On April 6, 2020 The Treasury Department issued updated FAQ’s which clears up most of the confusion in the computation of the maximum loan amount and discusses other matters under the Paycheck Protection Program.
Some of the major clarifications are as follows:
- The Gross Payroll approach should be used for both loan application and forgiveness. The guidance also clarifies that employer FICA should not be included.
- The $100,000 salary limitation does not include healthcare, retirement benefits, and state and local taxes.
- Applicants who use Professional Employer Organizations (PEOs) can provide payroll reports since they cannot produce individual entity payroll tax documents.
- Borrowers can calculate their aggregate payroll costs using data either from calendar year 2019 or from the previous 12 months. The FAQs also provide information for businesses that have been in operation less than 12 months.
THE CARES ACT:
Confusion over the PPP Loan Program (analysis as of April 5, 2020)
As you’ve probably noticed applying for a PPP Loan has been fraught with conflicting instructions, contradictory rules, lenders not prepared to accept applications and constant last minute changes in the application form. Borrowers and Lenders are both confused. [UPDATE : Treasury Department issued FAQ’s on April 6, 2020 to clarify many of the following items].
The items noted below are some of the confusing items that we have noted, but there may be others surrounding affiliation rules and other aspects of the law and the regulations concerning the PPP loan application process. We’ve identified some of the more significant items that have been confusing to borrowers and lenders alike, and require further clarification from the SBA and U.S. Treasury Department.
Maximum Loan Amount
a) The regulations under Step 1 of “How do I calculate the maximum amount I can borrow?” indicate the applicant aggregates payroll costs from the last twelve months, as does the actual text of the law. However, under “What do lenders have to do in terms of loan underwriting?” the regulations instruct lenders to confirm the Payroll Costs for the 2019 calendar year. The PPP loan application says “For purposes of calculating “Average Monthly Payroll,” most Applicants will use the average monthly payroll for 2019…….” This was and remains an open question and source of confusion for those trying to calculate their maximum eligible PPP loans. The American Institute of Certified Public Accountants (AICPA) has contacted Treasury to get clarification on what period of time to use in the calculations. [UPDATE : Treasury Department issued FAQ’s on April 6, 2020 to clarify this].
b) Another contradiction between the law and regulations concerns whether federal income tax and FICA tax withheld and employer FICA taxes need to be deducted in calculating payroll costs. The four maximum loan calculation examples in the regulations do not mention a deduction for these taxes. However on page 10 of the regulations the question is asked “Is there anything that is expressly excluded from the definition of payroll costs?” and one of the answers says “Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees;” is one of the excluded items. This is also mentioned in the law. We have noted that a ADP programmed its special reports to assist the PPP loan applicants and deducted these taxes from payroll costs for the period mentioned above, but also for all periods in 2019, which clearly doesn’t seem to track with the law or the regulations. The AICPA has contacted Treasury to get clarification on what period of time to use in the calculations and whether the intent of the law was to deduct these items at all, as it seems contradictory to what the lawmakers intended.[UPDATE : Treasury Department issued FAQ’s on April 6, 2020 to clarify this]. [UPDATE April 6, 2020: ADP has contacted its customers with the following: “As a result of the latest guidance from the government on April 2, 2020 regarding the Paycheck Protection Program under the CARES Act, we updated our payroll cost reporting tool so that payroll costs do not exclude federal employment taxes or federal income taxes on employees withheld by the employer. If you ran your payroll cost report before April 5, 2020, we encourage you to re-run your report, and as close in time as possible to submitting your application to your lending institution. As a result of this change in the method of calculation, you may be eligible for a higher PPP loan amount than if you ran a report before April 5. If you already filed your SBA loan application, you will need to work with your SBA lender to determine whether and how you can submit revised information.”
