COVID-19: State Unemployment Guidance and Actions

During the unprecedented challenges that the coronavirus (COVID-19) pandemic has imposed on workers and employers, states have been announcing changes to unemployment insurance (UI) benefits.

Here are some of the actions:

Alabama. The Alabama Department of Labor (ADOL) has announced that it is offering temporary relief to employers for unemployment insurance (UI) benefit claims related to COVID-19. All charges will be waived against those employers who file partial unemployment compensation claims on behalf of their employees so that experience ratings won’t be impacted. The waiver will continue until further notice.

Employers will need to answer “Yes” when asked if the claim is COVID-19 related when they file partial unemployment claims beginning on March 23. Any claims filed from March 16 through March 20 will be addressed on a one-by-one basis. If an employer is unable to file partial claims for their employees, the employer should contact the ADOL that they waive their right to respond to any BEN 241 (Request for Separation Information. The BEN 241 will still be mailed, however, employers won’t need to respond if they notify ADOL in writing that they waive this right. Waivers may be emailed to Ben241waiver@labor.alabama.gov or by faxing (334) 309-9098. The statements should be on company letterhead and should include the state unemployment insurance account number.

Arizona. Governor Doug Ducey issued Executive Order 2020-11, retroactively effective March 11, 2020, expanding UI benefits during the COVID-19 pandemic. Workers will be eligible for UI benefits if:

1. The employer has ceased operation either permanently or temporarily;
2. The worker is under quarantine and doesn’t have available paid leave even if the worker is expected to return to work after the quarantine;
3. The worker must leave due to risk of exposure or to care for a family member with COVID-19; or
4. Any reason the Arizona Department of Economic Security determines is consistent with guidance provided by the U.S. Department of Labor. The one-week waiting period and work search requirements have been waived. An employer’s experience rating won’t be adjusted for claims related to COVID-19. The order will remain in effect until further notice.

Arkansas. The Arkansas Division of Workforce Services (DWS) notes in its FAQs on its website that whether an employer will be charged for UI claims related to COVID-19 will depend on the circumstances.

The DWS will examine the reason for separation and, if appropriate, non-charge benefits within federal and state guidelines. The DWS states that generally benefits paid as a result of a layoff, regardless of the reason, are charged to the employer’s account.

California. On March 17, Governor Gavin Newsome issued an executive order suspending the advance notice provision of the California Worker Adjustment and Retraining Notification Act (WARN) due to the coronavirus (COVID-19) epidemic, beginning March 4. The state’s WARN act requires employers with 75 or more employees to provide 60 days’ written notice of a mass layoff, relocation, or termination affecting 50 or more employees. Under the order, businesses must still provide written notices to employees , but aren’t subject to the 60-day advanced notice requirements.

The notice must be provided with as much notice as practicable and must contain:

A brief statement for the basis of reducing the notification period indicating that the termination is COVID-19 related due to “business circumstances that were not reasonably foreseeable”, and

The statement “If you have lost your job or have been laid off temporarily, you may be eligible for Unemployment Insurance (UI).

More information on UI and other resources available for workers is available at: https://www.labor.ca.gov/coronavirus2019/

Colorado. The Colorado Department of Labor and Employment has put emergency rules in place to waive waiting week, job search, and benefit charging requirements during the COVID-19 emergency. The rules provide that a contributing employer’s account won’t be charged directly for any COVID-19 related UI benefit claims and therefore such claims will not impact the employer’s rate. The emergency rules state that quarterly unemployment contribution payments and reports will be considered timely if:

1. A COVID-19 infection at the employer’s workplace resulted in ceasing or reducing operations; or
2. The employer or an immediate family member has been requested to quarantine by a medical professional, local health office, or the Secretary of Health.

Connecticut. The Connecticut Department of Labor (CTDOL) clarified that employers will be required to report new and rehired employees after the Governor’s current COVID-19 related restrictions have been lifted. Rehired workers are workers that have been separated from the employer for more than 60 consecutive days. New hires must be reported to the CTDOL within 20 days of hire.

The CTDOL also clarifies in its FAQs that there’s no extension currently in place for the first fiscal quarter payments. That payment is due April 30, 2020. Employers that have missed a deadline for filing an unemployment appeal due to COVID-19 related reasons may do so with “good cause,” which would include COVID-19 related reasons. 

Employers are advised if the deadline has been missed, they should file as soon as possible and explain why the appeal was late. Appeals may be filed online.

Delaware. The Delaware Division of Unemployment Insurance (DUI) has released FAQs regarding the COVID-19 impact on unemployment.

The DUI notes that Delaware no longer has a waiting week. The FAQs further note that contributory employers may see an increase in their tax rate due to COVID-19 unemployment claims. Reimbursing employers are charged dollar-for-dollar for benefits paid which could result in higher than expected unemployment costs. Employers can apply for a rehire credit. The DUI requests that employers register for SIDES to report electronically at oes.delwareworks.com.

Florida. For the latest updates visit http://floridajobs.org/

Georgia. A recent executive order from Governor Brian Kemp includes temporary actions to provide economic relief to those unemployed through no fault of their own during the COVID-19 emergency. As such, the following is temporarily suspended:

1. The $30 to $50 deductible earnings threshold for unemployment claims; and
2. The maximum unemployment benefits payable in a benefit year requirement (the lesser of 1/4 of base period wages or 14 to 20 times the weekly benefit amount).

Idaho. A proclamation from Governor Brad Little includes the following unemployment insurance-related provisions:

1. Employers that pay quarterly unemployment tax won’t be charged when employees are laid off due to COVID-19;
2. The one-week waiting period for benefits is waived for otherwise eligible claimants;
3. An additional 14 days is provided to appeal benefit claims decisions (for both employers and claimants);
4. It is now easier for claimants to be considered job-attached if the layoff is due to COVID-19 (the employer must provide reasonable assurance of a return to work and the claimant must available/suitable for work); and
5. The available for work criteria is considered to be met if the claimant is isolated and unavailable to work at the request of a medical professional, his or her employer or local health district and the claimant will be returning to work.

Indiana. A recent executive order from Governor Eric Holcomb temporarily waives the one-week waiting period (retroactive to March 8, 2020) for claimants to receive unemployment benefits as a result of the COVID-19 emergency. To read the executive order: https://www.in.gov/gov/files/EO_20-12_Further_Directives_Helping_Hoosiers.pdf

The Indiana Department of Workforce Development has issued FAQs for employers. They announce relief for employers that unable to file their 1st quarter 2020 state unemployment insurance contribution and wage report and make the corresponding payments. To access the FAQs: https://www.in.gov/dwd/files/Indiana_Unemployment_FAQ_Employers.pdf

Iowa. Governor Kim Reynolds announced that the deadline for the first quarter unemployment tax payments that are due April 30 may be extended to July 31. Payments for both the first and second quarters are due July 31. Eligible employers include those employers with 50 or fewer employees and must be in good standing with no delinquencies in quarterly payments.

Eligible employers who elect to take the extension must contact the Unemployment Insurance Tax Division by calling (888) 848-7442 or by sending an email to Q1tax@iwd.iowa.gov by Friday, April 24 at 4:30 pm. All employers must file the Quarterly Employers Contribution and Payroll Report electronically by 4:30 on April 24 to avoid a late report filing penalty.

Kansas. A new law (L. 2020, S27) increases the number of weeks a worker can claim unemployment benefits from 16 weeks to 26 weeks for unemployment claims filed on or after January 1, 2020. Claimants may receive compensation for the one-week waiting period after completing three consecutive weeks of unemployment. These provisions would not apply to initial claims effective on and after April 1, 2021. Additionally, the Kansas Department of Labor has posted resources regarding COVID-19 and unemployment benefits on its website. To access the resources: https://www.dol.ks.gov/covid19response

The one week waiting period for those seeking unemployment benefits as a result of COVID-19 is suspended, as is the requirement that those receiving benefits be actively seeking employment.

Kentucky. Governor Andy Beshear announced changes in mass layoff parameters. Any employer with at least 50 employees, who is laying off at least 15 employees, is encouraged to file a claim on behalf of their employees through the E-Claims process. Employers who need additional information regarding the E-Claims process can contact UIeclaims@ky.gov.

