The Cares Act Tax relief options for individuals

The coronavirus pandemic has affected virtually every facet of American life and severely impacted the markets and economy. Congress and the federal government have acted to help individuals and businesses get through this difficult time. Most recently, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act on March 27. The following are highlights of the federal relief opportunities available to individuals.

The IRS postponed the due date for both filing an income tax return and for making income tax payments to July 15. The postponement is automatic. Payments which may be postponed are limited to federal income tax payments in respect of a taxpayer’s 2019 taxable year; and federal estimated income tax payments for a taxpayer’s 2020 taxable year. The extension is available to all taxpayers — including individuals, trusts and estates, corporations and other non-corporate entities, including those who pay self-employment tax. As a result of the extension, any interest, penalty, or addition to tax for failure to file or pay tax will not begin to accrue until July 16.

The deadline for making 2019 IRA contributions has also been extended to July 15. 

The deadline for making 2019 contributions to health savings accounts (HSAs) and Archer medical savings accounts (MSAs) has been extended until July 15.  

Cash payments, called “recovery rebates,” are available to U.S. residents with income below certain levels who cannot be claimed as a dependent of another taxpayer and who have a Social Security number. Technically, the rebates are advance refunds of credits against 2020 taxes. The rebate amounts are $1,200 for individuals and $2,400 for married joint filers, with an additional $500 for each qualifying child under age 17. The amount of each rebate phases out by $5 for each $100 of adjusted gross income greater than $75,000 (single filers) or $150,000 (married joint filers), based upon AGI as reported on the 2018 federal tax return (or 2019 tax return, if filed). Thus, rebates are fully phased out at $99,000 (single filers) and $198,000 (married joint filers). Individuals do not need to do anything to receive the rebate. The IRS will make payments electronically, if possible, and will send a notice to the taxpayer’s last known address within 15 days of payment stating the payment amount and method.

All required minimum distributions (RMDs) from IRAs and retirement plans are waived — including RMDs from inherited IRAs (both traditional and Roth). The RMD waiver includes 2019 RMDs which were previously due by April 1, 2020. 

The CARES Act waives the 10 percent penalty applicable to early distributions for coronavirus-related distributions up to $100,000 from IRAs and qualified defined contribution retirement plans such as 401(k), 403(b), and governmental 457(b) plans. A coronavirus-related distribution is a distribution made during calendar year 2020 to an individual (or spouse) diagnosed with Covid-19 by a CDC-approved test, or to one who experiences adverse financial consequences as a result of quarantine, business closure, layoff, or reduced hours due to the coronavirus. In addition, any income attributable to an early withdrawal is subject to income tax over a three-year period unless the individual elects to have it all included in their 2020 income. Finally, individuals may recontribute the withdrawn amounts back into an IRA or plan within three years without violating the 60-day rollover rule or annual contribution limits.

Before the CARES Act, a participant could borrow from a retirement plan the lesser of 50 percent of the vested account balance or $50,000 (reduced by other outstanding loans). Beginning March 27 through 180 days thereafter, the maximum loan amount increases to the lesser of 100 percent of the vested account balance or $100,000 (reduced by other outstanding loans). In addition, participants who had outstanding loans as of March 27 may defer for one year any payments normally due from March 27 through Dec. 31.

Individuals who claim the standard deduction may also claim a new above-the-line deduction up to $300 for cash contributions made in 2020 to certain charities. Individuals who itemize deductions and make cash contributions in 2020 to certain charities may claim an itemized deduction up to 100 percent of AGI (increased from 60 percent). Eligible charities are those described in Section 170(b)(1)(A) of the Internal Revenue Code (for instance churches, educational organizations, and organizations providing medical or hospital care or research) and do not include donor advised funds or Section 509(a)(3) supporting organizations.

Payments (principal and interest) on federal student loans are suspended through Sept. 30 without penalty. Interest will not accrue on these loans during this suspension period. In addition, from March 27 through Dec. 31, an employer may contribute up to $5,250 annually toward an employee’s student loans, and such payment will be excluded from the employee’s income.

Unemployment benefits have been expanded to assist those who have lost their job during the current economic crisis. Because unemployment benefits are administered by the states (although each state follows the same guidelines established by federal law), check with your state program to determine eligibility requirements and how to file a claim.

As you can see, the federal government has created many ways individuals and businesses may receive assistance to get through current financial difficulties. Additionally, most states have provided their own relief such as a delay of the state income tax filing deadline or a temporary grace period for making mortgage payments.

