Millions of Americans have already received their economic impact payments authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. If you have not received a payment or received an amount larger than you anticipated, you may be looking for some answers. But first, a little background on the payments:

1. The payment is actually a refundable credit that will be computed on your 2020 tax return based upon your 2020 family composition and adjusted gross income (AGI) that is being paid in advance.
2. The credit is $1,200 for each individual other than dependents.
3. Each individual (or married couple) with a dependent child under the age of 17 will receive an additional $500 for that child. There is no additional $500 credit for children 17 or over or for other dependents.
4. The payments are meant to assist lower-income individuals and families, so the amount of the payment is reduced for higher-income individuals. The reduction begins when a single individual’s AGI reaches $75,000 ($150,000 for married couples). For those that file as head of household, the reduction begins at $112,500. Payments are reduced by 5% of AGIs exceeding these thresholds.
5. No payment will be made to someone without a Social Security number.

If this refundable credit is based on a 2020 tax return that won’t be filed until next year, how does the IRS know how much to pay in advance? Good question! Since the purpose of these advance payments is to quickly get money in the hands of those who need it during this crisis, the government looked for a way to estimate the advance payments, and the most expeditious method was to base the payments on family composition and income from 2019 tax returns or 2018 returns for those who haven’t yet submitted their 2019 returns. You can use the table below to compute what your advance payment would be based upon your 2019 or 2018 filed return and what the credit will be on your 2020 return.

(1) Find your AGI on 2019 Form 1040 or 1040SR, line 8b, or on 2018 Form 1040, line 7
(2) MFS = married filing separately

Where the 2019 or 2018 return resulted in a refund and included direct deposit information, the advance payments were direct deposited into individuals’ or couples’ bank accounts. These direct deposits were made very early in the process. There have been hiccups in which bank account information had changed since the returns were filed, in which case those individuals have to wait for a check to be mailed later.

By now, you should begin to see where some problems might arise. Suppose you and your ex-spouse filed a joint 2018 return and were divorced in 2019 but haven’t filed your 2019 returns yet. Where will the joint payment go based upon the 2018 return? Or suppose you added a child to your family in 2019 but didn’t file the 2019 return in time, and the payment was based on your 2018 return. Your payment will not include the extra $500 for your dependent child. We could go on and on with all sorts of scenarios that are creating unexpected results.

These payments are due to more than just those who filed a 2019 or 2018 tax return. There are many Americans who are not required to file a tax return, including retirees receiving Social Security (SS) or Railroad Retirement, SS disability, SS survivor’s benefits, and veterans’ benefits, as well as those who should have filed returns but have not and the homeless.

To reach as many of those individuals as possible, the IRS is automatically making payments of $1,200 to recipients of Social Security or Railroad Retirement, SS disability, SS survivor’s benefits, and veteran’s benefits who have not filed a 2018 or 2019 tax return. Of course, the IRS has no way of determining if individuals in these categories have spouses who are not receiving benefits or if they have dependent children under the age of 17. These individuals were given the chance to provide their spouses’ and dependent children’s information to the IRS prior to payments being made. Unfortunately, the time to provide that information has passed. Where the IRS has direct deposit information, the payment will be deposited into the individual’s bank account. Others will have to wait for a paper check.

Those who are not in any of the previously discussed categories can provide their information to the IRS by using the non-filer tool on the IRS web site.

If the IRS does not have your direct deposit information, it has changed, or the bank rejected the IRS’ attempt to deposit the payment, you will receive the payment by check. The checks are being issued to the lowest-income individuals first, where the need is the greatest, followed by others with increasing incomes. Here is the estimated release schedule for the payments by check.

The next big question you might have is “What happens if the IRS does not send me an advance payment?” Well, all is not lost, because the payments, as explained earlier, are an advance on a refundable credit allowed on your 2020 tax return when it is filed in 2021. So, if you were short-changed on the advance payment, you will get your payment or any shorted amount as a refundable credit on your 2020 return.

