With the public health restrictions to curb the spread of coronavirus cases, we know this is a trying time for many small businesses. We're compiling resources for relief and assistance here.
We've started a bank of the most frequently asked questions we're getting from business owners, and have archived the audio files from our Friday conference calls. If you can't find your answers here, please email us your questions.
Last updated 2/10/21
>> 2021 BREAKING NEWS: A new COVID relief package for small businesses was signed into law on Dec. 27, 2020. It includes funding for another round of PPP loans, full tax-deductibility of PPP expenses from prior rounds, and a simplified forgiveness process for PPP loans under $150,000. Plus, EIDL advances will not be considered taxable income, the Employee Retention Credit program was expanded, and individuals may qualify for $600 stimulus payments based on their 2019 tax returns.
This good news comes at a very busy time for our tax firm. This FAQ page has yet to be updated with details of the new rules. Until then:
Our Firm's Actions
To do our part in preventing the spread of coronavirus, The Business Guides' office in Port Townsend closed to the public on March 23, 2020. This closure was first posted on our Facebook page, which is the place to check for breaking news.
We're continuing to answer phone calls and emails and prepare tax returns during our regular business hours. We will gladly accept your tax data or signed forms in our secure outdoor dropbox, which we check frequently. We're continuing to accommodate our clients with phone meetings and by keeping our staff healthy.
If you have made prior arrangements to visit our office, say to pick up or sign documents, please wear a cloth face covering for your safety and ours.
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Business Owner FAQ
This webpage is provided for general information and illustration purposes only. Please keep in mind this information is changing rapidly and is based on our current understanding of the programs. It can and likely will change.
Although we will be monitoring and updating this as new information becomes available, please do not solely rely on this for your financial decisions. Nothing contained in this material constitutes tax advice or legal advice. We encourage you to consult your accountant and/or legal counsel for advice specific to your situation.
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Q: Who is currently eligible to apply for the SBA's Economic Injury Disaster Loan (EIDL) program?
A: As of June 15th, the program has reopened to all small businesses (with under 500 employees) that are experiencing economic impacts due to COVID-19. For the two months prior, only agricultural business EIDL applications were being accepted. LEARN MORE on the SBA's EIDL website.
This is an existing loan program typically used after natural disasters that was expanded in March to include coronavirus as a qualifying "disaster." Because of the high demand for the EIDL, the SBA capped the maximum loan amount available to $150,000. EIDLs can be approved by the SBA based solely on an applicant’s credit score (not repayment ability) and no tax return is required to apply. Sole proprietors and independent contractors may apply.
For the first few months, loan offers to a business could include an "advance" of up to $10,000 (based on $1,000 per employee) that did not have to be repaid. After $20 billion in emergency funding was disbursed, the SBA on July 11th announced the closure of the advance program. EIDL loan applications will still be processed even though the advance is no longer available.
EIDL funds are intended to be used for "working capital" to keep your business operational in the short term, and can be used for a wide range of immediate business expenses, including payroll, rent, general operating expenses, and accounts payable. They can be used for fixed debt payments, but they cannot be used to pay off or refinance long-term debt, or for payments to "investor owners" who don't work in the business. Don't use your EIDL loan to take distributions from your company, or pay off a loan to yourself as the owner. Due to the "emergency" nature of these loans, the funds also cannot be used for repairs, capital improvements, or relocating your business. Choice Bank has easy-to-scan lists of eligible and ineligible expenses
If you already have a PPP loan, any EIDL advance you received will be subtracted from the forgiveness balance of your PPP loan, and you could end up carrying a balance on your PPP loan, even if you qualified for "full forgiveness."
Q: I applied for an EIDL, received the advance, and now have a loan offer. Do I have to accept the loan? What factors should I consider in deciding to accept it?
A: You may keep the EIDL advance (which does not have to be repaid or returned) even if you don't accept the loan offer. There is no other "forgiveness" element to the EIDL, unlike the PPP loan.
EIDLs are 30-year loans and the interest rate is 3.75% for small businesses. EIDLs smaller than $200,000 can be approved without a personal guarantee. EIDLs greater than $25,000 come with significant liens and constraints (see next FAQ).
The first payment is not due for 12 months but interest begins to accrue right away and is apparently added to your original loan amount for repayment. There are no prepayment penalties, so unspent funds may be "returned" at any time to reduce the loan amount. Create an account at Pay.gov to make your SBA 1201 Borrower Payment.
Calculate the annual interest cost of your offered EIDL by multiplying your loan amount by 0.0375. If you decide to accept the EIDL as a "just in case" loan, that's how much you'll pay for the privilege for the first year. Interest accrues daily.
You have two months to sign loan documents after an offer is made. The loan offer is made by email, and ignoring it is not recommended, even if you don't intend to take the loan. To avoid fraud, sign up for your EIDL portal account to claim and monitor your account, or to formally decline the loan offer.
This 5/20/20 Forbes article has a good overview of things to consider when accepting an EIDL. It may be helpful if your EIDL application has finally been processed and you're trying to decide whether to accept a loan. We can't know what the future will hold, and its presence in your bank account for the near term might give you peace of mind. A more cautionary analysis is provided in this 7/28/20 Forbes analysis.
A sample EIDL Loan Authorization & Agreement can be viewed here. This is the closing document that all borrowers must sign.
