March 25, 2020
HSC COVID-19 Fast Response Team
We are here to help!
In these uncertain times with multimedia channels reporting conflicting and sometimes incorrect information, our firm is working to add clarity to this situation by providing new and verified information as it becomes available to us. We have also set up a Coronavirus Resource Center on our website for ongoing information.
In addition, we have created the HSC COVID-19 Fast Response Team to serve our clients in addressing the difficult decisions they are being faced with on a daily basis. This dedicated multi-disciplinary team consists of our tax, payroll, HR, capital markets and accounting professionals.
If you have questions or would like to speak with this team please contact your HSC team member or Kyle Wininger, CPA, CICA, CVA, CFE at email@example.com.
Families First Coronavirus Response Act - UPDATED
March 19, 2020 (Original Memo Date)
Revised March 25, 2020 (Revisions/Additions from Original Memo in Red)
Families First Coronavirus Response Act - Guidance Related to Required Paid Sick Leave, Extended FMLA Requirements and Payroll Tax Credits Designed to Fund These Required Payments
Please note that the items discussed in this memo should be discussed with legal counsel. We are attempting to provide a summary of the rules based on our understanding of them but we are not a law firm and we cannot provide legal advice.
Also, please note that the Department of Labor, at the time of this writing, has issued limited guidance on this act and we have incorporated that guidance into this memo. Additional guidance from the DOL will be critical in fully understanding the act in more detail.
The provisions discussed below become effective April
1, 2020 and extend through the end of 2020. These rules apply to employers with fewer than 500 employees.
This is not retroactive and the paid leave and payroll tax credits discussed in this memo cannot be taken until April 1, 2020. April 1st is a new date that was clarified by the DOL. It is also our current understanding that this act and the related credits are only available for paid leave for time paid starting April 1st or after and is not based on the pay date but is based on the date the time was taken off and paid. The check date does not appear to be the relevant date to focus on but the date that the leave is taken and paid for under this act. Example: If someone is off on March 29th March 30th and March 31st and the employer chooses to pay them for that time and that payroll is paid on April 2nd, that time from March 29th through March 31st is not eligible for this act and no payroll credits would be applied to it and those amounts paid would be taxed like normal paid leave.
Based on current materials available, we have created this guidance to help you understand these rules. This may be modified at a future time as more information becomes available. The Families First Coronavirus Response Act recently signed into law by President Trump is designed to do two primary things...
to read more and to obtain some helpful flowcharts regarding the Act.
CARES Act Passes Senate
Tentative SBA Loan Program Changes
On March 25, 2020, the US Senate passed the Coronavirus Aid, Relief, and Economic Security Act in the Senate (the "CARES Act"), that should it become law, would increase the maximum Small Business Administration's 7(a) loan amount to $10 million and would expand allowable uses of 7(a) loans to include payroll support (including paid sick or medical leave), employee salaries, mortgage payments, insurance premiums and any other debt obligations.
SBA 7(a) Relief Loans under the Cares Act versus 7(b) SBA economic injury disaster loan (EIDL) loan program. It is important to note that this portion of the CARES Act is not the same as the 7(b) SBA economic injury disaster loan (EIDL) loan program that is already available on the SBA website, nor may it be used for the same purpose. Interested borrowers should evaluate both programs and choose accordingly
Under the current draft of the Cares Act, the SBA is authorized to guarantee up to $349 billion in 7(a) loans to businesses with not more than 500 employees or the applicable size standard established by the SBA for the industry in which the business operates, if greater. The loan period for this program would begin on February 15, 2020, and end on December 31, 2020.
Eligibility evaluations are to be limited to whether a business or certain non-profits was:
- Operational on February 15, 2020, and
- had employees for whom the borrower paid salaries and payroll taxes, or paid independent contractors, and
- is substantially impacted by public health restrictions related to COVID-19. (Eligible borrowers would be required to make good faith certification that they have been affected by COVID-19 and will use funds to retain workers and maintain payroll and other debt obligations.) There is no requirement to evaluate the borrowers' ability to repay the covered loan or that the borrower not be able to find credit elsewhere, unlike the normal 7(a) requirements.
Loan Amount and Purpose. Eligible borrowers will be allowed to borrow up to the lesser of (i) $10 million or (ii) the business's average total monthly payroll costs during the one-year period prior to the loan being made multiplied by 2.5. Payroll costs include salaries, wages, tips, payments for sick leave, insurance premiums and state and local taxes assessed on the compensation of employees, but does not include compensation of individual employees in excess of annual salary of $100,000, as prorated for the relevant period. The loan proceeds may be used to cover payroll costs, mortgage, rent and utility payments, and interest on other debt obligations incurred prior to February 15, 2020.
- Collateral and personal guarantee requirements would be waived during the covered period.
- Waives affiliation rules for businesses in the hospitality and restaurant industries
- Government guarantees to the lenders of 7(a) loans are to be increased to 100% through December 31, 2020. After that date, guarantee percentages would return to 75% for loans exceeding $150,000 and 85% for loans equal to or less than $150,000.
