Coronavirus Stimulus: Key Tax Highlights & Provisions

Coronavirus Stimulus: Key Tax Highlights & Provisions

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Highlights Of Tax Provisions Of Recent Stimulus Legislation

The Families First Coronavirus Relief Act (FFCRA) was signed into law last week and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law this afternoon.

These bills have significant tax provisions affecting both businesses and individuals as well as significant financial provisions affecting small businesses. The key highlights are listed below.

Delayed Due Date for Certain Tax Returns

The federal tax filing deadline has been moved to July 15, 2020 for individual, fiduciary, and corporate tax returns with an original due date of April 15, 2020. Both the return and the payment date were extended. It also includes 1st quarter estimates that were due April 15th. Second quarter estimates remain due on June 15, 2020. The delayed federal tax deadline also delayed the date for IRA and HSA contributions for 2019 to July 15, 2020.

The delayed due date does not apply to gift and estate tax returns that are due on April 15th.

Minnesota also extended their tax filing and payment deadline to July 15, 2020 for any returns with an original due date of April 15, 2020. However, Minnesota did not extend the date for their first quarter estimate, nor did they extend the filing or payment date for trust or business returns due April 15, 2020.

Families First Coronavirus Relief Act (FFCRA)

There are several tax implications from the Families First Coronavirus Relief Act (FFCRA), including a 100% tax credit for amounts paid out to employees under the FFCRA provisions for sick pay or family leave as detailed below. Please note this provision applies only to employers with 500 employees or less and there are certain other exemptions for employers with under 50 employees. This legislation was enacted on March 18, 2020 and takes effect 15 days after enactment. The bill provides the following benefits to employees:  

  • Employees who are on sick leave because they are sick or because of a government ordered shut-down of the business can receive their full pay, up to $511 per day for 10 days, or $5,110 total.
  • Leave taken to care for children whose schools or daycares have closed is paid at two-thirds the employee’s regular rate of pay, with a maximum of $200 per day for 10 weeks, or $10,000 total.
  • Employers cannot force employees to use up vacation or other sick time before receiving this benefit.
  • Self-employed individuals can also receive a benefit up to the limits described above.
  • There is a ten-day waiting period before this benefit applies. Employees can use existing sick or vacation time to cover these days. Employers may also have the option to temporarily furlough their employees during the ten-day waiting period.

Employers receive a tax credit on their quarterly payroll tax return for wages paid under the FFCRA in that quarter. This credit is refundable if the total wages related to the FFCRA exceed the total payroll tax liability. Employers may also short their payroll tax deposits based on the expected credit. Employers may also apply for an advance if the expected credit will be more than their total payroll tax liability.

Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

Key Tax Provisions for Businesses

Paycheck Protection Loans

Businesses with fewer than 500 employees, including sole proprietors and those with self-employment income, are eligible to apply for a forgivable loan that is fully guaranteed by the federal government through December 31, 2020 and 85% guaranteed after that date. The maximum term of the loan is 10 years with a maximum rate of 4%. All payments on the loan are deferred for a minimum of 6 months and a maximum of 12 months. There are no fees to the borrower for this loan.

Eligible businesses can apply for a loan that is up to 2.5 times their average monthly payroll for the rolling 12 months ending on the date that the loan was made. The maximum amount of the loan is $10 million.

The amount to be considered when computing average monthly payroll excludes certain items and includes others.

Payroll does not include the following:

  • Payroll taxes.
  • Wages to any individual that are in excess of $100,000
  • Wages that are reimbursed under the FFCRA (discussed above)
  • Wages paid to individuals who are not residents of the United States.

Payroll does include the following:

  • Wages, commissions, salary to employees or independent contractors.
  • Payment for vacation or sick leave.
  • Health insurance costs.
  • Payment or retirement benefits.

Most importantly, the loan taken under this provision will be forgiven to the extent that it is used to pay certain expenses in the 8-week period immediately following the date of the loan. The loan forgiveness related to this loan is tax-free.

The following expenses are eligible for loan forgiveness:

  • Payroll costs (the same costs as included above)
  • Rent
  • Mortgage Interest
  • Certain Utility Payments

The amount of loan forgiveness is limited by any reduction in workforce or reduction in pay for employees making less than $100,000. The percentage of reduction is based on the average FTEs per month from 2/15/20 to 6/30/20 as compared to the average FTEs per month in the same period for 2019 or the average FTEs per month from 1/1/2020-2/29/2020. This percentage reduction does not apply if the employer eliminates the reduction in FTEs by June 30, 2020.