Q: How are borrowers constrained when accepting EIDL loans? I've heard there are constraints on collateral and owner distributions as well as employee bonuses.
A: EIDL loans come with significant constraints, so think carefully about whether you want to be so constrained for the entire length of your loan.
The borrower may be able to choose his/her desired loan amount from a range offered by the SBA. Loans of $25,000 and below do not require any collateral; above $25,000, business assets such as inventory and equipment are used as collateral. (No personal assets are considered.) The loan documents state that you can't sell, lease or otherwise transfer any part of the collateral during the entire length of your loan without SBA approval.
Another constraint placed on EIDL borrowers is the "limits on distribution of assets." Loan documents state that you may not, "without the prior written consent of SBA, make any distribution of Borrower's assets...by way of loan, gift, bonus, or otherwise, to any owner or partner or any of its employees." We have spoken with SBA staff to confirm this includes S-Corp owner distributions and bonuses, along with employee bonuses. However, we understand these are not constrained for the entire length of the loan, but only while you hold unspent EIDL funds. Our interpretation is that once you appropriately spend your EIDL funds (and retain documentation of this in case of an audit), you regain your "distribution rights" and can once again take owner distributions and give bonuses without seeking prior approval from the SBA.
A sample EIDL Loan Authorization & Agreement can be viewed here. Here are three outside analyses of what the loan terms mean:
• A business attorney walks through the document paragraph by paragraph in this 50-minute video.
• A financial advisor provides interpretation on key paragraphs in this article.
• A CPA shares bulleted thoughts on signing his own loan documents in this article.
A: Yes. The government has made it clear that you can have both types of loans as long as they are used for different expenses or “not for the same purpose.” Keep the funds separated and document that you spent the funds from each program on separate expenses. (No double dipping!) With both in hand, the PPP is well suited for payroll expenses and the EIDL can be used for other operating expenses.
If you already have a PPP loan, any EIDL advance you have received (these are no longer available for new EIDL applicants) will be subtracted from the forgiveness balance of your PPP loan and you could end up carrying a balance on your PPP loan, even if you qualified for "full forgiveness."
If you get an EIDL advance before you apply for a PPP loan, you will either receive a PPP loan that has been adjusted downward by that amount, or the amount forgiven will be reduced by an amount equal to the advance. Bottom line: you can't get the $1,000-per-employee EIDL "grant" and have the PPP loan fully funded and forgiven.
Q: What is the Paycheck Protection Program (PPP)?
On June 5th, the Paycheck Protection Program Flexibility Act (Flexibility Act) was signed into law and complying with the terms of these loans became a lot less onerous and more attractive. (See next FAQ.)
The loan amount can be up to 2.5 times your average monthly payroll costs, and can be fully forgiven if you spend it appropriately during the 24 weeks following your loan date. (This period was originally eight weeks, but has been expanded to 24 weeks.) The PPP loan has a maturity of 5 years, with an interest rate of 1%, and all payments of principal, interest and fees are deferred until the SBA determines your loan forgiveness amount (and therefore the amount of your loan.)
You apply not with the SBA, but with a qualified bank or approved lender. Here is the standard application form (revised 1/8/21). Many banks limited applications to clients who do their business banking with them. Some fintech lenders were accepting applications. Here is one list of non-traditional lenders.
Q: What changed as a result of the Paycheck Protection Program Flexibility Act signed into law on June 5th?
A bill to expand the PPP loan forgiveness window from 8 weeks to 24 weeks was signed into law on June 5th. It included other more generous rules for how small businesses can spend their PPP loan funds and still have them forgiven. SHORT SUMMARY & LONGER SUMMARY on Forbes.
"[T]he move to a 24-week covered period greatly increases the chances a borrower will accumulate enough costs to achieve full forgiveness, even in the event that FTEs can’t be retained and none of the safe harbors are available. And...full forgiveness for a self-employed taxpayer with no employees is now guaranteed," writes Anthony Nitti in this 6/17/20 Forbes analysis. In it, he also walks through the forgiveness application line by line. Well worth a read!
In addition to expanding the loan forgiveness (covered) period from 8 weeks to 24 weeks, the Flexibility Act made these key changes to the PPP Program (source: Forbes article, 6/17/20, by Brian Thompson):
On June 16th the SBA released its new forgiveness application (with separate instructions) which is only 5 pages long and much more straightforward than the first (now defunct) one. Work through Schedule A to see how the new FTE rules affect your business. There is a shorter 3-page EZ version" (with separate instructions) that applies to borrowers that:
Only ONE of the above must be true. View the official 3-part checklist here, at the top of the Form EZ instructions.
On Oct. 8th the SBA released a new rule with "administrative relief" for borrowers of loans less than $50,000. It's not the automatic forgiveness many were hoping for, but it does streamline the application (there's a new Form 3508S, only one page long). Another change is that the amount eligible for forgiveness (by borrowers under $50,000) is no longer subject to reduction if the business owner reduced salaries/wages or headcount. The lender still needs to see documentation of expenses, and the cap on owner wages remains in place. This 10/8/20 Forbes article provides a good overview of the rule.
Q: What expenses are forgivable under the Paycheck Protection Program (PPP)?