The Kentucky Career Center, Division of Unemployment Services has updated its website with a set of frequently asked questions (FAQs) that can be accessed here: https://kcc.ky.gov/career/Pages/What%20You%20Need%20To%20Know.aspx

The questions explain that the one-week waiting period for claims related to COVID-19 is waived. The work search requirement is waived if the worker has the reasonable expectation that they will return to work at a future date. The FAQs state that unemployment benefits are not currently available to self-employed individuals or contractors, however, the Governor is actively working on a solution and will be announcing information soon.

Michigan. Governor Gretchen Whitmer issued Executive Order 2020-24, retroactively effective March 16, 2020, which clarifies and expands UI benefit eligibility and cost-sharing with employers. The Order rescinds an earlier Executive Order (2020-10). A worker may be eligible for UI benefits if the worker is under quarantine or isolation due to being immunocompromised, displaying symptoms of COVID-19, being in contact in the last 14 days with someone with COVID-19, to care for someone with COVID-19, or to care for a family member due to a government direct (such as a school closure). Claimants may receive up to 26 weeks of benefits.

The Michigan Unemployment Insurance Agency is authorized to approve an employer’s participation in the shared-work plan regardless if certain requirements have been met. Employer accounts won’t be charged for COVID-19 related claims if an employee has been laid or placed on a leave of absence due to COVID-19. However, this won’t apply to employers who have misclassified workers. The Order, which expires on April 22, temporarily suspends the work search requirements.

Minnesota.  A new law (L. 2019, H4531), effective immediately, suspends the one-week waiting period for individuals affected by the COVID-19 applying for unemployment benefits, as well as the five-week business owner benefit limitation. It further amends the definition of “suitable employment” for those receiving unemployment benefits to provide that employment isn’t suitable if:

1. The employment puts the health and safety of the applicant at risk due to potential exposure of the applicant to COVID-19; or
2. The employment puts the health and safety of other workers and the general public at risk due to potential exposure of the other workers and the general public to COVID-19.

New Jersey. The New Jersey Division of Unemployment Benefits updated its website to include important information about claiming benefits due to COVID-19. You can access the information here: https://myunemployment.nj.gov/labor/myunemployment/covidinstructions.shtml

The webpage contains specific information for those applying for benefits, and notes that if a claimant is waiting to be recalled to his or her present job, or delaying a job search until this crisis ends or subsides, he or she may answer “yes” to the question asking if the applicant is actively seeking work. A recipient may also respond “no” to the question regarding “did you refuse any work?” if any employment offer was turned down due to concerns related to COVID-19. The one-week waiting period for those applying for benefits has also been suspended.

New York. As part of Governor Andrew Cuomo’s executive order to help relieve the economic impact of the coronavirus (COVID-19) outbreak, New York state has waived the seven-day waiting period for workers affected by the emergency (for example, through closures or quarantines) to claim unemployment benefits.

For those filing new claims, the day to file is based on the individual’s last name as follows: letters A through F on Monday, letters G through N on Tuesday and letters O through Z on Wednesday. If the individual’s filing day is missed, file on Thursday or Friday The New York Department of Labor has a step-by-step guide for claimants filing online. To access the guide: https://labor.ny.gov/ui/how_to_file_claim.shtm.

North Dakota. Governor Doug Burgum issued Executive Order 2020-08, effective March 13, 2020, that expands UI benefits for workers and cost-sharing with employers impacted by the COVID-19 emergency. UI benefits claimed due to a COVID-19 related reason will not be charged against the account of the employer. The register for work and work search requirements have been waived. Requirements under North Dakota law are suspended to the extent income reduction for business owners is required when calculating monetary eligibility for unemployment benefits related to COVID-19. The order will remain in effect until rescinded.

Oklahoma. The Oklahoma Employment Security Commission (OESC) updated its FAQs and note that the work search requirements have been temporarily waived during the COVID-19 emergency. You can access the FAQs here: https://www.ok.gov/oesc/Businesses/Employer_FAQs_about_Unemployment_Insurance_and_COVID-19.html

The FAQs further note that recently passed legislation provides that contributing employers won’t be charged for COVID-19 related unemployment claims until the end of 2020. However, the OESC states that employers are likely to see a rate increase in the annual rate calculations for 2021 as a result of these claims. Reimbursing charges to reimbursing employers shall not be waived and must be paid timely. Employers who aren’t able to reach the OESC to respond to a OES-617 (Notice of Application for Unemployment Benefits) may fax a response to (405) 962-7524 or mail a reply to: P.O. Box 52006, Oklahoma City, OK, 73152-2006. While workers can’t file for partial unemployment, the OESC advises that employers who have experienced a work hours reduction to less than full-time can file a claim. All earnings over $100 would be deducted from the weekly benefit amount. If the employee earns more than their weekly benefit amount plus $100, the employee wouldn’t be eligible for benefits.

Texas. The Texas Workforce Commission (TWC) has updated its website with a COVID-10 Resource webpage for employers. To access the page: https://www.twc.texas.gov/news/covid-19-resources-employers

The webpage notes that due to the COVID-19 crisis, the due date for the first quarter UI tax reports and payments is extended to May 15, 2020. Filing can begin after April 15, 2020. The webpage also features a link to FAQs for employers. The FAQs note that if an employer must cease operations due to a closure order, the employer is permitted to ask for chargeback protection on unemployment benefits paid as a result. A copy of the shutdown order should be included with responses to unemployment claims and the employer should state the closure was mandated by a local or state order. However, if the reason for the work separation was merely a cautionary period of time off to minimize potential exposure of others to someone who might be infected, but might not be, chargeback protection would most likely not be extended to the employer. The one-week waiting period for claimants to receive UI benefits has been waived.

The TWC administers the Shared Work Program, which may help employers avoid laying off employees. Shared work allows employers to supplement employee wages lost because of reduced work hours with partial unemployment benefits. Under the program, employers must reduce employee normal weekly work hours by at least 10% but not more than 40%. 

Utah. The Utah Workforce Services (UWS) has released FAQs regarding the federal CARES Act and unemployment. To access the FAQs: https://jobs.utah.gov/covid19/caresuifaq.pdf

The FAQs advise that claimants that have applied for, or are currently receiving unemployment insurance (UI) benefits, aren’t required to apply again to access benefits under the CARES Act. The UWS notes that it is awaiting guidance from the U.S. Department of Labor for the implementation of these benefits. Once program guidelines have been provided, the additional $600 provided under the CARES Act will be effective for weeks beginning March 29. No guidance is available on pandemic unemployment assistance at this time. This benefit is available only to individuals who are ineligible for traditional and extended unemployment. The FAQs provide the information that would be required to apply for pandemic unemployment assistance.

Vermont. The Vermont Department of Labor announced that due to heavy call volume, it is temporarily suspending the opening or reopening of unemployment claims via the Mass Claims spreadsheet. Employers should continue to report a layoff on the spreadsheet. To file a claim, an employer or the workers should following the described here: https://labor.vermont.gov/unemployment-insurance/ui-claimants/establishing-unemployment-claim. Or call the Initial Claim line at: (877) 214-3300 or (888) 807-7072. The Vermont Department of Labor won’t be enforcing requirements under the WARN Act. However, employers are encouraged to reach out to the Vermont Department of Labor and the Vermont Agency of Commerce and Community Development for assistance. Employers may contact Cindy Robillard, Business Services Manager at cindy.robillard@vermont.gov with any questions.

Virginia. The Virginia Department of Labor and Industry (DOLI) has issued FAQs regarding Governor Ralph Northam’s Executive Order No. 53 restricting nonessential businesses from operating. They can be accessed here: https://www.doli.virginia.gov/wp-content/uploads/2020/03/Frequently-Asked-Questions-Regarding-EO-53.pdf

The DOLI states that employers who are required to slow or cease operations won’t be financially penalized for an increase in workers requesting unemployment benefits. The FAQs further note that workers are eligible to collect UI benefits if a workplace is temporarily closed or work hours are reduced.

West Virginia. Governor Jim Justice issued an executive order that expands UI benefits to workers due to the coronavirus (COVID-19) public health emergency. From March 16 through the duration of the state of emergency, the one-week waiting period, work search, able to work and available to work, and actively seeking work requirement are waived.

Contact Your Tax or Payroll Advisor

Be aware that state guidance is being released daily and rules are being modified. Contact your tax or payroll advisor for more information in your situation.

