Paycheck Protection Program – Self-employed Not Left Out

Renner Business News; April 27, 2020—Joan M. Renner, CPA, CGMA

A new COVID-19 relief package is expected to provide $310 billion additional Paycheck Protection Program (PPP) funding very soon to help small businesses and charities amid the COVID-19 crisis.

Organizations can use PPP loans to pay rent, payroll, utilities and existing mortgage interest. After eight weeks, they can request loan forgiveness.

Initial funding, provided by the CARES Act, ran out within 14 days, leaving many applicants out in the cold, including many self-employed individuals.

Initially, when small businesses and charities worked through their PPP loan applications, they found that they could not count their independent contractors as eligible payroll. Independent contractors would have to apply for their own PPP loans as self-employed individuals. Details were not as clear on how the self-employed should apply and on what basis their loans could later be forgiven.

Recently, the SBA issued a new interim final rule providing additional guidance to help self-employed individuals apply for the Paycheck Protection Program and understand the basis for loan forgiveness.

Self-employed individuals can obtain PPP funding based on their 2019 net income and use it for income replacement, employee payroll costs, rent, business mortgage interest and utilities.

Many applicants worry that that the $310 billion of new PPP funding may go as fast as the first round did. However, the new relief package sets aside $60 billion for lending by community banks, often the institutions working most closely with small organizations.

Now is a good time to review the PPP rules for the self-employed.

Self-employed individuals include:

  • Sole proprietors who operate their own business
  • Independent contractors who provide services to businesses and nonprofits and receive a Form 1099 instead of a W-2
  • Businesses operating as single-owner LLCs

As a self-employed individual, you are eligible for a PPP loan if you—

  • Were in business on Feb. 15, 2020,
  • Had self-employment income for 2019,
  • Resided principally in the United States, and
  • Filed (or will file) Schedule C of Form 1040 for 2019.

As a self-employed individual, you calculate your loan amount as follows:

  1. Get your 2019 tax return done, or at least your 2019 Schedule C.
  2. Start with Schedule C, Line 31; Net profit or (loss).
  3. If Line 31 is negative or zero, and you have no W-2 employees, you are not eligible for a PPP loan.
  4. If Line 31 is negative or zero and you have W-2 employees, start with zero.
  5. If Line 31 is more than $100,000, reduce it to $100,000.
  6. Now you have a number between zero and $100,000.
  7. If you have no employees, skip to Line 13.
  8. If you have employees, add their 2019 Medicare wages. Add any pretax health insurance or other fringes excluded from Medicare wages.
  9. Cap each employee’s wages at $100,000. Remove employees whose principal place of residence is outside the U.S.
  10. Add 2019 health insurance contributions you paid for your employees from Schedule C, Line 14.
  11. Add retirement contributions you made for your employees from Schedule C, Line 19.
  12. Add state unemployment taxes you paid during 2019.
  13. Now you have 2019 net profit plus eligible payroll. Divide by 12 to get an average monthly figure.
  14. Multiply the average monthly figure by 2.5. This is your PPP loan amount.
  15. If you have an outstanding 2020 Economic Injury Disaster Loan excluding any advance amount that does not have to be repaid, and you want to refinance into your PPP, add it to your PPP loan amount.

Be prepared to provide the following documents with your PPP application:

  • Your 2019 Schedule C
  • Any 1099-MISC you received to support your reported income
  • One of the invoices you sent to your customers, a bank statement or other books that show you are self-employed and were in business on or around Feb. 15, 2020
  • 941 forms if you have employees
  • Your February payroll journal or similar documentation to show you were operating on Feb. 15, 2020
  • State unemployment returns if you have employees
  • Documentation for your retirement plan contributions for your employees
  • Invoices for the health insurance payments you made for your employees

As a self-employed individual, you may apply for forgiveness of your PPP loan after eight weeks, calculated as follows:

  1. Calculate eight weeks of owner income replacement based on your 2019 Schedule C net income. Take your 2019 Schedule C, Line 31, divide by 52 weeks and multiply by 8 weeks.
  2. Add employee payroll, health and retirement benefits as calculated above, paid during the 8-week period following loan origination.
  3. Add rent, utilities and interest on existing business mortgages paid during the 8-week period following loan origination, to the extent they were deductible on your 2019 Schedule C.
  4. Seventy-five percent of the amount forgiven must be attributable to payroll and owner’s compensation replacement.