A: The forgiveness rules are complex, and have changed over time, with the most recent changes coming in the Paycheck Protection Program Flexibility Act signed into law on June 5th. The SBA's official forgiveness application and instructions (along with the EZ form and instructions) were released on June 16th and are your most current source of detailed information on how the SBA will calculate your forgivable loan amount, and the documentation you are required to submit. FIND THEM HERE.
Forgivable expenses are: payroll costs, mortgage interest, rent, utilities (payments for a service for the distribution of electricity, gas, water or transportation), and group health insurance premiums paid by your company. Only the state and local payroll taxes (not federal taxes) assessed on employee compensation and paid by the employer are eligible for forgiveness.
Note that the current IRS guidance states that the expenses for which you use the PPP funds will not be tax-deductible, so it's especially important to track these separately from your other expenses.
Although payroll costs for employees are more generously expanded for the new 24-week covered period, forgivable owner compensation under the new rules is calculated thus: for all owner-employees, self-employed individuals, or general partners utilizing the new 24-week period, you can pay yourself 2.5 months’ worth of your 2019 compensation up to a max of $20,833 (the 2.5-month equivalent of $100,000 per year). For an 8-week covered period, this amount is capped at 8/52 of 2019 compensation (up to $15,385).
What's the definition of "2019 compensation"? Sole proprietors use 2019 net profit (Sched C, line 31). It's more complicated for S-Corp owners, but in general it's your 2019 W-2 wages plus health insurance premiums and retirement contributions paid by the corporation. It does not include 2019 owner distributions. The math is simple: take this 2019 amount, divide by 12 and multiply by 2.5. That's how much you can pay yourself out of your PPP loan funds and have it be considered for forgiveness.
You're allowed to spend 100% of your loan amount on payroll, and for many self-employed owner/operators, the expanded 24-week window will allow them to do just that, and have the loan fully forgiven (minus any EIDL advance if the timing warrants this).
A: The first PPP loan payments are due 10 months after the end of your covered period. There is no defined deadline for submitting the forgiveness application, but based on the timelines the lenders and the SBA have to follow, a borrower could wait up until 5 months after the end of their covered period to apply for forgiveness. Read on for more details.
On Oct. 8, 2020, the SBA released a new rule with "administrative relief" for borrowers of loans less than $50,000. It's not the automatic forgiveness many were hoping for, but it does streamline the application (there's a new Form 3508S, only one page long). Another change is that the amount eligible for forgiveness (by borrowers under $50,000) is no longer subject to reduction if the business owner reduced salaries/wages or headcount. The lender still needs to see documentation of expenses, and the cap on owner wages remains in place. This 10/8/20 Forbes article provides a good overview of the rule.
Some lenders are still asking PPP borrowers to WAIT on submitting their forgiveness applications, especially if their covered period has not yet ended. PPP guidelines have changed multiple times, and there is a chance that they may change again.
If you received your loan before June 5th, you as the borrower can tell your lender whether you'd prefer to apply for forgiveness under the original 8-week window, or the more expansive 24-week window.
On June 22nd, the U.S. Department of the Treasury clarified that if you have used all of the loan proceeds for which you are requesting forgiveness, you can apply for forgiveness at any time. "This is welcome news for many who were going to spend their entire Paycheck Protection Program (“PPP”) loan after the eight-week period, but well before the end of the 24-week period. A company that spent all of its PPP monies by week 10 will not have to wait another 14 weeks to apply for forgiveness," say the folks at GBQ, before cautioning that the wage and FTEE reduction calculations become more complicated. However, PPP borrowers that apply early for loan forgiveness forfeit a safe-harbor provision allowing them to restore salaries or wages by Dec. 31 and avoid reductions in the loan forgiveness they receive. The guidance is less clear on FTEE (head count) reduction. If you are considering early application, read more in this GBQ article and this Journal of Accountancy article.
Meanwhile, it's best practice to closely track your eligible spending and staffing levels; you should expect to be required to submit documentation supporting your loan forgiveness application. Note that the current IRS guidance states that the expenses for which you use the PPP funds will not be tax-deductible, so it's especially important to track these separately from your other expenses.
As we understand it, the process looks like this: You'll complete the SBA's forgiveness application and submit it to your lender, or complete it electronically through your lender's portal. The lender will review your documentation and make a recommendation on the forgivable amount to the SBA, but it's the SBA that makes the ultimate decision. Your lender must make the recommendation within 60 days, and the SBA has another 90 days to make the final decision.
The first PPP loan payments are due 10 months after the end of your covered period, so it stands to reason that the loan amount (even if it's zero) must be determined by then. There is no defined deadline for borrowers submitting the forgiveness application, but this math suggests a borrower would have up until 5 months after the end of their covered period to apply for forgiveness, giving the lender and the SBA another 5 months to process the application. Check with your lender for their specific guidelines.
Choose from one of three applications when it’s time to apply for forgiveness on your PPP loan: the original application, a streamlined application for borrowers of loans less than $50,000 (Form 3508S), or an "easy" application ( Form 3508EZ) for those who are self-employed or meet other criteria (see previous FAQ).
Bench.co has straightforward explainers for how to fill out the standard forgiveness application and the EZ application. We also like the line-by-line explanations, examples and case study in Anthony Nitti's 6/17/20 Forbes post.
