COVID-19 and Tax Changes

Updated 4/3/20

For the past few weeks, the world around us and our economy have been rapidly changing due to the COVID-19 pandemic. In reaction, the federal and state governments have instituted new programs and tax changes impacting both individuals and business entities. The changes being made by both federal and state governments are rapidly evolving in response to ever-changing conditions. Below are links to some of the latest information.

As always, the Partners and staff of ASL are here to support our clients and answer any questions or concerns. In this new virtual environment, our employees are working remotely to continue to serve our clients as usual.


Business Loan Modifications

CA Economic Relief

CA Employees, Employer Payroll Tax Filings and Payments

CA Housing

CA Sales Tax

CA ‘Shelter in Place’ Order & Essential Services

CA Tax Filing Date & Payments

CARES Act

Employer Aid to Employees

Federal Tax Filing Date & Payments

Financial Statement Impact

Home Owners

IRS Collection and Enforcement Relief

Mandatory Paid Sick Leave and Family Leave

Nonprofits – Provisions and Relief

Paycheck Protection Program

Rental Property Owners

SBA Loans

San Jose and San Francisco Economic Relief

Silicon Valley Coronavirus Relief Fund

Santa Clara County Property Tax Payments Must be Paid April 10th

State Tax Filing Guidance


Federal

Economic Relief

On March 27, 2020, the President signed into law, a $2.2 trillion stimulus package (CARES Act) to help both individuals and businesses offset the economic impacts of the virus:

Small Business Loans

Paycheck Protection Program (PPP) – Designed to provide a direct incentive for small businesses to keep their workers on payroll by providing each small business a loan up to $10 million for payroll and certain other expenses. If all employees are kept on payroll for eight weeks, SBA will forgive the portion of the loans used for payroll, rent, mortgage interest, or utilities. Up to 100% of the loan is forgivable, but at least 75% of the amount must be used for payroll.

Economic Injury Disaster Loans (EIDL) – The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million at 3.75% (2.75% for nonprofits) to help businesses (and nonprofits) during this economic crisis. Funds can be used to cover current expenses. The loans offer a 1-year deferral on payments and have a maximum 30-year term.

Economic Injury Disaster Loan Advance – Small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000. The loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid.

View a comparison chart of the PPP and EIDL: SBA Relief Programs

SBA Express Bridge Loans – Enables small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 quickly. These loans can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing and can be a term loans or used to bridge the gap while applying for a direct SBA Economic Injury Disaster loan. If a small business has an urgent need for cash while waiting for decision and disbursement on an Economic Injury Disaster Loan, they may qualify for an SBA Express Disaster Bridge Loan.

SBA Debt Relief

  • The SBA will automatically pay the principal, interest, and fees of current 7(a), 504, and microloans for a period of six months
  • The SBA will also automatically pay the principal, interest, and fees of new 7(a), 504, and microloans issued prior to September 27, 2020

For current SBA Serviced Disaster (Home and Business) Loans in “regular servicing” status on March 1, 2020, the SBA is providing automatic deferments through December 31, 2020.

Additional Small Business Relief Options Information: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options


Provisions and Relief for Nonprofits

The CARES Act does not forget about the immediate needs and relief for nonprofit organizations. The Act includes several provisions that are unique to the nonprofit industry including loans at reduced interest rates and tax benefits to donors. These provisions are summarized in the link below, together with the other issues of interest to the nonprofit sector.


Tax Filing Date Moved to July

On March 20, 2020, Treasury Secretary Mnuchin announced that the filing due date for returns normally due on April 15th will be moved to July 15th. Later that day the IRS issued formal guidance with Notice 2020-18. Income tax returns are now due July 15th with no need to file an extension request or pay any tax owed for 2019. The new filing date applies to individuals, corporations, trusts, estates, and partnerships.

Aside from income taxes, other tax related payments that are normally due April 15th, such as funding an Individual Retirement Account or a Health Savings Account, can now be deferred until July 15, 2020 and still deducted on your 2019 tax returns.