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

As we all try to keep ourselves, our loved ones, and our communities safe from the coronavirus (COVID-19) pandemic, you may be wondering about some of the recent tax changes that were part of a tax law passed on March 27.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act contains a variety of relief, notably the “economic impact payments” that will be made to people under a certain income threshold. But the law also makes some changes to retirement plan rules and provides a new tax break for some people who contribute to charity.

Waiver of 10% early distribution penalty

IRAs and employer sponsored retirement plans are established to be long-term retirement planning accounts. As such, the IRS imposes a penalty tax of an additional 10% if funds are distributed before reaching age 59½. (However, there are some exceptions to this rule.)

Under the CARES Act, the additional 10% tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) is waived for distributions made between January 1 and December 31, 2020 by a person who (or whose family) is infected with COVID-19 or is economically harmed by it. Penalty-free distributions are limited to $100,000, and may, subject to guidelines, be re-contributed to the plan or IRA. Income arising from the distributions is spread out over three years unless the employee elects to turn down the spread-out.

Employers may amend defined contribution plans to provide for these distributions. Additionally, defined contribution plans are permitted additional flexibility in the amount and repayment terms of loans to employees who are qualified individuals.

Waiver of required distribution rules

Depending on when you were born, you generally must begin taking annual required minimum distributions (RMDs) from tax-favored retirement accounts — including traditional IRAs, SEP accounts and 401(k)s — when you reach age 70½ or 72. These distributions also are subject to federal and state income taxes. (However, you don’t need to take RMDs from Roth IRAs.)

Under the CARES Act, RMDs that otherwise would have to be made in 2020 from defined contribution plans and IRAs are waived. This includes distributions that would have been required by April 1, 2020, due to the account owner’s having turned age 70½ in 2019.

New charitable deduction tax breaks

The CARES Act makes significant liberalizations to the rules governing charitable deductions including:

• Individuals can claim a $300 “above-the-line” deduction for cash contributions made, generally, to public charities in 2020. This rule means that taxpayers claiming the standard deduction and not itemizing deductions can claim a limited charitable deduction.
• The limit on charitable deductions for individuals that is generally 60% of modified adjusted gross income (the contribution base) doesn’t apply to cash contributions made, generally, to public charities in 2020. Instead, an individual’s eligible contributions, reduced by other contributions, can be as much as 100% of the contribution base. No connection between the contributions and COVID-19 is required.

Far beyond

The CARES Act goes far beyond what is described here. The new law contains many different types of tax and financial relief meant to help individuals and businesses cope with the fallout.

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

© 2020

The Coronavirus Aid Relief, and Economic Security (CARES) Act includes several sections that impact retirement plans. These retirement plan changes are permitted, not mandatory. If plan sponsors decide to opt-out and not implement these changes, they should document that decision. Plan sponsors implementing some of these changes are required to amend the Plan no later than the last day of the plan year that begins on or after January 1, 2022 (e.g. December 31, 2022, for calendar year plans). Plan sponsors should contact their third-party service providers for guidance.

Section 2202
Special rules for use of retirement funds [(defined contribution 401(k), 401(a), 403(b)]

Applies to participants diagnosed with the virus SARS-CoV-2 or with COVID-19 (or if their spouse or dependent are diagnosed), or if they experience adverse financial consequences due to coronavirus-related situations (quarantined, terminated, furloughed, laid off, or reduced work hours). Plan administrators can rely on a participant’s certification that they satisfy the requirements.

• Tax-favored withdrawals from retirement plans (coronavirus-related distribution):
  • Applies to the period January 1, 2020, through December 31, 2020
  • Distributions are limited to $100,000
  • Distributions are exempt from the 10% early withdrawal penalty tax, and will not be subject to the mandatory 20% tax withholding
  • The taxable income can be included ratably over the three-taxable-year period beginning in 2020 instead of all in 2020 unless the participant opts out of this special income tax treatment
  • Distributions can be repaid over three years after the date of the distribution in one or more payments to an eligible retirement plan (treated as a rollover)

• Loans from qualified plans:
  • Increase in limit on loans not treated as distributions – lesser of $100,000 or 100% of the participant’s vested balance (was $50,000 or 50% of the participant’s vested balance). This applies for 180 days beginning on the date of the enactment of the Act (March 27, 2020).
  • Delay of repayment – loan repayment scheduled due dates during the period beginning on the date of the enactment of this Act and ending on December 31, 2020, will be delayed for one year. Interest will continue to accrue, and the loan will likely require re-amortization.

Section 2203
Temporary waiver of required minimum distribution rules – applicable to the 2020 calendar year [defined contribution 401(k), 401(a), 403(b)].

Section 3607
Expansion of Department of Labor (DOL) authority to postpone certain deadlines – expanded circumstances to include a public health emergency declared by the Secretary of Health and Human Services. The DOL is permitted to extend certain filing deadlines under ERISA by up to one year; refer to the DOL for guidance to come.

Section 3608
Single-employer plan funding rules (defined benefit pension plans):

• Delay in payment of minimum required contributions – payments originally due in 2020 are extended to January 1, 2021 (interest will accrue).
• Benefit restriction status – a plan sponsor may elect to treat the plan’s adjusted funding target attainment percentage (AFTAP) for the last plan year ending before January 1, 2020, as the AFTAP for plan years which include calendar year 2020. This may help avoid benefit restrictions.

• A scammer will call and tell you that you qualify for a special COVID-19 government grant and must verify your identity to process the request.
• A scammer will suggest that you can get more money from the government or get your check faster if you share personal information and pay a small “processing fee.”
• A scammer will send you a bogus check in the mail for an odd amount and require you to verify the check online or call a number.
• A scammer will ask if you are interested in a COVID-19-related small business loan.

• Call to demand immediate payment over the phone
• Call about taxes owed without first having mailed you a bill
• Threaten to bring in police or other law-enforcement groups to have you arrested
• Demand that you pay taxes without allowing you to question or appeal the amount they say you owe
• Require you to use a specific payment method for your taxes, such as a prepaid debit card, gift card, or wire transfer
• Ask for credit or debit card numbers over the phone

We at Yeo & Yeo were proud to celebrate our 97th anniversary on April 1, 2020. It’s was a day for us to be proud of our leading CPA firm, and especially grateful for our clients.

Recently named by Forbes as a Top Recommended Tax and Accounting Firm for 2020, Yeo & Yeo will continue to sustain a thriving Michigan business dedicated to building strong relationships and helping clients meet their long-term financial and business goals.

“We understand that we are in the relationship business. We are honored to have developed lasting relationships with our clients and become their trusted advisors,” says Thomas Hollerback, President & CEO. “We are also proud that through the years, we have stayed true to our roots by contributing our time, talent and passion to the great communities we serve.”

Today Yeo & Yeo has more than 200 professionals in nine offices across Michigan. Through our companies, Yeo & Yeo CPAs & Business Consultants, Yeo & Yeo Technology, Yeo & Yeo Medical Billing & Consulting and Yeo & Yeo Wealth Management, we provide a complete resource for our clients.

We thank you – our clients and communities – for making 97 years possible and for allowing us to be part of your success story.

The rules for reporting leasing transactions are changing. Though these changes have been delayed until 2021 for private companies (and nonprofits), it’s important to know the possible effects on your financial statements as you renew leases or enter into new lease contracts. In some cases, you might decide to modify lease terms to avoid having to report leasing liabilities on your balance sheet. Or you might opt to buy (rather than lease) property to sidestep being subject to the complex disclosure requirements.

Updated standard

In 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases. The effective date for calendar year-end public companies was January 1, 2019. Last fall, the FASB deferred the effective date for private companies and not-for-profit organizations from 2020 to 2021.

The updated guidance requires companies to report long-term leased assets and leased liabilities on their balance sheets, as well as to provide expanded footnote disclosures. Increases in debt could, in turn, cause some companies to trip their loan covenants.

Updated lease terms

The updated standard applies only to leases of more than 12 months. To avoid having to apply the new guidance, some companies are switching over to short-term leases.

Others are incorporating evergreen clauses into their leases, where either party can cancel at any time after 30 days. An evergreen lease wouldn’t technically be considered a lease under the accounting rules — even if the lessee renewed on a monthly basis for 20 years. This might not be the best approach from a financial perspective, however, because the lessor would likely charge a higher price for the transaction. There’s also a risk that short-term and evergreen leases won’t be renewed at some point.

