Leadership During Uncertain Times

Providing meaningful leadership during prosperous times doesn’t happen without challenges. When prosperous times fade and we are faced with uncertain times, effective leadership becomes critical to how we weather the storm. Both internal and external stakeholders rely heavily on an organization’s leadership to provide direction, ease fears and minimize the negative impact resulting from uncertainty.

While the decisions required during these times can be quite complex, providing leadership can be simple. Complicated methods or systems are not required and, often, getting back to the basics is what people want. The following are four basic action items you can implement to maintain CALM.

1. Communicate clearly and frequently using appropriate channels. Uncertainty can lead to confusion, incorrect assumptions and actions that are not in alignment with the organization’s plan. Communication should be to the point and include direction on the action desired. Stakeholders should receive information timely enough to carry out their duties effectively. Proactively providing messaging can reduce negative talk around the water cooler, put questioning minds at ease, and mitigate reduction in morale.
2. Ask others in the organization for their input. Find ways to include those at multiple levels of the organization. A list of ideas or concerns generated by multiple people will likely ensure better coverage of the concerns felt by a wider array of the organization. This also allows people to be heard so they can feel as though they’ve had an impact on the organization.
3. Listen to others throughout the organization. If you’re going to take the time to ask others for their input, then take the time to truly listen. Paying attention to verbal and nonverbal communication from others is essential to read the pulse of your people. Depending on their comfort level, some employees will be quick to speak up while others will provide only nonverbal clues. Sometimes it is what people aren’t saying that matters the most.
4. Motivate your people! Uncertainty tends to increase stress levels and demotivate people. Show you care by checking in regularly. Congratulate those who are demonstrating excellence. Let people know they are appreciated through small gestures. Picking up a person’s favorite coffee drink in the morning, giving a handwritten thank-you card or bringing in a few baked goods are all inexpensive and can go a long way to lift spirits.

Uncertain times can come in many forms and may be different for each organization. Providing effective leadership during these times impacts how organizations emerge from the storm. To increase the impact of the organization’s ultimate message, manage morale and keep the organization moving forward, keep the CALM tips in mind.

Offering the right compensation plan is essential to hiring and retaining good employees while keeping payroll costs under control. Employees should feel as though they are being compensated fairly for the work they do, the education they possess, and the standards of the industry in which they work.

Questions to Consider Before Choosing a Compensation Plan

• What are the pay ranges for each job classification?
• What are other companies in the industry paying their employees?
• Under what conditions will employees receive a pay increase?
• What benefits will be included in the compensation plan?
• Will employees’ pay be increased based on annual inflation?

Once employers answer these questions, they can determine which compensation plan is right for them. In general, physicians can be paid on a salary basis, a production basis, or a combination of both. The following are some of the common compensation plan models.

• 100% Salary: Physicians are paid a fixed salary. This is the easiest compensation plan to manage, but it does not provide incentives for physicians to bring in new patients.
• 100% Salary Plus Incentive: Physicians are paid using a fixed salary and an additional incentive based on personal productivity.
• Relative Value Unit (RVU): RVUs involve assigning work values (wRVUs) to codes and determining a set compensation amount for each wRVU. For example, if an office visit is coded 99213 and the work value assigned to it is 1, the physician will receive one wRVU whenever they code 99213. Compensation is then calculated by determining the dollar value per wRVU and multiplying it by the actual wRVUs recorded. If the physician in the previous example earns $60 for each wRVU and records 4,000 total wRVUs, they will earn $240,000 for that year.
• Percent of Revenue: Physicians are paid a percentage of the total revenue the practice collects. For example, if revenue is $400,000, and the physician is compensated based on 50% of net revenue, they will receive $200,000.
• Tiered Model: The RVU and percent of revenue models can be established in a tiered format. As a physician generates more revenue for the organization, they earn more money per work unit or receive a higher percentage of revenue.

In addition to salary, employers must also consider benefits packages for their employees. Benefits impact position attractiveness, morale, productivity and retention. Different benefit offerings have varying degrees of complexity and cost. Benefits such as vacation, holidays, and sick leave can be simple to administer, whereas benefits such as healthcare, retirement, disability, and dental can be more complex and expensive. When deciding which benefits to offer, identify those that are most desirable to your employees, yet most cost-effective for your organization.

Ensuring that your employees receive adequate compensation can be complex and difficult to manage. To make sure that your plan works for both you and your employees, contact your Yeo & Yeo advisor.

Source: Practice Management Training Manual: Certified Physician Practice Manager (CPPM®). CPT® copyright 2018 American Medical Association. All rights reserved.

In recognition of the continued disruption of businesses that are required to file returns and remit sales, use and withholding taxes, the Michigan Department of Treasury is waiving penalty and interest for the late payment of tax or the late filing of any monthly or quarterly return due on April 20, 2020. The waiver is effective for 30 days; therefore, any monthly or first-quarter payment or return currently due on April 20, 2020, may be submitted to the Department without penalty or interest through May 20, 2020.

This waiver also includes sales, use, and withholding returns or payments due on April 20, 2020, as a result of the previous 30-day waiver of penalty and interest for payments or returns due on March 20, 2020. Taxpayers originally required to remit tax and file returns on March 20, 2020, therefore have until May 20, 2020, to remit tax and file returns without penalty and interest.

Taxpayers may still remit tax and file a return by the original due date and are encouraged to do so.

Any payment or return otherwise due after April 20, 2020, will not be eligible for the current waiver. The waiver is not available for accelerated sales, use or withholding tax filers. Those taxpayers should continue to file returns and remit any tax due as of the original due dates.

By now, most employers have presumably read up on the basic tax relief and financial assistance aspects of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. What you may not have heard much about is how the law affects employer-sponsored benefit plans. Here are some highlights of its impact:

Coverage mandates. Under the Families First Coronavirus Response Act, an earlier law passed in response to the outbreak, health insurers and group health plans were required to cover coronavirus (COVID-19) testing and related provider visits without cost-sharing. The CARES Act has extended this requirement to additional categories of COVID-19 tests — even if not FDA-approved.

Health plans and insurers must reimburse the diagnostic testing provider according to any negotiated rate with the provider, or they must pay the provider’s publicized cash price for the diagnostic test in the absence of a negotiated rate. Health insurers and group health plans will have to cover, without cost-sharing, COVID-19 preventive services and immunizations that receive specified recommendations from the CDC’s United States Preventive Services Task Force. This requirement will apply 15 business days after the task force’s recommendation.

Telehealth exemption for high-deductible health plans (HDHPs). A safe harbor allows HDHPs to cover telehealth and other remote care services without a deductible for plan years beginning on or before December 31, 2021. This provision is effective March 27, 2020, the date of the law’s enactment.