Example: Don and Shirley, whose AGI is less than $150,000, are newlyweds with no children and filed a joint return in 2019. They receive an advance economic impact payment of $2,400. In 2020, they have a baby, and when their credit is determined on the 2020 return, it is $2,900 ($1,200 + $1,200 + $500). Since they only received $2,400 as an advance payment, they will be entitled to a $500 refundable credit on their 2020 return. The credit will first be used to reduce their tax, and then any excess credit will be refunded.

However, keep in mind that the 2020 credit is based on filing status, dependent children under age 17, and AGI for 2020. The advance payment was based on filing status, children under age 17, and AGI for 2019 or 2018, which can create some substantially different results.

Of concern to those whose advance payment was too large is whether the excess will have to be repaid. The CARES Act that authorized this credit and the advance payments specifies that any amount by which the advance exceeds the credit computed for the 2020 tax return does not have to be repaid.

Example: Shelly, a single parent, files her 2019 return claiming her 15-year old daughter, Whitney, as a dependent. Shelly’s AGI is below $75,000, so Shelly will receive an economic impact payment of $1,700 ($1,200 for herself and $500 for Whitney). In 2020, Whitney goes to live with her dad, and so when Shelly files her 2020 tax return, she no longer has a dependent child under age 17. Thus, the credit computed on her 2020 return is only $1,200. However, Shelly does not have to pay back the difference.

As you can see, there are any number of variations that can impact how the advance payment was determined and how the credit is figured on the 2020 return, including marriage, divorce, births, deaths, emancipations, and AGI.

If you have any questions, please give our office a call.

The CARES Act stimulus package substantially relaxed the rules around certain retirement account loan and distribution requirements, but with much confusion. As a result, the IRS recently released a FAQ document to address the COVID-19 rule relaxation around IRA and 401(k) loans and distributions. This important information should come as welcome news for the nearly one percent of all retirement plan holders who have already taken a distribution under the new rules, according to Fidelity Investments.

Who is eligible?

If you, a spouse or dependent tested positive for COVID-19, you automatically qualify. You also may qualify under less direct circumstances, such as experiencing economic hardship due to being quarantined, laid off, receiving a reduction in work hours, or missing work because you do not have childcare. Business owners who are forced to close or reduce operating hours also qualify.

How Much Can I Take Out? 

COVID-19 impacted individuals can take up to $100k in distributions without paying the 10 percent penalty imposed on early withdrawals by people under 59½ years old. The $100,000 limit is the total for all the plans you have. For example, if you take $70k out of your 401(k), you can take only up to $30k out of your IRA under these rules. You will still owe taxes on the distributions as ordinary income; however, you are able to pay the taxes owed over a three-year period.

Can I Pay Myself Back?

The law also allows you to pay yourself back. Taxpayers can replace their distributions if they do so within a three-year timeframe. This means that if you take out a distribution in 2020, start to pay the taxes owed over the three-year rule and then pay back the distribution in 2022, you’ll be able to amend your 2020 and 2021 returns to get a refund, as well as not pay the tax you would have owed in 2022.

How Do Loans Work?

The maximum amount you can borrow increased from $50,000 to $100,000. You also can borrow the entire amount of your plan balance up to this limit (net of any outstanding loans). Moreover, for any loans you already have within the plan, the due date for payments due through the end of 2020 can be postponed for up to one year.

Is There Anything Else I Should Know?

Yes. First, there is more guidance coming from the IRS. Second, if you are eager to know what this formal guidance will look like, you can turn to the Hurricane Katrina relief rules from 2005 as this is what is expected will apply for the COVID-19 measures. Lastly, the IRS will generate a new form 8915E where taxpayers will report the repayment of COVID-19 covered distributions.

On Wednesday night, the Senate voted unanimously in favor of the Paycheck Protection Flexibility Act. This new legislation makes key adjustments to the timeline for spending Paycheck Protection Program (PPP) funds and revises how loan recipients are required to allocate the money.

