As part of the CARES Act, the requirement for older taxpayers to take required minimum distributions (RMDs) from their retirement plans has been waived for 2020. This is primarily due to the drop in value for most investments as a result of the economic effects of COVID-19.

RMDs are required distributions from qualified retirement plans and are commonly associated with traditional IRAs, but they also apply to 401(k)s and SEP IRAs. The tax code does not allow taxpayers to indefinitely keep funds in their qualified retirement plans. Eventually, these assets must be distributed, and taxes must be paid on those distributions. If a retirement plan owner takes no distributions, or if the distributions are not large enough, then he or she may have to pay a 50% penalty on the amount that is not distributed.

RMDs historically have needed to begin in the year when the retirement plan owner became age 70½, but a late 2019 tax law change (the SECURE Act) upped the starting age to 72 for years after 2019. The first year’s distribution can be delayed to no later than April 1 of the subsequent year. However, delaying the first distribution means taking two distributions in the subsequent year.

The CARES Act RMD waiver applies to:

• The 2020 RMD for taxpayers who turned 70½ before 2020.
• The 2019 RMD for taxpayers who turned 70½ in 2019 and chose to defer their first distribution to 2020.
• The 2020 RMD for taxpayers who turned 72 in 2020.
• The RMDs for beneficiaries.

RMD Rollover: The 2020 waiver for RMDs was not announced until the CARES Act was passed on March 27, 2020. Normally, an RMD cannot be rolled over, but the CARES Act essentially changed 2020 RMDs into eligible rollover distributions, which can be rolled over within 60 days of being received. Some individuals subject to the RMD requirements had already taken their RMD before the CARES Act was enacted and did not have the opportunity to roll the RMD back into their retirement account if the 60-day rollover period had already expired.

That issue was alleviated by the declared disaster provisions extending the rollover period. Thus, any 60-day rollover period that ends on or after April 1, 2020, and before July 15, 2020, is extended through July 15, 2020. This means that if you took a distribution after the end of January, you can roll it back into the retirement plan and avoid being taxed on it in 2020, if you do so by July 15, 2020.

Be aware, however, that any part of the distribution from a traditional IRA or qualified retirement plan that you don’t roll over will be taxed. This means that if federal and/or state income tax was withheld from the distribution and you want to roll over the distribution, you will need to use funds other than those from the distribution in order to fully roll it over. Regrettably, the withholding can’t be refunded when you make the rollover. Instead, the withheld tax will be claimed as a credit on your 2020 return. In this case, your 2020 estimated tax installments and/or withholding on other income can be adjusted.

One other caveat: only one IRA-to-IRA rollover is allowed within any 12-month period, so if you have already made an IRA rollover – even for a different account – during the prior 12 months, then you will need to carefully time the IRA RMD rollover so that it occurs beyond that period but is still within the extended time limit. Trustee-to-trustee transfers don’t count as rollovers, so, for example, if you moved your IRA from one brokerage to another by having the account directly transferred, that action won’t count as a rollover.

Unfortunately, those who took their RMD in January do not benefit from the extension to July 15, 2020 (unless the IRS provides additional relief).

And, unless further relief is provided, the RMD requirements will resume in 2021. If you have questions or wonder what the pros and cons are related to a rollover, please give our office a call.

The CARES Act includes Pandemic Unemployment Assistance (PUA) provisions that extend and supplement state-provided unemployment insurance and are intended to lessen the financial burdens on individuals who have lost their jobs because of the COVID-19 emergency by allowing states to extend unemployment benefits up to 13 weeks and waiving the normal one-week waiting period. The provisions also extend the benefits to self-employed individuals, seeking part-time employment, or otherwise ineligible for regular unemployment compensation.

To qualify for PUA benefits, you must not be eligible for regular (unrelated to the COVID-19 crisis) unemployment benefits and should be unemployed, partially unemployed, or unable or unavailable to work because of certain health or economic consequences of the COVID-19 pandemic.

The PUA program provides up to 39 weeks of benefits, which are available retroactively starting with weeks of unemployment beginning on or after January 27, 2020, and ending on or before December 31, 2020. The amount of benefits paid out will vary by state and are calculated based on the weekly benefit amounts (WBAs) provided under a state’s unemployment insurance laws. Under the CARES Act, the WBA may be supplemented by the additional $600 in unemployment assistance provided per week under the Cares Act.