Over-the-counter (OTC) drugs and certain other products. The CARES Act removes the prescription requirement for OTC drug reimbursements that previously applied to:

• Health Flexible Spending Arrangements,
• Health Reimbursement Arrangements,
• Health Savings Accounts (HSAs), and
• Other accident and health plans.

In addition, menstrual care products now qualify as medical care for purposes of reimbursement or tax-free distribution. These changes generally apply to expenses incurred after December 31, 2019; however, in the case of HSAs, they apply to amounts paid after that date. (As of this writing, there’s no expiration date.)

HIPAA privacy. The CARES Act aligns the Federal Confidentiality of Alcohol and Drug Abuse Patient Records Act with privacy rules under the Health Insurance Portability and Accountability Act (HIPAA). That is, the law generally allows disclosure and redisclosure of covered records for treatment, payment or health care operations to the extent permitted by HIPAA after a patient provides initial written consent. The U.S. Department of Health and Human Services (HHS) has been instructed to update its regulations and issue guidance regarding this change.

ERISA deadlines. The law adds public health emergencies declared by HHS to the list of events permitting the U.S. Department of Labor to delay, for up to one year, deadlines under the Employee Retirement Income Security Act (ERISA). Examples include deadlines for filing claims or appeals under a plan’s internal claims procedures.

Employers may need to immediately adjust their benefits administration systems to the many changes occurring because of the COVID-19 emergency. Contact us for help understanding how the CARES Act, or any other actions in response to the pandemic, may affect your organization.

View all Yeo & Yeo’s COVID-19 Resources.

© 2020

The IRS has issued guidance providing relief from failure to make employment tax deposits for employers that are entitled to the refundable tax credits provided under two laws passed in response to the coronavirus (COVID-19) pandemic. The two laws are the Families First Coronavirus Response Act, which was signed on March 18, 2020, and the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act, which was signed on March 27, 2020.

Employment tax penalty basics

The tax code imposes a penalty for any failure to deposit amounts as required on the date prescribed, unless such failure is due to reasonable cause rather than willful neglect.

An employer’s failure to deposit certain federal employment taxes, including deposits of withheld income taxes and taxes under the Federal Insurance Contributions Act (FICA) is generally subject to a penalty.

COVID-19 relief credits

Employers paying qualified sick leave wages and qualified family leave wages required by the Families First Act, as well as qualified health plan expenses allocable to qualified leave wages, are eligible for refundable tax credits under the Families First Act.

Specifically, provisions of the Families First Act provide a refundable tax credit against an employer’s share of the Social Security portion of FICA tax for each calendar quarter, in an amount equal to 100% of qualified leave wages paid by the employer (plus qualified health plan expenses with respect to that calendar quarter).

Additionally, under the CARES Act, certain employers are also allowed a refundable tax credit under the CARES Act of up to 50% of the qualified wages, including allocable qualified health expenses if they are experiencing:

• A full or partial business suspension due to orders from governmental authorities due to COVID-19, or
• A specified decline in business.

This credit is limited to $10,000 per employee over all calendar quarters combined.

An employer paying qualified leave wages or qualified retention wages can seek an advance payment of the related tax credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Available relief

The Families First Act and the CARES Act waive the penalty for failure to deposit the employer share of Social Security tax in anticipation of the allowance of the refundable tax credits allowed under the two laws.

IRS Notice 2020-22 provides that an employer won’t be subject to a penalty for failing to deposit employment taxes related to qualified leave wages or qualified retention wages in a calendar quarter if certain requirements are met. Contact us for more information about whether you can take advantage of this relief.

More breaking news

Be aware the IRS also just extended more federal tax deadlines. The extension, detailed in Notice 2020-23, involves a variety of tax form filings and payment obligations due between April 1 and July 15. It includes estimated tax payments due June 15 and the deadline to claim refunds from 2016. The extended deadlines cover individuals, estates, corporations and others. In addition, the guidance suspends associated interest, additions to tax, and penalties for late filing or late payments until July 15, 2020. Previously, the IRS postponed the due dates for certain federal income tax payments. The new guidance expands on the filing and payment relief. Contact us if you have questions.

View all Yeo & Yeo’s COVID-19 Resources.

© 2020

The IRS and the U.S. Department of Treasury have announced new relief for federal taxpayers affected by the coronavirus (COVID-19) pandemic. The IRS had already extended certain deadlines to file and pay federal income taxes and estimated tax payments due April 15, 2020, without incurring late filing penalties, late payment penalties or interest. The additional relief, outlined in Notice 2020-23, applies to a wider variety of tax filers. The IRS also has announced new tools for taxpayers expecting Economic Impact Payments (also known as “recovery rebates”).

The extensions in a nutshell

The extensions apply to taxpayers, including Americans living and working abroad, with filing or payment deadlines on or after April 1, 2020, and before July 15, 2020. Covered tax forms and payments include:

• Individual income tax payments and returns,
• Calendar-year or fiscal-year corporate income tax payments and returns,
• Calendar-year or fiscal-year partnership return filings,
• Estate and trust income tax payments and returns,
• Gift and generation-skipping transfer tax payments and returns, and
• Tax-exempt organizations’ payments and returns.

The due dates for these payments and returns are automatically postponed to July 15, 2020. Taxpayers don’t need to contact the IRS, file any extension forms, or send letters or other documents to take advantage of the extensions. The accrual of interest, penalties and additions to tax for failure to file or pay will be suspended from April 1, 2020, to July 15, 2020, resuming on July 16, 2020.

The IRS is also extending the earlier relief regarding quarterly estimated tax payments. As of now, the payments ordinarily due on both April 15 and June 15 aren’t due until July 15. This applies to individual and businesses that must make estimated tax payments.

Extensions for other time-sensitive actions

Notably, the IRS is giving taxpayers extra time to perform specified other time-sensitive actions originally due to be performed on or after April 1, 2020, and before July 15, 2020. Those include filing petitions with the U.S. Tax Court or seeking review of a Tax Court decision, filing claims for tax credits or refunds, and filing a lawsuit based on a tax credit or refund claim. Taxpayers generally have three years to claim refunds, so the deadline for 2016 refunds otherwise would be April 15, 2020 (three years after the April 2017 filing date for 2016 tax returns).

Unfortunately for some taxpayers, the notice also provides the IRS with additional time to perform certain time-sensitive acts. It allows a 30-day postponement if the last date for performance of an action is on or after April 6, 2020, and before July 15, 2020. This extension could affect taxpayers who are currently under IRS examination, whose cases are with the Independent Office Appeals or who file amended returns or submit payments for a tax for which the assessment period would expire in that time period.

