COVID-19 BUSINESSES UPDATES

Tax Filing and Payment Deadlines

Federal:

  • The IRS extended the April 15, 2020 filing and federal income tax payment deadline to July 15, 2020. However, we continue to work on filing returns as soon as possible.

 

  • First quarter estimated tax payments usually due April 15, 2020 are now extended to July 15, 2020.

 

  • These extensions are automatic and do not require a form to be filed.  Filing an extension form will extend the due date to the usual extended due date.

 

States:

  • Each state is approaching this crisis differently. The best source of information for a specific state is that state’s website.  The AICPA has a helpful resource that continues to be updated.

 

Washington State and Local Business Taxes:

  • The Department of Revenue (DOR) is providing extensions for tax return payments.  Businesses request an extension for paying tax returns (even if the request is after the due date) by sending a secure email in your My DOR account or by calling Revenue’s customer service at 360-705-6705.  The DOR requests that businesses still file their tax returns even if no payment is made.

 

  • Local filings: Most local filings are extending payments.  Some are also extending the filing.  For example, Seattle is offering relief to small businesses by extending the B&O tax filing and payment deadline until later this year.  Taxpayers do not need to contact Seattle or apply for this extension.  Other cities may have different policies.

 

Paid Family Leave

Employers of less than 500 employees are required to provide mandatory sick time and paid family leave between April 1, 2020 and December 31, 2020. Some employers with under 50 employees can be exempt.  The leave is available for up to 2 weeks of sick time and up to 10 weeks of paid family leave.  The employee is entitled to the leave before any other paid-time off or sick leave the employee is currently entitled to.

 

Employers receive payroll tax credits to cover the cost of the mandated leave.  Certain self-employed individuals also qualify for the credits.   Current Treasury guidance instructs the business to not deposit payroll taxes in the amount of the required paid sick leave payments.  The credit can be refunded in advance using forms and instructions the IRS will provide.

 

Qualifying Leave:

The 2-week paid sick leave is paid at 100% of their normal earnings, with limits, and must be provided when the employee is unable to work or telework for any of the following:

  • The employee is subject to a government isolation order related to COVID-19.

 

  • The employee has been advised by a health-care professional to self-quarantine due to concerns related to COVID-19.

 

  • The employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis.

 

The 10-week paid sick leave is paid at 2/3rds of their normal earnings, with limits, and must be provided when the employee is unable to work or telework for any of the following:

  • The employee is caring for someone who is subject to a government isolation order related to COVID-19, or has been advised by a health-care professional to self-quarantine due to concerns related to COVID-19.

 

  • The employee is caring for their son or daughter if the school of that son or daughter has been closed, or the child-care provider of the son or daughter is unavailable due to COVID-19 concerns.

 

  • The employee is experiencing another substantially similar condition as specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

 

There are limits on the amounts of paid leave and certain employers are excluded (such as employers of health care providers or emergency responders).

 

 

Payroll Incentives

Paycheck Protection Program (PPP):

This program provides Small Business Association (SBA) loans to eligible small businesses.  This program is designed to help provide capital to cover the cost of retaining employees.  The loan can be forgiven if the employer maintains its payroll based on employee retention and salary levels. 

 

Small businesses and certain non-profits with less than 500 employees (including sole proprietorships, independent contractors and self-employed persons), may be eligible if they were harmed by COVID-19 between February 15, 2020 and June 30, 2020.  Loans are available through June 30, 2020 on a first come, first serve basis.  Banks are allowed to start taking applications on April 3rd for certain businesses.  We advise interested businesses to contact their bank sooner than later if they are interested in pursuing the program.

 

Businesses that participate in the PPP are not eligible for certain other COVID-19 relief provisions.  This includes, but may not be limited to:

  • Employee Retention Credit

  • Delayed Payment of Payroll Taxes

 

Employee Retention Credit: 

Eligible employers are allowed a credit against employment taxes equal to 50% of qualified wages (up to $10,000) for each employee.  This credit is available through December 31, 2020.

 

The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order.  The credit is also available to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.

 

Wages of all employees are eligible for this credit for businesses with 100 or fewer full-time employees.  For employers with more than 100 employees, wages eligible for the credit are wages the employer pays to employees who are not providing services due to the suspension of the business or a drop in gross receipts. 

Note:   This credit is not available to employers receiving assistance through the Paycheck Protection Program.