Lease vs. buy

The updated standard is also causing organizations to reevaluate their decisions about whether to lease or buy equipment and real estate. Under the previous accounting rules, a major upside to leasing was how the transactions were reported under Generally Accepted Accounting Principles (GAAP). Essentially, operating leases were reported as a business expense that was omitted from the balance sheet. This was a major upside for organizations with substantial debt. Under the updated guidance, lease obligations will show up as liabilities, similar to purchased assets that are financed with traditional bank loans. Reporting leases also will require expanded footnote disclosures.

The changes in the lease accounting rules might persuade you to buy property instead of lease it. Before switching over, consider the other benefits leasing has to offer. Notably, leases don’t require a large down payment or excess borrowing capacity. In addition, leases provide significant flexibility in case there’s an economic downturn or technological advances render an asset obsolete.

Decision time

When deciding whether to lease or buy a fixed asset, there are a multitude of factors to consider, with no universal “right” choice. Contact us to discuss the pros and cons of leasing in light of the updated accounting guidance. We can help you take the approach that best suits your circumstances.

© 2020

The Internal Revenue Service’s new People First Initiative temporarily suspends many collections and enforcement activities to ease the burden on people facing tax issues during the health crisis.

The changes range from postponing certain payments related to installment agreements and Offers in Compromise to collection and limiting certain enforcement actions. The projected start date is April 1, and the effort will run through July 15. During this period, the IRS will avoid in-person contacts but will continue to take steps to protect all applicable statutes of limitations.

Highlights of the People First Initiative include:

Installment Agreements — Payments due on existing installment agreements between April 1 and July 15, 2020, are suspended. Taxpayers who are currently unable to comply with the terms of an installment payment may suspend payments. Interest will continue to accrue on unpaid balances. People unable to fully pay their federal taxes can enter into a new monthly payment agreement with the IRS online or over the phone.

Offers in Compromise (OIC)

• Pending OIC applications — The IRS will allow taxpayers until July 15 to provide requested additional information to support a pending OIC.
• OIC Payments — Taxpayers may suspend all payments on accepted OICs until July 15, 2020, although interest will continue to accrue on unpaid balances.
• Delinquent Return Filings — The IRS will not default an OIC for taxpayers who are delinquent in filing their tax return for tax year 2018. However, taxpayers should file any delinquent 2018 return (and their 2019 return) before July 15, 2020. New OIC submissions can still be submitted.

Field Collection Activities — Liens and levies (including any seizures of a personal residence) initiated by field revenue officers will be suspended during this period. However, field revenue officers will continue to pursue high-income non-filers and perform other similar activities where warranted. Automatic, systemic liens and levies also will be suspended.

Passport Certifications to the State Department — IRS will suspend new certifications to the Department of State for taxpayers who are “seriously delinquent.” Certification prevents taxpayers from receiving or renewing passports.

Private Debt Collection — The IRS will not forward new delinquent accounts to private collection agencies during this period.

Field, Office and Correspondence Audits — During this period, the IRS generally will not start new field, office and correspondence examinations. They will continue to work refund claims where possible, without in-person contact. The IRS encourages taxpayers to respond to IRS correspondence requesting additional information if possible.  

• In-Person Meetings — In-person meetings regarding current field, office and correspondence examinations will be suspended, but IRS examiners will continue their examinations remotely, where possible.
• Unique Situations — Particularly for some corporate and business taxpayers, there may be instances where the taxpayers desire to begin an examination while people and records are available. When it’s in the best interest of both parties and personnel are available, the IRS may move forward with an examination.

Earned Income Tax Credit and Wage Verification Reviews — Taxpayers have until July 15, 2020, to respond to the IRS to verify that they qualify for the Earned Income Tax Credit or to verify their income. If unable to do so, taxpayers should reach out to the IRS, indicating the reason the information is not available. Until July 15, 2020, the IRS will not deny these credits for a failure to provide requested information. 

Independent Office of Appeals — Appeals employees will continue to work their cases over the telephone or by videoconference. Taxpayers are encouraged to respond to requests for information promptly.

Statute of Limitations — The IRS will issue Notices of Deficiency and pursue other similar actions to protect the interests of the government in preserving all applicable statutes of limitation. Where a statutory period is not set to expire during 2020, the IRS is unlikely to pursue actions until at least July 15, 2020.

For more information, visit www.irs.gov.

On March 27, 2020, Governor Whitmer signed Executive Order 2020-26, extending state and city income tax filing and payment deadlines for three months, to align with federal changes. The extension applies to state and city individual income tax filing deadlines and payments, as well as state and city corporate income tax filing deadlines and payments.  

• Any state or city individual or corporate income tax returns and payments originally due on 4/15/20 are now due on 7/15/20. 
• Any state or city corporate income tax returns and payments with an original due date of 4/30/20 are now due on 7/31/20.

First-quarter state and city estimated tax payments with a due date of 4/15/20 or 4/30/20 also are extended to either 7/15/20 or 7/31/20. The extension applies to both individual and corporate estimates. 

As with the federal changes, Michigan state and city extensions are automatic. Taxpayers do not need to file any additional forms or contact the Michigan Department of Treasury to qualify.

Whether your not-for-profit is newly deluged with demand for services or you’ve closed doors temporarily, it’s important to keep up with legislation responding to the coronavirus (COVID-19) crisis. On March 18, the Families First Coronavirus Response Act was signed into law to provide American workers affected by the pandemic with extended sick and family leave benefits.

The new law applies to your nonprofit if you have fewer than 500 employees, although you may be exempt if you have fewer than 50. Here are some details.

3 things to know

There are three important components of the new law:

1. Paid sick leave. If a staffer is ill, is instructed to be isolated by a physician or government authority or is caring for a sick family member or child whose school has closed, your organization must provide two weeks of paid leave. Pay part-time workers based on their average hours over a two-week period. Benefits are capped at $511 per day and $5,110 total for employees on leave because of their own health issue, or $200 per day and $2,000 total to care for others.

2. Job-protected leave. You must provide 12 weeks of job-protected leave for employees who need to take care of a child due to the closure of a school or day care center. This provision updates existing rules under the Family and Medical Leave Act. Employers are now required to pay workers two-thirds of their regular wages, not to exceed $200 per day and $10,000 total. You aren’t required to pay employees during the first 10 days off; however, they may choose to use accrued time off benefits at this time.

3. Employer payroll tax credits. To help employers pay for time off, the law enables tax credits. You may claim a 100% refundable payroll tax credit on wages associated with paid sick and medical leave and other expenditures associated with health benefit contributions. Additional wages paid to staffers due to the law’s leave requirement aren’t subject to the employer portion of the payroll tax.

Unemployment assistance

Congress has also provided $1 billion in emergency grants to states to process and pay unemployment insurance benefits. So if you need to lay off staffers during the extended COVID-19 crisis, this provision can help them manage the financial burden.

Of course, more is likely to be needed. Legislators are currently working out a deal to provide furloughed and laid-off workers with direct financial assistance as well as loans and other financial support for employers. Keep your eye on the news.

Staying afloat

If you have questions about how the Families First Act applies to your nonprofit, please contact us. Also, because many nonprofits operate on thin margins at the best of times, you may worry about staying afloat. We can analyze your position and help you come up with possible survival strategies.

© 2020

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

Roughly half of CFOs believe an economic recession will hit by the end of 2020, and about three-quarters expect a recession by mid-2021, according to the 2019 year-end Duke University/CFO Global Business Outlook survey. In light of these bearish predictions, many businesses are currently planning for the next recession. Are you? Here are four steps to help your company strengthen its balance sheet against a possible downturn.

1. Identify what’s most important

The balance sheet shows your company’s financial condition — its assets vs. liabilities — at a specific point in time. Some line items are more critical to your success than others. For example, inventory is a top priority for retailers, and accounts receivable is important to professional service firms.

A “common-sized” balance sheet can help you determine what’s most relevant. This type of statement presents each account as a percentage of total assets. Items that represent the highest percentages are generally the ones that warrant the most attention.

2. Analyze ratios

Ratios compare line items on your company’s financial statements. They may be grouped into four categories: 1) profitability, 2) solvency, 3) asset management, and 4) leverage. While profitability ratios focus on the income statement, the others assess items on the balance sheet.