Economic Impact Payment tools

On April 10, 2020, the day after announcing the deadline extensions, the IRS launched a new online tool allowing quick registration for Economic Impact Payments for individuals who don’t normally file an income tax return. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides for payments of up to $1,200 for eligible individuals or $2,400 for married couples, plus $500 for each qualifying child. Eligible taxpayers who filed tax returns for 2019 or 2018 will receive the payments automatically.

The non-filer tool is intended for people who didn’t file a tax return for 2018 or 2019 and who don’t receive Social Security retirement, survivors or disability benefits. It’s available at IRS.gov.

The IRS says it expects to launch another tool, called “Get My Payment,” by April 17. It will provide taxpayers with information on the status of their payments, including the date payments are scheduled to be deposited in their bank accounts or mailed to them. Eligible taxpayers also will be able to provide their bank account information to expedite payment, assuming the payment hasn’t already been scheduled for delivery.

Stay tuned

The IRS, Department of Treasury, Congress and the Trump administration continue to work on new forms of relief to help individuals and businesses cope with the effects of the COVID-19 crisis. Turn to us for all of the latest developments and available opportunities.

View all Yeo & Yeo’s COVID-19 Resources.

© 2020

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) allocates nearly $350 billion to a new lending program through the Small Business Administration (SBA), aimed at helping employers cover their payrolls during the coronavirus (COVID-19) pandemic. The loans under the Paycheck Protection Program (PPP) are subject to 100% forgiveness if certain criteria are satisfied, and neither the government nor lenders will impose fees.

The program is open to virtually every U.S. small business — including sole proprietors, self-employed individuals, independent contractors and nonprofits — affected by COVID-19. It’s available through June 30, 2020, but on a “first-come, first-served” basis. The U.S. Treasury Department is urging businesses to apply promptly.

Eligible borrowers

The PPP generally is available to small organizations with fewer than 500 employees. The term “employees” includes full-time, part-time and any other status workers.

For businesses in the accommodation and food services sector, the 500-employee threshold is applied on a per physical location basis. The SBA’s normal affiliation rules also don’t apply to companies that receive financial assistance from an SBA-licensed Small Business Investment Company or certain franchises.

Loan requirements

The SBA is waiving its usual requirements for loans. Businesses need not provide personal guarantees or collateral — or demonstrate the inability to obtain some or all of the loan funds from other sources (also known as the Credit Elsewhere requirement).

Instead, borrowers must certify in good faith all of the following:

• They were operating on February 15, 2020, and had employees for whom they paid salaries and payroll taxes or paid independent contractors, as reported on Form 1099-MISC,
• Current economic uncertainty makes the loan necessary to continue ongoing operations,
• The funds will be used to retain workers and maintain payroll, or to make mortgage interest, rent and utility payments for eight weeks (75% of loan proceeds must be used for payroll costs),
• They don’t have, and won’t receive, another loan under the PPP, and
• The number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments and covered rent payments and utilities.

Independent contractors, sole proprietors and self-employed individuals must provide additional documentation, such as payroll processor records, payroll tax filings, Form 1099s and, for sole proprietors, income and expenses.

Note that, in the days leading up to the opening of the application process, some banks expressed concern that a lack of guidance could result in significant delays in issuing loans. The Treasury Department didn’t release its interim final rule until the evening before the program began accepting applications, so lags in funding may occur.

Loan amounts and terms

Eligible businesses can obtain loans for 2 1/2 months of their average monthly payroll costs plus the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020, and April 3, 2020 (less the amount of any advance under an EIDL COVID-19 loan, which doesn’t have to be repaid). Seasonal or new businesses will use different applicable time periods for the calculation.

Loans are subject to a $10 million cap. Payroll costs are limited to $100,000 annualized for each employee; amounts above that must be excluded from the calculation. Independent contractors who have the ability to apply for a PPP loan on their own don’t count for purposes of a borrower’s payroll.

Payroll costs include compensation, cash tips, severance, employee benefits (including leave), and state and local taxes on compensation. For sole proprietors, independent contractors and self-employed individuals, payroll includes wages, commissions, income and net earnings from self-employment.

Payroll excludes payroll and income taxes and compensation paid to employees who don’t live in the United States. It also doesn’t include qualified sick or family leave wages paid under the recent Families First Coronavirus Response Act.

The loans carry a fixed interest rate of only 1% and, although the CARES Act provided for terms of up to 10 years, will run for two years. All payments are deferred for six months, but interest will continue to accrue. Borrowers can pre-pay without penalties or fees.

Loan forgiveness

Businesses can qualify for loan forgiveness for amounts used for payroll costs, mortgage interest, and rent and utility payments over the eight weeks after receiving the loan. While the CARES Act provides that a borrower can spend up to 50% of loan proceeds on nonpayroll costs and still qualify for forgiveness, the final regulations indicate that no more than 25% of the loan proceeds can be used for such costs and benefit from forgiveness.

Borrowers also must maintain staff and payroll to qualify for full forgiveness. Loan forgiveness will be reduced if salaries and wages are reduced by more than 25% for any employee who made less than $100,000 annualized in 2019. Businesses will have until June 30, 2020, to restore full-time employment and salary levels from reductions made between February 15, 2020, and April 26, 2020.

Businesses can submit a request for forgiveness to their lenders. Requests must include documents verifying the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease and utility obligations. Lenders must make forgiveness decisions within 60 days.

Act now!

The application process for eligible small businesses and sole proprietors began April 3, 2020, and independent contractors and self-employed individuals can began to apply on April 10, 2020. Businesses might be able to expedite the process by seeking loans from financial institutions where they have existing lending relationships. Contact us for additional information.

View all Yeo & Yeo’s COVID-19 Resources.

© 2020

Due to the coronavirus (COVID-19) pandemic, employers are now faced with many challenges with their workforces, including responding to changes in employee benefits programs. In response, they have many questions. Here’s one question from an employer:

Q. One of our employees has approached us with a dilemma. She would like to revoke her dependent care assistance program (DCAP) election under our calendar-year cafeteria plan. The reason is that her dependent care provider has closed due to the coronavirus (COVID-19) pandemic. She tells us that a neighbor has offered to take care of her children at no cost. Can we allow a midyear election change under these circumstances?

A. Yes, if your plan document has been drafted as expansively as IRS rules allow for midyear election changes due to changes in cost or coverage. The rules apply broadly to dependent care assistance programs (DCAPs), permitting midyear election changes in a variety of circumstances that involve changes in care providers or in the cost of care.