Here is a brief overview of the key provisions contained in the bill:

• Loan recipients now have 24 weeks to spend the funds. Previously, they had to use all the money within eight weeks.
• The percentage of the loan money required to be devoted to payroll expenditures has been reduced from 75% to 60%. This item does come with a new catch—if a borrower fails to spend at least 60% of the loan money on payroll, then the entire loan becomes unforgivable.
• The minimum term period for PPP loans is extended from two years to five years.
• PPP loan recipients whose loans are forgiven may delay payroll tax payments (the employer’s share of FICA payroll taxes) for two years. Half of the taxes are due in 2021 and the other half in 2022.
• The deadline for rehiring employees and restoring wages to pre-pandemic levels is extended from June 30, 2020 to December 31, 2020.
• Loan recipients have more leeway on loan forgiveness if they can provide evidence that they were unable to recall a portion of their workforce or that it was not possible to reopen their business in a way that complies with safety standards.

The bill now heads to the President, who is expected to sign it.

On May 22, the Small Business Administration (SBA), in conjunction with the U.S. Treasury, released additional guidance for recipients of loans through the Paycheck Protection Program (PPP). A recent article from the Journal of Accountancy examines the details of the new release.

The SBA issued two new interim final rules, one regarding requirements for loan forgiveness and the other covering procedures for loan review and responsibilities of borrowers and lenders. The article pulls out highlights from the new releases.

From the new interim final rule governing requirements for loan forgiveness:

• Creation of an alternative method for defining the start period of a business’ eight-week cycle for using PPP funds.
• Further explanation regarding bonuses and hazard pay—they are eligible for loan forgiveness, as long as the amount does not exceed an employee’s pro-rated annual salary of $100,000.
• Creation of loan forgiveness caps for owner-employees and payroll compensation for self-employed individuals.
• Further explanation regarding the timing of non-payroll costs and their eligibility for loan forgiveness.
• A restatement of guidelines for excluding employees who refuse to be rehired from loan forgiveness reduction calculations. Borrowers must notify their state’s unemployment office of rejected re-employment offers within 30 days.
• Guidance regarding the definition of full-time for the purposes of PPP loan forgiveness and for calculating FTEs for non full-time employees.
• A statement that PPP loan recipients may restore forgiveness by rehiring employees and reversing any salary and wage reductions.

From the new interim final rule governing loan review:

• A statement that the SBA has the authority to review any PPP loans.
• Guidance regarding a borrower’s ability to appeal SBA eligibility determinations—borrowers have 30 days from when they receive the SBA’s decision.
• Requirement that lenders must make application decisions within 60 days of receipt.
• Further explanation regarding the ability of lenders and the SBA to ask borrowers questions.
• A statement regarding lender fees for PPP loans—lenders will not be paid for loans that are deemed ineligible.

For further details, including information on potential legislation that would impact the PPP, click here to read the article in full.

On Friday, May 15, the Small Business Administration (SBA) announced an important release for borrowers who received loans through the Paycheck Protection Program (PPP). The bureau made public a form and instructions for borrowers to use to apply for PPP loan forgiveness.

The application must be completed and submitted to the lender that serviced the borrower’s PPP loan. It includes the following four components:

1. A form for calculating the PPP loan forgiveness amount
2. A PPP Schedule A
3. A PPP Schedule A worksheet
4. An optional form for including demographic information about the borrower

To complete the forgiveness form in its entirety, borrowers must supply the following information:

• The legal name of the business (the same name as used on the PPP application form)
• Contact information (address, phone, primary contact, and email address—borrowers should use the same information as they used on their PPP application)
• The PPP loan number assigned to the borrower by the SBA
• The PPP loan number assigned to the lender
• The total number of employees employed by the borrower at the time of the PPP loan application
• The total number of employees employed by the borrower at the time of the loan forgiveness application
• The date that the PPP loan proceeds were disbursed (if borrower received more than one disbursement, the date of the initial disbursement)
• Any economic injury disaster loan (EIDL) advance amount received by the borrower
• The borrower’s EIDL application number, if applicable
• The borrower’s payroll schedule
• The beginning and ending dates of the eight-week period covered by the borrower’s PPP loan
• The alternative payroll covered period, if applicable
• An indication of whether the borrower received a PPP loan of more than $2 million

The form includes step-by-step instructions for borrowers on how to complete the calculations that it requires. The SBA has indicated that it plans to release additional regulations and guidance regarding completing the loan forgiveness application. Click here to view the loan forgiveness application and instructions in full.

