Note: This guidance was sent as a client alert on May 11, 2020 and the information is current as of that date.
Economic Impact Payment Direct Deposit Deadline
The IRS announced that the deadline to input your direct deposit information to avoid receiving a paper stimulus check is Wednesday, May 13, 2020 at 11am central time. The IRS has corrected most of the issues related to the economic impact payment portal (https://www.irs.gov/coronavirus/get-my-payment) setup for taxpayers to provide direct deposit information. A small number of issues remain outstanding and IRS officials have not provided any updates regarding correction timelines. The IRS continues to update “Get My Payment” data once per day (overnight) so there is no need to check more often. If you expect to receive a stimulus payment, and have not already, verifying and updating this information is important to ensure prompt receipt of funds.
Pandemic Unemployment Assistance program
The Illinois Department of Unemployment Security (IDES) has announced that this program is now live. If you would like to utilize this program you need to apply for and be denied regular unemployment insurance before applying for benefits under PUA. If claimants apply for unemployment benefits through IDES and receive an eligibility determination of $0, their claim will be transferred to the for PUA system automatically to determine if they are eligible for those benefits. Claimants who have already applied for and been denied regular benefits should expect to see PUA funds starting the week of May 11th if they are eligible.
The PUA program provides up to 39 weeks of federally funded unemployment benefits for individuals who are unemployed for specified COVID-19-related reasons and are not eligible for the state’s regular unemployment insurance program. Independent contractors and sole proprietors are newly eligible for benefits under this program.
PUA claims will be backdated to a claimant’s first week of unemployment as far back as Feb. 2, 2020 and will continue for as long as the individual remains unemployed as a result of COVID-19, but no later than the week ending December 26, 2020.
For more information and to apply, visit the IDES website.
Paycheck Protection Program (PPP)
The second round of funding for the PPP loan program continues and has operated much more smoothly than the initial program launch. Most clients we have spoken with have already received funds or will be receiving them after signing loan documents. If you are eligible for funding and have not received it yet, please reach out to our team for assistance. We were able to apply and obtain same day SBA approval for a client that had previously been rejected by a large bank on Friday. There are still funds available as of this writing, but they are likely to be exhausted soon.
Paycheck Protection Program (PPP) Deductibility
The IRS released guidance (Notice 20-32) on April 30, 2020 stating that expenses related to forgivable loans through the Paycheck Protection Program (PPP) won’t be tax-deductible. The PPP loan forgiveness is not counted as taxable income and the IRS said in its guidance that expenses that result in forgiveness of a PPP loan are not tax deductible under existing law in section 265(a)(1) of the Code and §1.265-1 of the Income Tax Regulations in order to prevent what they deem to be a double tax benefit.
Congressional leaders, including Senate Finance Committee Chairman Chuck Grassley and House Ways & Means Committee Chairman Richard E. Neal wrote to Treasury Secretary Steven Mnuchin urging the Treasury department to change the interpretation of the CARES Act preventing businesses from deducting expenses associated with PPP loans that are forgiven. The Treasury department has acknowledged the letter but has not indicated a willingness to change the position without a legislative fix.
This ruling is a disappointing development that will reduce the positive financial impact of the PPP loans. However, any forgiven portion of the loan is still a grant, even if the tax-free aspect of the program has been nullified by this ruling. We encourage everyone who has received PPP loan funds to contact their Senators and Representatives to express their desire for the expenses paid with PPP funds to be tax deductible. You can find contact information here:
Paycheck Protection Program (PPP) Forgiveness
The SBA and Treasury department have not released enough guidance to provide a detailed understanding of the loan forgiveness process. We continue to monitor this issue and will send client alerts when more guidance is available. Currently, we are recommending that clients record the PPP or EIDL Loans as loan payable liabilities on their balance sheet and EIDL grant funds as “other income” on the income statement.
Economic Injury Disaster Loan (EIDL) Updates
The Washington Post is reporting that the SBA is limiting these loans to $150,000. This is a significant reduction from the original limit of $2 million. This should be taken into consideration when preparing your business funding plans.
Many businesses that previously applied for these loans have received the grant portion of the funding. You will not receive any notification from the SBA when these funds are deposited in your business bank account, but the banking detail should indicate something similar to: “SBAD TREAS 310 MISC PAY” and include $1,000 for each employee up to the $10,000 maximum grant. As a reminder any EIDL grant funds received will be subtracted from the PPP loan forgiveness amount. Additionally, the EIDL and PPP funds can’t be used for the same purpose or it will impact your PPP loan forgiveness. The best practice is to use the PPP for any payroll, rent, and utility expenses and the EIDL for all other working capital.
SBA Debt Relief
The SBA will pay 6 months of principal, interest, and any associated fees that borrowers owe for all current 7(a), 504, and Microloans in regular servicing status as well as new 7(a), 504, and Microloans disbursed prior to September 27, 2020. This relief is not available for Paycheck Protection Program loans or Economic Injury Disaster loans. Borrowers do not need to apply for this assistance. It will be automatically provided, no application is necessary.
The SBA has notified lenders that it will pay these borrower loan payments. Lenders should not collect loan payments from borrowers. If a borrower’s payment was collected after March 27, 2020, lenders were instructed to inform the borrower that they have the option of having the loan payment returned by the lender or applying the loan payment to further reduce the loan balance after SBA’s payment.
Borrowers should contact their lender if they have any questions regarding this payment relief.
White House Approach to Future Stimulus
White House economic adviser Larry Kudlow told reporters on Friday that the White House will not consider any further stimulus legislation this month. It is currently focused on the economic impact from reopening U.S. states. Formal talks with Congress have paused according to Mr. Kudlow. Democrats in the House of Representatives are still expected to push for a vote on additional stimulus this week, but it is unclear if additional small business relief or additional direct payments to taxpayers will be included in the bill. We will continue to monitor these developments and provide actionable information as it becomes available.
Tax and Accounting Newsletter
Our firm will be launching a monthly newsletter to provide additional guidance throughout the year. It will include tax planning opportunities, bookkeeping tips, explanations of the services we offer, and other accounting and tax related guidance. If you would like to sign up for the newsletter, you can provide your information here: Caramagno + Associates Newsletter
All clients will continue to receive the actionable alerts we have been sending related to COVID-19, but the newsletter will provide more guidance year-round and be available to non-clients as well.