Employee Retention Credit

An employee retention credit is available to employers with less than 500 employees who retain employees during a period of shut-down. It is also available to employers with less than 100 employees during a period when the business sees a drop in gross receipts of greater than 50% over the same period in the prior year. This credit is not available to any employer who utilizes the paycheck protection loan described above.

Credit is available for up to 50% of the qualified wages paid to each employee during the quarter. The total credit is limited to $10,000 per employee and wages considered under the FFCRA (described above) do not qualify for this provision.

Delay of Payment of Employer Payroll Tax and Self-Employment Tax

A business or a self-employed taxpayer can defer paying the employer share of Social Security tax that would otherwise be due from the date the bill is signed until December 31, 2020. The deferred amount would be paid 50% on December 31, 2021 and 50% on December 31, 2022. For a self-employed taxpayer the “employer” share of the social security tax is half of the total self-employment tax related to social security.

This deferral is allowed for taxpayers using payroll credits under the FFCRA, discussed above; but, it is not available to any employer who utilizes the paycheck protection loan described above.


Emergency Disaster Loans

Economic Injury Disaster Loans have been expanded to include sole proprietors and ESOPS. These loans were previously only available to businesses with fewer than 500 employees. The bill also expands this program to include that loans up to $200,000 will not require a personal guarantee. A business may take a loan under this provision between January 31, 2020 and the date on which a paycheck protection loan is available. This loan is to be used for reasons other than payroll costs.

Additionally, a new emergency grant is set up to allow anyone who has applied for the loan to receive an advance of up to $10,000. The advance is not required to be repaid, even if the borrower’s request for the loan is denied.

Qualified Improvement Property

The Tax Cut & Jobs Act (TCJA) included a provision eliminating the category for “qualified improvement property” qualifying for a 15-year asset life and eligible for 100% bonus depreciation. This was a drafting error in that bill. The CARES act fixes the drafting error and restores the 15-year qualified improvement property life. This change is retroactive to 2018 and allows taxpayers to amend their 2018 or 2019 returns to take advantage of the provision.

Business Interest Expense Limitation

Under TCJA a provision was added to limit business interest to 30% of adjusted taxable income for certain taxpayers beginning in 2018. The CARES Act increases that limit to 50% for tax years 2019 and 2020.

Changes to Net Operating Loss Rules

The CARES act reinstates the ability to carry back the taxpayer’s net operating loss (NOL) for losses from 2018, 2019, and 2020. These losses can be carried back 5 years.

Additionally, losses carried to 2019 and 2020 will be permitted to offset 100% of taxable income.


Key Tax Provisions for Individuals

Individual Stimulus Payments

The IRS will issue individual stimulus payments of up to $1,200 per person, plus an additional $500 for each child under the age of 17. The payment begins to phase out starting with incomes over $75,000 (single) or $150,000 (married) and is completely phased out for taxpayers with over $99,000 (single) or $198,000 (married). There is an expanded phase-out for taxpayers with children. The IRS will use your 2018 or 2019 return to determine the payment. However, this is considered an advance payment of the credit you would be due on your 2020 return. Meaning, if your 2020 income is significantly less than your 2018 or 2019 income, you may still qualify for the payment.

Retirement Funds for Coronavirus Costs

The CARES Act provides a temporary waiver of the required minimum distribution for the tax year 2020.

The bill allows you to take money out of your qualified retirement plan for coronavirus related expenses before age 59 1/2 without paying the 10% penalty that would ordinarily be assessed.

  • The maximum distribution under this provision is $100,000.
  • Payments are still subject to income tax, it is only the penalty that is waived.
  • Distributions qualify under this provision if the individual, their spouse, or their dependent is diagnosed with COVID-19 or if the individual experiences adverse financial consequences as a result of being quarantined, furloughed, or laid off work.

Changes to Charitable Contributions

The bill adds an above the line deduction for cash contributions of up to $300 made to certain qualifying charities.

The bill allows cash contributions for 2020 to be deducted up to 100% of the taxpayer’s AGI (rather than the 60% limit imposed under TCJA).