Deferred Tax Payments

On March 18, 2020, the Internal Revenue Service released Notice 2020-17 (https://www.irs.gov/pub/irs-drop/n-20-17.pdf) granting a 3 month deferral for 2019 and 2020 tax year payments normally due April 15th. Payments for 2019 tax liabilities and estimate #1 for 2020 can be paid on or before July 15, 2020 with no interest or penalty charges. Notice 2020-18 referred to above revoked the ceiling amount on deferrable tax imposed by Notice 2020-17 so currently, there is no limitation on the amount of income tax that can be deferred.

The IRS estimates this tax delay will keep over $300 billion in the economy.

Other taxes that are due April 15th, such as gift tax, excise tax, and payroll tax cannot be deferred under current IRS guidance.


Mandatory Paid Sick Leave and Family Leave

UPDATE 4/3/20: The IRS has released Form 7200 to claim advance payment of tax credits discussed below.

On March 18, 2020, the President signed H.R. 6201 to provide health benefits and mandatory paid time off to care for an employee’s health needs or a family member’s. Employee compensation would be completely paid by an employer tax credit. The paid leave provisions are effective on April 1, 2020, and apply to leave taken between April 1, 2020, and December 31, 2020. Among the significant provisions are:

  • Increased government funding for unemployment benefits and food assistance
  • Requires health plans to provide free COVID-19 testing
  • Creates new mandatory Emergency Sick Leave and Family/Medical Leave programs through Dec. 31, 2020
    • Employers with less than 500 employees must provide:
      • Eighty hours of paid Sick Leave at 100% of an employee’s pay (capped at $511 per day) when the employee cannot work (or telework) because of quarantine or self-quarantine or experiencing COVID-19 symptoms.
      • Eighty hours of paid Sick Leave at 2/3 regular pay (capped at $200 per day) to care for an individual subject to quarantine, self-quarantine or experiencing COVID-19 symptoms, or care for a child whose school is closed or daycare provider is unavailable.
      • Fifty (50) days of paid Family Leave at 2/3 regular pay (capped at $200 per day) to care for a child whose school is closed or daycare provider is unavailable.
    • Guidance issued by the Department of Labor indicates, to qualify, employees must be employed on April 1, 2020 or later and their employer must have work available that they are prevented from performing (at the normal worksite or virtually) due to one of the qualifying reasons discussed above.
    • Employers of fewer than 50 employees can opt-out of providing Family Leave for child care if it would “prevent the business from continuing as a going concern”. Additional guidance is expected soon.
    • Employers can receive a refundable tax credit up to the daily amounts paid to employees ($511 or $200). Operational guidance is expected soon.
    • Employers can use their payroll tax deposits to fund the benefits in lieu of making the deposit with the IRS. Any shortfall will be covered by a refundable credit. Both employee trust fund amounts and employer payroll taxes can be used to fund these new employee benefit payments.
    • Payments to employees would not be subject to employer payroll taxes but will be treated as compensation to the employee.
    • Employers cannot modify or reduce existing sick leave or PTO policies because of these additional benefits.
    • A tax credit is available to self-employed individuals who are in the same circumstances as employees discussed above.

Employer Aid to Employees

Employers looking to assist their employees are able to provide tax-free assistance while still generating a tax deduction. Employers can make tax-free payments to employees, to reimburse for, or pay reasonable and necessary personal, family, or living expenses incurred as a result of a qualifying disaster. Amounts paid cannot be made as income replacement payments. Qualified disaster relief payments can allow employees to receive tax-free income while payments are still deductible expenses of the employer. Eligible expenses can include: medication, medical expenses, hand sanitizer, child care, and home office expenses.

If you are experiencing a reduction in your work force it may be possible to structure a portion of a severance package as a qualified disaster relief payment so employees will receive tax-free income and you can minimize employer payroll taxes.


Business Loan Modifications

On March 22, 2020, the federal financial institution regulatory agencies and the state banking regulators issued a joint statement providing some relief for borrowers by easing restrictions one might normally face when seeking loan modifications. Borrowers should reach out to their institutions as soon as possible as loans must be current and not in default to qualify for this benefit.