On May 13, the Small Business Administration (SBA) issued additional guidance regarding the Paycheck Protection Program (PPP). They added a highly anticipated new question to their lengthy FAQ: “How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?”

One of the requirements when submitting a PPP loan application is a self-certification by the applicant that the loan is necessary to support their ongoing operations in light of the current economic circumstances. Many borrowers called for further clarification on this point out of fear that they would later be judged as having made a false self-certification and fall under penalty.

Wednesday’s clarification describes a safe harbor for borrowers who, along with their affiliates, receive PPP loans of $2 million or less. In other words, those who receive PPP loans of $2 million and less will not have their self-certifications reviewed. The SBA clarifies the thinking behind the creation of this safe harbor, explaining that:

1. Borrowers with loans of this size are unlikely to have access to other sources of liquidity during this difficult economic time (therefore their self-certification is very likely accurate).
2. The creation of the safe harbor will dispel a lot of uncertainty that these smaller businesses had about accepting PPP loans, thereby helping the program to operate more smoothly.
3. Discounting this set of loans from the review process will allow the SBA to better handle the large workload they have before them and focus their efforts on the subsection of borrowers whose self-certifications may not be genuine.

The SBA clarification also addressed what will happen if a borrower who receives more than $2 million is found to not have an adequate basis for their PPP loan, upon review. If this is the case, the borrower will need to return the balance of the loan. If they do so, the SBA will not “pursue administrative enforcement or referrals to other agencies.”

The Paycheck Protection Program (PPP) is a loan initiative created by the CARES Act that targets aid to small businesses dealing with losses resulting from the coronavirus pandemic. The big appeal of the program is that the portion of the PPP loan funds used for certain “allowable purchases” is fully forgivable.

Firstly, what are the requirements for achieving PPP loan forgiveness? The SBA guidelines state that PPP loan funds will be forgiven (1) if an employer keeps all employees on payroll for eight weeks from the date that the funds are disbursed and (2) for the money that is used for allowable purposes, such as payroll, rent, mortgage interest, and/or utilities.

Prior to the enactment of the CARES Act, many employers had to make the hard decision to lay off employees due to lack of business, or even closure. As businesses now receive PPP loans, many are seeking to rehire their laid-off employees in order to qualify for loan forgiveness. However, an unintended consequence of another CARES Act provision is making it difficult for some employers to bring workers back—in many cases, laid-off employees are earning more through unemployment (bolstered by the CARES Act) than they would if they returned to work. Subsequently, many are turning down employer requests to come back onto the workforce.

This circumstance is quite concerning for PPP loan recipients who want to maintain their employment levels in order to qualify for loan forgiveness. In a recent update to their PPP FAQ, the Small Business Administration (SBA) addressed this issue.

In regards to the impact of a laid-off employee refusing to be rehired on a borrower’s PPP loan forgiveness amount, the SBA made the following clarification. If the borrower attempts to rehire laid-off employees at the same salary/wages and number of hours but the employees refuse, those employees may be excluded from the CARES Act’s loan forgiveness reduction calculation. Both the proposal for rehire and the employees’ rejections of the offer must be documented in writing.

It is worth noting that the rejection of the rehire may void the employees’ eligibility for unemployment. For further guidance on this matter, look for an additional issuance from the SBA and Treasury that is forthcoming.

You have probably read in the news about the backlash that some public companies have experienced as a result of accepting loans through the Paycheck Protection Program (PPP). As a result of the public outcry, many of the large organizations have chosen to give back the PPP loan funds. What you may not have heard is this: many smaller businesses are also choosing to return their loan money.

Accountants have begun to report that more and more clients are opting not to keep their PPP loan money. This is a result of worry about the repercussions of receiving the money and later discovering that they do not actually qualify for the program.