Have a question?

Do not hesitate to reach out to us with questions or concerns you have about taxes or your financial situation.

We are happy to help you during this challenging time.

Federal and Minnesota Tax Deadlines Extended

Federal and Minnesota Tax Deadlines Extended

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Treasury Secretary Mnuchin announced on Friday, March 20th that the federal tax deadline will be extended until July 15, 2020 and Minnesota Governor Walz announced that the State of Minnesota will follow suit with income tax filings and income tax payments due July 15.

Your tax and accounting professionals at Smith Schafer are working hard to provide you with timely service on your tax returns and will continue to work to help you get your taxes filed as soon as possible. However, in light of state and national recommendations on social distancing, you may see a delay in the timing of your tax return now that the deadline has been extended.

Please continue to mail, drop off, or upload your tax information to us.  If you would like a link to securely upload your documents, please let us know.

We are here to serve you, our valued clients, and recognize that now is an unprecedented time for you as individuals and as business owners.

At present, many states have not acted to change their filing deadlines and we will continue to monitor the state deadlines and keep you in compliance with the various states.

To our Business Clients

We recognize that your businesses are facing decisions that you have never had to face, and we are here to help. We are monitoring all bills that pass for their impact on our clients and will help you navigate through the impacts for your business.  

Tax Implications Related to COVID-19

Tax Implications Related to COVID-19

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There are several federal and state tax law changes related to the Coronavirus/COVID-19 and there are new developments seemingly every day. Three recent changes, that may affect your tax situation, are explained below.

Interest and Penalty Relief for Federal Taxes Due April 15, 2020

Treasury has granted interest and penalty relief for federal tax payments due April 15,2020. This includes the balance due on the 2019 federal income tax return as well as the first quarter estimated tax payment for 2020.

Individuals can postpone payment up to $1,000,000 regardless of filing status, corporate taxpayers can postpone up to $10,000,000. Balances over these threshold amounts will be due by April 15, 2020.

At this time, this is not an extension of the tax deadline. It is only a postponement of the payment date. As such, your federal income tax return will need to be filed or extended by April 15th. In either case, you are allowed to use the postponed payment date.

If you choose to file your tax return by April 15, 2020, please be sure to return Form 8879 to our office and we will electronically submit the tax return. Then, you can wait until July 15th to pay the balance due. You can also defer your first quarter estimated tax payment until July 15th. Please note, that your second quarter estimated tax payment will be due June 15,2020. This date was unchanged.

If you choose to extend your tax return you must do so by April 15, 2020. Your extension payment will not be due until July 15, 2020 regardless of when you file your return. Similarly, your first quarter estimated tax payment will not be due until July 15, 2020. The tax return extension allows a six-month extension of time to file, but the interest and penalty forgiveness is only for a three-month period.

CPA groups continue to advocate for a delay in the tax filing deadline and we will notify you if that date changes.

At this time, Minnesota has not enacted similar changes, but we expect to see changes from the state, as well.

Minnesota Sales Tax Deferment for Certain Industries   

Minnesota Department of Revenue has granted a one-month deferment of sales tax for businesses affected by the state shutdown of bars, restaurants, and other places of public accommodation. This applies only to the sales and use tax payment due March 20, 2020. Payment will still be required on April 20, 2020.

Families First Coronavirus Relief Act

There are several tax implications from the Families First Coronavirus Relief Act (FFCRA), including a 100% tax credit for amounts paid out to employees under the FFCRA. Please note that this provision applies only to employers with 500 employees or less and there are certain other exemptions for employers with under 50 employees. This legislation was enacted late in the day on March 18, 2020 and takes effect 15 days after enactment. The bill provides the following benefits to employees:  

  • Employees who are on sick leave because they are sick can receive their full pay, up to $511 per day, or $5110 total.
  • Leave taken to care for children whose schools or daycares have closed is paid at two-thirds the employee’s regular rate of pay, with a maximum of $200 per day or $10,000 total.
  • Employers cannot force employees to use up vacation or other sick time before receiving this benefit.
  • Self-employed individuals can also receive a benefit up to the limits described above.
  • There is a ten-day waiting period before this benefit applies. Employees can use existing sick or vacation time to cover these days.  