Request Excel Sheet to calculate PPP Forgiveness Amount

Terrence K. Rice, CPA  has put together an excel sheet to calculate PPP loan forgiveness estimated amount.   PPP loans will be forgiven to the extent the recipient uses the funds for eligible expenses and maintains its workforce as specified in the Act.

REQUEST BY EMAILING TO  TERRY7131@GMAIL.COM

Small Business Administration has provided low-interest loans to certain small businesses (generally those with 500 or fewer employees) and self-employed individuals for the purpose of covering payroll and other eligible expenses for an eight-week period. Businesses receiving PPP loans are not eligible for the Employee Retention Credit. Businesses that have PPP loans forgiven will not be eligible for payroll tax deferral for amounts due after the date the business is notified by the lender of such forgiveness. Payments on PPP loans are deferred for at least six months and not more than 12. 

Sec. 1106 of the CARES Act provides that PPP loan forgiveness is excluded from the recipient's gross income. In a Notice, the IRS has clarified that no deduction is allowed for an expense that is otherwise deductible if both (1) the payment of the expense results in forgiveness of a loan made under the Paycheck Protection Program and (2) the income associated with the forgiveness is excluded from gross income pursuant to CARES Act.

PPP - Paycheck Protection Program Loan Application Documentation

We recommend you begin collecting the following documentation to support your application: 

·         Payroll reports (Form 941) for 2019 and 2020 year-to-date showing the following by employee and/or officers: • Gross wages • Paid time off • Paid vacation • Pay for family medical leave • State unemployment taxes

·         The request will include documents that verify the number of full-time equivalent employees and pay rates

·         1099’s for independent contractors (if applicable)

·         Health insurance premiums paid by the employer under a group health plan

·         Sum of all retirement plan funding contributed by the employer (include 401K plans, Simple IRA & SEP IRAs)

· You will also provide to the lender documentation that verifies the dollar amounts of covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.

EXCLUDED Payroll Cost:

1. Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the period February 15, to June 30, 2020

2. Payroll taxes, railroad retirement taxes, and income taxes

3. Any compensation of an employee whose principal place of residence is outside of the United States

How large can my loan be?  

·         Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount.

PPP (Payroll Protection Program) Application Forms and Instructions

Below is the SBA form to apply for the new Payroll Protection Program (PPP) loans administered by the SBA. Clients should compute the proper information needed on the form and be ready to submit the form to their local banker beginning on Friday April 3rd.  

Please let us know if we can be of any assistance in helping you complete the form. 

PPP Application

https://files.constantcontact.com/560bec56be/be0e5743-bd6f-44e3-abce-933dbeae6073.pdf

PPP Borrower Information Fact Sheet

https://files.constantcontact.com/560bec56be/77483a72-c3bf-4844-bb1f-4b818739818c.pdf

Churches urged to apply quickly for loans provided in coronavirus relief bill

A $2 trillion coronavirus impact aid bill has been approved that provides economic relief to workers and businesses; and, these provisions extend also to 501(c)(3) entities, which include churches, Christian schools and other religious bodies.

Churches are eligible for the payroll protection loans provided in the legislation.

WHAT THE LAW MEANS

In a summary of the Coronavirus Aid Relief Economic Security (also known as C.A.R.E.S.)  the Small Business Assistance portion of the legislation includes nonprofits with payrolls not exceeding 500 employees per location and caps any single loan at $10 million.

LOAN ESSENTIALS

Basically, churches may receive a loan equal to 2.5 times the 12-month average of all salary costs. Essentially, this means each nonprofit will receive a loan equal to 2.5 months of payroll costs.

Up to 100 percent of these loans may be forgiven, based on employee retention at the end of June 30, 2020. Methods for calculating loan forgiveness will be provided in later reports.

Church leaders should create a spreadsheet totaling all annual payroll costs per employee, not to exceed $100,000 per employee from March 2019 through February 2020. Costs may include:

— salary

— group health care benefits

— paid sick, medical, or family leave

— insurance premiums

— commissions, or similar compensations

— telephone reimbursement

— travel reimbursement

— retirement

— housing allowance

Divide the total annual cost by 12 and then multiply this number by 2.5 to determine the qualifying loan amount.

Also, nonprofits can include requests that the loan also cover:

— payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation)

— rent (including rent under a lease agreement)

— utilities

— interest on any other debt obligations that were incurred before the covered period

Churches qualify for the payroll protection loans and the other provisions for nonprofits if they have set up a 501(c)(3).  You will need an IRS exemption letter validating their 501 (c) (3) statue as well as an Employment Identification Number in order to complete an application for the payment protection loan.”

This is not an unlimited amount of money. This money will be available on a first come, first serve basis. Be ready to act Monday.

