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Join Us for a Webinar: Employment Law and Tax Developments Businesses Might Have Missed While Focused on COVID-19

Over the last several months there have been developments in employment law and tax not directly related to COVID-19 that you may have missed. While businesses have been focused on responding to COVID-19—learning about the Families First Coronavirus Relief Act, the PPP, and developments with unemployment—the Supreme Court and government agencies have been making decisions that impact the workplace.

We invite you to join us for a complimentary, one-hour Zoom webinar to discuss some of these decisions and how they may impact the workplace.

TOPICS INCLUDE:

  • Expansion of Title VII protection of sex to include sexual orientation and gender identity
  • Expansion of rights of religious employers
  • Changes to certain provisions of the Fair Labor Standards Act
  • Updates from the National Labor Relations Board on workplace investigations and work email
  • Amendment to the Florida Civil Rights Act
  • Tax planning for 2020
  • Tax provisions supporting businesses

Wednesday, August 12
10:00 – 11:00 a.m. 

REGISTER NOW >

PRESENTED BY:

Jennifer Fowler-Hermes
Board Certified Labor & Employment Attorney | Williams Parker

Gail E. Farb
Labor & Employment Attorney | Williams Parker

Beth C. Ebersole
CPA, ABV | Kerkering, Barberio & Co.

Moderator:
Thomas B. Luzier
Board Certified Real Estate Attorney | Williams Parker

IRS Releases Guidance for Retirement Plan Related Relief under the CARES Act

As discussed in our prior blog post, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides special relief provisions for individuals in relation to their retirement plans. The provisions of the CARES Act, however, created uncertainties for both plan administrators and individuals when dealing with the administration of their respective retirement plans. On June 22 and June 23, the IRS issued Notice 2020-50 and Notice 2020-51, respectively, which provide guidance related to treatment of coronavirus-related distributions and the 2020 waiver of required minimum distributions (“RMDs”). On July 17, the IRS issued News Release 2020-162 to remind individuals about the CARES Act relief related to RMDs.

Notice 2020-50: IRS Guidance on Coronavirus-Related Distributions

Notice 2020-50 expands the definition of a qualified individual (i.e. the individuals who are able to take advantage of the retirement plan related relief provided under the CARES Act) and provides helpful guidance for reporting coronavirus-related distributions from retirement plans. As a reminder, a coronavirus-related distribution is a distribution from an eligible retirement plan to a Qualified Individual (defined below) between January 1, 2020 and December 30, 2020.

Definition of a Qualified Individual

As provided in an IRS News Release, the definition of qualified individual, as expanded under Notice 2020-50, is anyone who

  • is diagnosed, or whose spouse or dependent is diagnosed, with the virus SARS-CoV-2 or the coronavirus disease 2019 (collectively, “COVID-19”) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act); or
  • experiences adverse financial consequences as a result of the individual, the individual’s spouse, or a member of the individual’s household (that is, someone who shares the individual’s principal residence):
    • being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19;
    • being unable to work due to lack of childcare due to COVID-19;
    • closing or reducing hours of a business that they own or operate due to COVID-19;
    • having pay or self-employment income reduced due to COVID-19; or
    • having a job offer rescinded or start date for a job delayed due to COVID-19.

This expanded definition will allow more individuals to reap the benefits associated with receiving coronavirus-related distributions.

Reporting a Coronavirus-Related Distributions

For the Qualified Individual to receive favorable tax treatment, the Qualified Individual must report the distribution on his or her for Form 1040 (Individual Income Tax Return) (if applicable) and on Form 8915-E (Qualified 2020 Disaster Retirement Plan Distributions and Repayments) for 2020. Form 8915-E is expected to be available before the end of 2020. The favorable tax treatment includes the waiver of the 10-percent additional tax, the allowance of the pro-rata inclusion in income, and recontribution benefits. For more information on these benefits, please see our prior blog post.

If the Qualified Individual recontributes his or her coronavirus-related distributions to an eligible retirement plan, the method to report such recontribution depends on whether the Qualified Individual elected to include the coronavirus-related distribution ratably over a 3-year period. If the Qualified Individual reports the entire coronavirus-related distribution in the year of distribution and recontributes such distribution in a later year, the Qualified Individual is required to file a revised Form 8915-E (and amended Form 1040, if applicable).