For example, the current ratio (current assets ÷ current liabilities) is a solvency measure that helps assess whether your company has enough current assets to meet current obligations over the short run. Conversely, the days-in-receivables ratio (accounts receivable ÷ annual sales × 365 days) is an asset management ratio that gauges how efficiently you’re collecting receivables. And the debt-to-equity ratio (interest-bearing debt ÷ equity) focuses on your company’s use of debt vs. equity to finance growth.

3. Set goals

The common-sized balance sheet and ratios can be used to create “goals” for each key line item. What’s right depends on the nature of your business and industry benchmarks.

For example, you may strive to meet the following goals over the next year:

• Increase cash as a percentage of total assets from 5% to 15%,
• Improve the current ratio from 1.1 to 1.2,
• Decrease the days-in-receivable ratio from 40 to 35 days, and
• Lower the debt-to-equity ratios from 5.6 to 4.

4. Forecast the impact

Once you’ve set goals, devise a plan to achieve them. For example, you might cut fixed costs or forgo buying equipment to build up your cash reserves. In turn, stockpiling cash — along with improving collections — might help boost your current ratio.

Part of your plan should be forecasting how the changes will filter through the financial statements. This exercise can help you determine whether your goals are realistic. For example, if you decide to build up cash reserves, it might be difficult to simultaneously pay down debt. You can generate only a limited amount of incremental cash in a year. Forecasting can help pinpoint the shortcomings of your plans.

We can help

Markets are cyclical. So, it’s only a matter of time before another downturn happens. We can help you take steps to position your organization to weather the next storm — whenever it arrives.

© 2020

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

The coronavirus (COVID-19) outbreak — officially a pandemic as of March 11 — has prompted global health concerns. But you also may be worried about how it will affect your business and its financial statements for 2019 and beyond.

Close up on financial reporting

The duration and full effects of the COVID-19 outbreak are yet unknown, but the financial impacts are already widespread. When preparing financial statements, consider whether this outbreak will have a material effect on your company’s:

• Supply chain, including potential effects on inventory and inventory valuation,
• Revenue recognition, in particular if your contracts include variable consideration,
• Fair value measurements in a time of high market volatility,
• Financial assets, potential impairments and hedging strategies,
• Measurement of goodwill and other intangible assets (including those held by subsidiaries) in areas affected severely by COVID-19,
• Measurement and funded status of pension and other postretirement plans,
• Tax strategies and consideration of valuation allowances on deferred tax assets, and
• Liquidity and cash flow risks.

Also monitor your customers’ credit standing. A decline may affect a customer’s ability to pay its outstanding balance, and, in turn, require you to reevaluate the adequacy of your allowance for bad debts.

Additionally, risks related to the COVID-19 may be reported as critical audit matters (CAMs) in the auditor’s report. If your company has an audit committee, this is an excellent time to engage in a dialog with them.

Disclosure requirements and best practices

How should your company report the effects of the COVID-19 outbreak on its financial statements? Under U.S. Generally Accepted Accounting Principles (GAAP), companies must differentiate between two types of subsequent events:

1. Recognized subsequent events. These events provide additional evidence about conditions, such as bankruptcy or pending litigation, that existed at the balance sheet date. The effects of these events generally need to be recorded directly in the financial statements.
2. Nonrecognized subsequent events. These provide evidence about conditions, such as a natural disaster, that didn’t exist at the balance sheet. Rather, they arose after that date but before the financial statements are issued (or available to be issued). Such events should be disclosed in the footnotes to prevent the financial statements from being misleading. Disclosures should include the nature of the event and an estimate of its financial effect (or disclosure that such an estimate can’t be made).

The World Health Organization didn’t declare the COVID-19 outbreak a public health emergency until January 30, 2020. However, events that caused the outbreak had occurred before the end of 2019. So, the COVID-19 risk was present in China on December 31, 2019. Accordingly, calendar-year entities may need to recognize the effects in their financial statements for 2019 and, if applicable, the first quarter of 2020.

Need help?

There are many unknowns about the spread and severity of the COVID-19 outbreak. We can help navigate this potential crisis and evaluate its effects on your financial statements. Contact us for the latest developments.

© 2020

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

The coronavirus (COVID-19) pandemic has had adverse effects on many industries. Both employers and employees are seeking ways to respond to financial stress resulting from the economic slowdown and financial market volatility.

If your company’s revenue has plummeted, you might be considering eliminating or scaling back your contributions to employees’ 401(k) accounts. Here’s what you should know before making any cuts.

Without a Safe Harbor Plan

Generally, employers can stop contributing to employees’ 401(k) plans, but they must jump through some procedural hoops. If you don’t have a “safe harbor” plan and your plan document allows for suspending contributions, you’ve got some latitude.

Recall that the “storm” that you’re sheltered from in a safe harbor 401(k) plan is the kind of storm where you fail IRS discrimination tests. The tests’ purpose is to prevent an excessive proportion of the 401(k) plan’s benefits from going to business owners and executives, relative to everyone else.

Without a safe harbor plan, while you can drop your contributions easily enough, you’re still subject to discrimination testing — as you always were. Just be sure to comply with whatever notification and other requirements your plan document calls for.

Safe Harbor Rules

If your 401(k) uses a safe harbor design, it could get more complicated. Remember, that to get safe harbor status, you had three plan design options:

1. To match what employees put into their accounts (the “deferral” amount) dollar-for-dollar up to 3% of their income, plus a 50% match on any savings amounts between 3% and 5%.
2. To provide an “enhanced match” that simplifies the first matching formula. An example of an enhanced match is 100% on deferrals up to 4% of the employee’s pay.
3. To offer “nonelective” contributions to employees’ accounts equal to at least 3% of their earnings, no matter what, if anything, they put in on their own.

If your safe harbor plan document already states that you reserve the right to suspend your contributions for any reason, you can do so in the middle of your plan year. However, you’ll be subject to discrimination testing.

If your plan document doesn’t include a mid-year suspension provision, IRS regulations allow you to drop (or reduce) contributions only if your business is losing money. In addition, for a mid-year suspension in this scenario, you need to amend your plan document accordingly and formally notify employees of this at least 30 days prior to taking any action.

If the safe harbor matching formula you’re using was the matching variety, employees must be given a chance to change their deferral amount. You must provide them with this opportunity even if they wouldn’t be allowed to make changes under the terms of your plan in normal circumstances. Your plan also will be subject to discrimination testing.

Monitor Plan Investments

Whether or not you decide to suspend 401(k) matching and nonelective contributions as a belt-tightening measure, you should still focus on other aspects of the plan. For example, you need to closely monitor how your plan investment options are performing.

Compare your plan’s performance with the objectives and strategies articulated by the fund managers when you decided to incorporate them into your plan. If you discover that they haven’t kept up with these expectations, you’ll need to consult with your advisors and respond appropriately.

With most investments tanking in the current environment, it’s natural for employees to be rattled. The degree to which they really should be alarmed will vary according to their circumstances. Many may take drastic action to escape the volatility when they’d probably be better off by just sitting tight.

Right for You?

Desperate times sometimes call for desperate measures. Responsible employers want to do everything possible to help relieve their employees’ financial stress during the COVID-19 pandemic. But they also need to keep the business afloat — so employees have a place to return to work after the dust settles.

Cutting back on 401(k) contributions can temporarily free up cash flow to help businesses stay alive. To evaluate whether this could be a smart move for your business, contact your CPA or HR professional.

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

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. In addition to giving people access to health care treatments, the new law will provide roughly $2 trillion in much-needed financial relief to individuals, businesses, not-for-profit organizations, and state and local governments during the coronavirus (COVID-19) pandemic. Here are some of the key financial relief provisions.

Advance Rebate Payments

The CARES Act provides one-time direct “rebate” payments to individuals and families. These payments are considered advances for a new federal income tax credit that’s subject to phaseout thresholds based on adjusted gross income (AGI). The following table summarizes credit amounts and phaseout thresholds:

Credits for Individuals and Families

Families will receive an additional $500 credit — subject to the same phaseout thresholds — for each qualifying child under 17. The credits are phased out by $5 for every $100 of AGI above the thresholds. For example, the credit for a married couple with no children would be completely phased out when AGI reaches $198,000. The credit for a head of household with one child is completely phased out when AGI reaches $146,500.