IRS officials have informally commented that a DCAP election change is permitted when a child is switched from a paid provider to free care (or no care, in the case of a “latchkey” child). Other circumstances in which IRS rules would allow a DCAP election change include a modification in the hours for which care is provided or in the fee charged by a provider. However, an election change isn’t allowed if a modified cost is imposed by a care provider who is the employee’s relative, as defined in IRS rules.

Note: While the cost or coverage election change rules apply broadly to DCAPs, they don’t apply to health flexible spending arrangements (FSAs). This is one of several areas in which the rules differ for health FSAs and DCAPs.

Contact your tax or employee benefits advisors with any questions.

View all Yeo & Yeo’s COVID-19 Resources.

Adjusted taxable income (ATI) refers to taxable income calculated by making adjustments to factor out the following:

• Items of income, gain, deduction or loss that aren’t allocable to a business,
• Any business interest income or business interest expense,
• Any net operating loss deduction,
• The deduction for up to 20% of qualified business income from a pass-through business entity,
• For tax years beginning before 2022, allowable depreciation, amortization and depletion deductions, and
• Other adjustments listed in IRS proposed regulations.

Deductions for depreciation, amortization and depletion are added back when calculating adjusted taxable income for tax years beginning before 2022. For tax years beginning in 2022 and beyond, these deductions won’t be added back, which may greatly increase the taxpayer’s adjusted taxable income amount and result in a lower interest expense limitation amount.

View all Yeo & Yeo’s COVID-19 Resources.

Eligible real property and farming businesses can elect out of the business interest expense limitation. However, electing to be exempt has a tax cost.

Real Property Businesses

Real property businesses can elect out of the business interest expense limitation rules if they use the slower Alternative Depreciation System (ADS) method to depreciate their nonresidential real property, residential rental property and qualified improvement property. Using the ADS method results in lower annual depreciation deductions because its depreciation periods are longer than the depreciation periods under the regular MACRS (Modified Accelerated Cost Recovery System) method. Real property businesses include developing, redeveloping, constructing, reconstructing, acquiring, converting, renting, operating, managing, leasing and brokering real property.

Affected real estate businesses should evaluate the tax benefit of gaining bigger interest expense deductions by electing out of the interest expense limitation rules vs. the tax detriment of lower depreciation deductions under the ADS method. If the election out is made, first-year bonus depreciation that would otherwise be allowed for eligible real property is not allowed under the ADS method.

Farming Businesses

Eligible farming businesses can also elect out of the business interest expense limitation rules. Farming businesses include nurseries; sod farms; raising or harvesting of tree crops, other crops, or ornamental trees; and certain agricultural and horticultural cooperatives. These businesses can elect out of the rules if they use the ADS method to depreciate assets used in the farming business that have MACRS depreciation periods of 10 years or more.

View all Yeo & Yeo’s COVID-19 Resources.

On April 1, the U.S. Department of Labor (DOL) issued preliminary regulations covering two emergency laws that are part of the response to the coronavirus (COVID-19) pandemic. The laws require new paid sick leave and family leave benefits for most employers with fewer than 500 full-time and part-time employees. Employers with fewer than 50 employees could be exempt from the rules if compliance “would jeopardize the viability of the business as a going concern,” according to the DOL 

“To elect this small business exemption,” the DOL adds, “you should document why your business with fewer than 50 employees meets the criteria set forth by the Department, which will be addressed in more detail in forthcoming regulations.” As of this writing, further details aren’t yet available. 

Fleshing Out the New Law 

The new regulations put some meat on the bones of the Families First Coronavirus Response Act (FFCRA), which contains a component known as the Family and Medical Leave Expansion Act (FMLEA). The law was enacted March 19.

Important: The FMLEA was based on the original Family and Medical Leave Act, which doesn’t apply to employers with fewer than 50 employees. However, the FMLEA modifications do apply to these smaller businesses, except for those that apply for and receive an exemption. 

The regs — plus a set of questions and answers issued by the DOL — spell out what the new law requires. ERISA attorneys are examining the regs in detail and should be consulted as thorny “what-if” questions arise. But the following benefits must generally be provided to employees who are quarantined “pursuant to federal, state or local government order or advice of a health care provider” or are “experiencing COVID-19 symptoms and seeking a medical diagnosis:”

• Full-time workers, regardless of hire date, are eligible for up to two weeks (80 hours) of paid sick leave at their “regular rate of pay” (an average, including overtime).  
• For part-time employees, the duration of this benefit is the number of hours they work over an average two-week period. 

Two-Thirds Pay Requirement

In addition, all eligible employees are entitled to sick leave at two-thirds of their normal rate of pay, for up to 80 hours. To be eligible they must be “unable to work because of a bona fide need to care for an individual subject to quarantine, or care for a child under 18, whose school or child care provider is closed or unavailable for reasons related to COVID-19.” As for employees experiencing a “substantially similar condition,” the requirements for leave haven’t yet been defined by the government.

Employees who have been on your payroll for at least 30 days are entitled to another ten weeks, at two-thirds pay, to cover childcare needs as described above. 

The law puts a ceiling on some benefits. For example, the limit on the value of paid leave that can be offset by tax credits when given to employees who are quarantined or experiencing COVID-19 symptoms or being tested for the virus, is $511 per day and $5,110 over the two-week period. Lower limits apply to different leave scenarios.

Employees can’t claim both kinds of paid leave benefits simultaneously. Also, these benefits are taxable, and you’ll need to withhold federal income tax and the employee’s share of Social Security and Medicare taxes on paid sick leave amounts.

Pre-April 1 Paid Leave Benefits Must Remain

The FFCRA regs make it clear that the law’s new requirements can’t justify taking away any paid sick leave benefits employees already were entitled to prior to the law’s April 1 effective date.

As with many labor laws, the FFCRA requires not only that you comply with the law itself but also inform employees about their rights under the law. The DOL has created a model poster for that purpose; it’s available on its Wage and Hour Division’s website. Employees can also be notified via email. 

The preliminary regs indicate that employees who need to stay home for COVID-19-related childcare reasons don’t have a blank check. “The FFCRA and these regulations encourage employers and employees to implement highly flexible telework arrangements that allow employees to perform work, potentially at unconventional times, while tending to family and other responsibilities, such as teaching children whose schools are closed for COVID-19-related reasons.”

What about the Credits?

To offset the added cost of providing these new benefits, the FFCRA includes an employer tax credit. The credits are available only for leave taken from April 1, 2020, to December 31, 2020.

Credits are claimed when a business files its quarterly payroll tax returns and withholds the amounts eligible for the credit from the payroll tax owed. According to the U.S. Department of Treasury, “Employers can be reimbursed immediately by reducing their federal employment tax deposits. If there are insufficient federal employment taxes to cover the amount of the credits, employers may request an accelerated payment from the IRS.” The IRS has created a new form, Form 7200, for that purpose. (See “Claiming the Credit,” at right.)