If the Qualified Individual instead elects the ratable inclusion, then the amount of the recontribution will decrease the amount of the coronavirus-related distribution included in income for that year. The recontribution will be reported on Form 8915-E. Further, if a Qualified Individual recontributes an amount that is greater than the amount included in gross income for the taxable year, the excess recontribution amount may be carried forward, or carried back, to reduce the amount of the coronavirus-related distribution included in income in the future year, or prior year, respectively.  If the excess recontribution amount is carried back, a revised Form 8915-E (and amended Form 1040, if applicable) must be filed.

Notice 2020-50 also provides detailed guidance for plan administrators for retirement plan loans.

Notice 2020-51: IRS Guidance on Waiver of Required Minimum Distributions

As discussed in our prior blog post, the CARES Act provides a waiver of RMDs from certain retirement accounts. This new waiver rule may certainly be beneficial for individuals who wish for their retirement plan funds to grow tax-deferred in 2020; however, it also created uncertainty, especially in relation to options for rollovers.

Fortunately, Notice 2020-51 provides that distributions from a retirement plan that would have been an RMD but for the CARES Act are eligible for rollover into an eligible retirement plan, as long as other general rollover requirements are met. Further, an IRA owner or beneficiary who already received an amount that would have been an RMD but for the CARES Act may repay such distribution to the distributing IRA. Such repayment will be treated as a rollover for income tax purposes, which means the owner or beneficiary will not have to pay income tax on the distribution.

Generally, an individual must rollover a payment within 60 days to avoid tax and penalties and is only allowed one rollover within a 12-moth period. In Notice 2020-23, the IRS previously extended the rollover deadline to July 15 for RMDs distributed after January 2020. To provide further relief for individuals who already received distributions in 2020, Notice 2020-51 provides a special rule that the deadline to rollover a payment described above is extended to August 31, 2020. Thus, pursuant to Notice 2020-51, individuals who received distributions in January are now also eligible for rollover relief.

Further, these rollovers will not count towards the one rollover per 12-months limitation and are not restricted by the general rule against rollovers for non-spousal beneficiaries.

Notice 2020-51 also provides information related to the SECURE Act, guidance about plan amendments, and advice regarding other various issues addressed by FAQs.

Attorney Colton F. Castro contributed to this blog post.

With $130 Billion Left, PPP Application Deadline Extended

On July 1, 2020, the House waived through Senate-passed legislation (S. 4116) that extends the deadline to apply for a loan under the Paycheck Protection Program (PPP), the centerpiece of relief under the CARES Act. The PPP provides forgivable loans to certain small businesses to cover payroll and other permissible expenses.

The original deadline to apply for PPP loans was last Tuesday, June 30, 2020. With the President’s signature over the weekend on July 4, 2020, the deadline for businesses to take advantage of the nearly $130 billion in remaining PPP funds is now August 8, 2020. Business owners interested in applying for a PPP loan should contact their local lender about the program. We are happy to discuss the PPP and other available economic relief for your business.

On-Demand Webinar: Novel Issues Relating to Employees Working Remotely

As more employees work from home, employers are facing questions about how to comply with employment laws in a manner that minimizes risks associated with remote work. Our Business Solutions team recently presented a webinar addressing many of the employment-related issues arising from remote work. The head of our Labor & Employment practice, Jennifer Fowler-Hermes and L&E attorney John Getty were joined by Brad Hall, a workers’ compensation defense attorney, to discuss a variety of topics, including how to properly track work hours, complying with employment laws, the importance of telework agreements, and whether and to what extent workers’ compensation laws apply. Watch it on-demand below.

 

PPP Flexibility Act Expected to Be Signed into Law

On Wednesday, June 3, 2020, the U.S. Senate passed the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010), which was approved by the House late last week. President Trump is expected to sign the Act into law. As a part of the larger Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the Paycheck Protection Program (“PPP”) provides loans to small-to-mid-sized businesses suffering from the COVID-19 pandemic. As enacted, the PPP loans are to be forgivable when used for specific business and payroll expenses during a specified timeframe. Any forgiven loan amounts are excluded from businesses’ taxable income. However, due to insufficient funding and lengthier pandemic-related shutdowns, the PPP relief became inaccessible for many businesses.