Q: How do Paycheck Protection Program loans impact other benefits available via the CARES Act?
A: Notably, acceptance of a PPP loan makes a business ineligible for the Employee Retention Credit (of up to 50% of up to $10,000 of wages per employee; see this FAQ), while forgiveness of such a loan makes a business ineligible for the deferral of payroll taxes (through the end of 2020) that would otherwise be allowed.
If you got an EIDL advance (not currently available to new EIDL applicants), you will either receive a PPP loan that has been adjusted downward by that amount, or the amount forgiven will be reduced by an amount equal to the advance. Bottom line: you can't get the $1,000-per-employee EIDL "grant" and have the PPP loan fully funded and forgiven.
It’s not clear how PPP or EIDL funds affect your ability to receive Pandemic Unemployment Assistance (PUA), per this Forbes article. The only guidance that we’ve received from the Treasury states “you should be aware that participation in the PPP may affect your eligibility for state administered unemployment compensation or unemployment assistance programs, including the programs authorized by Title II, Subtitle A of the CARES Act, or CARES Act Employee Retention Credits.” It's best to avoid double dipping. In most states, you do have to certify your income every two weeks. If you are using PPP or EIDL funds for payroll, you should let them know.
Q: Are there any non-SBA loan options?
A: The decision to take on debt in an emergency situation is one that we don't advise on lightly. That said, the SBA loans have attractively low interest rates, repayment terms, and "free money" options. You can always apply to your bank for a regular business loan (if they're not swamped processing PPP applications). If you have home equity, you may be able to use a line of credit (HELOC) to finance your business. We have seen local credit unions offering HELOCs as with rates as low as 2%. Check with your mortgage lender.
Here in Jefferson County, the Local Investing Opportunities Network (LION) helps businesses connect with individuals willing to loan money, with loan terms to be agreed upon by both parties. These terms can sometimes be very favorable -- especially if the lender is a loyal customer of yours! LION has established a fast-track process for COVID-19 Recovery Loans.
Your business might be better off using a tax credit instead of pursuing a loan, especially if it has a large number of lower-wage employees. See this FAQ about the new Employee Retention Credit, a payroll tax credit.
Q: What are some best practices for accounting for my loan funds? And will any portion of my loan be considered taxable income?
A: If you receive an EIDL or PPP loan, a sound recommendation is to put those funds in a separate bank account to better track how they're spent. If you use QuickBooks or a similar accounting system, you could create a virtual sub-account in your bank accounts to segregate the funds.
Document, document, document. Keep itemized receipts, and save scanned copies or images in a separate folder on your computer so you can quickly drag and drop them into the lender's online portal when you need to show how loan funds were used.
Also document how you reached a conclusion and the location of the guidance that informed that conclusion. You don’t want to have to search back through the many interim final rules, FAQs, and applications to track down guidance to explain the justification for information you provide in your loan forgiveness application.
In your accounting system, both the PPP and EIDL loan funds (not the EIDL advance) would be entered as long-term liabilities. Later on, if part of the PPP loan is forgiven, you can use a journal entry to move the forgiven amount from the liability account to an "Other Income" account. EIDL advance funds should be booked directly to "Other Income."
In general, receipt of and payment of loans does not impact your income statement, only the balance sheet. The EIDL loan is a standard loan this way, but EIDL advances (which do not have to be repaid) are treated as taxable income as this money is a grant, not a loan.
Forgiven PPP loan amounts are not technically treated as taxable income, but the current IRS guidance states that the expenses for which you use the PPP funds will not be tax-deductible. Congress has been urged to allow full deductions for PPP-related business expenses, but so far no policy has been issued. If you are our tax client, we'll help you sort this out when we file your 2020 tax returns.
Here is some additional guidance from GBQ on accounting for your PPP loan.
Applying for Pandemic Unemployment Assistance, particularly as a self-employed small business owner, was the topic of our 4/24 conference call with a panel that included a human resources specialist and a health insurance broker.
Q: I'm a small business owner whose business is negatively affected by the coronavirus restrictions. Can I get unemployment benefits?
A: In Washington State, as of April 18th, likely yes! Officers of S-Corps, sole-proprietors, and self-employed workers impacted by COVID-19 may be eligible under the expanded unemployment insurance options funded by the CARES Act.
Washington State started accepting applications for expanded unemployment benefits (aka Pandemic Unemployment Assistance, or PUA) on April 18, 2020. The process is to first apply for regular benefits through the Employment Security Department (ESD), and when your application is denied (an alert will show up in your eServices account and email inbox), you then can apply for Pandemic Unemployment Assistance. (More info on the process here. Be prepared with the ESD's Eligibility Checker, Application Checklist, and free webinars.)
Very good resource: 18-page Expanded Pandemic Unemployment Benefits Guide for the self-employed and independent contractors (dated April 2020).
Unemployment income does not count as either wages from your business or income to your business. But the income is taxable to you as an individual. You can choose to have 10 percent of your weekly benefits deducted for income-tax purposes, to avoid a large tax bill next April. You can stop and restart the deduction for taxes from your weekly benefits at any time from your eServices account.
Under the old rules, most small business owners were generally not eligible for unemployment benefits unless their business was fully dissolved. See #41 on the Employment Security Department's website HERE.