When applying for PPP loan forgiveness, be prepared to provide—

  • Your 2019 Schedule C,
  • Quarterly 941 and State unemployment tax forms for 2020, and
  • Evidence of rent, mortgage interest and utility payments.

Learn more about the Paycheck Protection Program.

The Bill also provides $60 billion additional funding for SBA Economic Injury Disaster Loans and Grants. 

Read a summary of The Cares Act.

There are many details about the PPP for self-employed individuals contained in CARES Act, the SBA Interim Final Rule, the new funding bill and other official releases. This information is intended to be a summary of the basic provisions and is not a substitute for individual advice. For specific information about how these provisions apply to you, contact your finance professional.

©2020 Renner and Company, CPA, P.C. All Rights Reserved.

THE EMPLOYEE RETENTION CREDIT— How to Claim It

Renner Business News; April 14, 2020—Joan M. Renner, CPA, CGMA

The IRS has provided guidance for employers who want to take advantage of the Employee Retention Credit.  Small businesses and nonprofits experiencing economic hardship related to the COVID-19 crisis can claim a refundable credit for half the amount of wages paid to employees from March 13 through Dec. 31, 2020.

How do you actually get this credit? For qualified wages paid to employees during the first quarter, from March 13 through March 31, 2020, compute your credit of 50% of qualified wages and claim it on your second quarter payroll tax return, Form 941. The IRS says don’t claim the credit on your first quarter Form 941.

Of course, you’ll also claim your credit for 50% of second quarter qualified wages, paid from April 1 through June 30, 2020, on your second quarter Form 941. Get any excess credit refunded using Form 7200.

If you take the credit, you don’t have to pay in the payroll tax deposits and wait for a refund. Employers can reduce payroll tax deposits by the amount of the credit earned.

Employers of up to 100 employees get the credit on all wages and health benefits paid up to $10,000 per employee. Employers with more than 100 employees only get the credit on wages paid to employees who aren’t working because of COVID-19 cutbacks.

This credit does not apply to wages paid under the emergency sick leave and family leave provisions of the Families First Coronavirus Response Act. Employers are already receiving a credit for those wages.

Employers already receiving support through the Paycheck Protection Program are not eligible.

Read more about the CARES Act Provisions to help small businesses and nonprofits

Read more details about the CARES Act.

©2020 Renner and Company, CPA, P.C. All Rights Reserved.

THE CARES ACT—Help for Small Businesses and Nonprofits Amid COVID-19

Renner Business News; April 4, 2020—Joan M. Renner, CPA, CGMA

The CARES Act is still very new and, in some ways, its application is still being worked out.  However, business owners and nonprofit leaders should gain familiarity with the CARES Act to determine which provisions can help them, including:

  • The Paycheck Protection Program,
  • Emergency Economic Injury Grants,
  • Economic Injury Disaster Loans,
  • Employee Retention Credits and the
  • SBA Debt Relief Program.

To help with that, here’s a summary of the CARES Act and how it can help small businesses and nonprofits amid COVID-19. Ultimately, additional guidance will be available from the SBA, the U.S. Treasury, the IRS and your bank. For specific information about how the CARES Act will affect you, consult your financial professional.

©2020 Renner and Company, CPA, P.C. All Rights Reserved.

PAYCHECK PROTECTION PROGRAM APPLICATIONS NOW AVAILABLE

Renner Business News; April 1, 2020

The Department of Treasury has released the Paycheck Protection Program application 

The Paycheck Protection Program offers small businesses and 501(c)(3) charities a loan to pay employee salaries under $100,000, health insurance, rent, utilities and loan interest for eight weeks. If used for these purposes, borrowers may apply for forgiveness of the loan.

The SBA is administering the program through approved borrowers.

Eligible borrowers should begin the application process today.

Paycheck Protection Program Application

Supplemental Information 

Borrower Guide

For details on how the Paycheck Protection Program will apply to you, contact your financial professional.

©2020 Renner and Company, CPA, P.C. All Rights Reserved

More Support for Small Businesses and Nonprofits in the CARES Act

Renner Business News; April 1, 2020

The Coronavirus Aid, Relief, and Economic Security (CARES) Act includes provisions to make it easier for employers to help their employees during the COVID-19 crisis. It also supports charitable giving by corporations able to help others and accelerates deductions for businesses that are experiencing business losses.