The changes made to the PPP by the new legislation include:

  • Allowing businesses 24 weeks (or until December 31, 2020, if it comes first) post-loan origination to use loan money that will qualify for forgiveness. This applies to both new and existing loans.
  • Reducing the amount of loan money required to be spent on payroll expenses from 75 percent to 60 percent, allowing more funds to be spent on rent, utility payments, and mortgage interest.
  • Extending the time period for the rehiring exception to forgiveness reduction from June 30, 2020 to December 31, 2020 and adding new exceptions for employers who could not find qualified employees or were unable to restore business operations to February 15, 2020 levels due to COVID-19-related operating restrictions.
  • Extending the loan terms from two to five years, unless otherwise modified by lenders and borrowers.
  • Permitting payroll tax deferment for businesses that receive PPP loans regardless of loan forgiveness. Under the CARES Act and subsequent interpretive guidance, payroll tax deferral could only be utilized up until a business received notification of loan forgiveness.
  • Replacing the six-month deferral of PPP payments due with deferral until the date on which the amount of loan forgiveness is provided to the lender.

The legislation does not clarify the parameters of the required PPP certification that “[c]urrent economic uncertainty makes [a] loan request necessary to support the ongoing operations of the Applicant.” It also does not address the deductibility of expenses paid for by PPP loan funds, as previously discussed in a prior post. Further PPP corrections and guidance are expected.

Join Us for a Webinar on Business Basics

Every day is a new reality, especially in times of crisis, when the only constant seems to be change itself.

Whether dealing with challenges faced from COVID-19 or using the current time to plan new ventures, it is important to plan and implement strategies in line with today’s fluid business environment. Whether starting a new business or confirming that your existing business is on track, knowing the basics can help maximize your success.

Join Williams Parker attorneys Jennifer Fowler-Hermes and Elizabeth Stamoulis, accompanied by Kathy Hargreaves, CPA, CFP®, CPC®, of Kerkering and Barberio, for a virtual and interactive presentation covering:

• Basic business and employment documents
• Protecting intellectual property
• Properly classifying workers to avoid missteps
• Tax implications and proper tax registration

BUSINESS BASIC: GETTING IT RIGHT FROM THE START (OR IN THE MIDDLE)

Friday, June 12
10:00 – 11:00 a.m.

Sign Up >

Our Business Solutions team helps business owners and entities assess and manage risk, advise on tax and compliance issues, provide workout and turnaround guidance, and offer creditor, restructuring, and bankruptcy representation. We work with HR executives to assess potential employment liability; review, update, and advise on employment policies; defend employment law claims; and assist with regulatory guidelines. For those seeing opportunity amidst uncertainty, the firm offers start-up guidance on tax, employment, and intellectual property issues. Its attorneys assist commercial and residential landlords and tenants with abatements, deferments, amendments, forbearance, and help identify remedies, including business interruption insurance and updated lease provisions. Should litigation arise, the team is prepared to advocate on your behalf.

PPP Bonuses, Hazard Pay Count Towards Forgivable Payroll Costs, and Other New Guidance

On May 22, 2020, a week after issuing the application form for the CARES Act’s Paycheck Protection Program (“PPP”) loan forgiveness, the Small Business Administration (“SBA”) released the twenty-six-page interim final rules that provide formal guidance to accompany the application package.

Most of the interim final rules reiterate the substance of the PPP loan forgiveness application, but they also include new pieces of significant guidance such as the inclusion of employee bonuses and hazard pay as forgivable payroll costs when paid to employees earning less than $100,000 a year. Such payments are eligible for forgiveness because, as a supplement to salary or wages, they are considered compensation.

Some of the other significant new guidance includes:

  • a further cap on the forgivable payroll expenses of owner-employees, as not to be confused with self-employed individuals, in an amount that is the lesser of 8/52 of 2019 compensation or $15,385 per employee;
  • application of the above cap across all business, suggesting that someone with an ownership interest in multiple business will be subject to the overall limitation; and
  • safe harbors to protect borrowers from a reduction in full-time employees due to the employees’ actions.

Unsurprisingly, questions remain following the release of the rules, such as the definition of an “owner-employee.” No additional IRS frequently asked questions  have been released to supplement the interim final rules.

IRS Issues Expanded FAQ Guidance on Employee Retention Credit

The Internal Revenue Service (“IRS”) has expanded its FAQ guidance on the Employee Retention Credit (“ERC”), which has been discussed in greater detail in a prior post. Enacted as part of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the ERC provides a refundable tax credit to eligible employers for certain employment taxes equal to 50 percent of up to $10,000 in qualified wages paid per employee, effective March 12, 2020 through December 31, 2020. However, employers that received loans under the Paycheck Protection Program (“PPP”) are not eligible for the ERC.