Important: Tax credits can offset more than wages paid to employees on leave. “Applicable tax credits also extend to amounts paid or incurred to maintain health insurance coverage,” according to the DOL.

Claiming the Credit

Here’s an example from the IRS of how your business can quickly be reimbursed for paid leave and other allowed expenses mandated by the Families First Coronavirus Response Act.

ABC Co., an eligible employer, paid $10,000 in qualified leave wages (including allocable qualified health plan expenses and ABC’s share of Medicare tax on the qualified leave wages). ABC is otherwise required to deposit $8,000 in federal employment taxes, including taxes withheld from all employees, on wage payments made during the same quarter. 

However, under the new law, ABC can keep the entire $8,000 of taxes that the company was otherwise required to deposit without penalties as a portion of the credits it’s otherwise entitled to claim on the Form 941. In addition, ABC may file a request for an advance credit for the remaining $2,000 by completing Form 7200.

Documentation Is Critical

Employers seeking tax credits under the new paid leave program must retain all supporting documentation. Specifically, the IRS indicates that employers must have on file a written request for leave from affected employees which lists the following:

• The employee’s name,
• Dates for which leave is requested,
• A statement of the COVID-19-related reason for the request and written support for such reason, and
• A statement that the employee is unable to work, including by means of telework, for such reason. 

The DOL emphasizes the point that employers must retain documentation, but not send it to the DOL unless specifically requested.

Final Thoughts

As employers process leave requests and apply for credits, more leave-related questions are bound to arise. The DOL will continue to support employers by adding clarity where needed to existing regulations and addressing new situations in detail. Contact your HR advisor or employment attorney for help in applying the new leave regs to your specific circumstances.

View all Yeo & Yeo’s COVID-19 Resources.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides financial relief to businesses and families that have been adversely affected by the coronavirus (COVID-19) pandemic. The centerpiece of the new economic stimulus plan for the business sector is the massive Paycheck Protection Program (PPP). This program — which kicked off on April 3 — provides a wide range of benefits for businesses on the front lines of the COVID-19 pandemic.

However, the PPP has experienced some glitches and confusion over how it will operate and what it covers. Here are answers to eight FAQs about this Small Business Administration (SBA) program.

1. What are the main benefits?

The CARES Act provides the framework for approving up to $349 billion in loans to qualified businesses so they can continue to pay their employees during the COVID-19 crisis. The loans are forgivable under the program if certain requirements are met.

Specifically, loan proceeds must be used to cover the following expenses by employers affected by COVID-19:

• Payroll costs or employee benefits,
• Mortgage interest incurred before February 15, 2020,
• Rent and utilities under lease agreements in effect before February 15, 2020, and
• Utilities where services began before February 15, 2020.

At least 75% of the loan proceeds must be used to cover payroll costs. The rest is discretionary within the other categories.

2. What counts as a “payroll cost” for this purpose?

The SBA has indicated that payroll costs include the following:

• Salary, wages, commissions or tips of up to $100,000 a year for each employee,
• Employee benefits, such as costs for vacation time, parental or family leaves, medical or sick leaves, allowances for separation or dismissal, payments required for the provisions of group health care benefits (including insurance premiums), and payment of retirement benefits, and
• State and local taxes assessed on compensation.

For self-employed individuals and independent contactors, payroll costs may include wages, commissions, income or net self-employment earnings of up to $100,000 per employee.

3. What businesses are eligible to participate?

The benefits of the PPP are generally available to organizations — including small businesses, not-for-profit organizations, certain tribal business concerns and veteran groups — with fewer than 500 employees. (There are exceptions for businesses with more than 500 employees in certain industries.) Self-employed individuals, independent contractors and sole proprietors can also get in on the action. To be eligible, an organization must have been in existence as of February 15, 2020.

4. How do you apply for a loan?

The program officially launched for small businesses and sole proprietors on April 3, but some lenders were still putting the mechanics in place on that date. Loans for self-employed individuals and independent contractors start on April 10.

According to an SBA fact sheet, you can apply through any existing SBA lender or any federally insured depository institution or federally-insured credit union, as well as participating Farm Credit System institutions. Other regulated lenders may provide loans after they’ve been approved and have enrolled in the program. (However, some businesses have complained that banks won’t take an application from them unless they have a preexisting lending relationship.)

Visit the SBA website for the application form. Once you’ve collected all the information required on the form, contact an approved lender to start the application process. At last count, the SBA had established a network of more than 1,800 approved lenders.

The loan application process for the PPP is designed to be easy and user-friendly. Eligible borrowers are supposed to receive approval on the same day that they apply for a loan. “Speed is the operative word … with lenders using their own systems and processes to make these loans. We remain committed to supporting our nation’s more than 30 million small businesses and their employees, so that they can continue to be the fuel for our nation’s economic engine,” said SBA Administrator Jovita Carranza.

5. Do you have to prove that losses are related to COVID-19?

The SBA says that loans under the program are available to any eligible business for which current economic uncertainty makes the loan necessary to support ongoing operations. After you submit an application, your lender will determine the need for your business based on the prevailing SBA guidelines.

Currently, there’s no provision for separate SBA reviews, but the rules in this area are still evolving. Keep an eye out for new developments that may affect your business.

6. What’s the loan limit?

The limit on loan proceeds from the PPP depends on the needs of your business. Generally, loans can be for up to two months of your average monthly payroll costs in 2019, plus an extra 25% of that amount to cover other operating expenses. However, there’s a $10 million cap on the total. If you operate a seasonal or new business, you’re required to use a different applicable time period for your calculation. Payroll costs are capped at $100,000 per year per employee.

7. How are loans forgiven?

According to the SBA, your business will owe money when your loan is due if you use the proceeds for purposes other than the specified costs during the eight-week period after you’ve received the loan proceeds. Due to the high demand, it’s expected that no more than 25% of the forgiven amount may be for nonpayroll costs.

Furthermore, your loan forgiveness will be reduced if you decrease salaries and wages by more than 25% for any employee that earned less than $100,000 in 2019 on an annualized basis. Your business has until June 30, 2020, to restore its full-time employment and salary levels for any changes made between February 15, 2020, and April 26, 2020.

To request loan forgiveness, you must submit a request to the lender servicing the loan. The request should include documents verifying the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease and utility obligations. In addition, you must certify that the documents are accurate and that you used the forgiveness amount to retain employees and make qualified payments. The lender is required to make a decision on the forgiveness request within 60 days.