Q: What do I do when my unemployment benefits are exhausted?
A: When you’ve exhausted your regular unemployment benefits, you should first apply for Pandemic Emergency Unemployment Compensation (PEUC). PEUC is a federal program to continue benefit payments to unemployed workers that have exhausted their benefits during the COVID-19 pandemic. PUA recipients are apparently eligible to apply. After 26 weeks on regular Unemployment Insurance (UI) or Pandemic Unemployment Assistance (PUA), workers will receive a notice of final payment for their current program and a prompt to apply for PEUC (if eligible). It provides up to 13 weeks of additional benefits.
An Extended Benefits program is available for workers affected by the current high unemployment rate. Up to 20 weeks are available for qualifying claims. It's available after your regular unemployment benefits and other extensions, like PEUC, have run out. Only regular UI claimants may apply; PUA claimants are not eligible.
Learn more about extended benefits on this ESD webpage.
In order to receive these benefits, you must apply. The easiest way to apply is using eServices.
Q: Do I have to lay off my employees so they can receive unemployment benefits?
A: Not necessarily. The Employment Security Department has expanded several programs that can help businesses affected by coronavirus, including layoff aversion programs. Emergency rules have been enacted to relieve the burden of temporary layoffs, isolation and quarantine for workers and businesses. These include SharedWork, standby, and partial employment programs. We're mostly encouraging the use of standby status, whereby your staff members will be able to receive the additional $600 weekly benefit provided by the federal CARES Act through the end of July. See ESD’s Employer COVID-19 web page for more information.
The federal CARES Act expands unemployment assistance to those not currently eligible who have been impacted by COVID-19, and provides an additional $600 per week to all unemployment recipients through July 31, 2020. The job search requirement is optional during this crisis. ESD plans to be able to make retroactive payments for both the weekly benefit amount owed as well as the additional $600 per week.
ESD rolled out its expanded unemployment programs on April 18, 2020. We understand benefits can be retroactive to the date the CARES Act became law, which was March 23rd. A worker may not be eligible if any of the following situations apply:
• I quit my job for reasons unrelated to COVID-19. • I quit my job for reasons unrelated to COVID-19. • I quit my job just to collect unemployment benefits. • I am currently receiving vacation leave, sick leave or paid time off. • I can work from home but am choosing not to.
See the Eligibility Checker checklist for who's eligible under the expanded rules.
Q: I provided an offer to return to work to an employee who is refusing to return. What should I do?
A: [The following is a condensed version of ESD's answer found here.] Individuals generally do not have the option to choose between receiving unemployment benefits or an offer to return to suitable work from their employer. They must have a "good cause reason" not to accept suitable work in order to continue receiving unemployment benefits or Pandemic Unemployment Assistance.
"Good cause reasons" an employee may refuse work and continue to collect unemployment include: • Being sick with COVID-19 or taking care of a household member who is sick with COVID-19. • Needing to stay home to take care of a young child because their school or daycare is closed.
Additionally, if you have substantially changed the job they are coming back to, by significantly cutting their pay or moving the job location a significant distance away, they may refuse that work and continue to collect benefits.
When an employee files a new or reopened unemployment benefit claim, you will be notified and can dispute the employee’s claim to have been laid off through no fault of their own.
Q: How can I help prevent unemployment benefits fraud?
A: Our state has seen a huge spike in fraudulent claims, and employers are being asked to help. Open any letters that arrive from Employment Security Department via postal mail, and verify that the information is accurate. Employees can use an online portal to report fraudulent claims made in their own name, or employers can do this on behalf of their affected employees on this page. Victims will not have to repay the money and will still be able to apply for unemployment benefits it they need to. .
Q: Can I get relief of benefit charges if I need to temporarily lay off employees due to a slowdown of business which is not directly linked to COVID-19?
A: This applies to unemployment benefits that were paid to your former employees. For most employers, the more benefits charged against an account, the higher the tax rate goes. ESD's website states: "Employers who put their employees on standby [during coronavirus] have an opportunity for some relief. The Washington State legislature approved $25 million for employers who apply for relief by 9/30/2020. This money will be used to buy down some benefit charges incurred while employees were on standby." Employers must send a written request for relief of benefit charges.
If you use the SharedWork program, the CARES Act covers 100% of the costs so it won’t impact your experience rating.
Q: Can I take advantage of the new refundable payroll tax credits to reimburse me for the cost of providing coronavirus-related leave to my employees, per the Families First Coronavirus Response Act (FFCRA), signed into law on March 18, 2020?
A: This act provides funding for businesses with fewer than 500 employees to provide their employees with paid leave starting April 1st, either for the employee's own health needs or to care for family members. This is also known as the Emergency Paid Sick Leave Act (EPSLA). We read the intent as mandating paid sick leave so that sick employees or those with sick family members do not continue to come to work and risk infecting others. It does not appear to apply to employees following a state-mandated stay-at-home order, although employees staying at home with children due to COVID-19-related school and childcare closures may be eligible. The U.S. Dept of Labor's extensive FAQ states that the FFCRA’s paid leave provisions are effective on April 1, 2020, and apply to leave taken between April 1, 2020, and December 31, 2020.