The ERC FAQ was originally posted in late March, and the IRS has since continued to update it. The FAQ now has nearly 100 questions posed and answered on major-issue areas such as:

A more recent update relates to the eligibility of an employer who repays its PPP loan in accordance with the Small Business Administration (“SBA”) requirement that a business recertify in good-faith that the PPP loan was “necessary to support ongoing business operations” (previously discussed here, here, and here). Released May 8, 2020, the IRS FAQ 79 states that an employer that applied for the PPP loan, received payment, and “repays the loan by May 14, 2020 . . . will be treated as though the employer had not received a covered loan under the PPP for purposes of the Employee Retention Credit.” Therefore, the employer will be eligible for the credit if the employer is otherwise an eligible employer.

The original deadline for PPP loan repayment was May 7, 2020, but was extended to May 14, 2020 with FAQ 43 of the SBA’s PPP FAQs. The SBA then further extended the repayment deadline to Monday, May 18, 2020 in SBA FAQ 47, following its release of guidance which relieved borrowers with loans of less than $2 million from the “necessity” recertification. While the IRS ERC FAQ has not been updated to reflect the new May 18 deadline, we can only assume that those employers who do make repayment by this time would qualify for the ERC all the same. We note, however, that implicit in IRS FAQ 79 is that employers who do not voluntarily make timely repayment may not claim the ERC. In other words, any employer who is ultimately forced by the SBA to repay the loan would not be allowed to take the ERC.

While the PPP loan was at the top of most employers’ COVID-relief wish lists, and for obvious reasons, the ERC may be the next best option for those who erred on the side of repayment. We are happy to answer any questions employers that opted for repayment may have.

PPP Loans Less Than $2 Million Deemed Certified in Good Faith; Larger Loans Get Penalty Relief But Remain In Cloud of Repayment Uncertainty

On Wednesday, May 13, 2020, just a day before the deadline to recertify or repay Paycheck Protection Program (“PPP”) loans (previously discussed here), the Small Business Association (“SBA”) made good on its promise to provide further guidance as to what circumstances necessitate repayment with its release of FAQ 46. The new FAQ asks the following question:

“How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?”

The first part of the SBA’s answer reveals a safe harbor for borrowers of PPP loans with an original principal amount of less than $2 million. Borrowers who received loans below this threshold will be deemed to have certified in good faith that the loan was necessary, because they “are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.” The SBA also admitted that it has bigger fish to fry, as removing these borrowers from the PPP loan pool will allow it to “conserve its finite audit resources and focus its reviews on larger loans.”

As for the $2 million-and-above borrowers, the FAQ goes on to say that they may still have an adequate basis for making the required good-faith certification depending on their circumstances. If, however, the SBA determines by its review that a borrower lacked an adequate basis for its PPP loan, the SBA will seek repayment of such loan and notify the lender that the borrower is ineligible for loan forgiveness. Further, the SBA will not take administrative enforcement action to collect repayment or make referrals to other agencies if the borrower voluntarily repays the loan after receiving notification from the SBA. The SBA did not offer a specific timeframe within which repayment would prevent administrative enforcement.

Borrowers who did receive loans of $2 million or more should consider setting aside enough funds to make a repayment should the SBA require it, though one wonders whether the SBA could use retention of such reserves as a basis to question the necessity—and hence the qualification—of the loan. That seems like an unfair catch-22, motivating “larger” small businesses to stop paying employees after the PPP measuring period ends. We hope the SBA will provide more clarification to help these businesses avoid that dilemma and to encourage businesses to continue deploying funds to keep their workforces in place after the PPP measurement period ends.

The SBA also released FAQ 47 later in the day on May 13, which automatically extends the repayment date to Monday, May 18, 2020. The stated reason for this extension is “to give borrowers an opportunity to review and consider FAQ 46.” The practical significance of FAQ 47 as it relates to the necessary-ness certification is unclear, given the penalty relief provided by FAQ 46.

Why Individuals Should Care About the CARES Act: Retirement Plans and Charitable Contributions

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides various relief provisions for individuals, including provisions that benefit individuals in relation to their retirement plans and that provide an increase in allowable charitable deductions. Continue reading