c) Some commentators have said that the $100,000 limitation on Salary, wages, commission, or tips as described in the CARES Act law applies to all of the payroll costs. For instance a major media outlet reported “However, payroll costs are capped at $100,000 on an annualized basis per employee. And while that might be sufficient for many parts of the country, it could fall short in some of the more expensive metro areas – like New York City – where the cost of living is higher.” This appears to agree to the four examples in the regulations (in the Interim Final Rule). However both the law and the Treasury’s PPP INFORMATION SHEET for borrowers seems to contradict the regulations. The law says “the compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period” [is excluded] and the PPP INFORMATION SHEET is contradictory in two places in that document. Firstly it says “Payroll costs [these are salary, wages, commissions,or tips, employee benefits, state and local taxes assessed on compensation]are capped at $100,000 on an annualized basis for each employee” but further down there is a question and answer that says “What counts as payroll costs? Payroll costs include:”Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee)” with no mention of the other costs that are in the definition of “payroll costs.” [UPDATE : Treasury Department issued FAQ’s on April 6, 2020 to clarify this].
Independent Contractors and Self Employed
We now know that independent contractors and self-employed individuals must apply for their own PPP loan and should not be included in the businesses’ that paid them. A question remains regarding active LLC members and active partners in a partnership. There is no specific guidance about if and how active members of LLC’s and active partners of partnerships that are allocated self-employment income should report their self-employment income for purposes of a the maximum loan computation under the Paycheck Protection Program, and whether they are even entitled to receive a PPP loan. We’ve heard one bank tell its customer to remove the active LLC member’s self-employment income and distributions from payroll costs.
a) With respect to item 1 b) above, the deduction for FWT and FICA taxes in computing payroll costs would affect the amount of loan forgiveness. If these costs reduce payroll costs, as defined in the law, then loan forgiveness will be that much less, and borrowers will be caught holding the bag for the taxes which will wind up being a loan payable in two years. Effectively the government would only be forgiving the amount equal to net pay (plus other eligible costs, i.e. rent, utilities and mortage interest) instead of gross pay plus those other eligible costs that are paid over the following eight weeks after receiving the PPP loan. The AICPA has contacted Treasury to get clarification on whether to use Gross or Net Pay and for what periods. [UPDATE : Treasury Department issued FAQ’s on April 6, 2020 to clarify this].
b) The law indicates PPP loan principal is eligible for forgiveness and interest could be deferred but would eventually be payable by the borrower. The regulations, under “Can my PPP loan be forgiven in whole or in part?” indicates that loan forgiveness can be up to the full principal amount of the loan and any accrued interest. You should seek clarity on this aspect from your lender.
c) It’s been clarified by the regulations that not more than 25 percent of the loan forgiveness amount may be attributable to non-payroll costs. The SBA has determined that the non-payroll portion of the forgivable loan amount should be limited to effectuate the core purpose of the statute and ensure finite program resources are devoted primarily to payroll.
RotenbergMeril will continue to provide you with the latest information on the above issues and other matters concerning the CARES Act. Stay tuned!
RotenbergMeril is here to assist you.
Rotenberg Meril provides the information in this e-publication for general guidance only, and it does not constitute the provision of legal advice, tax advice, accounting services, or professional consulting of any kind.
RotenbergMeril is a separate and distinct legal entity and is liable only for its own acts or omissions and not those of any other person or entity including BDO USA, LLP, and the member firms of the BDO Alliance USA and BDO International Limited.
Offices in New York City & New Jersey & represented across the USA & Internationally through our strategic alliance with BDO Alliance USA & BDO USA, LLP.
We’ve put together a summary comparison of the two SBA sponsored loan programs that were authorized by the CARES Act.
Please click the button below to see the comparison.
If you apply for the EIDL loan, businesses can get a $10,000 cash advance grant. The cash advance does not have to be repaid if spent on “maintaining payroll and other operating expenses.”
The current timeline suggests that business owners would have access to cash advance funds within three days of a successful application. If a PPP loan is also taken, the $10,000 cash advance grant would be applied to reduce loan forgiveness under the PPP loan program.