Reimbursement will be an immediate dollar-for-dollar tax offset against payroll taxes. These taxes include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees. If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS. Self-employed individuals have access to equivalent amounts of child care leave and sick leave credits; these credits will be claimed on their income tax return and will reduce estimated tax payments.
According to the Dept. of Labor's webpage on FFCRA, small businesses with fewer than 50 employees may qualify for exemption from the requirement to provide leave due to school closings or child care unavailability if the leave requirements would jeopardize the viability of the business as a going concern. Here is a good FAQ on the Act.
Q: What should I do about employee benefits, like health insurance, while my employees are on standby status?
A: Don't try to figure this out on your own. Employers with questions about eligibility and maintaining insurance coverage while employees are on standby should reach out to their broker for guidance. Our colleagues at Kristin Manwaring Insurance say they are looking at each employer’s insurance contract with their carrier and/or health insurance association/trust for guidance specific to that group.
Q: What if I don't have, or if I lose, health insurance coverage as a result of COVID-19?
A: In March, the Washington Health Benefit Exchange announced a limited-time special enrollment period for qualified individuals who were currently without insurance. This allowed uninsured individuals until May 8th to enroll in health insurance coverage through Washington Healthplanfinder for a coverage start date of June 1, 2020. This COVID-19 special enrollment opportunity has now closed.
If you have a change of income, free or low-cost Apple Health is available year-round, and Special Enrollment is available if you have certain life changes, like losing job-based coverage. LEARN MORE.
Q: I haven't received my refund yet, and it's been more than 3 weeks since my return was e-filed. What should I do?
A: First, use the "Where's My Refund" tracker (see blue button on the IRS's Refund page). The IRS issues most refunds in less than 21 days, although some require additional time. We have heard from several business owners recently that their 2019 refunds have not arrived after many more weeks of waiting, so you're not alone. On its Refund page, the IRS indicates you should only call to check on your refund if it has been:
• 21 days or more since you e-filed (which is the default here at The Business Guides),
• 6 weeks or more since you mailed your return, or when
• the "Where's My Refund" tracker (see blue button on the Refund page) tells you to contact the IRS.
Q: What tax relief can I get as a small business owner?
A: The IRS has moved both the due date for returns and the deadline for payment of 2019 federal income taxes forward three months, to July 15th. No penalties or interest will be applied until July 16, 2020.
~ If you make quarterly estimated payments, both your first quarter federal income tax payment for 2020 (previously due April 15th) and your second quarter payment (previously due June 15th) have been delayed until July 15th.
~ Employers can defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. NOTE: PPP loan forgiveness originally disqualified a business for this relief, but this was changed in the new PPP rules enacted 6/5/20. Learn more in this GBQ article.
~ For state excise taxes, Washington's Department of Revenue has enacted special considerations. Businesses may request a one-time extension for paying their excise tax prior to the due date. All businesses are asked to still file their returns by their original due date, even if they are unable to pay. If you miss the deadline for requesting an extension, request a penalty waiver when filing your return, along with an explanation of how COVID-19 Pandemic caused the delay.
A: This relief is a refundable tax credit specifically targeted to businesses whose operations have been partially or fully suspended due to government-required suspension of operations, as has occurred here in Washington State. If your business is shut down by a state order, or the state order prevents you from operating at normal capacity, you automatically qualify for the credit. NOTE: this credit is not available to you if you take out a PPP loan. Nor is a PPP loan available to you if you've previously taken the credit.
Also note that wages paid to employees who are “related” to the business (i.e., owner-employees) are not eligible for the credit program.
If you're still operating normally, to qualify you must have a quarter with less than 50% of revenue (not profit) from the same quarter in 2019. It is a fully refundable credit against an employer’s payroll taxes for wages paid from March 12, 2020, through December 31, 2020. (Self-employment taxes are NOT eligible for this credit (in neither their entirety nor for just the ‘employer’ portion of the tax).) The amount of the credit is equal to 50% of wages paid to employees, up to a maximum of $10,000 of wages per employee. Thus, the maximum credit that may be attributable to any single employee is capped at 50% x $10,000 = $5,000. Learn more in this excellent Team Kitces article and this GBQ article.
This credit will be available until the end of 2020, or when revenue is more than 80% of the same quarter in 2019. For many local businesses, Q1 of 2020 may not meet this requirement. Be tracking your numbers for Q2! We see this as a viable credit for businesses with a large number of employees, like restaurants.
Q: How do I claim the refundable portion of the Credit for Qualified Sick and Family Leave Wages, or the refundable portion of Employee Retention Credit?
A: You claim these on your Form 941 for the quarter in which you are eligible. You can file Form 7200 with the IRS to request an advance on the credit, if the anticipated credit is greater than the required federal tax deposit.
From the April 2020 revised instructions for Form 941: Employers are eligible to file Form 7200 for the quarter if they paid qualified sick leave wages, qualified family leave wages, and/or qualified wages for the employee retention credit and the amount of employment tax deposits they retained wasn’t sufficient to cover the cost of qualified sick and family leave wages and the employee retention credit.
[Regarding the timing:] Form 7200 may be filed for a quarter up to the earlier of the end of the month after the end of each quarter or filing of Form 941 for the quarter. However, if you file Form 7200 after the end of the quarter, it's possible that it may not be processed prior to the processing of the filed
Form 941. Advance payment requests on Form 7200 for a quarter won't be paid after your Form 941 is processed for that quarter. When the IRS processes Form 941, we will correct the amount reported on line 13f to match the amount of advance payments issued or contact you to reconcile the difference before we finish processing Form 941.
