Category Archives: Individual Tax Issues

We have compiled the following useful and concise information for your reference as you consider the various planning opportunities available to address the impact of the COVID-19 situation on nonprofit organizations.  After studying the recently enacted law and interacting with other professionals, by parsing through the voluminous CARES Act, Families First Coronavirus Response Act (“FFCRA”) and relevant peripheral materials, the following includes the highlights of the relevant relief available to you via the government stimulus packages:

FINANCING & GRANTS

• Loans available under the CARES Act provide the largest measure of assistance available via what is termed the “PPP”.  The borrowing amount is capped at a formula calculating the average monthly “Total payroll” incurred in a trailing 12-month period.  “Total payroll” includes employee compensation (not to exceed $100,000 annually per capita) + health insurance (employer share only) + PTO.  PPP loans will be obtained through traditional lending relationships (local / national banks) and NOT the SBA; best bet is to work with lenders with whom a borrowing relationship already exists as it may help expedite the process.   Our understanding is that local lenders will have finalized the application process and be in a position to initiate the approval process beginning April 3.  We recommend contacting lenders with whom the organization already enjoys a relationship as many banks are refusing to process the PPP applications for new customers without any other current bank connections.
• Forgiveness of any “PPP” loans received under the CARES Act will be available if proceeds are used for payroll, rent, utilities AND employee labor force or employee compensation after April 1 remains consistent with a pre-April 1 “measurement period”.
• An alternative loan program will be created in the future [“Midsize Business Loan Program”] will be established for organizations with > 500 employees whom plan to retain workforce.  No details have yet been released on this program.
• Independently, “Disaster Relief Loans” (referred to as “EIDL”) are available under the more traditional borrowing program offered by the SBA.  The on-line loan application is available at https://covid19relief.sba.gov/#/.
• What is interesting and somewhat confusing, the EIDL program administered by the SBA also includes a grant opportunity for up to $10,000 for businesses that have been severely effected by COVID-19.  The grant does not require repayment, nor does it obligate the recipient to execute an EIDL loan; furthermore, it does not preclude the business from also applying for the PPP.  Most prospective borrowers will apply for the grant through the SBA (which should be received on an expedited basis according to the Federal government’s stimulus objectives) while simultaneously applying for the PPP through their local lender.
• NC-based businesses may also apply for loans of < $50,000 under the “NC COVID-19 Rapid Recovery Loan” program administered by a consortium of local lenders and stakeholders, and funded by the “Golden Leaf Foundation”.  The loans will have favorable repayment terms and the application process is available on-line.

EMPLOYMENT

• Payroll tax deferment is available for employer FICA and Medicare due 4/1/20 – 12/31/20.  Any tax amounts deferred must be repaid in no less than 50% < 12/31/21 and the remaining 50% < 12/31/22.
• Payroll tax credit is available on up 50% of up to $10,000 of wages per employee (or $5,000 of credit per quarter) by meeting certain workforce retention criteria [50% of wages paid to retained labor force during period when business gross revenues decline > 50% or experienced at least a partial shutdown].  Any employer whom receive a PPP loan and loan forgiveness will be precluded from qualifying for an equivalent amount of payroll tax credit.
• EFMLA [“Family leave”] and EPSL [“Sick leave”] benefits paid out to qualifying employees will generate a payroll tax credit (rather than the normal deduction).  These “leave” and “sick pay” provisions provide a benefit to employees who file claims with compensation (at least in part) for up to 12 weeks in aggregate.  The mandatory leave provisions may not be applicable to anyone in the healthcare industry, however if a business already has family leave policies in place as part of their employee benefits, the policies should be be adhered to with regard to relevant claims made by employees whom are incapable of working due to COVID-19 issues.
• Employees whom are separated from service via layoff can qualify for Unemployment Insurance.  Filings are now made via on-line platform by the terminated employee directly.  Under NC Law, even employees whom were not fully terminated but experienced severe decrease in work hours may qualify to receive partial benefits.  Anyone properly terminated would be ineligible for EFMLA or EPSL; in addition, employees severed from service whom were participants in the group health plan will need to offered COBRA coverage.  [Note for exit- counseling purposes and temporary layoff planning, a terminated employee is typically not required to self-pay the monthly premium amount until after a 59-day grace period; therefore, if a business anticipates rehiring the terminated employee < 59 days following the expectation of a return to business activity suspended due to COVID-19, there may not be any additional premium cost to the employee nor significant interruption in health care coverage.  [However, each business should consult with its health plan advisor or representative to verify no other “breaks in service” nor “on-board delays” in coverage would apply under the terms of the group plan in place.]

CHARITABLE CONTRIBUTION MODIFICATIONS

• Individual taxpayers beginning in 2020 tax year may make a $300 tax-deductible contribution to public charities, and without any of the standard itemized deduction limitations.
• Normal Itemized Deduction AGI limitations [60% for 2019] are lifted in 2020
• Corporate Contribution Limitation [10% of net income for 2019] is increased to 25% for cash and food donations

CARES Act Relief Pertaining to Retirement Accounts

• The Act allows for “coronavirus-related” distributions from defined contribution retirement plans, such as 401(k), IRAs, and 403(b) plans, of up to $100,000, with the early 10% withdrawal penalty suspended. Income associated with these distributions would be subject to tax over a three-year period rather than in the current year. Taxpayers would be able to choose to repay their retirement plans after receiving these distributions if they wish.
• Coronavirus-related distributions include those made to individuals who have been diagnosed with COVID-19, a spouse or dependent of such individual, or those who experience adverse financial consequences as a result of the pandemic.
• The amount that an individual may borrow from a qualified plan is temporarily increased from $50,000 to $100,000.
• The Act suspends required minimum distributions (RMDs) in the year 2020 for various retirement plans, including IRAs, 403(a) and 403(b) plans, and 457(b) plans. Therefore, the 50% penalty associated with not taking an RMD is suspended in 2020.
• The RMD suspension covers first RMDs from 2019, which individuals may have deferred until April 1 of this year. Similarly, RMDs are waived for plan participants who turned 70 ½ in 2019 (prior to the enactment of the SECURE Act) and are required to take an RMD prior to April 1 of this year. Though we are waiting on official guidance from the IRS, we expect that if an RMD has already been taken in 2020, the plan participant has up to 60 days to deposit it back into a qualified retirement account. We expect further guidance on a number of questions raised by the Act, including the treatment of 2019 RMDs taken in 2020.

Details continue to be released and we will keep you posted as to any new developments, and of course feel free to contact us should you need further information.