8. What’s required for certification?

As part of your loan application, you’ll need to certify, in good faith, the following points:

• The current economic uncertainty makes the loan necessary to support your ongoing operations.
• The funds will be used to retain workers and maintain payroll or to make mortgage, lease and utility payments.
• You haven’t received, nor will you receive, another loan under this program.
• You’ll provide to the lender documentation verifying the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments and covered utilities for the eight weeks after getting the loan.
• All the information you provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.

You also must acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. And you must allow your lender to share your organization’s tax information with SBA-authorized representatives, including authorized representatives of the SBA Office of Inspector General, when appropriate.

Additional Questions

These questions cover just the basics. The SBA and other federal agencies continue to provide details. But it’s important to realize that this is a limited-time opportunity. The program ends on June 30, 2020, or when the program has given out the $349 billion in funds allocated to it under the CARES Act. So, contact your financial and business advisors as soon as possible to maximize your benefits.

View all Yeo & Yeo’s COVID-19 Resources.

Efforts to contain the spread of the novel coronavirus (COVID-19) have led to suspension of many economic activities, putting unprecedented strain on businesses. The Securities and Exchange Commission (SEC) recently issued guidance to help public companies provide investors and other stakeholders with useful, accurate financial statement disclosures in today’s uncertain marketplace. Nonpublic companies and non-profit organizations can utilize this guidance as well to ensure their disclosures are informative to users of financial statements.

10 questions

Here are 10 questions for companies to consider when making COVID-19-related disclosures:

1. How has COVID-19 impacted your company’s financial condition and results of operations — and how might it impact future operations?
2. How has COVID-19 impacted your company’s liquidity position and its capital and financial resources? Do you expect to incur any material COVID-19-related contingencies?
3. How will COVID-19 affect assets on your company’s balance sheet and its ability to account for those assets in a timely manner?
4. Have there been (or do you anticipate) any material impairments (for example, related to goodwill, intangible assets, long-lived assets, right of use assets and investment securities), increases in allowances for credit losses, restructuring charges, other expenses or changes in accounting judgments?
5. Have remote working arrangements and other COVID-19-related circumstances adversely affected your company’s ability to maintain operations, including financial reporting systems, internal control over financial reporting, and disclosure controls and procedures? If so, what changes in controls have occurred during the current period?
6. Have you experienced challenges or resource constraints in implementing your company’s business continuity plans, or do you foresee requiring material expenditures to do so?
7. Do you expect COVID-19 to affect demand for your company’s products or services?
8. Will COVID-19 have a material adverse impact on your company’s supply chain or the methods used to distribute products or services?
9. Will your company’s operations be materially impacted by any constraints or other impacts on its human capital resources and productivity?
10. Are travel restrictions and border closures expected to have a material impact on your company’s ability to operate and achieve its strategic goals?

This list of open-ended questions isn’t intended to be exhaustive. Each company will need to customize COVID-19-related disclosures using forward-looking information that’s based on assumptions about what may or may not happen in the future. In many situations, the impact will depend on factors beyond management’s control and knowledge.

We can help

These considerations are unprecedented for many of our clients. It may require companies to use different methods to calculate estimates than have been used in the past. Historic trends may not be as valuable as anticipated future results in determining necessary adjustments. Contact us for assistance in crafting COVID-19 disclosures or assistance in evaluating estimates in light of these unusual conditions.

View all Yeo & Yeo’s COVID-19 Resources.

© 2020

The IRS issued Notice 2020-23, Additional Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic, an update to Notice 2020-18. The notice extends more tax deadlines to cover individuals, trusts, estates, corporations and others. The following is a summary of the key points.   

• Individual tax returns Form 1040 series, including Nonresident Alien returns
• Corporate returns 1120, 1120S
• Partnership returns 1065
• Estate and trust returns 1041
• Estate tax returns 706
• Gift tax returns 709
• Exempt organization business income tax Form 990-T
• Private Foundation Returns Form 990-PF
• Quarterly estimated tax payments that are submitted on 990-W, 1040-ES, 1041-ES, 1120-W. Note: This now includes the first and second quarters.

The Paycheck Protection Program isn’t the only relief for small businesses provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Among other provisions, the new law also expands the Small Business Administration (SBA) Express Bridge Loan program.

This program was created in 2017 to help businesses in federally designated areas expedite SBA loans of up to $25,000. This option has now been extended to small businesses affected by the coronavirus (COVID-19) outbreak.

An Express Bridge Loan may be obtained through any qualified SBA Express lender that has a relationship with the business seeking the loan. If your business qualifies, you may get your hands on the money within 45 days of the application date.

For more information about the SBA Express Bridge Loan program and other SBA resources relating to the COVID-19 outbreak, visit the SBA website or contact your financial advisor.

Federal Funding

MDE issued a waiver for all schools for Title funding due to the recent Governor-mandated school closings due to COVID-19. This waiver allows schools flexibility in Title spending for students and teachers for technology purchases. Specifically, the waiver allows schools flexibility for:

• Title I Funds:
  • To purchase Hot Spots and other internet access tools for students
  • To purchase devices for teacher use to support student learning
  • To purchase student devices (computers, iPads, etc.)
• Title IIA Funds:
  • To support training for educators to help them learn how to deliver instruction and connect with students virtually
  • To support professional development opportunities delivered virtually to support goals identified in district improvement plans
  • To purchase devices needed to support the teacher trainings
• Title IV Funds:
  • To support technology (devices, access, etc.)
  • To purchase more than the 15% limit normally applied for technology

For more information, refer to MDE’s memo, Flexibility in Title Funds for Technology

Charging employee salaries to federal programs

Schools may use federal funds to compensate employees who are currently paid from these sources. In other words, if a local education agency currently pays an employee using Title funds, it may continue to use Title funds to pay that employee during the period of closure.

Also, it is allowable to continue to charge salaries and benefits for special education staff teleworking and staff not working using IDEA Part B funds following the district’s policy of paying salaries from all funding sources, federal and non-federal. Staff would be paid from the same funding sources similarly as before the COVID-19 crisis and supported by time and effort documentation.

For more information and a Q&A, refer to the MDE’s memo, Use of Federal Title Funds During Mandated COVID-19 Closure

Nutrition Programs

MDE has requested a waiver for all Michigan school districts for statutory and regulatory requirements of the Child Nutrition Program. This includes a waiver for the Emergency Food Assistance Programs and the Commodity Supplemental Food Program.

MDE has also opened advance payments for school nutrition programs and is focused on providing meals during this time of crisis to all students in need.