The unemployment benefits are administered by the individual states, and benefits must be applied for through each individual state.

NOTE: At the time this article was prepared, many states were struggling to implement the provisions of the PUA program, making it difficult for individuals to quickly access these benefits.

It is also important to understand that unemployment benefits are taxable income for federal tax purposes and also taxable by most states. However, there are exceptions, and these states do not tax unemployment benefits.

Alabama
Alaska*
California
Florida*
Montana
Nevada*
New Hampshire**
New Jersey
Pennsylvania
South Dakota*
Tennessee**
Texas*
Virginia
Washington*
Wyoming*

*These states do not have a state income tax.
** These states do not have a state income tax but do tax interest and dividend income.

It may be appropriate for certain individuals to have federal taxes withheld from their unemployment compensation. This can be accomplished using Form W-4V. Wherever the unemployment is taxable by a state, the state’s estimated taxes can be paid. Not prepaying taxes on unemployment benefits can lead to unpleasant surprises for some individuals when they file their 2020 tax returns.

If you have questions related to how unemployment income will impact your 2020 taxes and whether you should have income tax withheld, please call our office.

On March 27^th, President Trump enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The historic $2.2 trillion stimulus bill includes a wide range of business tax provisions, including a new credit for employers that retain their employees.

Below, we address some of the common questions regarding this particular initiative. If you cannot find the answer to your question, please do not hesitate to reach out to your WNDE accounting advisor for further assistance.

What is the Employee Retention Credit?

The Employee Retention Credit (ERC) is a new tax credit created by the CARES Act. It is fully refundable for eligible employers. It applies to qualified wages paid between March 12, 2020 and January 1, 2021.

Do I qualify for the credit?

For the purposes of the ERC, eligible employers are employers, including tax-exempt organizations, that carry on a trade or business during 2020. To be eligible, an employer must fit one of these two criteria:

1. Suspended operations, either fully or partially, during any calendar quarter in 2020 as a result of government orders regarding COVID-19 (limitations on commerce, travel, or group meetings for commercial, social, religious, or other purposes). Partial suspension occurs when an operation can continue to operate but not at its normal capacity.
2. Experienced a significant decline (more than 50% as compared to the same quarter in 2019) in gross receipts during the calendar quarter.

Who does not qualify for the credit?

Neither governmental employers nor self-employed individuals are eligible for this credit.

How much is the credit?

The ERC is equal to 50 percent of qualified wages paid to employees by eligible employers. Eligible employers may take into account up to $10,000 in qualified wages per employee. This means that the maximum credit per employee is $5,000 for the entire year.

What are qualified wages?

Qualified wages (QW) are wages and compensation paid to employees of eligible employers between March 12, 2020 and January 1, 2021. QW include qualified health plan expenses.

The definition of QW varies depending on if an eligible employer has greater than 100 full time employees or equal to or less than 100 full time employees.

• Greater than 100 full time employees (on average in 2019): QW are wages paid to employees that are not providing services while the employer is considered an eligible employer. Wages taken into account may not exceed what the employee would have been paid for working during the 30 day period just prior to the period of economic hardship.
• Equal to or less than 100 full time employees (on average in 2019): QW are wages paid to all employees, whether or not they are providing services while the employer is considered an eligible employer.

How do I claim the credit?

To claim the ERC, eligible employers will need to report quarterly qualified wages paid on their federal employment tax return (usually Form 941, Employer’s Quarterly Federal Tax Return).

Can I fund my payments of qualified wages in advance?

Yes, eligible employers who anticipate receiving the credits can fund qualified wages by reducing their federal employment tax deposits. They will not incur a failure to deposit penalty under section 6656 for doing so. The eligible employer should account for the reduction in deposits on Form 941, Employer’s Quarterly Federal Tax Return.

Additionally, if an eligible employer does not have sufficient federal employment taxes set aside to fund their qualified wages, they can file Form 7200, Advance Payment of Employer Credits Due to COVID-19 to claim an advance refund.