Home Owners

Mortgage lenders are offering mortgage relief options if COVID-19 has impacted your ability to make your monthly mortgage payment.


Rental Property Owners

On March 23, 2020, The Federal Housing Finance Agency announced Fannie Mae and Freddie Mac will offer multifamily property owners mortgage forbearance with the condition that they suspend all evictions for renters unable to pay rent due to the impact of COVID-19.


IRS Collection and Enforcement Relief

IRS has announced a “taxpayer relief” program for taxpayers with installment agreements or pending collection action


California

Tax Filing & Payments

The Franchise Tax Board announced that it will be complying with the federal three-month deferral so individual, corporate and LLC tax payments due April 15, 2020 can be delayed until July 15, 2020 without penalty or interest charges. In addition, 2020 estimated tax payments normally due April 15th and June 15th can be delayed as well. The tax return filing date has also been moved to July 15, 2020 so the filing of an extension is not required to obtain this payment relief.


Housing

Executive order from the Governor delaying evictions and foreclosures.

Various cities have enacted legislation based on this order.

On March 25, 2020 the Governor announced more than 200 banks including, Wells Fargo, Citibank, JPMorgan Chase and US Bank, have agreed to a 90-day grace period for mortgage payments in CA.


Employees, Employer Payroll Tax Filings and Payments

Impacted employees can qualify for disability or unemployment.

Employers can participate in work-share program so employees with reduced wages can receive partial unemployment benefits.

Employers can apply for 60-day deferral of payroll tax deposits.


‘Shelter in Place’ Order

Effective Thursday, March 19, 2020, the Governor instituted a “shelter-in-place” order for all individuals living in the State of California, restricting “non-essential businesses” from opening and limiting “non-essential” travel.

Essential Services

The Governor’s statewide order allows specific “Essential Services” to continue to operate. To determine if your business is an “essential service” check the Governor’s list:

On March 31, 2020, Bay Area Health Officers issued an updated ‘stay-at-home’ order with new social distancing protocols for essential services:


Sales Tax

On March 30, 2020 Governor Newsom issued an executive order allowing the California Department of Tax and Fee Administration (CDTFA) to offer a 90-day extension for tax returns and tax payments for all businesses filing a return for less than $1 million in taxes. That means small businesses will have until the end of July to file their first-quarter returns.

Previously, the California Department of Tax and Fee Administration has been given authority to grant extensions for filing of returns and payment of sales taxes.


Economic Relief

OnwardCA – the one-stop resource for the people of California impacted by job loss during the COVID-19 Pandemic:


Local – San Jose & San Francisco Economic Relief

On April 1, 2020, an emergency paid sick leave ordinance was unanimously approved by the San Jose City Council. A final draft of the ordinance is expected to be presented and receive final approval at the April 7, 2020, City Council meeting. We will provide additional details as they become available.

The City of San Jose has compiled a list of funding sources available to small businesses ranging from disaster loans discussed above to grants to low interest commercial loans.

The Mayor of San Jose announced the launch of a website to be a central clearinghouse for the community’s response to the economic changes caused by the pandemic.

The city’s Office of Economic Development has set up an email for businesses related information and support:

San Francisco has established the COVID-19 Small Business Resiliency Fund offering emergency grants of up to $10,000 for qualified businesses.


Local – Silicon Valley Relief Fund

The Santa Clara County Homeless Prevention System launched an $11 million relief fund to assist residents with rent and other basic needs.

Unfortunately, the program has reached maximum capacity based on available funds. Residents can add their name to the ‘Interest List’ and if additional funding becomes available, eligible households on the Interest List will be contacted with information on how they can complete an application:


Local – Santa Clara County Property Tax Deadline

The Santa Clara County Property Tax deadline remains the same, April 10th. Partial payments will be accepted. Taxpayers not paying the full amount by the due date can submit a request for the abatement of penalties. In addition, in-person payments are temporarily unavailable; you can make payments online, via the mobile app or USPS mail.


Other States

Other states have enacted various measures to delay tax filing and payments beyond April 15th.

 

Please contact us here at ASL if you have any questions or concerns.