Employers receive a tax credit on their quarterly payroll tax return for wages paid under the FFCRA in that quarter. This credit is refundable if the total wages related to the FFCRA exceed the total payroll tax liability. Due to the fact that the bill takes effect 15 days after enactment and there is a 10-day waiting period this will likely mean that employers will receive the credit on their second quarter payroll tax returns, due July 31, 2020.

A full analysis of the tax implications of this bill will be forthcoming.

Sales Tax: What is Nexus?

Sales Tax: What is Nexus?

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Are you worried about multi-state tax compliance? Business owners should carefully consider sales and use tax nexus issues. Nexus rules are expanding and creating tax liability for businesses in states where they previously did not exist. If you are not up to speed on all the changing and new state tax laws, it can put your business at risk for penalties and interest charges on unpaid tax liabilities – potentially in multiple states.

WHAT IS NEXUS?

Nexus is known as, “the level of contact that must exist between a taxpayer and a state before the state has the authority under the U.S. Constitution to assess a tax.”

Many states are increasing the number of audits, thereby allowing states to collect more revenue without enacting new taxes or increasing tax rates. These state audits are unexpected, and taxpayers are shocked to learn they are not in compliance and may face substantial tax and penalties as a result.

A nexus study was done by Sabrix, Inc. and the results showed 95 percent of the companies surveyed underestimated their nexus issues. The most common items companies overlooked were:

  • Independent contractors – agents acting on behalf of the company may create nexus
  • Services – performing services in other states may create nexus
  • Trade shows – spending a single day at a trade show in another state may create nexus

STATE INCOME TAX NEXUS MAY BE ATTAINED THROUGH ONE OF THREE PRIMARY ACTIONS:

  1. A physical presence
  2. An economic presence
  3. Through the ownership of a pass-through entity satisfying either the physical or economic presence standards

DOES THIS APPLY TO MY BUSINESS?

Generally, having employees or owning or leasing property in a state creates nexus. Other activities qualifying you for nexus include:

  • Maintaining a local bank account
  • Accepting orders for your services
  • Using a local phone number 

There are many complexities with today’s cross-border business climate requiring careful consideration because of unforeseen nexus issues. Smith Schafer can help you navigate the laws to ensure your state income tax obligations are correctly calculated and reported. We work with Minnesota businesses in multiple industries to identify where such tax liabilities exist through nexus determination studies.

Smith Schafer Nexus Case Study Services:

  • Evaluation of Multi-State Business Activities
  • Physical and Economic Nexus Review
  • Identification of Nexus Creating Activities
  • Determination of State and Local Connection
  • Voluntary Disclosure and Amnesty Program Consultation
  • Multi-State Tax Filing and Planning

Contact our state tax planning and compliance experts to schedule a free 30-minute consultation.

5 Tips For Avoiding Tax-Related Identity Theft

5 Tips For Avoiding Tax-Related Identity Theft

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Tax-related Identity Theft: When someone steals your Social Security number and uses it to file a tax return and claim a fraudulent refund.

According to the IRS, in 2017, 597,000 tax returns were confirmed identity theft. All taxpayers should ensure they are doing everything they can to prevent a thief from stealing their identity.

5 Simple Tips to Help Protect Yourself

  1. Learn to recognize and avoid phishing emails, calls and texts from scammers. These thieves pose as legitimate organizations such as banks, credit card companies and the IRS.
  2. Do not click on links or attachments in unsolicited emails or messages from unknown senders.
  3. Use a security software with firewall and anti-virus protections.
  4. Use strong, unique passwords.
  5. Protect personal information. Ensure your tax records are secure.

Every year, the IRS releases the Dirty Dozen – a list of the largest tax scams they saw for that year’s taxes. The IRS scams list reads like a playbook from the past, with phishing, identity theft, and fake charities making the list. 

IRS Introduced New Tax Withholding Estimator

IRS Introduced New Tax Withholding Estimator

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Calculate Your Tax Withholding

The IRS has improved its online tax withholding calculator. It includes changes from the updated W4.

The new version of the calculator helps workers effectively adjust their withholding and features a customized refund slider allowing users to choose the refund amount they prefer from a range of different amounts.

We recommend checking your withholding every quarter to protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time.

Note: The tax withholding calculator does not ask you to provide sensitive personally-identifiable information (i.e. Social Security number, address, bank account numbers). The IRS does not save or record the information you enter on the Calculator