Dear Client:
We want to share what we know about the IRS actions and federal tax legislation enacted to date to ease tax compliance burdens and economic pain caused by COVID-19 (commonly referred to as Coronavirus),
Please feel free to contact us with questions. We continue to process new information on a daily basis as things are changed and updated.
Federal government tax-related actions taken to date regarding COVID-19
Filing and payment deadlines deferred. The IRS provides the following to all taxpayers-meaning all individuals, trusts, estates, partnerships, associations, companies or corporations regardless of whether or how much they are affected by COVID-19:
- For a taxpayer with a Federal income tax return or a Federal income tax payment due on April 15, 2020, the due date for filing and paying is automatically postponed to July 15, 2020, regardless of the size of the payment owed.
- The taxpayer does not have to file Form 4686 (automatic extensions for individuals) or Form 7004 (certain other automatic extensions) to get the extension.
- The relief is for (A) Federal income tax payments (including tax payments on self-employment income) and Federal income tax returns due on April 15, 2020 for the person’s 2019 tax year, and (B) Federal estimated income tax payments (including tax payments on self-employment income) due on April 15, 2020 for the person’s 2020 tax year.
- No extension is provided for the payment or deposit of any other type of Federal tax (e.g. estate or gift taxes) or the filing of any Federal information return.
- Because of the return filing and tax, payment postponement from April 15, 2020, to July 15, 2020, that period is disregarded in the calculation of any interest, penalty, or addition to tax for failure to file the postponed income tax returns or pay the postponed income taxes. Interest, penalties and additions to tax will begin to accrue again on July 16, 2020.
Despite these changes, we encourage you to continue to forward your tax information to us. Many state and local taxing authorities have yet to announce if they are following the IRS on this matter. We understand that you may want your anticipated refund and are committed to finalizing tax filings as quickly as possible to generate those refunds.
Tax credits and a tax exemption to lessen burden of COVID-19 business mandates. On March 18, President Trump signed into law the Families First Coronavirus Response Act (the Act, PL 116-127), which eased the compliance burden on businesses. The Act includes the four tax credits and one tax exemption discussed below.
- Payroll tax credit for required paid sick leave (the payroll sick leave credit). The Emergency Paid Sick Leave Act (EPSLA) division of the Act generally requires private employers with fewer than 500 employees to provide 80 hours of paid sick time to all employees who are unable to work for virus-related reasons (with an administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy). The pay is up to $511 per day with a $5,110 overall limit for an employee directly affected by the virus and up to $200 per day with a $2,000 overall limit for an employee that is a caregiver.
The tax credit corresponding with the EPSLA mandate is a credit against the employer’s payroll taxes (or against the Railroad Retirement tax). The credit amount generally tracks the $511/$5,110 and $200/$2,000 per-employee limits described above. The credit can be increased by (1) the amount of certain expenses in connection with a qualified health plan if the expenses are excludible from employee income. Credit amounts earned in excess of the employer’s payroll taxes (or in excess of the Railroad Retirement tax) are refundable. The credit is electable and includes provisions that prevent double tax benefits (for example, using the same wages to get the benefit of the credit and of the current law employer credit for paid family and medical leave). The credit applies to wages paid in a period (1) beginning on a date determined by IRS that is no later than April 2, 2020 and (2) ending on December 31, 2020.
- Income tax sick leave credit for the self-employed (self-employed sick leave credit). The Act provides a refundable income tax credit (including against the taxes on self-employment income and net investment income) for sick leave to a self-employed person by treating the self-employed person as both an employer and an employee for credit purposes. Thus, with some limits, the self-employed person is eligible for a sick leave credit to the extent that an employer would earn the payroll sick leave credit if the self-employed person were an employee.
Accordingly, the self-employed person can receive an income tax credit with a maximum value of $5,110 or $2,000 per the payroll sick leave credit. However, those amounts are decreased to the extent that the self-employed person has insufficient self-employment income determined under a formula or to the extent that the self-employed person has received paid sick leave from an employer under the Act. The credit applies to a period (1) beginning on a date determined by the IRS that is no later than April 2, 2020 and (2) ending on December 31, 2020.