Employee Retention Credit for Businesses and Nonprofits

The CARES Act allows eligible employers a refundable credit for half the wages they pay to employees who cannot work because of business cutbacks due to COVID-19. Employers who have suspended or reduced operations to comply with a government order requiring them to close their business or cancel meetings, or whose business has declined by more than half, are eligible and can claim the credit against the employer portion of payroll tax.

Employers of up to 100 employees get the credit on all wages and health benefits paid up to $10,000 per employee. Employers with more than 100 employees only get the credit on wages paid to employees who aren’t working because of COVID-19 cutbacks.

Employers can reduce payroll tax deposits by the amount of the credit earned.

This credit does not apply to wages paid under the emergency sick leave and family leave provisions of the Families First Coronavirus Response Act. Employers are already receiving a credit for those wages. Employers receiving support through the Paycheck Protection Program are not eligible.

Payroll Tax Payment Deferral

The CARES Act also allows employers to delay part of their 2020 payroll tax payments. Employers who are not receiving support through the Paycheck Protection Program can defer payment of their 2020 employer FICA into two payments, which are due at the end of 2021 and 2022.

Pension Contributions

The CARES Act gives employers more time to make pension contributions due in 2020. Single employer pension plan contributions can be delayed until Jan. 1, 2021. Employers should pay delayed contributions with interest.

Education Assistance Programs

Employers with Education Assistance Programs can currently pay employees’ tuition and other education costs up to $5,250 as a tax-free benefit. Under the CARES Act, employers may now include payments of an employee’s student loan debt as a tax-free education assistance benefit.

Business Charitable Contributions

Generally, corporations can only deduct charitable contributions up to 10% of taxable income.  Under the CARES Act, corporations will be able to deduct charitable contributions up to 25% of taxable income.

Business Net Operating Losses

The CARES Act loosens the restrictions on applying current business losses to prior years.  Businesses will now be able to take business losses from 2020 and deduct them against the income earned from 2015 through 2019 to obtain a refund of prior taxes paid. This also applies to losses prior to 2020, which can be carried back to the previous five years.

The law also provides for a loosening of limits on losses being carried forward.

Other Provisions

The CARES Act includes a number of provisions to support small businesses and charities with loans and grants, including the Paycheck Protection Program, Emergency Economic Injury Grants and Disaster Loans and Small Business Debt Relief.

The CARES Act includes much-needed relief for individuals (hyperlink to April 1 article once posted) including rebate checks, additional charitable deductions and penalty waivers for retirement distributions.

There are many details in the CARES Act as well as many details still being worked out. For specifics on how these provisions apply to your situation, consult your financial professional.

©2020 Renner and Company, CPA, P.C. All Rights Reserved.

CARES ACT OFFERS INDIVIDUALS FINANCIAL RELIEF

Renner Business News; April 1, 2020

Many individuals will receive much-needed financial relief from the provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, including—

  • Recovery checks,
  • Additional tax deductions for charitable contributions,
  • Waiver of penalties for early pension distributions, and
  • Waiver of the requirement for required minimum IRA distributions.

Recovery Rebate Checks

The government will send qualifying individuals a recovery check to help ease the financial impact of the COVID-19 crisis. The amount of the check depends on the amount of income reported on the individual’s 2019 tax return. If an individual has not filed a 2019 return, then the recovery check will be based on the 2018 return, or on Social Security income if no return is filed at all.

Individuals with adjusted gross income of $75,000 or less will receive $1,200 plus $500 for each dependent child under age 17. Joint filers with income of $150,000 or less will receive $2,400 plus $500 for each child.

For individuals and joint filers whose income exceeds these limits, the check amount will go down by 5% of the excess income. Single taxpayers who made more than $99,000 with no dependents—as well as married couples filing joint returns who made more than $198,000 with no dependents— won’t get a check.

To calculate your own check amount:

  1. Take the full rebate amount of $1,200 or $2,400.
  2. Add $500 per child to get your potential rebate.
  3. Take your reported income and subtract the $75,000 or $150,000 income limit to get your excess income.
  4. Multiply the excess income by 5% to get the reduction in your potential rebate.
  5. Take your potential rebate and subtract the reduction to get your check amount.