RotenbergMeril has a put together a Covid-19 Response Group to help clients deal with the financial and tax aspects of government relief during the pandemic.
Small Changes That Have a Big Impact on Employee Satisfaction
BY DIANE OPUDA, CPA, ROTENBERGMERIL
As the way in which we work continues to evolve, employers that stay ahead of the curve and keep up with the changing demands of employees are more likely to attract and retain talent. Professionals today consider many more factors than just salary and potential career growth when they decide who to work for and whether it’s time to make a move. Talented professionals are demanding more from their employers, but many of these new demands can be easily met, even for smaller employers. That’s because it’s often just a matter of changing an attitude or policy, rather than making a costly new investment. So, what is the most important intangible factor of employee satisfaction? Flexibility! In its many forms, flexibility is what will help today’s employers reduce turnover, improve morale and attract skilled individuals.
IMPLEMENT FLEXIBLE SCHEDULING
One of the easiest changes an employ-
er can make is implementing a flexible schedule. In the context of a professional office, allowing employees to complete their required hours on a flexible basis is a necessity in today’s competitive environment. The idea of work-life balance is a concept most people in today’s employment market consider very important, and there are many simple ways an employer can significantly improve the feeling of work-life balance in their employees. For example, employees who have difficult commutes could save hours of travel time per week if they had the option to come in an hour earlier or later. Similarly, some employees have difficulty getting kids to or from school or daycare while still meeting their employer’s traditional workday start and end times. For them, being able to vary their work hours is of significant value.
If an employee wants to attend a child’s event at school or take care of a personal errand during the day, let them do so with the understanding they will make up the time that week and still get their work done. If your company is using laptops, allow employees to work from home occasionally if they need to wait for a repairperson or look after a sick child. A big mistake employers make that leads to dissatisfaction by their employees is to demand too much control over the employee’s time or schedule. Requiring them, for example, to clock in and out and enforcing strict arrival and break times is counterproductive.
Flexibility of the employee’s agenda is also important. An employee who understands their tasks and deadlines and what is necessary to complete them will often dislike a manager telling them how to do their job when they aren’t asking for help. Being respectful of different work styles and an employee’s ability to manage their own agenda allows self-motivated people to build confidence and perform at a higher level. Micromanaging an employee sends a message that you do not trust the employee’s own judgement or skills, and this will certainly lead to resentment and dissatisfaction.
IMPROVE THE WORK ENVIRONMENT
Allowing flexibility of the employee’s physical environment is another way an employer can vastly improve how an employee feels and performs without making a huge change or investing a great deal of money. Creating a comfortable environment is important because people are more productive when they feel comfortable. This can be achieved in many ways. For example, allow employees to control the air temperature of their workspace whenever possible. For employees who are not client-facing or do not see clients or customers on a daily basis, allow dress that is casual but neat, including jeans. Demonstrate that you are concerned for your employees’ well-being by using modern office equipment such as standing desks and ergonomic keyboards. Making an effort to improve the employee’s perception of their value to the company through simple changes to the physical environment can go a long way toward improving employee satisfaction.
An old-fashioned attitude toward managing employees is to treat them like children, requiring strict rules and oversight under the assumption that, without them, employees will take advantage of their freedom and under perform. The modern employer understands that when people are given trust through flexibility, they will act responsibly and not only work harder, but feel happier in their employment. In turn, the employer will benefit from improved recruitment and retention rates.’
Diane Opuda, CPA, is a manager at RotenbergMeril. She is a member of the NJCPA and can be reached at firstname.lastname@example.org.
As seen on ABC 7 – February 11th, 2019
The 16 million Americans who have already filed their federal tax returns are seeing, on average, an 8.4 percent drop in their refund amount so far this year, according to new data from the IRS.
far in 2019, the average refund clocks in at $1,865, a decrease from
the $2,035 average refund at this point in last year’s tax season.