Q: I need to file Form 941 for Quarter 2 (April 1 – June 30, 2020) reporting my payroll taxes. What's new for this quarter?
A: Q2's Form 941 is due July 31, 2020. The IRS issued revised instructions in April 2020 just for Q2. These detail the significant changes that have been made to Form 941 to allow for the reporting of new employment tax credits and other tax relief related to COVID-19. Learn more about the Emergency Paid Sick Leave Act (EPSLA) as enacted under the Families First Coronavirus Response Act (FFCRA) in the above section. Learn more about the Employee Retention Credit in this section, above.
Q: What if I didn't receive my Economic Impact Payment of up to $1,200 for individuals and an additional $500 per child under age 17?
A: These non-taxable rebates, aka stimulus checks, began being paid out in mid-April, and we understand the vast majority have now been delivered. They are actually a new refundable tax credit for taxpayers’ 2020 taxes, based on your 2019 return if recently filed; otherwise, on your 2018 return. (The IRS has not provided guidance on when a 2019 return had to be filed to supersede a 2018 return.)
If you did not receive the full amount of $1,200 per adult, your adjusted gross income may fall in the phase-out windows of $75-99,000 for single filers, $112,500-136,500 for heads of household, and $150-198,000 for joint filers. Families with children under the age of 17 can receive an additional $500 per child, but dependents are not eligible for direct stimulus payments on their own, so the additional $500 per child will not be forthcoming if your tax return doesn't qualify you for the stimulus in the first place.
If you did not receive the full amount to which you believe you are entitled, you will be able to claim the additional amount when you file your 2020 tax return. Keep the Notice 1444, "Your Economic Impact Payment," which you will receive regarding your Economic Stimulus Payment with your records. This notice will be mailed to each recipient’s last known address within a few weeks after the Payment is made. When you file your 2020 tax return next year, you can refer to Notice 1444 and claim additional credits on your 2020 tax return if you are eligible for them.
Officials say that individuals receiving Social Security benefits will receive their payment in the same account they receive their Social Security benefits. Payments will also be sent to the account into which a taxpayer’s 2018/2019 refund was deposited. Other payments will be mailed as a check or debit card to the last known address on file.
Stimulus payments do not count towards your taxable income for tax year 2020. Neither are they seen as an advance on your 2020 tax refund. They are not a loan, so the federal government is not expecting that money to be repaid.
The IRS set up a website (Get My Payment) where you can check on the status of your payment. Unfortunately, we don't have a back door to the IRS portal and cannot enter or update direct deposit banking information on your behalf. There is a thorough FAQ at the IRS's Economic Impact Payment Information Center.
Q: What other tax-related changes should I be aware of?
A: The deadline for IRA contributions for 2019 was moved to July 15th to sync with the tax filing deadline. This included contributions to SEP IRAs.
~ Required Minimum Distributions (RMDs) from IRAs for those over age 70-1/2 are suspended for 2020. If you haven't yet taken your RMD, know that the CARES Act enabled any taxpayer with an RMD due in 2020 from a defined-contribution retirement plan, including a 401(k) or 403(b) plan, or an IRA, to skip those RMDs this year. An RMD amount already taken in 2020 may be rolled back into a retirement account by August 31, 2020 (note, this does not apply to RMDs from inherited Beneficiary IRAs). Learn more.
~ Taxable distributions from eligible retirement plans (including IRAs) taken after 1/1/20 may qualify for COVID relief in spreading the taxes owed equally over 3 years if desired (2020, 2021, 2022). You can also return the distribution to the plan within three years and undo the tax consequences. Learn more.
~ A new "Qualified Charitable Contribution" made to a 501(c)(3) charity and limited to $300 is available for those who do not itemize and who claim the standard deduction. So keep records of your nonprofit donations in 2020!
~ The IRS is suspending installment payments on past taxes that are due 4/1-7/15/20. (By law, interest will continue to accrue on any unpaid balances.)
~ We'll be keeping abreast on your behalf of other relief for Tax Year 2020.
Q: What are the rules on customers wearing masks in my business?
A: In accordance with the "masking directive" issued by our county's public health officer on May 28th, our office now has signage on both doors reminding drop-in visitors of the requirement to wear cloth face coverings inside our office.
The pertinent directive for businesses in Jefferson County is not to permit any non-employee to enter buildings owned or operated by the business without wearing a cloth covering their mouth and nostrils. Signage must be placed at all entry points. There are exceptions for eateries, and curbside pick-up is encouraged. Click to read the explanation and the directive.
Q: Personal protective equipment (PPE) seems to be in short supply. How can find masks, hand sanitizer, etc., so I can reopen my business?
A: Jefferson County Emergency Management (DEM) has published a list of local suppliers of masks, hand cleaner and other PPE and sanitizing supplies needed to safely operate businesses in Jefferson County. Visit the COVID-19 PPE and Supplies Locator to find what you need. Be aware that while these local businesses are doing their best to stock essential items for sale, supplies can be hard to source at present. The locator will be updated and will remain available until finding PPE is no longer challenging.
