most of your attention has undoubtedly shifted to the loan forgiveness provisions of this program. First of all, if you are a business that has employee’s (including yourself) or you have self-employment income, we strongly recommend looking at applying for the PPP loan. The reason is that the SBA has provided a safe harbor for PPP loans under $2 million. “Businesses that together with their affiliates accepted Paycheck Protection Program (PPP) funds of less than $2 million will be assumed to have performed the required certification concerning the necessity of their loan requests in good faith, according to guidance posted by the U.S. Small Business Administration (SBA) on Wednesday, May 13, 2020.” Translation: automatic qualification for the PPP loan. If you need assistance with the application, please contact our office immediately and ask for assistance.

Perhaps the most exciting aspect of the PPP loan program is the opportunity for the loan to be fully forgiven, as long as the funds are spent on eligible expenses. With the passage of the Paycheck Protection Flexibility Act by the Senate and the signing into law of this bill by the President, the percentage of usage for qualified expenses under the PPP law have been decreased from 75% to 60% for payroll and increased from 25% to 40% for qualified mortgage interest, rent, and utilities and others listed below. The Paycheck Protection Flexibility Act extends the eight week covered period to twenty-four weeks or December 31, 2020 (whichever comes first).

60%

  • Gross payroll:

    • Salary, wage, commission, or similar compensation; for a partnership, recent guidance from the SBA explains that payroll costs include not only guaranteed payments to a partner, but also any partner’s share of income of the partnership subject to self-employment income.

    • Amounts paid are subject to a per-employee or per-partner/owner/member cap of an eight-week equivalent of applicable 2019 compensation or $15,385 for the eight-week period.

    • Payment of cash tip or equivalent;

    • Payment for vacation, parental, family, medical, or sick leave;

    • Allowance for dismissal or separation;

    • Payment required for the provisions of group health care benefits, including insurance premiums;

    • Payment of any retirement benefit; or

    • Payment of State or local tax assessed on the compensation of employees.

40%

  • Payments of interest on any mortgage obligation that was incurred before February 15, 2020

  • Interest payments on loans or leases used to obtain assets such as vehicles, equipment, computers and other office equipment that were incurred prior to February 15, 2020

  • Any payment of rent under a leasing agreement in place before February 15, 2020

  • Any utility payment for which service began before February 15, 2020.  For example: electric, natural gas, water, telephone, cell phone, and internet.

  • Transportation includes fuel for your company vehicles and fuel for the vehicle you use for work.

    • Please note that for sole proprietors you must have claimed or be entitled to claim a deduction for vehicle expenses on your 2019 Form 1040 Schedule C for these costs to be permissible.

Other payments that we know are specifically excluded from forgiveness:

  • Cash compensation in excess of $100,000 for an individual employee or self-employment income of a partner in a partnership/member in an S-Corp/or sole proprietor.

  • Compensation to an employee with a principal residence outside of the United States

  • Qualified sick or family leave wages under the Families First Coronavirus Response Act

  • Prepayment of expenses or catch-up payments on delinquent accounts

  • Employer FICA costs are excluded

  • Employer/owners have additional restrictions – please read the following carefully:

    • Buried in the certification is also a special limit on the amount of payroll costs that can count for owner-employees.  At the end of the first certification is found the following language regarding items included in the dollar amount for which forgiveness is requested, certifying that the amount requested:

      • …does not exceed eight weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $15,385 per individual.

      • Presumably eight weeks’ worth of 2019 compensation would be the owner-employee’s W-2 wages multiplied by 8/52.  This would serve to limit the ability of a corporation to attempt to cram in a bonus to get an owner-employee who had less than $100,000 in 2019 cash compensation up to the $15,385 maximum amount per individual for the forgiveness calculation.