 

Payroll Tax Delay: 

Employers (including self-employed individuals) are able to postpone the employer’s share of Social Security taxes (6.2%) through the end of this year.  The delayed payments are due in two equal payments, one due Dec. 31, 2021 and the second due Dec. 31, 2022.

Note:   Deferral is not available to employers receiving assistance through the Payroll Protection Program

 

 

Other Business Provisions

Economic Injury Disaster Loans & Emergency Economic Injury Grants:

Small businesses are eligible to apply for an Economic Injury Disaster Loan grant of up to $10,000.  Funds should be made available within three days of a successful application, and this grant will not need to be repaid.

 

Economic Injury Disaster Loans are lower interest loans of up to $2 million, with principal and interest deferment at the SBA’s discretion.  These are available to pay for expenses that could have been met if the disaster had not occurred, including payroll and other operating expenses.

 

Small Business Debt Relief Program:

This program provides relief to small businesses with non-disaster SBA loans, such as 7(a), 504, and microloans.  The SBA will cover all loan payments on these SBA loans, including principal, interest, and fees, for sixth months.  This relief will also be available to new borrowers who take out loans within six months of the President signing the law.

 

Net Operating Losses: 

Unfortunately, many businesses are facing losses due to the economic impacts from the pandemic. The CARES Act relaxes the limitations added by the Tax Cuts and Jobs Act for a company’s use of losses. 

 

For losses arising in tax years 2018, 2019 and 2020, a five-year carryback is now allowed to help businesses recover some of their prior taxes.  The 80% income limitation for net operating loss deductions is also temporarily repealed during these periods.  This change also applies to pass-through businesses and sole-proprietorships.

 

The Treasury is allowing businesses to file an application for a tentative refund and forgo filing an amended return during the next couple of months.  This significantly speeds up the refund claim and can get the cash back to the business faster.

 

Excess Loss Limitations:

The CARES Act removes a limitation on the deduction of losses imposed by the 2017 tax law changes through 2020.  The Tax Cuts and Jobs Act added a limitation on the losses noncorporate taxpayers can deduct.  It disallowed excess business losses of these taxpayers if the amount of the loss exceeds $250,000 ($500,000 for married taxpayers filing jointly).  This limitation is now repealed for tax years beginning before January 1, 2021.

 

Interest Limitation:

The 2017 tax law changes added a limitation on how much interest certain businesses can deduct to 30% of the business’ adjusted taxable income.  For 2019 and 2020, businesses subject to the limitation can use a higher percentage as their income threshold (50% instead of 30%) and can elect to calculate the limit using 2019 income instead of the current year.

 

Pension Funding Delay:

The CARES Act gives single employer pension plan companies more time to meet their funding obligations by delaying the due date for any contribution otherwise due during 2020 until January 1, 2021. At that time, contributions due earlier will be due with interest. Also, a plan can treat its status for benefit restrictions as of December 31, 2019 as applying throughout 2020.

 

Qualified Improvement Property:

The 2017 Tax Law was written very quickly and there were multiple drafting errors that left the law enacted differently than Congress intended.  One of the most notable was a provision related to Qualified Improvement Property.  The CARES Act fixes this drafting error.

 

Qualified Improvement Property is generally a wide variety of interior, non-load-bearing improvements to nonresidential real estate.  The 2017 Tax Law required these improvements be depreciated over a period of 39 years.  The CARES Act changes the life to 15 years, which makes it eligible for 100% bonus.  The result is that Qualified Improvement Property can now be fully expensed in the year it is placed in service.

 

Protecting Our Clients and Staff

There are limitations on our physical work environment due to COVID-19; however, we’re working to minimize disruptions and impacts to you so that we can still offer the same level of superior service and support you have come to expect from our team.

 

We have implemented procedures to protect the health and safety of our staff, clients and community.  This includes doing all client meetings remotely.  Our staff are primarily working remotely and we are restricting access to our office to essential staff.  We strongly encourage the use of the secure online portal during this time.

 

Our Commitment to You

Our firm remains open and available to serve you.  Whether you have tax or financial planning questions or need advice on ways to navigate the expanded benefits outlined above, we’re here for you. If you have any questions or concerns, please don’t hesitate to contact us at 206-628-4991.

 

It’s more important than ever to stay connected during this unpredictable and challenging time. We’re in this together and our thoughts go out to all who have been impacted by this unprecedented situation.

 

Luby & Thomson, PLLC

11911 Northeast 1st Street

Suite 304

Bellevue, Washington  98005

(206) 628-4991

Brittany@lubyandthomson.com