If I receive the ERC under the CARES Act, can I still receive the tax credits for qualified leave wages under the FFCRA?

Yes, eligible employers can receive both credits, but not for the same wages.

If I receive the ERC, can I still receive a Small Business Interruption Loan under the Paycheck Protection Program?

No, eligible employers may not receive both the ERC and a Small Business Interruption Loan.

Can I receive ERC for wages paid to employers who are also owners or part owners of my eligible employer?

For the purposes of the ERC, wages paid to any individual who is more than 50% owner and/or familial relations of the eligible employer (including children, parents, aunts, uncles, certain cousins, and more), may not count towards the ERC.

On March 27^th, President Trump enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The historic $2.2 trillion stimulus bill includes an allowance for penalty-free early withdrawals from retirement accounts.

Below, we address some of the common questions regarding this particular initiative. If you cannot find the answer to your question, please do not hesitate to reach out to your WNDE accounting advisor for further assistance.

What changes did the CARES Act make to retirement withdrawals?

For 2020, eligible plan participants can now receive coronavirus-related distributions from their retirement plans (401(k)-type defined contribution plans or individual retirement accounts (IRAs)).

Am I eligible to make a withdrawal from my retirement account?

To be eligible, you must fit at least one of the following criteria:

1. You or your spouse or dependent has been diagnosed with COVID-19, or
2. You have suffered adverse financial consequences due to COVID-19 (e.g., suffering loss of business, unable to work due to childcare, required to quarantine, put on furlough, etc.)

Plan participants will simply self-certify that they meet the conditions for a coronavirus-related distribution.

How much can I withdraw from my retirement account?

Eligible individuals can take out up to $100,000.

If I make early withdrawals, do I have to pay a penalty?

No, if you make an eligible withdrawal you are exempt from the 10 percent early withdrawal penalty. Additionally, the 10 percent penalty waiver applies retroactively to withdrawals beginning January 1, 2020.

When do I pay taxes on the money I withdraw?

Income taxes are still owed on withdrawn amounts. The CARES Act allows for tax payments to be spread over a three-year period.

Is there a way to re-invest the money that I take out?

Yes, individuals who make coronavirus-related withdrawals may replace the money within three years, regardless of the annual contribution level of their plan. Additionally, they may also be able to recover the federal and state income taxes that they paid.

 I already have one or more loans on my 401(k), can I still take a coronavirus-related distribution?

This depends on the particular rules of your plan—consult your plan sponsor.

On Thursday, April 2, the Internal Revenue Service (IRS) issued a warning concerning the development of new scams related to the coronavirus. It is not surprising that criminals are taking advantage of the chaos resulting from the coronavirus outbreak to perpetrate fraud.

The IRS has observed an uptick in fraudulent requests related to the coronavirus outbreak. In particular, the economic impact payments legislated in the CARES Act have opened the door to new scams.

As a reminder, here are some facts about the economic impact payments:

• Most taxpayers will receive their economic impact payments via direct deposit into the bank account they previously provided on a 2018 or 2019 tax return.
• Taxpayers without direct deposit information on file with the IRS will have the opportunity to provide banking information via a secure portal website. The website is still in development and does not yet exist.
• Taxpayers for whom the IRS does not have or receive direct deposit information will be mailed a check to their address on file.
• Retirees who do not normally file a tax return do not need to do anything. The IRS will use the information on file to automatically distribute economic impact payments to them.
• The IRS exclusively uses the terminology “economic impact payment” to refer to the payment.

The IRS recommends that taxpayers watch out for emails, text messages, websites, and social media requests containing any of the following:

• Requests to provide banking information in order to ensure that the IRS can direct deposit an economic impact payment check.
• Requests for any information from retirees in order to allow them to receive their economic impact payment.
• Requests that refer to the economic impact payment as a “stimulus check” or “stimulus payment.”
• Request for the economic impact payment to be signed over to somebody.
• Request for verification of any personal or banking information in order to speed up the arrival of an economic impact payment.
• Offers that claim to speed up economic impact payments.
• Physical checks for an odd amount with instruction to call a number and verify information in order to cash it.