Increased Tax Deductions for Charitable Contributions

Individuals who do not itemize their deductions and are able to contribute to charities during the COVID-19 crisis will be able to take a special deduction of $300 of charitable contributions in 2020.

The CARES Act raises the income limit for computing how much taxpayers can deduct for charitable contributions in one year, from 60% of modified adjusted gross income to 100% for 2020.

Waiver of Early Distribution Penalties

Individuals may consider taking money out of their IRA accounts to make ends meet during the COVID-19 crisis. Generally, taxpayers who take money out of retirement accounts before they reach age 59½ must pay tax on the distribution and pay a 10% penalty. The CARES Act delays paying tax on the income and waives the 10% penalty for distributions during 2020 for individuals infected with—or with families infected with—COVID-19 or individuals economically harmed by the COVID-19 crisis. Taxpayers can elect to spread out the income over three years.

Waiver of Required Minimum Distributions

Taxpayers who have reached age 70½ know that they usually have to take a required minimum distribution (RMD) from their IRA accounts. Some individuals may be reluctant to sell investments while the market is down. The CARES Act allows taxpayers to forgo the RMD if they would rather keep the money invested.

The CARES Act contains many details, and there are still other details yet to be worked out.  For specific information on how the provisions of the CARES Act apply to you, contact your financial professional.

Learn about COVID-19 emergency sick leave and family leave provided by the Families First Coronavirus Response Act.

Learn about loans and grants for small businesses and charities provided by the CARES Act.

©2020 Renner and Company, CPA, P.C. All Rights Reserved.

CARES Act Supports Small Businesses and Charities

Renner Business News; March 31, 2020

Small businesses and charities can get assistance to meet emergency needs, pay employees and cover SBA loan payments under the Coronavirus Aid, Relief, and Economic Security (CARES) Act by applying for these Small Business Administration (SBA) programs through the SBA and SBA-approved lenders.

  • The Paycheck Protection Program provides cash to cover the cost of retaining employees.
  • Emergency Economic Injury Grants offer quick cash for emergency needs.
  • Economic Injury Disaster Loans help cover COVID-19 shortfalls.
  • The Small Business Debt Relief Program helps business owners cover payments on SBA loans.

Paycheck Protection Program (PPP)

Small businesses and charities harmed by COVID-19 are eligible for assistance under this program if they employ 500 or fewer employees. Eligible employers can apply for a PPP loan to cover eight weeks of payroll, health benefits, interest on existing loans, rent and utilities. The available loan amount is set at 2½ times monthly payroll.

Wages paid for emergency COVID-19 sick and family leave are not included in payroll for the purposes of determining the size of the loan. Those wages are already eligible for a 100% refundable payroll tax credit.

Nonprofits applying for assistance under the PPP must be exempt under IRS Code Section 501(c)(3) or 501(c)(19).

After eight weeks, borrowers can apply for loan forgiveness to the extent proceeds were used for allowable purposes. Owners’ pay is allowable up to the rate of $100,000/year. Amounts not forgiven become loans with repayment terms of up to 10 years, at interest rates of up to 4%, with payments deferred for six months from the date the loan was received.

Businesses that have an existing Economic Injury Disaster Loan (EIDL) can refinance it into a PPP loan, adding it to the PPP loan amount.

The SBA will administer the PPP within their 7(a) Loan Program through SBA-approved lenders.  New regulations are expected to allow almost all banks to make the loans.

Economic Injury Disaster Loans and
Emergency Economic Injury Grants

Small businesses and nonprofits with 500 or fewer employees may apply for an Economic Injury Disaster Loan (EIDL) to pay expenses that the business could have paid if not for the COVID-19 crisis. Nonprofits not exempt under 501(c)(3)—but exempt under some other 501(c) Code Section—are eligible for an EIDL as long as they are not principally engaged in religious activities or primarily engaged in political or lobbying activities.

Businesses and nonprofits that are eligible for an EIDL are also eligible for a $10,000 Emergency Economic Injury Grant. Applicants can request the grant as an advance when applying for the EIDL.  The SBA will provide the $10,000 advance within three days of receiving the application. The advance does not need to be repaid.