Template for Continuity of Learning

MDE released a template for all local school districts and public school academies (PSAs) to develop a response for the Continuity of Learning during the COVID-19 crisis shutdown. Submissions must first go the local intermediate school districts (ISDs) for all local education agencies (LEAs) or the respective charter school authorizer for PSAs. The plan will also cover a budget outline for the new learning plan.

See MDE’s Continuity of Learning and COVID-19 Response Plan Template.

State Aid Updates

Pupil Membership – October 2019 pupil count data (audited for most districts) and audited February 2019 counts were used in the calculation of the blended membership count for the March payment used to calculate Section 20 Foundation allowances.

See all MDE memos related to updates for COVID-19: MDE COVID-19 Updates

Special Note Related to GASB

The Governmental Accounting Standards Board (GASB) has also been providing updates due to concerns with the COVID-19 pandemic. GASB is reviewing a proposed Statement that would postpone the effective dates of provisions in certain pronouncements. The proposal has tentatively identified provisions that became effective or will become effective for reporting periods beginning after June 15, 2018, through Statement No. 92, Omnibus 2020, and Implementation Guide No. 2019-3, Leases. Particularly for schools, this is important as that includes Statement No. 84, Fiduciary Activities, and Statement No. 87, Leases.

Yeo & Yeo will continue to follow GASB changes and let you know when something has been finalized.

The coronavirus (COVID-19) outbreak is causing havoc in the global markets and the U.S. economy. In today’s uncertain marketplace, it’s important to stay on top of your financial status, including taking measures to protect your retirement nest egg over the long-term.

One idea to consider is converting a traditional IRA to a Roth IRA. This is a proactive strategy you might use while asset values and tax rates are relatively low. Here’s what you need to consider before converting your account.

Traditional Vs. Roth

First, let’s review the key differences between traditional and Roth IRAs:

Traditional IRAs. Contributions to a traditional IRA may be wholly or partially tax-deductible. But deductions are phased out if these two conditions are met:

1. Your modified adjusted income (MAGI) exceeds a specified level, and
2. You (or your spouse if you’re married) are an active participant in an employer-sponsored retirement plan.

Therefore, depending on your situation, only a small part of a traditional IRA, if any, may reflect deductible contributions.

Roth IRAs. Contributions to a Roth are never tax-deductible, regardless of your MAGI. However, qualified distributions from a Roth IRA that’s been in existence for at least five years are 100% tax-free. For this purpose, qualified distributions include withdrawals:

• Made after age 59½,
• Made or on account of death or disability, or
• Used to pay qualified first-time homebuyer expenses (up to a lifetime limit of $10,000).

Other nonqualified Roth IRA distributions are taxed at ordinary income rates under special “ordering rules.” When you take a distribution, contributions are treated as coming out first, so this part is exempt from tax if the contributions weren’t deductible. This treatment is followed by conversion and rollover amounts and, finally, earnings. These ordering rules reduce any potential tax liability during the first five years of the account’s existence.

In other words, when you convert assets in a traditional IRA to a Roth, you’re usually doing it for the lure of tax-free payouts in the future. But a conversion isn’t a slam-dunk by any means.

Factors to Consider

Under prior law, you had until October 15 of the same year to reverse (or “recharacterize”) an ill-fated conversion. For example, a reversal might have been advised if you converted the account and then asset values subsequently declined. However, under the Tax Cuts and Jobs Act (TCJA), for 2018 and beyond, you can no longer recharacterize a Roth IRA back into a traditional IRA. The TCJA’s repeal of the recharacterization privilege is permanent.

So, it’s important to think through the details before you convert to a Roth IRA. Some of the questions to ask when deciding whether (and when) to make a conversion include:

How much tax will you owe? When you convert to a Roth IRA, you must pay tax on the funds transferred, just like a traditional IRA distribution. You might not want to convert if your account balance is high and you expect asset values to drop. Conversely, a declining value might encourage a conversion. 

Do you have money to pay the conversion tax bill? If you don’t have enough cash on hand to cover the taxes owed on the conversion, you may have to dip into your retirement funds. For example, you might arrange to pay the tax out of the funds being converted. This will erode your nest egg. The more money you convert and the higher your tax bracket, the bigger the tax hit.

What is your retirement horizon? Your stage of life can affect your decision. Typically, you wouldn’t convert a traditional IRA to a Roth IRA if you expect to soon retire and start drawing down on the account right away. Usually, the goal is to allow the funds to grow and compound over time without any tax erosion.

How do you expect your tax rate to change in retirement? If you anticipate being in a lower tax bracket when you retire than you’re in now, you may not want to convert — it might be easier to absorb tax on future distributions than it is to pay a conversion tax this year. On the other hand, if you expect to be in a higher tax bracket in retirement than you’re in now, a conversion now often makes sense, absent any other extenuating circumstances. To complicate matters, Congress could change tax rates in the future.

Will you have other sources of retirement income, besides your IRAs? If most of your retirement funds are invested in assets that would trigger taxes on distribution — likes growth stocks or a 401(k) plan — a Roth conversion may provide some flexibility later in life. It can help meet your lifestyle or estate planning objectives without triggering tax on every withdrawal. Because you can’t predict how the tax laws will change over time, it’s a good idea to build some tax diversification into your accounts.

Another important factor to consider is required minimum distributions (RMDs). With a traditional IRA, you must begin taking RMDs by April 1 of the year after the year you turn age 72. (This requirement was extended from age 70½ by the SECURE Act, beginning in 2020.) For each subsequent tax year, an RMD must be made by December 31 of that year.

However, there are no mandatory lifetime distributions with a Roth IRA. This can help preserve wealth for your heirs.

What’s Right for You?

Always contact your tax advisor before converting a traditional IRA to a Roth IRA. He or she can discuss the pros and cons, along with providing other retirement planning recommendations.

View all Yeo & Yeo’s COVID-19 Resources.

Normally, you must start taking annual required minimum distribution (RMDs) from tax-favored retirement plan accounts and from traditional IRAs set up in your name, once you reach:

• 70½ if you attained age 70½ before 2020,
• or 72 if you attain age 70½ after 2019.

Fortunately, the CARES Act suspends all RMDs that would normally be required for 2020. This suspension also applies to your initial RMD if you turned 70½ last year and didn’t take that initial RMD last year. (The initial RMD is actually for calendar year 2019.) Before the CARES Act, the deadline for taking that initial RMD was April 1, 2020. Now, thanks to the CARES Act, you can put off any and all RMDs that you would have otherwise had to take this year.

For 2021 and beyond, the RMD rules will be applied as if 2020 never happened. In other words, all the RMD deadlines will be pushed back by one year and any deadlines that would have otherwise applied for 2020 will simply be ignored. Contact your tax advisor for more information about RMD relief.