If you suspect that you may have received a fraudulent communication from somebody imitating the IRS, please reach out to phishing@irs.gov. You can also report suspected scams at irs.gov.

For more details, click here to read the IRS release in full.

On March 27^th, President Trump enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The historic $2.2 trillion stimulus bill includes $10 billion in funding to provide emergency grants to small businesses and nonprofits that apply for economic injury disaster loans.

Below, we address some of the common questions regarding this particular initiative. If you cannot find the answer to your question, please do not hesitate to reach out to your WNDE accounting advisor for further assistance.

Who is eligible for an emergency economic injury grant?

Emergency economic injury grants are available to businesses and non-profits that apply for a Small Business Administration (SBA) economic injury disaster loan (EIDL). Typically, the timeline for EIDL approval and disbursement takes 3-4 weeks. That’s where the emergency economic injury grant comes in.

The goal of the emergency economic injury grant program is to provide a rapid funds advance within three days of the EIDL application. EIDL applicants simply need to request the emergency grant when they apply. The SBA will provide the grant within three days of receiving the EIDL application. Even if your application for the EIDL loan is denied, you do not have to repay the $10,000 emergency economic injury grant. That said, when you apply for the EIDL and request an emergency economic injury grant, you will be required to certify—under penalty of perjury—that you are eligible to receive an EIDL.

Please note: applicants must have been in operation on January 31, 2020 to receive the grant.

What can I use the emergency economic injury grant money for?

The grant can be used to provide paid sick leave to employees, maintain payroll, meet increased production costs due to supply chain disruptions, and/or pay business obligations (debts, rent, mortgage payments).

How do I apply for an emergency economic injury grant?

When you apply for an EIDL, you will have the opportunity to request the emergency grant at the same time. To apply for an EIDL, click here to visit the SBA website.

What if I apply for other SBA loan programs, like the Paycheck Protection Program?

You may apply for an EIDL, the emergency grant, and the Paycheck Protection Program (PPP). If you receive a loan through the PPP, the amount that is forgiven will be decreased by the $10,000 grant.

On March 27^th, President Trump enacted the Coronavirus Aid, Relief, and Economics Security (CARES) Act. The historic $2.2 trillion stimulus bill includes a $349 billion paycheck protection program (PPP) that targets aid to small businesses dealing with losses resulting from the coronavirus pandemic.

The PPP uses the already-existing small-business loan framework of the Small Business Administration (SBA) but includes some changes. The SBA was already impacted by provisions included in the March 6 stimulus law, the Coronavirus Preparedness and Response Supplemental Appropriations Act (CPRSA). The CPRSA expanded the qualification criteria for SBA loans under the organization’s Economic Injury Disaster Loan Program (EIDLP).

Below, we address some of the common questions we are encountering about the PPP. If you cannot find an answer to your question, please do not hesitate to reach out to your WNDE accounting advisor for further assistance.

What is the Paycheck Protection Program?

The CARES Act designates $349 billion for general business loans to be distributed under section 7(a) of the Small Business Act during a designated “covered period,” February 15 through June 30, 2020. Borrowers can qualify for up to $10 million in 100% federal government guaranteed covered loans.  Under the CARES act, the portion of these loans that is used for allowable purposes will be forgiven.

Who qualifies for the program?

Firstly, businesses and other entities seeking PPP loans must have been in operation on February 15, 2020. Eligible recipients include:

• Small businesses (fewer than 500 employees)
• Sole proprietors, independent contractors, and eligible self-employed individuals (see below for more details)
• IRC Section 501(c)(3) nonprofits
• IRC Section 501(c)(19) veterans’ organizations
• Tribal businesses under Section 31(b)(2)(C) of the Small Business Act (see below for more details)

For the purposes of the PPP, sole proprietors, independent contractors, and eligible self-employed individuals are those that are entitled to receive paid leave per the Emergency Paid Sick Leave Act. When applying, these individuals must submit documentation that establishes their eligibility (payroll tax filings, 1099s, and income/expense details for sole proprietorships). Tribal businesses that qualify are those with 500 or fewer employees (includes full-time, part-time, and other) or those that are the size standard established by the SBA for the industry in which they operate.