Businesses that have already received an EIDL or Emergency Grant may also apply for a PPP loan.  EIDLs may not be used to cover the same costs as the PPP loan. The Emergency Grant will be subtracted from the amount of the PPP forgiven.

The SBA uses standards for determining whether a business is a small business based on size and industry.

Eligible businesses and nonprofits can apply for an EIDL online with the SBA.

Small Business Debt Relief Program

Small businesses with existing SBA loans can obtain debt relief covering all loan payments on non-disaster SBA loans for six months. Eligible loans include 7(a) loans, 504 loans and microloans.

There are many details included in the CARES Act and still more details to be worked out. To find out in more detail how these provisions apply to you, contact your financial professional.

© 2020 Renner and Company, CPA, P.C. All Rights Reserved.

The Families First Coronavirus Response Act: A Summary

Renner business news; March 27, 2020

The Families First Coronavirus Response Act provides federal support for employers who continue to pay employees who are unable to work due to school closings or illness related to COVID-19.

The Act applies to private employers, including nonprofits, with fewer than 500 employees and certain public employers.

Employers must implement the provisions by April 2.

School and Child Care Closings

If an employee can’t work because he or she is caring for a child whose school or place of care is closed due to Coronavirus precautions, then he or she can take emergency leave according to the terms of the new Coronavirus Response Act. The law provides for sick pay for the first two weeks and then family leave for up to 10 additional weeks. The amount of pay is limited to two-thirds of the employee’s normal pay up to $200 per day.

  • Initial two weeks of implementation – emergency sick pay 
    If employees are unable to work because of school closing, he or she may take emergency sick leave up to the limit of the law. The leave is paid at two-thirds of the employee’s regular pay up to $200 per day.
  •   Weeks 3 to 10 – emergency family leave
    After the first two weeks of leave, if an employee is unable to work because of school closing, he or she may take emergency family leave up to the limit of the law. The leave is paid at two-thirds of the employee’s regular pay up to $200 per day.

COVID-19 Illness

If employees are affected by COVID-19 in the ways listed below, employers will provide emergency leave according to the terms of the new law. The law provides for sick pay for two weeks. The amount of pay is limited to the employee’s full pay up to $511 per day.

Under the law, hours charged to COVID-19 leave for documented  COVID-19 illness are paid at the employee’s full rate of pay and are limited to $511 per day.

An employee qualifies for emergency sick pay under this part of the law if he or she:

  • Is subject to a Coronavirus quarantine or isolation order;
  • Has been advised by a health care provider to self-quarantine;
  • Is experiencing Coronavirus like symptoms and is seeking a diagnosis; or
  • Is caring for an individual in the first two categories.

The law provides for 10 days of this type of emergency leave.

Claiming the Credit

Employers may claim a refundable payroll tax credit for 100% of the amount of wages paid for emergency family leave and sick leave under the new law, up to the limits described above.

Exemption

Small businesses with fewer than 50 employees may qualify for exemption from providing paid leave due to school closings if providing the leave would jeopardize the viability of the business as a going concern.

Breaking News – Congress Repeals Nonprofit Parking Tax— Retroactively!

If you worked diligently to comply with the 2017 law that required nonprofits to pay tax on parking and metro benefits—you may have a tax refund coming your way.

Two years ago, the Tax Cuts and Jobs Act required nonprofit employers to treat payments for transportation fringe benefits to employees as unrelated business income and pay unrelated business income tax (UBIT).

Amid what can best be described as disbelief from the nonprofit community, nonprofits complied with the law by filing Form 990-T to pay 21% tax, as well as corresponding state tax, on the total parking and metro benefits they paid to employees during 2018.  Many nonprofits have also paid federal and state quarterly estimated tax payments toward a 2019 tax liability that will now not be required.

Congress has retroactively repealed Section 512(a)(7) of the Tax Cuts and Jobs Act effective for amounts paid or incurred after 2017.  The repeal was included in the spending bill approved by Congress and signed by the President on December 20, 2019 to avoid a government shutdown.

What nonprofits should do:

  • Plan to file for a full refund. File an amended Form 990-T for 2018 to obtain a refund of the repealed tax.  Also file amended State returns.
  • Don’t forget any 2019 estimated tax payments you have made. Claim them on a timely filed 2019 990T to apply against any UBIT tax you have.  If parking tax was your only UBIT, you’ll be getting these payments refunded as well.
  • Skip your 2019 fourth quarter estimated payment if parking tax was your only UBIT.