- Payroll tax credit for required paid family leave (the payroll family leave credit). The Emergency Family and Medical Leave Expansion Act (EFMLEA) division of the Act requires employers with fewer than 500 employees to provide both paid and unpaid leave (with an administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy). The leave generally is available when an employee must take off to care for the employee’s child under age 18 because of a COVID-19 emergency declared by a federal, state, or local authority that either (1) closes a school or childcare place or (2) makes a childcare provider unavailable. Generally, the first 10 days of leave can be unpaid and then paid leave is required, pegged to the employee’s pay rate and pay hours. However, the paid leave cannot exceed $200 per day and $10,000 in the aggregate per employee.
The tax credit corresponding with the EFMLEA mandate is a credit against the employer’s payroll taxes (or against the Railroad Retirement tax). The credit generally tracks the $200/$10,000 per employee limits described above. The other important rules for the credit, including its effective period, are the same as those described above for the payroll sick leave credit.
- Income tax family leave credit for the self-employed (self-employed family leave credit). The Act provides to the self-employed a refundable income tax credit (including against the taxes on self-employment income and net investment income) for family leave similar to the self-employed sick leave credit discussed above. Thus, a self-employed person is treated as both an employer and an employee for purposes of the credit and is eligible for the credit to the extent that an employer would earn the payroll family leave credit if the self-employed person were an employee.
Accordingly, the self-employed person can receive an income tax credit with a maximum value of $10,000 as per the payroll family leave credit. However, under rules similar to those for the self-employed sick leave credit, that amount is decreased to the extent that the self-employed person has insufficient self-employment income determined under a formula or to the extent that the self-employed person has received paid family leave from an employer under the Act. The credit applies to a period (1) beginning on a date determined by IRS that is no later than April 2, 2020 and (2) ending on December 31, 2020.
- Exemption for employer’s portion of any social Security (OASDI) payroll tax or railroad retirement tax arising from required payments. Wages paid as required sick leave payments because of EPSLA or as required family leave, payments under EFMLEA are not considered wages for purposes of the employer’s 6.2% portion of the Social Security (OASDI) payroll tax or for purposes of the Railroad Retirement tax.
For more resources for the IRS impacted by COVID-19, please visit their website: www.Irs.gov and click on the link “Get Coronavirus Tax Relief
Michigan Small Business Funding Available in response to COVID-19
Economic assistance for small businesses around Michigan that have been negatively impacted by the COVID-19 virus gained approval from the Michigan Strategic Fund, the Michigan Economic Development Corporation (“MEDC”) announced March 19, 2020. The Michigan Small Business Relief Program authorizes the MEDC to provide up to $20 million for small businesses. The funding consists of $10 million in small business grants and $10 million in small business loans. The $10 million in small business loans will support businesses facing drastic reductions in cash flow and assist in supporting their workforce. The $10 million in grant funding will go to local or nonprofit economic development organizations throughout the state. These organizations will provide grants up to $10,000 each to support certain small businesses that have experienced a significant financial hardship because of the COVID-19 virus. To qualify for grant support, businesses must meet the following criteria:
The company is in an industry outlined in Executive Order 2020-9, or any subsequent Executive Order of similar intent (“EO”), or demonstrates it is otherwise affected by the COVID-19 outbreak. The following industries are outlined:
- Restaurants, food courts, cafes, coffeehouses and other places of public accommodation offering food or beverage for on-premises consumption;
- Bars, taverns, brew pubs, breweries, microbreweries, distilleries, wineries, tasting rooms, special licensees, clubs and other places of public accommodation offering alcoholic beverages for on-premises consumption;
- Hookah bars, cigar bars and vaping lounges offering their products for on-premises consumption;
- Theaters, cinemas, and indoor and outdoor performance venues;
- Libraries and museums;
- Gymnasiums, fitness centers, recreation centers, indoor sports facilities, indoor exercise facilities, exercise studios and spas;
- Casinos licensed by the Michigan Gaming Control Board, racetracks licensed by the Michigan Gaming Control Board and Millionaire Parties licensed by the Michigan Gaming Control Board; and Places of public amusement not otherwise listed above
- The company has 50 employees or fewer;
- The company needs working capital to support payroll expenses, rent, mortgage payments, utility expenses or other similar expenses that occur in the ordinary course of business; and
- The company can demonstrate an income loss because of the EO, or the COVID-19 outbreak.