Many individuals won’t need to do anything to receive the advance credit payment. If you previously signed up to have your federal income refunds deposited into a bank account, your advance credit payment will come to you that way. The allowable credit amount will be based on your 2019 federal income tax return or your 2018 return if you’ve not yet filed for 2019. Adjustments can be made when you file your 2020 return. You can claim any credit underpayment at that time, but the IRS won’t claw back any overpayment. The credit is fully refundable for individuals and families with low or zero federal income tax liabilities. In fact, you need not have any taxable income to collect the credit.

There are still some details about the payments that are unknown at this time. We will keep you updated as information comes out.

Modifications of TCJA Provisions

The CARES Act rolls back several revenue-generating provisions of the Tax Cuts and Jobs Act (TCJA). This will help free up cash for some individuals and businesses during the COVID-19 crisis.

The new law temporarily scales back TCJA deduction limitations on:

• Net operating losses (NOLs)
• Business tax losses sustained by individuals,
• Business interest expense, and
• Itemized charitable deductions by individuals and charitable deductions for corporations.

The new law also accelerates the recovery of credits for prior-year corporate alternative minimum tax (AMT) liability.

To encourage charitable giving, individuals who claim the standard deduction (rather than itemizing) can claim an above-the-line deduction of up to $300 for cash contributions to charities for tax years beginning after December 31, 2019.

The CARES Act also fixes a TCJA drafting error for real estate qualified improvement property (QIP). Congress originally intended to permanently install a 15-year depreciation period for QIP, making it eligible for first-year bonus depreciation in tax years after the TCJA took effect. Unfortunately, due to a drafting glitch, QIP wasn’t added to the list of property with a 15-year depreciation period — instead, it was left subject to a 39-year depreciation period (as under prior law). The CARES Act retroactively corrects this mistake and allows you to choose between first-year bonus depreciation for QIP expenditures or 15-year depreciation.    

QIP refers to any improvement to an interior portion of a nonresidential building if the improvement is placed in service after the building was first placed in service. But it doesn’t include any improvement for which the expenditure is attributable to:

• Enlargement of the building,
• Any elevator or escalator, or
• The internal structural framework of the building.

Contact your tax professional for more details and to evaluate whether you should file an amended return to take advantage of the new availability of bonus depreciation or 15-year depreciation for QIP expenditures in prior years.

Employee Retention Credit

The CARES Act creates a new payroll tax credit for employers that pay wages when:

• Their operations are partially or fully suspended because of the COVID-19 pandemic, or
• Their gross receipts decline by 50% or more compared to the same quarter in the prior year.

Eligible employers may claim a 50% refundable payroll tax credit on wages (including health insurance benefits) of up to $10,000 that are paid or incurred from March 13, 2020, through December 31, 2020.

For employers who had an average number of full-time employees in 2019 of 100 or fewer, all employee wages are eligible, regardless of whether the employee is furloughed. For employers who had a larger average number of full-time employees in 2019, only the wages of employees who are furloughed or face reduced hours as a result of their employers’ closure or reduced gross receipts are eligible for the credit.

Other rules and restrictions apply. Contact your tax advisor for more information.

So Much More

The financial relief package under the CARES Act also includes provisions to:

• Significantly expand unemployment benefits for workers,
• Allow IRA owners and qualified retirement plan participants who are adversely affected by the COVID-19 pandemic to withdraw in 2020 up to $100,000 and then recontribute the withdrawn amount within three years with no federal income tax consequences (same as with a withdrawal and a subsequent tax-free rollover),
• Waive required minimum distributions (RMDs) from IRAs and retirement plans that would otherwise have to be taken in 2020 to avoid an expensive penalty,
• Allow for a recipient employee, tax-free treatment for up to $5,250 of employer payments made on the employee’s student loans, for payments between now and year end,
• Allow employers to defer their portion of payments of Social Security payroll taxes through the end of 2020 (with similar relief provided to self-employed individuals), and
• Delay implementation of the current expected credit loss (CECL) standard for large public banks until the earlier of the end of the COVID-19 crisis or December 31, 2020.

The CARES Act also expands access to capital for businesses adversely impacted by the COVID-19 crisis. Many of the loan programs will be administered by the Small Business Administration (SBA) and the Federal Reserve. Some loans will be subject to a special oversight board to ensure adherence to the rules — including a ban on stock buybacks — set forth under the new law.

Need Help?

The COVID-19 pandemic has affected every household and business in some way. If you or your business have suffered financial losses, at least some relief may be on the way. Contact us to discuss resources that may be available to help you weather this unprecedented storm.

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

On March 27, President Trump signed into law another coronavirus (COVID-19) law, which provides extensive relief for businesses and employers. Here are some of the tax-related provisions in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). 

Employee retention credit

The new law provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis.

Employer eligibility. The credit is available to employers 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 that have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.

The credit isn’t available to employers receiving Small Business Interruption Loans under the new law.

Wage eligibility. For employers with an average of 100 or fewer full-time employees in 2019, all employee wages are eligible, regardless of whether an employee is furloughed. For employers with more than 100 full-time employees last year, only the wages of furloughed employees or those with reduced hours as a result of closure or reduced gross receipts are eligible for the credit.

No credit is available with respect to an employee for whom the employer claims a Work Opportunity Tax Credit.

The term “wages” includes health benefits and is capped at the first $10,000 paid by an employer to an eligible employee. The credit applies to wages paid after March 12, 2020 and before January 1, 2021.

The IRS has authority to advance payments to eligible employers and to waive penalties for employers who don’t deposit applicable payroll taxes in anticipation of receiving the credit.

Payroll and self-employment tax payment delay

Employers must withhold Social Security taxes from wages paid to employees. Self-employed individuals are subject to self-employment tax.

The CARES Act allows eligible taxpayers to defer paying the employer portion of Social Security taxes through December 31, 2020. Instead, employers can pay 50% of the amounts by December 31, 2021 and the remaining 50% by December 31, 2022.

Self-employed people receive similar relief under the law.

Temporary repeal of taxable income limit for NOLs

Currently, the net operating loss (NOL) deduction is equal to the lesser of 1) the aggregate of the NOL carryovers and NOL carrybacks, or 2) 80% of taxable income computed without regard to the deduction allowed. In other words, NOLs are generally subject to a taxable-income limit and can’t fully offset income.

The CARES Act temporarily removes the taxable income limit to allow an NOL to fully offset income. The new law also modifies the rules related to NOL carrybacks.

Interest expense deduction temporarily increased

The Tax Cuts and Jobs Act (TCJA) generally limited the amount of business interest allowed as a deduction to 30% of adjusted taxable income.

The CARES Act temporarily and retroactively increases the limit on the deductibility of interest expense from 30% to 50% for tax years beginning in 2019 and 2020. There are special rules for partnerships.

Bonus depreciation for qualified improvement property

The TCJA amended the tax code to allow 100% additional first-year bonus depreciation deductions for certain qualified property. The TCJA eliminated definitions for 1) qualified leasehold improvement property, 2) qualified restaurant property, and 3) qualified retail improvement property. It replaced them with one category called qualified improvement property (QIP). A general 15-year recovery period was intended to have been provided for QIP. However, that period failed to be reflected in the language of the TCJA. Therefore, under the TCJA, QIP falls into the 39-year recovery period for nonresidential rental property, making it ineligible for 100% bonus depreciation.

The CARES Act provides a technical correction to the TCJA, and specifically designates QIP as 15-year property for depreciation purposes. This makes QIP eligible for 100% bonus depreciation. The provision is effective for property placed in service after December 31, 2017.

Careful planning required

This article only explains some of the relief available to businesses. Additional relief is provided to individuals. Be aware that other rules and limits may apply to the tax breaks described here. Contact us if you have questions about your situation.

© 2020

On March 27, 2020, the House of Representatives approved the Senate version of the CARES Act, or coronavirus stimulus bill. The bill now goes to President Trump for signing, who indicated he will do so as soon as it hits his desk.