 

At the end of your twenty-four week covered period, you will be required to apply for loan forgiveness with your lender. Being able to provide your lender with adequate documentation is vital for getting your loan forgiven. Setting up some systems and processes now will make the application for loan forgiveness easier. Here are some tips for how to keep track of where you are using your PPP funds:

  • Set up a separate bank account for your PPP funds

  • Only pay for qualified PPP expenses from this account

  • Keep detailed records of your qualified expenses and any receipts or invoices related to those qualified expenses, and be prepared to store these documents for six years.

A number of issues related to the calculation of loan forgiveness are causing concern for employers. Some of the concern can now be allayed via the following changes provided for in the Paycheck Protection Flexibility Act.

The bill provides that during the period beginning on February 15, 2020, and ending on December 31, 2020, the amount of loan forgiveness will NOT be reduced when a borrower experiences a loss of FTEs if the borrower, in good faith, is able to document any of the below:

  1. There was an inability to rehire individuals who were employees of the eligible recipient on February 15th,

  2. There was an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020, or,

  3. There was an inability to return to the same level of business activity as such business was operating at before February 15th due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 21, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID– 19. This is the BIG ONE. It basically provides that if the world is such that on December 31st, restaurants and bars, for example, are unable to fully open due to government orders, any loss in FTEs resulting from such restrictions should NOT be taken into account in computing a required reduction in the forgivable amount.

  4. Employees who during the Covered Period (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours. In all of these cases, include these FTEs if the position was not filled by a new employee.

  5. Any FTE reductions in these cases do not reduce the Borrower’s loan forgiveness.

Rules under the Paycheck Protection Flexibility Act have changed to provide an additional incentive that allows employers to defer the employer’s 6.2% share of 2020 Social Security tax until the end of 2021 (50%) and 2022 (50%). Prior to the enactment of the Paycheck Protection Flexibility Act, this deferral was not available to a borrower of a PPP loan until the moment the loan was forgiven.  With the new Act, an employer is allowed to double dip; a borrower of a PPP loan may now also defer all of its 2020 Social Security tax burden into 2021 and 2022, even if the PPP loan is forgiven prior to December 31, 2020.

  

CODE SECTION 139:  DISASTER RELIEF PAYMENTS

While uncertainty still exists in the details of the PPP loan forgiveness, there is a bright spot that you may not have heard about.  Internal Revenue Code Section 139:  Disaster Relief Payments was enacted as part of the Victims of Terrorism Tax Relief Act of 2001. With President Trump’s declaration of national emergency status due to Covid-19, this Code Section is once again available for utilization in providing non-taxable qualified disaster relief payments to employees.

 

Employers are able to either pay for or reimburse employees for:

  • Unreimbursed medical expenses including co-pays, deductibles, vitamins and supplements

  • Increased expenses associated with being quarantined or telecommuting.  For example:

    • Increased utilities

    • Enhanced internet connection

    • Computer monitors

    • Laptops

    • Printers

    • Office Supplies

    • Housing for additional family members (e.g. transportation and living expenses for college students returning home including duplicative meal expenses)

    • Non-perishable food purchases/reserves

    • Increased childcare expenses

    • Expenses to enhance mental health and physical well-being from social distancing such as meditation apps and home health fitness

These funds cannot be used as:

  • Payments for expenses that are not reasonable or necessary

  • Payments that constitute income replacement (lost wages, business income, or unemployment)  

  • Payments that are reimbursed or reimbursable by insurance

 

And then the truly unusual part:  1) employees are not required to account for the expenses; 2) there is no dollar limit an employer can provide as long as the expenses are reasonable and necessary with respect to the corona virus; 3) relief payments are excluded from gross pay and will not be shown on the W-2; and 4) employers may reasonably take the position that the payments remain fully deductible.  However, #4 may be limited if the employer has received a PPP loan.  Stay tuned for further guidance on PPP deductions. However, in light of the new legislation, it appears this will not be necessary as an expense to qualify for loan forgiveness due to the extension of the 8 week period to 24 weeks for spending the PPP money.