Eligible businesses can be precluded from receiving loans through the PPP by certain business affiliations. If the business is affiliated with a larger business (greater than 500 employees), they may be disqualified from participating in the PPP. An affiliation exists in two cases:

1. One business controls another (or has the power to control it)
2. A third party controls multiple businesses (or has the power to control them)

Additionally, the PPP expands eligibility to certain businesses with multiple locations, provided that each location has fewer than 500 employees. These eligible businesses have a North American Industry Classification System (NAICS) code that begins with 72 (accommodation and food services sector). The CARES Act waives affiliation rules for these businesses.

How much are the loans under the PPP?

The maximum loan amount is $10 million, though not every applicant is eligible for that much. There are three methods by which an entity’s loan amount can be calculated:

1. For entities in business from February 15, 2019 – June 30, 2019: Calculate your average total monthly payments for payroll during the period and multiply it by 2.5.
2. For entities that were not in business from February 15, 2019 – June 30, 2019: Calculate your average total monthly payments for payroll between January 1, 2020 and February 29, 2020 and multiply it by 2.5.
3. For entities that took out an Economic Injury Disaster Loan (EIDL) between February 15, 2020 and June 30, 2020: You can refinance your loan into a PPP loan. Add the outstanding loan amount to the payroll sum.

How can the loan money be used?

Allowable uses of the PPP loans include:

• Salaries, wages, commissions, or similar compensations (up to $100,000 per year per employee, prorated)
• Cash tips or equivalent
• Employee leave, including parental, family, medical, or sick (excluding family or sick leave under the Families First coronavirus Response Act)
• Allowances for dismissal or separation
• Group healthcare benefits, including insurance premiums
• Retirement benefits
• State or local taxes on employee compensation (not including the employer’s share of FICA payroll taxes, railroad retirement act taxes, or other required U.S. income tax withholding)
• Continuation of group healthcare benefits during employee leave and insurance premiums
• Mortgage interest, rent, utility payments, and any other debt obligations incurred prior to February 15, 2020

Additionally, sole proprietors and independent contractors may use the loan money to cover compensation and income of up to $100,000 per year (prorated).

What if I use the money for a non-allowable purpose?

Loan money used for any of the allowable purposes listed above will be forgiven; loan money used for non-allowable purposes must be repaid. Any balance remaining after the amount used on allowable purposes is forgiven will continue to be a fully guaranteed loan for up to ten years from the date of application.

What fees are associated with getting a PPP loan?

All service fees, prepayment fees, and borrower guarantees are waived for PPP loans.

What sort of collateral or personal guarantees are required?

Loans covered under the PPP require neither collateral nor personal guarantees, if the money is used for allowable purposes.

What is the interest rate on the loans?

The maximum interest rate is 4%.

What if I can obtain credit elsewhere?

While normally SBA loans only go to borrowers who cannot obtain credit elsewhere, for PPP loans, this requirement is waived.

How do I apply for the program?

The SBA and the Department of Treasury have approved thousands of institutions to be authorized lenders for the PPP. You can contact any local banking institution to find out if they are an approved lender, or use the Lender Match, an online tool from the SBA. Additionally, you can reach out to an SBA development center

On March 27^th, President Trump enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The historic $2.2 trillion stimulus bill includes an estimated $300 billion in direct payments to eligible American taxpayers.

Below, we address some of the common questions regarding this particular initiative. If you cannot find the answer to your question, please do not hesitate to reach out to your WNDE accounting advisor for further assistance.

Who is eligible for the recovery rebate?

To receive any portion of the recover rebate, you must fit all of the following three criteria:

1. Be either a U.S. resident or citizen,
2. Not be the dependent of another taxpayer, and
3. Have a work-eligible Social Security Number.

Additionally, there is an income limit set for receiving the rebate:

• Single-filing taxpayers whose adjusted gross income (AGI) is under $75,000 are eligible to receive the whole amount; those whose AGI falls within $75,000 – $99,000 are eligible to receive a reduced rebate.
• For married filing jointly, those with AGI under $150,00 are eligible to receive the whole amount and those in the $150,000 – $198,000 range are eligible to receive a reduced amount.
• For those filing as head of household, the max AGI to be eligible to receive the full amount is $112,500 and the range for a partial rebate is $112,500 to $146,500.