Paycheck Protection Program

• Small businesses with 500 or fewer employees during the “covered period” – February 15 through June 30, 2020, are eligible. Some industries may qualify with more employees, depending on the Small Business Administration’s applicable industry size standards, accessible here.
• Offers a loan of up to $10 million based on a formula, which is essentially 2½ times the monthly payroll, plus certain other costs, up to $100,000 per employee.
• Employee count is calculated per location for businesses in the hospitality and restaurant industries and certain others.
• No personal guarantees are required.
• Also available for self-employed individuals.
• Loan may be used for salaries, paid sick or medical leave, insurance premiums, and mortgage, rent and utility payments.
• Loans will be made through eligible FDIC lenders.
• Loans may be forgiven if employment and wage levels are maintained. There is a cure period for reductions that occurs between February 15, 2020, and 30 days after date of enactment if released employees are rehired or salary reductions are reversed by June 30, 2020.
• Loan forgiveness is not taxable.

2020 Recovery Rebates for Individuals

• All U.S. residents with Adjusted Gross Income (AGI) up to $75,000 ($150,000 married filing joint) are eligible for a full stimulus payment of $1,200 ($2,400 for joint filers).
• If you made more than $75,000, your payment will be reduced by $5 for every $100 of income that exceeds the limits. The payment decreases to zero for an individual making $99,000 or more or a couple making $198,000 or more. If you’re a family of four, you’ll be eligible for a maximum of $3,400.
• Recipients cannot be a dependent of another taxpayer or a non-resident alien.
• Qualified taxpayers will receive an additional $500 per child.
• There is a phase-out to AGI of $198,000 for joint returns, who will receive a reduced stimulus payment.
• If you’ve gotten a tax refund in the last two years by direct deposit, the money will be deposited in your bank account directly. If not, you will receive your check in the mail.
• Will be based on 2019 return or, if not filed, 2018. Non-filers such as certain Social Security or Disability recipients are also eligible.
• Disabled vets who do not pay taxes qualify.
• Taxpayers do not need to apply. They will receive a rebate check.
• The cash payments are not taxable.
• The Treasury Secretary said the checks will be available in two to three weeks.

Enhanced Unemployment Insurance

• The bill makes benefits more generous by adding a $600/week across-the-board payment increase through the end of July. Also, for those who need it, the bill provides an additional 13 weeks of benefits beyond what states typically allow. The bill also makes sure self-employed and independent contractors, like Uber drivers and gig workers, can receive unemployment during the public health emergency.

Special Rules for the Use of Retirement Funds

The 10% early withdrawal penalty is waived for up to $100,000 of distributions from retirement plans for coronavirus-related purposes made on or after January 1, 2020. Coronavirus-related distributions are distributions made to an individual:

• Who is diagnosed with COVID-19;
• Whose spouse or dependent is diagnosed with COVID-19; or,
• Who experiences adverse financial conditions as a result of being quarantined, furloughed, or laid off; having work hours reduced; being unable to work due to lack of child care due to COVID-19; closing or reducing hours of a business owned or operated by the individual due to the virus.

The amount withdrawn may either be repaid over three years or included in taxable income with the recognition spread over three taxable years.

Temporary Waiver of Required Minimum Distribution Rules

• The required minimum distribution rules for certain defined benefit plans and IRAs are waived for the calendar year 2020.
• Applies to taxpayers who are required to take a distribution from their accounts during the economic slowdown caused by COVID-19.

Modification of Limitations on Charitable Contributions During 2020

• Individuals: The 50% AGI limitation for individuals will be suspended for 2020. This allows for an unlimited charitable contribution deduction in 2020.
• For corporations: the 10% limitation is increased to 25% of taxable income, allowing for a larger charitable contribution deduction.

Employee Retention Credit for Employers Subject to Closure Due to COVID-19

The bill provides a refundable payroll tax credit equal to 50% of wages paid by employers to employees during the COVID-19 crisis. Eligible employers are those:

• Whose operations were fully or partially suspended due to COVID-19 related shutdown orders, or
• Who had gross receipts decline by more than 50% as compared to the same quarter in the prior year.
• Qualifying based on credit amount and qualified wages criteria:
  • For employers with more than 100 employees, qualified wages are wages paid to employees not providing services due to the COVID-19 related circumstances.
  • For employers with 100 employees or less, all wages qualify for the credit.
  • The credit is provided for the first $10,000 of compensation, including health benefits.
• Credit applies to wages paid between March 13, 2020, and December 31, 2020.

Delay of Payment – Employer Payroll Tax

• Applies to employers and self-employed individuals.
• Effective for payments as of the date of enactment of the legislation. Date of enactment is when the President signs the bill.
• Defers the payment of the 6.2% employer portion of Social Security Tax for two years.
• Half will be due December 31, 2021, with the other half due December 31, 2022.

Modification of Net Operating Losses (NOL) and Excess Business Loss Limitation

• 5-year carryback period for NOLS for the 2018, 2019, and 2020 tax years.
• The provision also temporarily removes the 80% taxable limitation for net operating losses.
• The excess business loss limitation for pass-through businesses and sole proprietors is suspended.

Modification of Limitation on Business Interest

• The amount of interest expense businesses are allowed to deduct on their tax returns is increased, from 30% to 50% of taxable income (with adjustments) for 2019 and 2020.
• The 2019 Adjusted Taxable Income may be used for the 2020 calculation, if more beneficial.

Technical Amendment Regarding Qualified Improvement Property

• The act corrects the error in the 2017 tax reform concerning qualified improvement property.
• The depreciable life is changed from 39 years to 15 years retroactive to the beginning of 2018.
• Taxpayers will now also be able to take bonus depreciation on qualified improvement property.
• No guidance yet on whether amended returns will be required.

What Education Professionals Should Know

• Department of Education: $30.9 billion Education Stabilization Fund: Flexible funding that will go directly to states, local school districts, and institutions of higher education to help schools, students, teachers, and families with immediate needs related to coronavirus.
• Elementary and Secondary Education: $13.5 billion in formula funding directly to states, to help schools respond to coronavirus and related school closures, meet the immediate needs of students and teachers, improve the use of education technology, support distance education, and make up for lost learning time.
• Higher Education: $14.25 billion for direct grants to higher education institutions, with priority given to schools with a high number of Pell Grant recipients and that were not enrolled in distance education before the outbreak. It would allow the continuation of work-study payments even if the student is unable to work. If a student had to drop out during the current term, they don’t have to pay back Pell grants and would not count toward their federal Pell Grant limits and consideration for subsidized loans. It would suspend monthly payments on federally held student loans through September, with no interest accruing during suspension, but continue to count these months towards requirements for federal loan forgiveness program.
• State Flexibility Funding: $3 billion in flexible formula funding to be allocated by states in the form of subgrants to individual schools based on the needs of their elementary and secondary schools and their institutions of higher education.
• Project SERV: $100 million in targeted funding for elementary and secondary schools and institutions of higher education to respond to the immediate needs of coronavirus and the effect on students (clean and disinfect schools, counseling, and distance learning).

To help mitigate the financial and health crises related to the coronavirus (COVID-19), on Friday, March 27, 2020, President Trump signed into law the largest economic relief package in modern U.S. history. The $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is intended to shore up the country on multiple fronts and includes several components aimed at individuals.

Recovery rebates

One of the aspects receiving the most attention is the CARES Act’s so-called “recovery rebates.” The federal government will generally make direct payments of up to $1,200 to those who file their federal income tax returns as single filers or heads of households; married couples filing jointly can receive up to $2,400. Additional $500 payments will generally be made per qualifying child.

The nontaxable rebates are subject to phaseouts based on adjusted gross income (AGI) as reported on taxpayers’ federal 2019 income tax returns. If 2019 returns haven’t been filed, the 2018 tax returns will be used. The phaseouts begin at $75,000 for singles, $112,500 for heads of household and $150,000 for married couples. Payments are completely phased-out for single filers with AGIs exceeding $99,000 and for joint filers with no qualifying children and AGIs exceeding $198,000. For a head of household with one child, the payment is completely phased out when AGI exceeds $146,500.

Expanded unemployment benefits

The CARES Act increases unemployment compensation benefits significantly, providing an extra $600 per week for up to four months, over and above state unemployment benefits. The expansion generally applies to those who can’t work as a direct result of COVID-19.

The law generally provides temporary full federal funding of the first week of unemployment benefits through December 31, 2020, for states that opt to pay recipients as soon as they become unemployed, rather than requiring a one-week waiting period. And it provides an additional 13 weeks of unemployment benefits through year end, generally for those who remain unemployed after state unemployment benefits are no longer available.