MOST COMMON QUESTIONS:

Why are small business loans being made available in the Stimulus package? The purpose of these loans is to assist small businesses in keeping workers paid and employed during the pandemic. These loans are designed to give employers an incentive and provide the ability to keep their employees instead of laying them off and shutting down their businesses. Tax-exempt entities are specifically recognized as eligible to apply for these loans that are guaranteed by the federal government.

How do the small business loans work for churches and ministries? Churches and ministry organizations that are exempt from tax under Section 501(c)(3) of the Tax Code and that have fewer than 500 employees at one location and self-employed individuals, individuals operating as a sole proprietorship or individuals operating as an independent contractor, may apply for a Paycheck Protection Loan to cover payroll and related employee expenses for the period February 15 through June 30, 2020, to help them sustain their ministries.

How can the loan proceeds be used? The loan proceeds may be used to pay payroll costs, group health insurance benefits, paid sick leave, medical and insurance premiums, mortgage interest payments, rent payments, utilities or interest on other loans outstanding at the time of the pandemic.

What costs are considered payroll costs? Salary or wages, payments of a cash tip, vacation, parental, family, medical, or sick leave, health benefits, retirement benefits, state and local taxes. Note, however, that salary expenses above $100,000 per employee are not eligible for consideration as payroll costs and loan proceeds may not be used to pay salaries above $100,000 per employee.

How much can a church or ministry borrow? The amount that may be borrowed is the total average monthly payroll costs for the preceding 12 months (March 2019 through February 2020) multiplied by a factor of 2.5. For example, if the average payroll costs for the preceding twelve months were $20,000, the maximum amount of the loan would be $20,000 times 2.5 for a total of $50,000. The maximum amount available for a Payroll Protection Loan is $10,000,000.

Can a self-employed pastor apply for a Payroll Protection Loan? The Stimulus package allows self-employed individuals to apply for these loans. Under certain circumstances, pastors are considered self-employed and should be eligible to apply for a payroll protection loan under the same terms and conditions as other loan applicants. For example, if a pastor's average monthly salary for the preceding twelve months was $5,000 then the pastor should be able to apply for a loan in the amount of $12,500.

How soon must the church, ministry or pastor repay the loan? Payroll Protection Loans may include a term of up to 10 years from the date of application.

What interest rate will these Payroll Protection Loans bear? The maximum interest rate for these loans is 4 percent per year.

Is the church, ministry or pastor required to pledge collateral for the loan, or will another party have to guarantee repayment? No. Further, the loans are non-recourse to the borrower with the exception that if loan proceeds are used for an unauthorized purpose, the then loan may be collected from the borrower.

May payments under the loan be deferred? Yes, for a period not less than six months but not to exceed more than one year from the date of the loan.

May all or part of the Payroll Protection Loan be forgiven? Yes, the program is designed to encourage employers to retain employees and loan forgiveness is a key feature of these loans. A ministry under a covered loan can have all or a portion of the principal of the loan forgiven in an amount equal to payroll costs, mortgage interest, rent, or utility costs during the eight-week period following the origination of the loan. The forgiven amount, however, may be reduced based on a formula that compares the ministry's employment in prior pre-COVID periods with the number of employees and each employee's wage or salary in the eight-week period following the origination of the loan.

Who is responsible for administering this program? The loan program will be administered by the Small Business Administration (SBA) under its existing Section 7(a) business loan program. Certain requirements associated with typical SBA loans, such as guarantees, collateral, and "credit available elsewhere" underwriting, have been relaxed or eliminated.

How can a church, ministry or pastor apply for a Payroll Protection Loan? If you choose to pursue a Payroll Protection Loan, you will need to apply through an approved SBA lender, which includes most local banks. The approved SBA lender will assist you in completing the application and providing the required documentation for the loan. The loan documentation requirements and other traditional requirements to obtain a small business loan are substantially relaxed under this loan program.

Not Every 1099 Raises Your Tax Bill

If you're a traditional employee, every year you receive a W-2 form from your employer that records your earnings for the year and the amount of taxes withheld from those earnings. IRS 1099 forms are complements to the W-2 form for non-traditional employee relationships. They are generally designed to record sources of income that have not been subjected to withholding – in other words, sources where an employer has not already paid the corresponding taxes.
If you are self-employed, you know the IRS form 1099-MISC that reports payments made to you over the course of the year. However, there are many different types of 1099 forms – and not all of them increase your tax bill.


