- Jamee Mitchell EA
Updated: Apr 28, 2020
**** Update *****
On Friday, April 24th, congress approved additional funding for the Paycheck Protection Program. There is no telling how long this will last or when it will run out. If your business has W2 employees and has not yet applied, contact our office and we will be happy to help.
...get it while the getting is good folks!!!
**** Update ****
At midnight on April 15th, the SBA announced that they were,"unable to accept new EIDL COVID-19 and PPP applications at this time based on available appropriations funding."
...and just like that, the money was gone!!!
**** Original Post ****
We have had an overwhelming number of requests for information about the CARES Act and the assistance available to individuals and small businesses. To help get information out as quickly as possible, here is a brief summary of the relief measures we are currently aware of:
FOR SMALL BUSINESS OWNERS:
Disaster Loan Assistance:
Also called the Economic Injury Disaster Loan (EIDL), this SBA loan program provides small businesses with working capital loans from $10,000 up to $2 million to help cover losses related to COVID-19. Business owners can apply directly through the SBA at: https://covid19relief.sba.gov/#/ The loan may be partially forgivable if certain conditions are met. To apply, you’ll need your tax ID numbers along with the gross income and total expenses from the last 12 months and they will notify you by e-mail if you are approved.
Paycheck Protection Program:
These loans offer a line of credit of up to 2.5 times a company’s average monthly payroll, rent and utilities. Funds used for qualified expenses during the first eight weeks after loan is funded, can be forgiven. The remainder is rolled into a line of credit to be paid back over two years at 0.5% interest. Note that if you don’t have W2 employees, then you probably don’t qualify for this program. Business owners can apply for this loan through a bank or credit union. If your bank is not participating in the program, let us know and we can connect you with one who does.
Tax Free Disaster Assistance Payments to Employees:
The President’s national emergency declaration triggered tax code Section 139, which allows employers to make non-taxable payments to employees for reasonable and necessary expenses resulting from the corona-virus pandemic. Normally non-qualified payments are taxable, but this section, enacted after 9/11, overrides those principles and allows tax free payments for such things such as:
- Medical expenses including co-pays, deductibles, vitamins, and supplements
- Increased expenses associated with being quarantined at home
- Expenses associated with setting up or maintaining a home office
- Housing for additional family members, such as college students returning home
- Nonperishable food purchases/reserves
- Increased childcare expenses
- Expenses to enhance mental health and physical well-being
- Alternative means of commuting in lieu of mass transit
The expenses much be “reasonable and necessary” and cannot serve as a replacement for income. Otherwise, there are very few limitations; There is no dollar limit and no discrimination testing, which means that owners can participate as well.
Economic Stimulus Payments:
These are the $1,200 checks being sent to individual taxpayers. We’ve written extensively on these payments here. The IRS is hoping to issue payments by the end of the month, but it will more likely be May before most taxpayers start receiving them. The IRS has announced that they will be putting an app on their website within the coming weeks where you can update your bank account information for direct deposit. Watch for that at www.irs.gov
The second item meant to benefit individuals is the enhanced unemployment benefits. Unemployment is a state-run program and, in Utah, generally pays 60% of your average wage over the last 18 months. The Feds will be adding up to $600 per week to that amount, which means that for some taxpayers, they will actually make more on unemployment than they made while working. Keep in mind that these payments ARE taxable, and we recommend that recipients elect to withhold tax from their benefits.
Access to Retirement Funds:
The CARES Act, allows you to withdraw up to $100,000 from a retirement account (IRA, 401(k), etc.) for those under 59½ without paying a 10% penalty. There would still be income tax due however, you will have up to three years to either repay the money, or pay the tax. This is an option that should be exercised with EXTREME CAUTION especially if your retirement account has gone down in value. Facts and circumstances are different for everybody so it would be well worth a consultation before making the decision to do this!
A down market is the perfect time to convert part of your Traditional IRA to a ROTH. You’ll pay tax on the conversion, but future gains will be tax free!!! Just be mindful of the tax brackets and try not to make yourself ineligible for a future stimulus payment. For example, if you are $20,000 away from the next tax bracket, and have a stock in your IRA that was worth $30,000, but is now worth only $15,000, you could transfer those shares into a ROTH. You would owe tax now on the $15,000, but all future gains would be tax free! The bear market won’t last forever which makes it a great time to do some tax-loss selling and, if you’re not already in the market, it’s a great time to buy. Since there is nothing we can do about it, the least we can do is profit from it!
Federally backed mortgages, such as FHA and VA loans, qualify for evection protection and foreclosure relief. The difficulty is that, unless you actually have the Coronavirus, the delinquency will likely affect your credit score and make future refinances difficult. Also, the delinquent payments are not forgiven, but added back onto the loan.
Federal Student Loans:
All Federally backed student loans will receive an automatic reduction of interest rate to 0% for 60 days. They are also offering the option to suspend payments for 2 months. Contact your lender to see if you qualify for this program.
Both state and Federal statutes are prohibiting utility companies from disconnecting service for at least 60 days. Again, there is no forgiveness and the missed payments WILL have to be made up once the disaster is over.
Civil Collections Suspended:
Private Debt Collections agencies are temporarily prohibited from contacting debtors.
Chapter 13 Payment Modification:
Monthly bankruptcy payments can be modified for certain debtors. You must be directly affected by the virus to qualify and should work with your attorney to apply for this benefit.
Price Gouging Protections:
All states have restrictions in place to prevent price gouging, making it a potential felony for anyone found guilty.
Details about these programs are constantly emerging, so we will update this page as information becomes available.
We know this is a difficult time and hope that these benefits bring a small measure of relief. Remember that the April 15th tax deadline is extended to July 15th so, keep in touch and we’ll be here for you when this is all over. Till then, stay safe, stay sane and don’t forget to wash those hands!!!