We’re providing this late-breaking information to help you plan your 2019 tax payments and get your 2018 refund.    More details may emerge from the IRS on how to handle the many amended returns that will be filed.  Consult your tax advisor for ongoing details on how Congress’ repeal of the parking tax will apply to you and your specific facts and circumstances.

Find out more about Renner and Company’s nonprofit services.

© 2019 Renner and Company, CPA, P.C. All Rights Reserved.

Planning Ahead for 2018’s New Tax Law— what to expect

Renner Tax News, September 4, 2018

Planning Ahead for 2018’s New Tax Law— what to expect

John J. Renner, II, CPA, CFF, CGMA, Managing Shareholder, Renner and Company, CPA, P.C.

By now, you’ve heard a lot about the new tax law.  Will your 2018 taxes be lower, or will you owe more on April 15th?  As we approach the end of the year, it’s time to find out.

Here are some of the changes:

  • Tax rates have generally gone down. For example, Taxable income of $200,000 that used to be taxed at the rate of 28% will now be taxed at 24%.
  • No personal exemptions. No more questions about who qualifies to be your dependent, it doesn’t matter anymore.
  • The deduction for taxes is capped. Your deduction for state income taxes (or sales tax, if you choose that option) and real estate taxes can only total $10,000.  There’s no more deduction for car tax.
  • Charitable contributions are still deductible. The amount of charitable contributions that you can deduct is now limited to 60% of your adjusted gross income, for contributions to most types of charities.  This is an increase from the old charitable contribution limit of 50% of your adjusted gross income.
  • No more miscellaneous itemized deductions. These have been eliminated by the new law.  You can no longer deduct miscellaneous itemized deductions, including investment management fees, tax preparation fees, safety deposit box fees and employee business expenses.
  • No income-based reduction of itemized deductions. Under the old law, as your income went up, your total itemized deductions went down.  The new law does away with that.

How might the new law affect your 2018 return?

Itemizing vs. taking the standard deduction.  While itemized deductions may be going down, the new law increases the standard deduction to $12,000 for single taxpayers and $24,000 for married with adjustments for taxpayers over age 65.  As in the past, you can still deduct the greater of your allowable itemized deductions or the standard deduction.  If many of your old deductions are now limited or eliminated, you may be taking the standard deduction on your 2018 return.

Note that if you itemize deductions on your federal return, you must also itemize for Virginia.  The Virginia standard deduction is only $3,000 for single taxpayers and $6,000 for married.  If you use the standard deduction on your federal return, your Virginia taxes might come out higher.

How will Virginia handle the taxes deduction?  State income taxes are not deductible on your Virginia return, but they are part of your $10,000 taxes deduction on your federal return.  Virginia has not determined how real estate taxes and state income taxes will be allocated on the Virginia return.

It will really be necessary to calculate both the federal and the Virginia tax liability to determine whether itemizing your deductions or taking the standard deduction produces a lower tax liability overall.

You may be saying good bye to alternative minimum tax.  Some of the deductions that used to put you in an alternative minimum tax position are no longer deductible.  Now, your regular tax may not dip down below the alternative minimum amount any more.  In this area, the elimination of personal exemptions and miscellaneous itemized deductions and the capping of the deduction for taxes paid may not be all that bad.  If you were subject to alternative minimum tax in the past, you weren’t getting the benefit of these deductions anyway.

Kiddie tax rate will change.  The 2018 tax rate on the unearned income of children is no longer the parents’ tax rate.  Now it is the same as the tax rate used for trusts.  This may be higher or lower than the parents’ tax rate.

To find out how this all will affect your tax return, you have to run the numbers. 

With all these moving parts, there is no simple answer.  The only way to determine how these changes will affect your tax return is to project your 2018 taxable income using the new tax rules and new tax rates, and see if your withholding will be enough.  With this information, you’ll still have time to adjust your withholding and estimated payments and avoid a surprise cash crunch on April 15th.

Contact us to discuss your information in greater detail.

Read more tax news

©2018 Renner and Company, CPA, P.C.  All Rights Reserved.