View all Yeo & Yeo’s COVID-19 Resources.

The coronavirus (COVID-19) pandemic is causing economic hardship for many people and businesses in the United States. On March 27, the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law by President Trump. A key provision of the new law allows tax-favored treatment for people who take so-called coronavirus-related distributions from tax-favored retirement accounts. Here’s the story.

Tax-Favored Distributions

IRA owners who are adversely affected by the coronavirus pandemic will be eligible to take tax-favored coronavirus-related distributions (CVDs) of up to $100,000 from their IRAs. You can recontribute (repay) a CVD back into your IRA within three years of the withdrawal date and treat the withdrawal and later recontribution as a totally tax-free rollover.

In effect, the CVD privilege allows you to borrow up to $100,000 from your IRAs and then recontribute the amounts any time up to three years later with no federal income tax consequences.

There are no limitations on what you can use CVD funds for during that 3-year period. For example, if you’re cash-strapped, you can use the money to pay your bills and recontribute later when your financial situation has improved. Or you can help your adult kids out or pay down your home equity line of credit.

Important: The CARES Act also may allow you to take tax-favored CVDs from your employer’s qualified retirement plan, such as a 401(k) or profit-sharing plan, if the plan allows it. If allowed, the tax rules for CVDs taken from qualified plans are similar to those for CVDs taken from IRAs. Employers and the IRS have lots of work to do to figure out the details about how CVDs taken from qualified plans will work. Contact a tax professional or the appropriate person with your company for more information. But be patient. It may take a while for the details to fall into place.

Ground Rules

There are seven basic rules for taking CVDs from IRAs:

1. You can take one or more CVDs up to the $100,000 limit.
2. CVDs can come from different IRAs.
3. The 3-year recontribution period for each CVD begins on the day after you receive it.
4. You can make your recontributions in a lump sum or through multiple recontributions.
5. You can recontribute to one or several IRAs, and they don’t have to be the same accounts you took the CVDs from in the first place.
6. As long as you recontribute the entire CVD amount within the 3-year window, the whole transaction or series of transactions are treated as tax-free IRA rollovers.
7. If you’re under 59½, the 10% penalty tax that usually applies to early IRA withdrawals is waived for CVDs.

Plus, if your spouse owns one or more IRAs in his or her own name, he or she may be eligible for the same distribution privilege.

Qualifying Distributions

CVDs must be taken between January 1, 2020, and December 30, 2020, by an eligible individual. That means an individual:

• Who’s diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention,
• Whose spouse or dependent (generally a qualifying child or relative who receives more than half of his or her support from you) is diagnosed with COVID-19 by such a test,
• Who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off or having work hours reduced due to COVID-19,
• Who’s unable to work because of lack of childcare due to COVID-19 and experiences adverse financial consequences as a result,
• Who owns or operates a business that has closed, had operating hours reduced due to COVID-19 and has experienced adverse financial consequences as a result, or
• Who has experienced adverse financial consequences due to other COVID-19-related factors.

IRS guidance on how to interpret the last two factors is needed and is presumably forthcoming. Contact your tax advisor for the latest developments.

Failure to Recontribute CVDs

Beware: You’ll be taxed on the CVD amount that you don’t recontribute within the 3-year window. But you won’t have to worry about owing the 10% early withdrawal penalty if you’re under 59½.

You can choose to spread the taxable amount equally over three years, apparently starting with 2020. But here it gets tricky, because the 3-year window won’t close until sometime in 2023. Until then, it won’t be clear that you failed to take advantage of the tax-free CVD rollover deal. So, you may have to amend a prior-year return to report some additional taxable income from the CVD. The IRS is expected to issue additional guidance to clarify this issue.

You also have the option of simply reporting the taxable income from the CVD on your 2020 individual income tax return Form 1040. Again, you won’t owe the 10% early withdrawal penalty if you’re under 59½.

Beyond CVDs

The CVD privilege can be a helpful, flexible tax-favored financial tool for eligible IRA owners and company retirement plan beneficiaries during the pandemic. But it’s just one of several financial relief measures available under the CARES Act that include tax relief. Your tax advisor can help you take advantage of relief measures that will help you get through the COVID-19 crisis.

View all Yeo & Yeo’s COVID-19 Resources.

The recently enacted Coronavirus Aid, Relief, and Economic Security (CARES) Act provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 pandemic. The employee retention credit is available to employers, including nonprofit organizations, with operations that have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings.

The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.

IRS issues FAQs  

The IRS has now released FAQs about the credit. Here are some highlights.

How is the credit calculated? The credit is 50% of qualifying wages paid up to $10,000 in total. So the maximum credit for an eligible employer for qualified wages paid to any employee is $5,000.

Wages paid after March 12, 2020, and before Jan. 1, 2021, are eligible for the credit. Therefore, an employer may be able to claim it for qualified wages paid as early as March 13, 2020. Wages aren’t limited to cash payments, but also include part of the cost of employer-provided health care.

When is the operation of a business “partially suspended” for the purposes of the credit? The operation of a business is partially suspended if a government authority imposes restrictions by limiting commerce, travel or group meetings due to COVID-19 so that the business still continues but operates below its normal capacity.

Example: A state governor issues an executive order closing all restaurants and similar establishments to reduce the spread of COVID-19. However, the order allows establishments to provide food or beverages through carry-out, drive-through or delivery. This results in a partial suspension of businesses that provided sit-down service or other on-site eating facilities for customers prior to the executive order.

Is an employer required to pay qualified wages to its employees? No. The CARES Act doesn’t require employers to pay qualified wages.

Is a government employer or self-employed person eligible? No. Government employers aren’t eligible for the employee retention credit. Self-employed individuals also aren’t eligible for the credit for self-employment services or earnings.

Can an employer receive both the tax credits for the qualified leave wages under the Families First Coronavirus Response Act (FFCRA) and the employee retention credit under the CARES Act? Yes, but not for the same wages. The amount of qualified wages for which an employer can claim the employee retention credit doesn’t include the amount of qualified sick and family leave wages for which the employer received tax credits under the FFCRA.

Can an eligible employer receive both the employee retention credit and a loan under the Paycheck Protection Program? No. An employer can’t receive the employee retention credit if it receives a Small Business Interruption Loan under the Paycheck Protection Program, which is authorized under the CARES Act. So an employer that receives a Paycheck Protection loan shouldn’t claim the employee retention credit.

For more information

Al full list of the IRS Employee Retention Credit FAQ can be visited here. Contact us if you need assistance with tax or financial issues due to COVID-19.

View all Yeo & Yeo’s COVID-19 Resources.

© 2020