The agency said it has processed 24.3 percent fewer refunds this year. As of Feb. 1, 2019, the IRS had paid out $8.713 billion to 4,672,000 people. By Feb. 2, 2018, though, it had paid out $12.56 billion in refunds to 6,171,000 taxpayers.
Data released this week also showed an overall 12.4 percent decrease in the number of tax returns received and a 25.8 percent decrease in the number of returns processed compared to 2018.
AICPA’s National A&A Resource Center
August 29, 2018
Amendments to Fair Value Measurement Disclosures
Center for Plain English Accounting
AICPA’s National A&A Resource Center
Amendments to Fair Value Measurement Disclosures
August 29, 2018
On August 28, 2018, the FASB issued Accounting Standards Update (ASU) 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in ASU 2018-13 apply to all entities that are required, under existing U.S. generally accepted accounting principles (U.S. GAAP), to make disclosures about recurring or nonrecurring fair value measurements. Certain of the disclosures that are required by the amendments in ASU 2018-13 are not required for nonpublic entities.
Removed Disclosure Requirements
The amendments in ASU 2018-13 remove the following disclosure requirements from FASB Accounting Standards Codification (FASB ASC) 820, Fair Value Measurement:
- The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy
- The policy for timing of transfers between levels
- The valuation processes for Level 3 fair value measurements
- For nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period
Modified Disclosure Requirements Continue reading
Form 1099 Filings
The IRS has become stricter with 1099 information reporting and filings by assessing harsher penalties. The penalties associated with missing the deadline or not filing 1099s can range from $30 to $100 per form, with a maximum fine of $500,000 per year. If the IRS determines there is intentional disregard of the requirements, the penalty can reach as high as $250 per form, with no maximum.
For the 2017 calendar year, Form 1099-MISC are due to be provided to recipients by January 31, 2018. Form 1099-MISC must also be filed with the IRS (and states, if applicable) by January 31, 2018.
Other 1099 series forms are generally due to the Recipient by January 31, 2018 and to the IRS by February 28, 2018 if paper filing, and by April 2, 2018 if electronic filing.
If you are submitting 250 or more 1099 forms, you must file electronically.
IRS Form 1099-MISC summarizes payments made to unincorporated businesses and individuals and to all lawyers and law firms regardless of type of entity. You must send out a Form 1099-MISC if your business paid $600 or more during the year to such businesses or individuals; this includes any partnerships or Limited Liability Companies you may have contracted throughout the year. If you have not obtained a Form W-9 from your vendors indicating the type of entity they are, you should assume if the name of the business does not include “Inc., Incorporated or Corporation” in its name, it is an unincorporated business, and a Form 1099-Misc would be required. Continue reading
2017 Tax Reform: Client Letter on last-minute year-end moves in light of Tax Cuts and Jobs Act
Congress is enacting the biggest tax reform law in thirty years, one that will make fundamental changes in the way you, your family and your business calculate your federal income tax bill, and the amount of federal tax you will pay. Since most of the changes will go into effect next year, there’s still a narrow window of time before year-end to soften or avoid the impact of crackdowns and to best position yourself for the tax breaks that may be heading your way. Here’s a quick rundown of last-minute moves you should think about making.
Lower tax rates coming. The Tax Cuts and Jobs Act will reduce tax rates for many taxpayers, effective for the 2018 tax year. Additionally, many businesses, including those operated as passthroughs, such as partnerships, may see their tax bills cut. Continue reading
Although millions of Americans are using “sharing economy” services such as Uber and Airbnb, states are struggling to apply existing tax laws to these technologies.
Only eight states require companies such as Uber to collect sales tax, while a number of states consider this to be a nontaxable transportation service, according to Bloomberg BNA’s 2017 Survey of State Tax Departments. Moreover, 25 states said that the owner of property listed for short-term accommodations on a third-party site such as Airbnb is responsible for collecting the sales tax, while 15 states said that the third party was responsible. A number of states hold both the owner and the third party responsible for collecting the tax.