SSA-1099 – Your Social Security benefits are recorded here. No more than 85% of your benefits can be subject to taxes, and that's only if your "combined income" as defined by the IRS reaches certain thresholds. Many Social Security recipients don't pay any tax on their benefits at all.
1099-R – This form covers distributions from retirement accounts such as IRAs and 401(k)s. Most are funded with pre-tax money and are therefore fully taxable, including the earnings. Roth IRA contributions are made with post-tax dollars and are not taxable, although earnings may be. Reportable death benefits paid due to the death of the insured life are also included on Form 1099-R.
1099-INT – Interest income that you receive (think savings or checking accounts) is recorded here. This income is fully taxable.
1099-DIV – Income from dividends and investment distributions from non-retirement accounts go here. This income is also taxable, although they may be taxed under the lower capital gains tax rate.
1099-Q – This form covers distributions from educational savings accounts (529 or Coverdell accounts). If you used the distribution for qualified educational expenses, the distribution is tax-free. If not, tax will be due on the earnings component of the distribution.
1099-G – The 1099-G covers government payments to individuals such as unemployment benefits, including benefits at all levels (federal, state, and local). Most government payments are taxable, but not all.
1099-C – Cancelled debt, such as forgiveness of mortgage debt, is considered a taxable benefit – just as if the creditor had paid you the amount of money to turn around and pay them back. 1099-C forms record this debt.
1099-LTC – 1099-LTC records benefits applied toward long-term care expenses. Assuming benefits are used for qualified LTC expenses, the benefits are tax-free – unless the policy pays a pre-set amount regardless of expenses. In that case, some portion of the benefit may be taxable.
1099-B – This form records the income from the sale of brokered assets such as stocks – but to determine the taxable profit or loss, you subtract the basis (in general, what you paid for the asset). If the result is a net loss for the year, your tax bill would be reduced.
1099-S – Income from real estate transactions are captured here. As with the 1099-B above, you will have to subtract the basis of your home to determine taxable profit or loss. You may also be able to exclude up to $250,000 in gains (twice that for couples filing jointly) under certain circumstances. A separate form (1099-A) captures foreclosures – and yes, you may have a taxable capital gain even in foreclosure.

Make sure that you understand how many 1099 forms you should expect to receive for the tax year, and follow-up with any entities that give an incorrect total (or fail to send a form at all). A mismatch between your records and IRS records could lead to an audit and headaches that go beyond an increase in your tax bill.

3 Ways to Weather the 2020 Tax Season

Over half of U.S. adults say financial stress negatively impacted their personal health and work performance in 2018, according to new research from Lincoln Financial Group. When it comes to tax season, preparation is key to easing anxiety, according to experts.


To weather the 2020 tax season:

Get the Information

Whether preparing your own tax return or paying a professional, good organization saves time and money. In addition to collecting the common tax documents (e.g., W-2s, 1099s and mortgage interest statements), you should gather receipts, evidence of contributions to charities and 529 plans, and basic information on assets sold during 2019.
Also consider milestones that impact taxes, such as marriage, divorce, birth of a child, adoption and sale of a home. Organizing this information is the first step toward ensuring timely filing.
The Tax Cuts and Jobs Act significantly increased the standard deduction for federal tax purposes. For the 2019 tax year, the standard deduction is $12,200 for individuals and $24,400 for married couples filing jointly. This higher deduction amount means many taxpayers won’t itemize deductions, thereby simplifying tax return preparation.

Be Proactive

Consider what actions you can take prior to the end of tax season to lessen its financial burden.
For example, if you qualify and act prior to April 15, you may deduct contributions to an IRA up to $6,000 ($7,000 if you’re over 50) on the 2019 income tax return. Maximum Simplified Employee Pension IRA contributions of $56,000 for 2019 can be made any time prior to the tax filing deadline, including extensions.
Or, if you participate in a high deductible health plan, you may be eligible to contribute to a health savings account with pre-tax dollars through April 15. For the 2019 tax year, the contribution limit is $3,500 if you’re single and $7,000 for families, with an additional $1,000 catch-up contribution for those 55 or older.

Use Technology

Embrace these technological advances to reduce tax preparation and filing burdens:
• Whether self-preparing or hiring a professional, tax information from documents filed with the IRS (W-2s, 1099s. etc.) can be downloaded directly into tax-prep software, so be sure to access electronic versions of these documents.
• Online banking makes it easy to manipulate account information and organize data about relevant expenses paid during the year, like estimated tax payments, medical and tuition payments and business expenses.  
• The IRS has offered the opportunity for electronic filing of tax returns for several years. Taxpayers who e-file typically receive acknowledgement that their returns have been filed and get their refunds faster than those who paper file.

From market volatility to managing debt, there are many causes of financial stress today. However, with some prudent strategies, you can greatly reduce your tax-related anxiety.