VARIOUS TAX FILINGS POSTPONED TO JULY 15, 2020

 

You are all probably aware that the due date for 2019 federal income tax returns has been postponed until July 15, 2020.  Other postponements that may be important to you as well:

  • Both the April 15th and June 15th estimated tax payments have been postponed until July 15th.

  •  You may file an automatic extension that will delay the filing of your tax return until October 15, 2020.

  • Any taxes you owe on your 2019 income tax return are due on July 15th and no interest or penalties will be due for the time between April 15th and July 15th.

  • Please note that interest and penalties will begin to accrue on any outstanding balance due, and will continue to accrue until paid in full.

  • All federal income tax return filing and payments due on April 1, 2020 and before July 15, 2020 are now due on July 15, 2020.

  • Contributions may be made to your IRA, HSAs, and others for 2019 through July 15, 2020

  • There are many more lesser-used forms, tax court filings, and claims for refund.  If you have a question about a filing deadline not listed here, you may call our office for assistance or go online for a more comprehensive list at  https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers#hsas

FINAL NOTE

These rules and changes can be very confusing. Be assured that if you need assistance in navigating through this maze of complexity that we are here to assist you. Please contact our office right away and one of our knowledgeable experts will be glad to help whether it’s navigating through the loan forgiveness process, qualifying for new special tax credits, structuring tax free income to pay to your employees (and yourself), or any other tax or financial matter that you may have.

Take care and stay healthy,

Soelberg, Durrett & Associates, PS

SBA Loans Information

Dear Soelberg, Durrett & Associates (SDA) Clients,

 

There has been a lot of speculation and misinformation going around out there so it’s difficult to know what to do. Despite all that, the government is trying to get money to business owners as loans and they want to forgive the loan if it is used for specific things (i.e. employee payroll, rent, utilities). The best way to handle the loan process with the SBA is to use your local banker whom you already have an established relationship with.

 

Here is information that appears to be on point at this time from a couple different banks:

 

From US Bank:

As you may have heard there are a number of resources being provided for small businesses due to COVID-19. We are working on trying to get  customers as much information as possible, as quick as possible. This is all coming fast and furious from the Feds and SBA.  I’ve attached several information sheets  and several links that will be beneficial  to review various programs that are being rolled out.

 

1. Information on SBA’s disaster assistance programs can be found here: https://www.sba.gov/funding-programs/disaster-assistance

 

2. U.S. Bank’s resource page with information about the PPP can be found here: https://www.usbank.com/business-banking/business-lending/sba-loans/paycheck-protection-program.html

 

3. Submit a PPP Inquiry Form and we will reach out directly with updates on the process  https://apply.usbank.com/applications/business/InquiryForm

 

4. Refer to the U.S. Senate Committee on Small Business and Entrepreneurship for The Small Business Owner’s Guide to the CARES Act resource

When can I apply?

5. Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.

6. Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.

7. Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program

 

At this time we don’t have all of the information on who qualifies.  Something to consider  is if an essential businesses  did not shut down or had a reduction in employees do they still qualify  for assistance or at what level of assistance do they qualify for.   

 

That being said you may want to get together payroll and benefit information.  It would also be helpful to talk with your CPA who may be beneficial to help  recover as much as possible under the  Covid-19 relief.  In addition,  I would fill out and submit  the PPP inquiry form (#3 above) as soon as possible to get on the list

 

I know you have many things on your plate right now so I am not trying to add to it. The approved programs  may end up being a very helpful option to take some of the sting off lost business and the impacts of  employee reductions.

 

From Banner Bank:

As you are contacted by your clients in regards to the Paycheck Protection Program or CARES Act, the most efficient way for them to receive funds is through their respective banks.  If their bank is not part of the program, please have them refer you to someone that does.  At this time, banks – especially community banks – are not trying to increase their customer base, rather they want to provide assistance to small businesses as they wade through the process.  A process that is new to everyone involved.