Additionally, the program authorizes the MEDC to provide up to $10 million for small business loans to one or more Community Development Financial Institutions (“CDFI”) or a licensed SBA not-for-profit institutions (“Eligible SBA Non-Profit”), or directly from the Michigan Strategic Fund to eligible borrowers to be used to provide low-interest loans with flexible repayment terms to support certain small businesses statewide that have realized a significant financial hardship as a result of the COVID-19 outbreak. Loans to eligible borrowers must be $50,000 or more and are capped at $200,000.
In order to qualify for loan support, businesses must meet the following criteria:
- The company is in an industry outlined in Executive Order 2020-9 (“EO”), or demonstrates it is otherwise affected by the COVID-19 outbreak, or is a company that provides goods and services to companies to the aforementioned;
- The company has fewer than 100 employees;
- The company needs working capital to support payroll expenses, rent, mortgage payments, utility expenses or other similar expenses that occur in the ordinary course of business;
- The company can demonstrate that it is unable to access credit through alternative sources;
- The company can demonstrate an income loss of because of EO 2020-9 (see industries affected above).
Funds available under the Michigan Small Business Relief Program are anticipated to be available no later than April 1, 2020. These loan and grant proceeds may be used for working capital to support payroll expenses, rent, mortgage payments, utility expenses or other similar expenses that occur in the ordinary course of business. Through this program, in combination with other programs and services, the state is providing economic support to Michigan’s small businesses to help overcome anticipated loss of revenue because of the COVID-19 virus.
For more resources for Michigan small businesses affected by COVID-19 please visit their website: michiganbusiness.org/covid19
U.S. Small Business Administration (SBA) offering disaster assistance in response to COVID-19
Under the recently enacted Coronavirus Preparedness and Response Supplemental Appropriations Act (the Act), small businesses that have suffered substantial economic injury because of COVID-19 can apply for low-interest federal disaster loans through SBA. Small businesses and nonprofits can apply for working capital loans of up to $2 million.
- State governors must first request access to the Economic Injury Disaster Loan program. Once the declaration is made, information on the application process for disaster loan assistance will be made available to affected small businesses within the given state.
- Loans carry an interest rate of 3.75% for small businesses and 2.75% for nonprofits.
- Loans can be used to cover accounts payable, debts, payroll and other bills.
- Loans can be offered with long-term repayments in order to keep payments affordable—up to a maximum of 30 years. Terms are determined on a case-by-case basis.
- Businesses will apply for loans online and select “Economic Injury” as the reason for seeking assistance.
For more resources for the SBA businesses impacted by COVID-19, please visit their website: sba.gov/disaster-assistance/coronavirus-covid-19
SBA offers disaster assistance via its customer service center. If you have questions or want to check if your state is eligible, contact U.S. Small Business Administration via phone at 800-659-2955 (TTY: 800-877-8339) or e-mail disastercustomerservice@sba.gov.
Michigan Unemployment Programs
Request for Registration and Seeking Work Waiver (RSW) for the short-term layoff periods. If layoffs are a result of the COVID-19, the employers account will not be charged for benefits paid to affected employees. To apply on MIWAM:
- Login to your MIWAM account
- Under accounts tab select UI Tax
- Select Account Services Tab
- Scroll down, under Benefit Services sub menu, select work waiver
Work Share Program allows employers to keep their employees working with reduced hours, while employees collect partial unemployment benefits to make up a portion of the lost wages to apply on MIWAM:
- Login to your MIWAM account
- Under accounts tab select UI Tax
- Under I want to select register for work share
If additional information is needed regarding Michigan unemployment, the number is 1-855-484-2636.
Please call us at 269.945.9452 with your questions regarding this COVID-19 information or any other tax or accounting matters.
Sincerely,
Walker, Fluke and Sheldon Team