How much is the recovery rebate?

The amount of your recovery rebate depends upon two factors: your adjusted gross income and how many children under the age of 17 you have. Taxpayers who qualify for the entire amount are eligible to receive $1,200 ($2,400 married filing jointly) plus $500 per child under 17. For the purposes of the recovery rebate, any child qualifies who is a qualifying child for the Child Tax Credit.

For taxpayers who earn above the $75,000/$150,000/$112,500 thresholds, the amount of the recovery rebate is reduced incrementally. For every $100 that the taxpayer’s AGI exceeds the phase-out threshold, their rebate is reduced by $5.  In general, the point of total phase-out is $99,000 for single filers, $198,000 for married filing jointly, and $146,500 for heads of household. For taxpayers with children, the point of total payment phase-out shifts. For example, married couples with two children who have an AGI greater than $150,000 but less than $218,00 would receive a portion of the recovery rebate.

What do I have to do in order to receive the rebate for which I am eligible?

For most eligible recipients, no action needs to be taken. The IRS will use the information from taxpayers’ 2019 tax returns (if filed) or their 2018 return to determine eligibility.

How will I receive the payment?

For those who filed 2019 or 2018 tax returns online, the IRS will direct deposit the payment into the same banking account reflected in the return field.

What if the IRS doesn’t have my direct deposit information?

The Treasury Department is working to develop a web-based portal to allow individuals to provide banking information to the IRS. The back-up plan is for individuals to receive payments via checks in the mail.

What if I didn’t file a tax return for either 2018 or 2019?

The best way to ensure that you receive the recovery rebate, if you are eligible, is to go ahead and file a 2019 tax return. Additionally, you can watch the IRS website for further instruction. The CARES Act includes a mandate to the IRS to engage in a public campaign to alert taxpayers of their eligibility and offer instructions on how to receive the rebate if they have not filed tax returns for 2018 or 2019.

The CARES Act also instructs the IRS to use additional tools to locate and provide rebates to eligible individuals who normally do not file a tax return due to their low income (e.g., seniors whose only income is from Social Security and veterans whose only income is a veterans’ disability payment). The IRS can base a rebate on Form SSA-1099, Social Security Benefit Statement or Form RRB-1099. That said, individuals in this situation are encouraged to go ahead and file a 2019 return in order to receive their rebate more quickly.

Other individuals with little income and those on means-tested federal benefits (such as SSI) are also eligible for the rebate—even those with $0 of income. However, they must not be the dependent of another taxpayer and they must have a work-eligible social security number.

What if my 2019 income was above the threshold but I make significantly less in 2020?

The recovery rebate is structured as an advance on a tax credit that eligible taxpayers may claim on their 2020 tax return. As such, if your income in 2020 is lower than in 2019, you will earn any additional credit for which you are eligible when you file your 2020 tax return.

Will my rebate be reduced because I have past due debt (federal or state, including student loan payments) and/or owe back taxes?

No, those situations will not cause a reduction of your rebate. The CARES Act waives nearly all administrative offsets that would ordinarily reduce tax refunds. There is one administrative offset that will still be enforced—the offset for those who have past due child support payments that the states have reported to the Treasury Department.

Here are a couple scenarios to further illustrate how the recovery rebate works:

Scenario 1: Jane Doe, who files as an individual, had 2018 AGI of $63,500 (she has not yet filed her 2019 tax return so the IRS will look at her 2018 return). In this scenario, she is entitled to receive the full $1,200 check, regardless of her 2019 tax liability.

Scenario 2: John and Sally Smith, who file as a married couple with 2 children under the age of 17, had 2019 AGI of $125,000.  In this scenario, they are entitled to receive a check for $3,400 as part of the individual stimulus payments.

This form is to be completed by the Applicant and all individuals identified below and submitted to your SBA Participating Lender. Submission of the requested information is required to make a determination regarding eligibility for financial assistance. Failure to submit the information would affect that determination.  View Form Here »

The Paycheck Protection Program (“PPP”) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for everyone.  View Entire PDF »