 

 

First of all, there is conflicting information being passed out by the US Treasury Dept. and politicians.  If you have downloaded the application form from the US Treasury Dept.’s website, it cannot be used to apply for the Paycheck Protection Program; and the application on the SBA website is watermarked as “Sample,” which indicates that the application has not been approved.  Further, some government officials have indicated that funds would be disbursed by April 3rd, which is not likely.

 

The SBA has been tasked as the government’s source of disseminating information and managing the applications.  The SBA is still compiling the guidelines, which we expect at any time. 

 

AT THIS TIME, if you have not completed the inquiry form (attached) and emailed it to BannerSBACares@bannerbank.com, DO SO IMMEDIATELY.  The Banner site receiving the emails is forming a queue.

 

When the finalized SBA application is received, Banner Bank will respond to your emailed inquiries through DocuSign.  DocuSign is a secure website – do not email the application to the bank.

 

The application and approval process will be handled electronically by SBA and the Bank, through DocuSign.  Once approved, all disbursements will be electronic, direct to your Banner Bank account.

 

PPP loans will be based on your average monthly payroll costs, multiplied by a factor of 2.5.  Details on calculating costs are expected to be part of the application (when it is received).

 

WHAT CAN YOU DO NOW

  • If you have not submitted the attached form, do so immediately.

  • Start gathering your payroll information – application information will have to be supported and substantiated.

  • Supporting documentation will be submitted through DocuSign.

  • If you have seasonal payroll fluctuations, use the season that works best for you at this time.

  • Payroll calculations include salaried, hourly, contracted employees (supported by 1099’s), tips, benefits, bonuses, commissions. 

  • Payroll taxes cannot be included in calculating payroll costs.

Soelberg, Durrett & Associates, PS

COVID-19 Letter

Dear Soelberg, Durrett & Associates (SDA) Clients,

As the coronavirus (COVID-19) continues to spread throughout the United States, we want to take a moment to let you know what we are doing as a firm to help prevent the spread of the virus. Our top priority is the health and safety of our employees, our clients and our community. As such, we are continually monitoring the situation through daily updates from the Centers for Disease Control and Prevention (CDC), the World Health Organization (WHO), and our local news sources and will continue to follow their recommendations.

All SDA employees have been offered the opportunity to work from home or to take time off as needed. We are currently asking that anyone who has a temperature, is experiencing any flu-like symptoms, or has been in contact with others with symptoms, to please stay at home. Well-prepared security protocols are in operation to continuously protect your financial information as we work remotely through the busy tax season.

The Treasury and IRS recently announced that the April 15th tax season deadline will be delayed by 90 days, until July 15, 2020. This means taxpayers can delay paying their income taxes on as much as $1 million in taxes owed for up to 90 days, without being subject to interest or penalties.

We will, however, continue to work proactively to prepare your tax returns and to service your financial needs as normal; but, for the safety and well-being of our clients and our staff, we won't be focused on the traditional April 15th tax season deadline.  Also, in an effort to minimize potential exposure to COVID-19, we have eliminated close contact and group gatherings as required and have cancelled all in-person office meetings, through April 6, 2020. We are more than happy to assist you with making arrangements for virtual meetings by phone or video conference calls during this difficult time.

For exchange of financial documents, we strongly encourage you to use our secure portal to scan and upload documents, to retrieve electronic copies of your returns and to electronically sign any necessary documents. This eliminates the delivery of documents via mail where the exchange of paper items could inadvertently cause potential exposure to the COVID-19 virus. If you need assistance with navigating and using these technology tools, please call us at (509) 654-7777 or email frontdesk@soelbergcpa.com so we can help and support you through the process. For those who feel the need to bring documents to us in person, we ask that you use the drop off box at the front desk and, in keeping with CDC guidelines, keep a social distance of 6 feet to protect yourself and us too.

Please take care and we are available to discuss any questions or concerns you might have during this difficult time.

Soelberg, Durrett & Associates, PS