Q: Where can I get the official reopening guidance for businesses and workers?
A: The rules are different in every state, and may vary by locality. In Washington State, we are operating under the Governor's "Safe Start" reopening plan, with four phases announced on May 4th. Businesses are not authorized to open until that business is able to meet all safety criteria. If safety criteria for an industry has not yet been issued by the governor’s office, those businesses must wait until that guidance is issued. Check here for the latest guidance.
Q: How do I receive a $500 grant through GoFundMe’s Small Business Relief Fund?
A: GoFundMe has started a Small Business Relief Fund to help small business owners receive the financial support they need to keep their businesses thriving throughout the coronavirus pandemic. Qualifying businesses that have raised at least $500 on a GoFundMe coronavirus-era campaign can receive a matching $500 grant. To find out if you’re eligible and learn about the process, read the Small Business Initiative FAQs.
Q: How do I apply for a Working Washington Small Business Grant?
A: Rounds 1 and 2 of this grant program have closed. Round 3 is now open for applications for an additional $50 million in small business grants to be administered by the Washington State Department of Commerce. The maximum grant award will be $20,000, to cover expenses or costs incurred due to COVID-19 that were necessary to continue business operations. Find more information and the application portal HERE. Priority will be given to applications received by Dec. 11, 2020.
Q: I am a low-income business owner struggling with COVID impacts. Is there a grant program specifically for me?
A: Yes! A dedicated grant program for low-income business owners in Jefferson County, in collaboration with the Center for Inclusive Entrepreneurship, is now open for applications through EDC Team Jefferson. Through the Jefferson County CDBG Micro-Enterprise program, 31 businesses will be selected to receive one-on-one business counseling. Nineteen businesses will be selected to receive grant funding. The average grant award will be $4,000. The funds can only be used for operating expenses and payroll. To qualify you must meet the program requirements, submit required documentation, and complete an online form HERE before Oct 15, 2020.
Q: Where can I get help navigating the technology behind telecommuting, for myself and my employees?
A: This was the topic of our 5/15 Friday conference call, with special guest Ramon Dailey of Dailey Computer Consulting. He shared tips on how to keep your business's information secure when it leaves your office, such as owning the equipment your employees take home to work on, requiring Multi-Factor Authentication on applications at every log-in, and switching to a paid email service and activating all the security settings (free accounts have security issues). Have a strong technology use policy reviewed by your lawyer and signed by all staff. Consider purchasing or cost-sharing mobile phones and Internet service with your employees, if they are required to have them to work from home. Find more work-from-home tips on Dailey Computer's homepage.
Q: How can I help our local business community?
A: Let The Business Guides know if you are not in a hurry to file your tax return, so we may prioritize filing those returns needed for loan applications and Pandemic Unemployment Assistance to boost the cash flow of your fellow business owners.
~ Buy gift cards from your fellow merchants.
~ Order takeout and enjoy it in the comfort of your home.|
~ Sign the JeffcoCARES (#JeffcoCares) Business Community Pledge, either as a business owner or a customer/shopper/resident, to keep the focus on community wellness.
~ Donate to Jefferson Community Foundation's Covid-19 Emergency Response General Fund HERE.
What other questions do you have? Email us.
Small Business Relief & Resources
By accessing links on this page, you will be leaving The Business Guides’ website and entering a website hosted by another party. The Business Guides believes these third-party sites to be reliable, but we cannot guarantee their accuracy. We also encourage you to read and evaluate the privacy and security policies of the site you are entering.
LION COVID-19 Recovery Loan Program - The Local Investing Opportunities Network has established a new loan program for Jefferson County businesses and non-profits dealing with the recovery from coronavirus restrictions. The loan application and instructions are downloadable from the the LION website. A fast track process has been established to handle the applications. LEARN MORE.
Economic Development Council (EDC) Team Jefferson - COVID resources for affected small businesses, with a local focus. Grant application portal for Working Washington Small Business Grants for Jefferson County businesses. LEARN MORE.
U.S. Small Business Administration (SBA) - Information on the Economic Injury Disaster Loan program to help small businesses overcome the temporary loss of revenue from coronavirus. LEARN MORE.
Washington Paid Family & Medical Leave - Clear FAQ on coronavirus quarantine versus illness, including distinctions between using paid sick leave or Paid Family and Medical Leave benefits. LEARN MORE.
Washington State's Employment Security Department - The place to apply for expanded unemployment benefits. Describes the emergency rules enacted to relieve the burden of temporary layoffs, isolation and quarantine for workers and businesses. Learn about placing your employees on "standby" or "partial employment" status, or in the SharedWork program. LEARN MORE.
Washington State's Small Business Liaison Team (SBLT) - Has a comprehensive and annotated listing of statewide and some national resources for small businesses facing coronavirus impacts. LEARN MORE.
Washington State’s Official COVID-19 Site - Links to official information from a wide range of trusted sources, including government and community services. This Business & Workers page archives webinars on economic resiliency and recovery. LEARN MORE.
Washington State Department of Commerce - Crisis planning tools and resources, including a helpful Back-to-Work Planner for the steps to take when your business is allowed to re-open. LEARN MORE.
New Facebook group, Jefferson County Business Community Support. VISIT GROUP.