The law also creates a temporary Pandemic Unemployment Assistance program through the end of the year. The program generally will extend unemployment benefits to workers who traditionally don’t qualify for them — meaning self-employed individuals, independent contractors, those with limited work histories and others.

Penalty-free early retirement distributions

The CARES Act waives the 10% early distribution penalty for COVID-19-related withdrawals from IRAs, 401(k) plans and certain other retirement plans made on or after January 1, 2020, and through December 31, 2020. The waiver applies to distributions made to an individual:

• Who’s diagnosed with COVID-19,
• Whose spouse or dependent is diagnosed with COVID-19, or
• Who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care because of COVID-19, or the closing or a reduction of hours of a business owned by the individual due to COVID-19.

Eligible individuals can withdraw up to $100,000 penalty-free. They can repay withdrawn funds within three years of the day after the distribution without regard to the applicable cap on annual contributions. To the extent such early distributions aren’t repaid within this period, the related income tax will be prorated over three years.

Waived required minimum distribution rules

The CARES Act similarly waives the required minimum distribution (RMD) rules for certain defined contribution plans and IRAs for calendar year 2020. This will help individuals avoid a financially imprudent sale of retirement assets during the stock market downturn.

The waiver covers both 2019 RMDs required to be taken by April 1, 2020, and RMDs required for 2020. It applies for calendar years beginning after December 31, 2019.

Expanded charitable contribution deductions

Individual taxpayers can take advantage of a new above-the-line $300 deduction for cash contributions to qualified charities in 2020. “Above-the-line” means the deduction reduces AGI and is available to taxpayers regardless of whether they itemize deductions.

The CARES Act also loosens the limitation on charitable deductions for cash contributions made to public charities in 2020, boosting it from 60% to 100% of AGI.

Student loan relief

Under the CARES Act, employers can provide up to $5,250 annually toward employee student loan payments on a tax-free basis before January 1, 2021. The payment can be made to the employee or the lender. (The employee can’t take a student loan interest deduction for any loan payment for which the exclusion is available.)

The law also allows individuals to stop making payments on federal student loans through September 30, 2020, without incurring penalties or late fees. In addition, no interest will accrue on federal student loans during this period. And the government is temporarily suspending garnishments to collect on federal student loans.

Mortgage and foreclosure relief

Homeowners with federally backed mortgages can request forbearance, regardless of their delinquency status and without incurring penalties, fees or interest. Eligible homeowners must submit a request to their loan servicers and affirm financial hardship during the COVID-19 emergency. A servicer is required to grant forbearance for up to 180 days and to extend it for an additional period of up to 180 days at the borrower’s request.

Further, except for vacant or abandoned property, servicers of federally backed mortgages can’t initiate any foreclosure process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale for at least 60 days, starting March 18, 2020.

Borrowers with federally backed mortgages on multifamily properties can request a forbearance for up to 30 days if they were current on their loans on February. 1, 2020. They also can request two additional 30-day extensions.

The swiftly changing environment

No one knows when the COVID-19 public health emergency will end, or for how long the economic repercussions will linger. We’ll keep you informed on the latest developments and help you plan for a more stable financial future.

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

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The Families First Coronavirus Response Act (FFCRA) is set to take effect on April 1, 2020, and expire on December 31, 2020. On March 24, the U.S. Department of Labor (DOL) released an initial set of questions and answers (Q&As) concerning the FFCRA. The Q&As address the FFCRA’s provisions relating to new emergency paid sick leave and the expansions to the Family Medical Leave Act.

The DOL also released the FFCRA poster summarizing an employee’s rights under the Act and an accompanying set of Frequently Asked Questions (FAQs) addressing this required notice. The FAQs indicate that employers must display the FFCRA poster in a “conspicuous place on its premises” where it is easily visible to all employees. However, alternately, because most employees are now “teleworking,” employers may satisfy this “posting” requirement by emailing or direct mailing this notice to its employees, or by posting this notice on an employee information internal or external website.

While these Q&As and FAQs may be subject to additions and updates as the DOL continues to accept public comments before the law takes effect next week, they provide helpful guidance.

The DOL will soon release its regulations pertaining to the FFCRA, which will provide further substantial guidance regarding the emergency paid sick leave and FMLA expansion. In the meantime, the DOL has released a Fact Sheet for employers explaining the FFCRA and its provisions in greater detail. Our prior guidance on the topic, Federal Tax Relief to Alleviate COVID-19 Hardships, provides more detailed information regarding the FFCRA and its requirements.

For more information, please visit Yeo & Yeo’s COVID-19 Resources and Updates webpage.

Yeo & Yeo is committed to providing businesses and individuals with the best tax and financial information available related to the coronavirus pandemic. Visit Yeo & Yeo’s COVID-19 Resource Center at www.yeoandyeo.com for up-to-date information about tax payment and tax filing deadlines, tax credits available to businesses, how employers can help employees apply for unemployment and many more useful COVID-19 links.

Articles in the Resource Center include the following:

• How to Manage COVID-19 Related Business Risks
• Federal Tax Relief to Alleviate COVID-19 Hardships
• Federal Tax Filing Deadline Extended from April 15 to July 15
• Coronavirus Relief Act Provides Payroll Tax Credits for Employers
• How to Help Your Employees Claim Unemployment Due to COVID-19
• State of Michigan Unemployment Compensation Notice to Employee
• State Temporarily Expands Eligibility for Unemployment Benefits

Yeo & Yeo will continually add links, timely alerts and updates to its COVID-19 Resource Center as information becomes available.

Taxpayers now have more time to file their tax returns and pay any tax owed because of the coronavirus (COVID-19) pandemic. The Treasury Department and IRS announced that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020.

Taxpayers can also defer making federal income tax payments, which are due on April 15, 2020, until July 15, 2020, without penalties and interest, regardless of the amount they owe. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax. They can also defer their initial quarterly estimated federal income tax payments for the 2020 tax year (including any self-employment tax) from the normal April 15 deadline until July 15.

No forms to file

Taxpayers don’t need to file any additional forms to qualify for the automatic federal tax filing and payment relief to July 15. However, individual taxpayers who need additional time to file beyond the July 15 deadline, can request a filing extension by filing Form 4868. Businesses who need additional time must file Form 7004. Contact us if you need assistance filing these forms.

If you expect a refund

Of course, not everybody will owe the IRS when they file their 2019 tax returns. If you’re due a refund, you should file as soon as possible. The IRS has stated that despite the COVID-19 outbreak, most tax refunds are still being issued within 21 days.

New law passes, another on the way

On March 18, 2020, President Trump signed the “Families First Coronavirus Response Act,” which provides a wide variety of relief related to COVID-19. It includes free testing, waivers and modifications of Federal nutrition programs, employment-related protections and benefits, health programs and insurance coverage requirements, and related employer tax credits and tax exemptions.

If you’re an employee, you may be eligible for paid sick leave for COVID-19 related reasons. Here are the specifics, according to the IRS:

• An employee who is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or whose child care provider is unavailable, and/or the employee is experiencing substantially similar conditions as specified by the U.S. Department of Health and Human Services can receive two weeks (up to 80 hours) of paid sick leave at 2/3 the employee’s pay.
• An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional ten weeks of expanded paid family and medical leave at 2/3 the employee’s pay.

As of this writing, Congress was working on passing another bill that would provide additional relief, including checks that would be sent to Americans under certain income thresholds. We will keep you updated about any developments. In the meantime, please contact us with any questions or concerns about your tax or financial situation.

© 2020

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

• Due to the closure of our physical offices, we are no longer accepting drop-offs or pickup of documents. We ask that our clients share documents with us electronically through our Client Tax Portal.  
• We encourage tax returns be sent to you electronically with e-file authorizations done electronically as well. If the print and mail of returns is required, safe handling processes are in place to do so, however, there could be additional delay in the mailing of printed returns. 
• As communicated last week regarding the extension of the tax deadline extended to July 15, 2020, we are refocusing our efforts to provide those clients experiencing hardship with priority access to their advisor. We will work to meet your expectations while spreading work out to protect the health and well-being of our tax professionals. We are working tirelessly to keep clients informed of project status and probable turnaround time. 

• We encourage your employees to convert to direct deposit if they have not already done so. While we have measures in place to produce paper checks, those employees could experience delay due to factors out of our control such as postal slowdown and the quarantine recommendation of all mail. Your payroll professional will communicate any changes with you as needed.