Will I receive cash from the government? If so, when?
Single individuals with 2019 (2018, if your 2019 return hasn’t been filed yet) Adjusted Gross Income (AGI) up to $75,000 ($112,500 if you file as “head of household”) will generally receive a $1,200 rebate from the IRS. Joint filers with AGI up to $150,000 will receive a rebate of $2,400. An additional $500 rebate is available for each qualifying child under age 17. If your income is too high, the rebate will be reduced by $5 for each $100 your AGI exceeds the threshold. So, for a typical family of four, the amount is completely phased out once AGI exceeds $218,000.
The IRS has indicated that funds could be direct deposited into bank accounts (based on account information provided on your 2018 or 2019 return) toward the end of April. If the government doesn’t have your account information, you can provide it via a web-based portal currently being developed by the IRS.
Will I have to pay the money back?
What if I don’t need (or want) the money?
Consider donating it to charity. If you itemize deductions, recent legislation increases the limit on deductions for cash contributions made to public charities in 2020 from 60% to 100% of AGI. If you don’t itemize, a new above-the-line deduction of up to $300 is available for cash contributions made to public charities in 2020.
Another option is to contribute the rebate funds to a traditional or Roth IRA. For 2019, you now have until 7/15/20 to make that contribution. If you have any questions on how to do that, please let us know.
I’m struggling financially due to COVID-19. Should I withdraw funds from my retirement account?
This should be your last resort. If you can cut back on expenses, strike deals with creditors, and/or take out personal loans, you might be better off in the long run. Withdrawing retirement funds now means you will miss out on future market recovery.
However, if you have no other option, up to $100,000 in retirement distributions can be made tax-free if (1) you (or your spouse or dependent) have been diagnosed with COVID-19 or (2) you have experienced adverse financial consequences as a result of the virus. The catch is you must return the funds to a retirement account within three years for the distribution to be tax-free. Some retirement plans also offer the option to take a loan from your account balance. We can work with you to see if this option is best for you.
My business is struggling. Is there a way to increase cash flow?
Yes. Due to recent legislation, businesses can now carry back losses to the prior five tax years. Also, the rules surrounding deductibility of business interest expense and qualified improvement property costs have been relaxed. This may provide an opportunity for us to amend your prior-year returns to secure a refund. This will be particularly beneficial if you were previously in a higher tax bracket. We will review your past returns and identify any refund opportunities.
I’ve been hearing a lot about small business loans. Do I qualify for one?
Potentially. Under the Paycheck Protection Program (PPP), eligible small businesses can receive 100% federally guaranteed loans that may be forgiven if payroll is maintained during the COVID-19 crisis (or restored afterward). Amounts that aren’t forgiven will be subject to a maximum 10-year term with an interest rate not to exceed 4%. (According to interim final rules by the SBA, the maturity date is two years, and the interest rate is 1%.) Payments under the loan may be deferred for at least six months, but no longer than one year. Loans can be up to 2½ times your average monthly payroll costs, up to a maximum of
You may qualify for a PPP loan if you are (1) a business with fewer than 500 employees; (2) a business that otherwise meets the SBA’s size standard; or (3) an individual who operates as a sole proprietor or an independent contractor, or who is self-employed and regularly carries on any trade or business.
Another option is an Economic Injury Disaster Loan (EIDL), which provides small businesses with working capital loans of up to $2 million to help overcome the temporary loss of revenue. The interest rate for an EIDL is 3.75%, and the maximum term is 30 years. Thanks to new legislation, small businesses can apply for an advance up to $10,000, which doesn’t have to be repaid.
There are other factors to consider before applying for a small business loan. Please let us know if you’re interested in pursuing this option, and we will walk you through the process.
Do I really have to provide family and sick leave to employees?