- A complete deferment of 7(a) loan payments would be allowed for not more than one year and would require SBA to disseminate guidance on the deferment process within 30 days.
- Both borrower and lender fees for 7(a) loans would be waived.
Loan Forgiveness. Borrowers will be eligible to apply for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the loan closing date on payroll costs, interest on mortgages, payments of rent, and utility payments, in each case that were in place before February 15, 2020. Principal payments of mortgage payments will not be eligible for forgiveness. The amount forgiven is reduced proportionally by any reduction in employees retained compared to the previous year and by the reduction in pay of any employee beyond 25 percent of the prior year's compensation; however, reductions in pay for employees who have an annualized salary of more than $100,000 are not considered in this calculation.
Importantly, borrowers which re-hire workers previously laid off from February 15 through April 1, 2020 shall not have those numbers counted against them during such period for loan forgiveness purposes, so long as they are rehired by June 30, 2020. Cancelled indebtedness shall not be included in the borrower's taxable income for this year, and upon a lender's report of expected loan forgiveness for a covered loan or pool of covered loans, the SBA will purchase such amount of the loan from the lender.
The amount forgiven would be reduced in proportion to any reduction in employees retained compared to the prior year and to the reduction in pay of any employee beyond 25% of her prior year compensation. Borrowers that rehire workers previously laid off will not be penalized for having reduced payroll at the beginning of the period.
How Does the IRS Tax Return Filing and Payment Delay Impact Exempt Organizations?
On March 20th, the IRS issued Notice 2020-18 which extended the filed date and payment date for all federal income taxes and income tax returns to July 15th. However, the filing due dates for exempt organizations required to file 990 series information returns have not changed. The original due date for Forms 990, 990-EZ, and 990-PF for calendar year taxpayers remains May 15, 2020.
Exempt organizations needing more time to complete their returns must file an extension to avoid penalties.
Calendar year exempt organizations with unrelated business taxable income (UBIT) must continue to adhere to the May 15, 2020 due date for filing Form 990-T. Taxpayers with estimated income tax payment requirements for UBIT originally due on April 15 do have an extension of time to make their payment until July 15, 2020.
Kentucky Healthy at Home Executive Order
Gov. Andy Beshear issued an Executive Order that only life-sustaining businesses may remain open. All businesses that are not life-sustaining should closed by Thursday, March 26, 2020 by 8:00 p.m.
A full list of categories of life-sustaining business is in the Executive Order.
Kentucky has opened a COVID-19 hotline - 1-833-597-2337. Lines are open from 7:30 a.m. to 9:00 p.m.
Online Assistance for Indiana Unemployment Benefits
If your company is planning a mass layoff of approximately 50 or more, it would assist the Department of Workforce Development (DWD) if you could provide employee specific information. This will assist DWD in processing unemployment insurance (UI) claims more quickly for your impacted staff.
The information requested is:
- Full Name of Employee (last, first, middle - in alphabetical order),
- Employee Social Security Number (last 4 only),
- Last Day Worked,
- Amount of deductible income paid to claimant upon layoff (vacation, sick, PTO, etc).
A spreadsheet is located below to assist but DWD will take the information in another format if easier. Also note that you will receive many notices from DWD about those employee separations; please respond to those notices that you deem necessary. A DWD claims investigator will contact you directly if they have any questions.
Retirement Plan Considerations During
COVID-19 - UPDATED
(Updates are below in
Some common retirement plan questions and concerns that we are receiving:
- Can we stop contributions?
- Can we delay funding our plans?
- Are furloughed employees considered terminated?
- Discretionary contributions can stop;
- Safe harbor contributions may be delayed or amended to stop if you follow certain procedures;
- Loans, hardship distributions, in-service payments may be expanded;
- Furloughed employees are not terminated; only terminated employees can receive their vested balances;
- Pension due dates have not yet changed:
- 7/31/20 for 5500s and extensions to 10/15/20 for calendar year plans;
- 9/15/20 for funding benefits and 2019 deductions;
- 12/31/20 finishing all outstanding issues for 2020
Keep in mind:
- If a plan moves out of safe harbor, it may have to deal with top heavy issues and other compliance testing failures;
- Participants can stop their deferrals at any time, even if starting and modifying elections is according to a schedule;
- Terminating more than 20% of the workforce could be a "partial plan termination" with affected employees advancing to 100% vesting;
- Don't do anything without checking the plan document;
- Remember, employees asking for money are going to be hurt more as the stock market continues to drop;
Patience is a virtue:
- How many times do you want to do a plan amendment to give or take away a feature;
- Lowering cash balance formulas is a more extreme move when the IRS only wants to see formula changes not more than every 3 years, or so;
- Fiduciary considerations overshadow everything;
- In a few years, we don't want to be in DOL lawsuits for taking action now when no action is taken when everything gets back to normal
Adapted from article by:
Michael S. Miller, CEBS
Apex Pension Strategies, Inc.
Atlanta, GA 30356
Coronavirus Relief Webinar - March 26, 2020
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