One of the steps of applying for a PPP loan is performing a self-certification that an entity qualifies for the loan. Down the line, federal authorities will begin the process of reviewing all the self-certifications. If a recipient is unable to demonstrate adequately that they needed the loan, they face repercussions, including the possibility of criminal charges.

In order to avoid penalties associated with accepting a loan for which an entity does not qualify, loan recipients must return their PPP loan funds by May 7, 2020. As a result, many businesses owners who are unsure or nervous about their qualification are choosing to return the loan money for which they applied.

Are you unsure of whether you truly qualify for a PPP loan that you have already received? Reach out to your Ross Buehler Falk & Company accounting advisor today in order to examine your options with the help of a professional.

On Friday, April 24, President Trump signed the Paycheck Protection Program and Health Care Enhancement Act into law. The new aid bill boosting funding for various initiatives in response to the coronavirus pandemic was passed in the Senate on Tuesday and by the House on Thursday. The legislation includes the following:

• $310 billion in additional funding for the Paycheck Protection Program (PPP). The original $349 billion that funded the program was depleted last week. $60 billion of the funds is allocated for community lenders that focus on rural areas, under-banked neighborhoods, and minority groups. Of that $60 billion:
  • $30 billions is allocated for FDIC-insured banks and credit unions that hold between $10 billion and $50 billion in assets.
  • $30 billions is allocated for lenders that provide loans to low-income communities and those who lack access to financing (community banks, credit unions, and community development financial institutions that hold less than $10 billion in assets).
• $60 billion in directed funding for the Small Business Administration’s (SBA) Economic Injury Disaster Loan program.
  • $10 billion allocated specifically to the SBA’s fund for small business disaster relief grants.
• $75 billion in aid for hospitals, in the form of reimbursements for coronavirus-related expenses and lost revenue.
• $25 billion for funding to boost testing for the coronavirus ($11 billion of the money is allocated specifically for states and localities).

It is not currently clear when the money for the overwhelmed PPP will become available. After the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the $349 billion allocated for PPP funds was exhausted in just 12 days. It is expected that the replenished funds will run out quickly again.

On March 27^th, President Trump enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The historic $2.2 trillion stimulus bill includes an allowance for penalty-free early withdrawals from retirement accounts.

Below, we address some of the common questions regarding this particular initiative. If you cannot find the answer to your question, please do not hesitate to reach out to your Ross Buehler Falk & Company advisor for further assistance.

What changes did the CARES Act make to retirement withdrawals?

For 2020, eligible plan participants can now receive coronavirus-related distributions from their retirement plans (401(k)-type defined contribution plans or individual retirement accounts (IRAs)).

Individuals aged 70 ½ or retired in 2019 and are required to take their 2019 RMDs from an IRA or a tax-qualified plan in 2020 (by April 1), are not required to take such a distribution in 2020.

Am I eligible to make a withdrawal from my retirement account?

To be eligible, you must fit at least one of the following criteria:

1. You or your spouse or dependent has been diagnosed with COVID-19, or
2. You have suffered adverse financial consequences due to COVID-19 (e.g., suffering loss of business, unable to work due to childcare, required to quarantine, put on furlough, etc.)

Plan participants will simply self-certify that they meet the conditions for a coronavirus-related distribution.

How much can I withdraw from my retirement account?

Eligible individuals can take out up to $100,000.

If I make early withdrawals, do I have to pay a penalty?

No, if you make an eligible withdrawal you are exempt from the 10 percent early withdrawal penalty. Additionally, the 10 percent penalty waiver applies retroactively to withdrawals beginning January 1, 2020.

When do I pay taxes on the money I withdraw?

Income taxes are still owed on withdrawn amounts. The CARES Act allows for tax payments to be spread over a three-year period.

Is there a way to re-invest the money that I take out?

Yes, individuals who make coronavirus-related withdrawals may replace the money within three years, regardless of the annual contribution level of their plan. Additionally, they may also be able to recover the federal and state income taxes that they paid.

 I already have one or more loans on my 401(k), can I still take a coronavirus-related distribution?

This depends on the particular rules of your plan—consult your plan sponsor.