Yes, if you have fewer than 500 employees. Recent legislation requires you to provide (1) paid sick leave and (2) expanded family and medical leave to employees from 4/1/20 through 12/31/20 when they’re unable to work (or telework) due to a qualifying reason. Here’s what’s required under the new law:
|Qualifying reason||Paid Leave Entitlement||Maximum Pay|
|Employee is subject to federal, state, or local quarantine or isolation order related to COVID-19.||Up to two weeks of sick leave, paid at 100% of the regular rate of pay (or applicable minimum wage, if higher).||$511 per day; $5,110 total.|
|Employee has been advised by a health care provider to self-quarantine due to COVID-19.||Up to two weeks of sick leave, paid at 100% of the regular rate of pay (or applicable minimum wage, if higher).||$511 per day; $5,110 total.|
|Employee is experiencing COVID-19 symptoms and is seeking a medical diagnosis.||UP to two weeks of sick leave, paid at 100% of the regular rate of pay (or applicable minimum wage, if higher).||$511 per day; $5,110 total.|
|Employee is caring for an individual who (1) is subject to a quarantine or isolation or (2) has been advised by a health care provider to self-quarantine.||UP to two weeks of sick leave paid at 2/3 of the regular rate of pay (or 2/3 of the applicable minimum wage, if higher).||$200 per day; $2,000 total.|
|Employee is caring for a child whose school or place of care is closed (or child care provider is unavailable) due to coronavirus-related reasons.||UP to 12 weeks of paid sick leave and expanded family and medical leave, paid at 2/3 of the regular rate of pay (or 2/3 of the applicable minimum wage, if higher).||$200 per day; $12,000 total.|
|Employee is experiencing any other substantially similar condition specified by the U.S. Department of Health and Human Services.||Up to two weeks of sick leave, paid 2/3 of the regular rate of pay (or 2/3 of the applicable minimum wage, if higher).||$200 per day; $2,000 total.|
What if I don’t have enough money to pay family and sick leave?
Eligible employers can take a refundable payroll tax credit equal to the required paid leave. If you’re low on cash, retain and access the funds you would otherwise pay to the IRS in payroll taxes. If those funds aren’t sufficient to cover the cost of paid leave, we can help you get an expedited advance from the IRS.
Are there other things I can do to help my employees?
Yes. Since the COVID-19 pandemic was declared an emergency by President Trump, you can make qualified disaster relief payments to your employees. These payments are tax-free to employees, while generating a tax deduction for you. Amounts must be for reasonable and necessary personal, family, living, or funeral expenses incurred as a result of the coronavirus. These could include childcare expenses resulting from school closures and costs incurred to enable an employee to work from home. However, qualified sick leave wages and qualified family leave wages aren’t considered qualified disaster relief payments.
I need to cut my labor costs. Should I furlough employees or lay them off?
If you don’t want to lay off employees, but don’t have the funds to pay them, a furlough can be a good option. A furlough is a mandatory or voluntary suspension from work without pay for a particular period of time (usually less than six months). In most states, furloughed workers are still considered employees and therefore don’t receive a “final” paycheck. Also, furloughs generally don’t trigger mass layoff notifications under the federal WARN Act. Finally, furloughed employees are generally eligible for unemployment benefits. Laws vary by state, so make sure you check with legal counsel before making a decision.
Will COVID-19 affect my financial statements?
Most likely. Other than potential revenue loss, you will need to account for the effect of recent legislation on any deferred tax assets and liabilities, as well as current taxes payable. Also, COVID-19 may trigger an impairment test for long-lived assets (or asset groups). If you have depreciable assets that become idle due to the pandemic, you will still need to reflect depreciation for those assets in your books (unless a method change is made).
I don’t think I can fulfill a contractual obligation due to COVID-19. Do I have any options?
Possibly. You will need to see if your contract has a force majeure clause. Force majeure (sometimes known as an “act of God”) comes into play when an unexpected event prevents you from fulfilling a contractual obligation. If valid, force majeure will excuse you from the contract.
Historically, parties have relied on force majeure in cases of natural disasters. Many would argue that the COVID-19 pandemic is akin to a natural disaster. Since this issue can get complicated, you will need to consult with legal counsel to see if force majeure can relieve you from a contractual obligation.
Should I be concerned about cybersecurity?
Yes. Cybercriminals are using the COVID-19 pandemic to take advantage of taxpayers. They claim you’ll get your stimulus check faster (or get a larger check) if you share personal information or pay a processing fee. Cybercriminals also promise coronavirus-related grants or loans from the government in exchange for personal information. Don’t fall for these—they are scams. If you think you’ve been a victim of a COVID-19 scam, immediately contact law enforcement.We know that’s a lot of information, and other questions are bound to arise. Just know that we are here to help in any way possible. If you have any questions, or would like to discuss any of these issues in more detail, please don’t hesitate to reach out.