Update on COVID-19 Relief for Businesses

The federal and state coronavirus relief efforts have taken dual approaches of loans and grants through various federal and state agencies as well as tax relief through the IRS and state tax agencies. This communication is focused on the tax aspects, including updates on programs we have mentioned previously. Some of this information has changed from previous articles as guidance from the government changes. Charitable organizations should keep in mind that many of the benefits being provided to businesses may also apply to them. 

Part II - Business Provisions

  • Extended Filing and Payment Dates

Corporate tax payments for federal and state income tax have been extended in the same manner as individuals discussed in part I in our article on relief for individuals. Louisiana has extended the due date for first quarter unemployment tax returns and payments to June 30, 2020 as well as various other taxes. For additional information see Louisiana department of revenue site here. 

  • Charitable Contributions

The corporate charitable deduction limit has been increased from 10% of taxable income to 25% for 2020.

  • Payroll Tax Credits

    Since our last update on payroll tax credits under the Families First Act, the U.S. Department of Labor has specified employee eligibility details for the Emergency sick leave and Extended family medical leave credits.

    • The most significant piece of information appears to be inclusion of statewide state-at-home orders in the definition of “quarantine or isolation order” in the law for the emergency sick leave criteria.

    • The FFCA paid family medical leave and sick leave provisions were changed by the follow-up CARES Act to not require that employers pay a certain percentage of normal pay during extended leave if that would exceed the $200/day and $511/day tax credit thresholds. Employers may still choose to pay above those amounts.

    • Guidance issued stating the effective dates are April 1,2020 – December 31, 2020.

While the Paycheck Protection Program loans through the SBA have garnered more attention, the CARES Act also included an Employee Retention Tax Credit and a deferral of social security payroll tax payments, but only as an alternative to PPP loan forgiveness. Any employer that has a loan forgiven under the Paycheck Protection Program will not be eligible for these two benefits, briefly explained below. 

  •  Employee Retention Tax Credit 

    • Reimburses  employers of fewer than 100 employees for 50% of the cost of wages (including health insurance benefits) up to $10,000 per employee ($5,000 credit) if either their business was closed by government orders (e.g. stay-at-home or shelter-in-place orders), or if revenue for a calendar quarter has dropped below 50% of revenue in the corresponding quarter of 2019. This reimbursement is for wages paid between March 13 and December 31, 2020. 

    • Advance credit against payroll tax deposits available. Beginning in the second quarter Form 941 will be updated to reconcile these amounts. 

    • For qualified amounts paid from March 13 – March 31, form 7200 will have to be filed to claim these credits. These amounts will be reconciled on the Second quarter Form 941.

    • For additional information click here for a link to IRS details

  • Payroll Tax Deferral 

    • Available for the employer’s portion of social security taxes (6.2%) on payroll taxes due from period beginning March 27 and ending December 31, 2020. The deferral is also available to self-employed taxpayers for half of the equivalent social security portion of self-employment taxes due with 2020 tax returns.

    • Both employers and self-employed taxpayers will need to pay at least 50% of the 2020 deferrals by the end of 2021 and the remainder by the end of 2022. Using this deferral will reduce the amount of payroll tax deposits for employers and quarterly estimated payments for the self-employed.

    Whether these two programs provide a more beneficial outcome than forgivable PPP loans will vary. In cases of businesses in immediate financial need, then the upfront cash from the SBA may be necessary even if these were able to provide a larger overall benefit.

    Lastly, the IRS has released a new form, Form 7200, on-which employers can request immediate payment of the Employee Retention credit and the credits for paying emergency sick leave and family medical leave if those amounts are greater than required payroll tax deposits. Otherwise, employers may simply reduce the amount of the deposits. 

  • Other items to note

    • Net operating loss carryback rules relaxed

    • Business interest expense limitation rules relaxed

    • Qualified improvement property technical glitch in depreciation treatment corrected

As the above programs are still very new, it is likely that government agencies will continue to tweak the programs to fit real-world circumstances, so be on the lookout for updates. If you have further questions, please contact our office at (225) 927-6811.

Sincerely,   

Alex Tucker, CPA and Guy Reddick, CPA

Faulk & Winkler, LLC

Baton Rouge, Louisiana

 

COVID-19Lainey Eddlemon