In 2020 new programs were created to help small businesses including forgiven loans, grants, and unemployment benefits.

PPP Forgiven Loan

The CARES Act states the forgiven loan amount will not be included in your taxable income and you will not pay taxes on the money received. The second stimulus bill on December 27, 2020 clarified how the expenses covered by a PPP loan will be treated. Previously, IRS guidance stated anything you spent your PPP loan proceeds on were not going to be tax deductible. Congress clarified that – now your expenses are tax deductible. Schedule C filers will not be impacted by their PPP forgiven loans.

EIDL Grant

The second stimulus bill clarified that the EIDL grant will also be tax-free and will not need to be included in your taxable income. An EIDL loan will be treated the same way as any other loan.

Pandemic Unemployment Assistance (PUA) and Unemployment

PUA and Unemployment benefits are considered taxable income. You will pay state and federal taxes on money you received, but will not have to pay medicare or social security taxes on the income.

Deferring Payroll Tax Obligation: Is it right for your business? 

The Executive Order, Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster, issued by President Trump on August 8, 2020, permits deferral of employee OASDI taxes for payroll dates on and after September 1, 2020 through December 31, 2020.  The IRS issued guidance on August 28, but there are still many unanswered questions.  Employers have a choice to continue to withhold and deposit employee OASDI (Old Age, Survivors and Disability Insurance) taxes as usual.  If they decide to implement the executive order, employers will be required to remit taxes next spring for all employees, including ones who may have left the company for any reason.  This liability becomes the employer’s debt.

If the employer elects to implement the order, the following is applicable:
Employers can defer the withholding, deposit and payment of the employee portion of the OASDI segment of FICA taxes. Payment of the employee OASDI tax is only deferred, not forgiven. Employees are still obligated to pay the taxes.  If an employer does elect to defer payment of an employee’s OASDI taxes, the employer is required to withhold and pay those deferred taxes later.  From January 1, 2021 to April 30, 2021, the employer must “ratably” deduct any deferred employee OASDI taxes from the wages paid to the employee, and pay them over to the IRS. If those deductions and payments are not made, penalties and interest will begin to accrue on the unpaid taxes on May 1, 2021.

  • Deferral of employee OASDI taxes is limited to employees with bi-weekly pay of less than $4,000 (Applicable Wages) on a pre-tax basis. An employee with variable pay (commissions, overtime, or a bonus) could be eligible for deferral in one payroll period in which they have less than $4,000 of pay, but not eligible in the next payroll period if their pay exceeds $4,000.

Employers that implement the deferral will need to address situations in which employees with deferred taxes terminate employment before the deferred taxes are collected (later in 2020 and before April 30, 2021). Employers will want to structure “arrangements to otherwise collect” the deferred taxes in this circumstance by collecting the taxes from a final paycheck or by separate check from the employee. Notice 2020-65 does not provide any relief to an employer if there are circumstances that prevent the employer from collecting if the employee terminates employment, has a leave of absence, or otherwise does not have sufficient wages in 2021 to accomplish the required deductions for the previously deferred employee OASDI taxes. Employers in this situation are obligated to pay the tax.

  • Code Section 6672, commonly called a “responsible person” penalty, can apply if an employer deducts amounts from an employee’s wages for employee social security taxes and/or income tax withholding, and the employer then fails to pay those amounts over to the IRS. In that case, the individual who is responsible (e.g., a CFO or CEO) can be held personally liable for the withheld taxes that were not paid over to the IRS. Notice 2020-65 does not provide any relief in relation to the potential application of the responsible person penalty under Code Section 6672.

While Notice 2020-65 clearly states that employers are not required to defer withholding of the employer portion of Social Security taxes on Applicable Wages of all employees, it does not address whether employers must honor requests by employees to have their Social Security taxes deferred in accordance with the Notice. Bloomberg Tax reported on September 3, 2020, that an IRS representative confirmed during its monthly payroll industry teleconference that employers do not need to implement the deferral at the request of employees.  As a result of that teleconference, many of the larger payroll companies have elected not to provide support for implementation because they are struggling with the technology constraints and lack of clarity.

Employers should work with their CPA and legal counsel to determine how and when it should implement the guidance in the Notice. Please contact us at The Hopkins Group for assistance.

COVID-19 Resources for Small Businesses

Economic Injury Disaster Loan via the Small Business Association

The Economic Injury Disaster Loan (EIDL)allows for up to $10,000 of economic relief to small businesses with less than 500 employees (including sole proprietorships, independent contractors and self-employed persons), private non-profit organization or 501(c)(19) veterans organizations affected by COVID-19. Funds will be made available within days of a successful application.

The SBA is unable to accept new applications at this time, but you can check the below link daily to stay updated on when additional funds will become available.

Apply Here

PPP (Paycheck Protection Plan)

The PPP provides a direct incentive for small businesses to keep their workers on the payroll since the SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.

The Small Business Administration (SBA) is now accepting applications for Paycheck Protection Program loans.

QuickBooks is now available to a subset of customers, including multi-owner businesses*, using Intuit Online Payroll, QuickBooks Desktop Payroll on QuickBooks 2018, 2019, and 2020, QuickBooks Online Payroll, QuickBooks Self-Employed – users who filed 2019 taxes with TurboTax Self-Employed. Customers who receive notifications in their product should start their application now within QuickBooks Capital so they can submit applications to the Small Business Administration (SBA).

Apply via Quickbooks

Other SBA COVID-19 Relief Options

SBA Debt Relief 

SBA Express Bridge Loan

Local Relief Funds

Loudoun County – Business Interruption Fund
Loudoun County – Facebook Grant
Fairfax County
City of Suffolk
Montgomery Country
Washington D.C.

Document Scanning

Ready to start scanning your documents? There is an app for that too! Clients have personally recommended the CamScanner Basic free app that turns your mobile device into a document scanner and allows you to take a photograph of a document, convert it into a PDF and upload it to a cloud storage service such as Dropbox or email it to yourself and others.  Please note that The Hopkins Group will be implementing SmartVault as its secure, document-sharing platform for this tax season.  More details to follow.

ARTICLE: 6 of the Best Document Scanner Apps 

Mileage Tracking

Recent court cases have focused on the taxpayer’s maintenance of contemporaneous records for the deductibility of business mileage and expenses.  This has led the IRS to tighten up on the requirements for record-keeping.  In order to preserve your deduction of business mileage and other costs, please consider using an app as this is an easy way to satisfy these requirements. Our clients are giving us rave reviews about MileIQ. Let us know what you use!

READ:  6 Best Mileage Tracker Apps for Small Business

The Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (TCJA) will ultimately impact taxpayers in the upcoming filing season. In 2018, the tax tables were adjusted to reflect the lower rates. However, not everyone will enjoy lower taxes and this adjustment may negatively impact taxpayers when they file their returns, leaving many with a tax bill to pay in April. If you would like us to review your tax withholdings prior to year-end, please contact Liz as soon as possible.